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): May 23, 2022
CAPITAL SOUTHWEST CORPORATION
(Exact Name Of Registrant As Specified In Charter)
| Texas | 814-00061 | 75-1072796 | ||||||
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||
8333 Douglas Avenue, Suite 1100
Dallas, Texas 75225
(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):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||||||||
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||||||||
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||||||||
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Stock, $0.25 par value per share | CSWC | The Nasdaq Global Select Market | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| Emerging growth company | ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On May 23, 2022, 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 May 24, 2022. A copy of the investor presentation 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
| Exhibit No. | Description | |||||||
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: May 23, 2022
| By: | /s/ Bowen S. Diehl | |||||||
| Name: Bowen S. Diehl | ||||||||
| Title: Chief Executive Officer and President | ||||||||
Exhibit 99.1
 | 8333 Douglas Avenue, Suite 1100 Dallas, Texas 75225 T 214.238.5700 F 214.238.5701 | |||||||
Capital Southwest Announces Financial Results for Fourth Quarter and Fiscal Year Ended March 31, 2022
CSWC Reports Pre-Tax Net Investment Income of $0.50 Per Share for the Quarter Ended March 31, 2022
Dallas, Texas – May 23, 2022 – Capital Southwest Corporation (“Capital Southwest,” “CSWC” or the “Company”) (Nasdaq: CSWC), an internally managed business development company focused on providing flexible financing solutions to support the acquisition and growth of middle market businesses, today announced its financial results for the fourth fiscal quarter and fiscal year ended March 31, 2022.
Fourth Quarter Fiscal Year 2022 Financial Highlights
•Total Investment Portfolio: $936.6 million
◦Credit Portfolio of $793.8 million:
▪93% 1st Lien Senior Secured Debt
▪$99.6 million in new committed credit investments
▪Weighted Average Yield on Debt Investments: 9.3%
▪Three debt investments currently on non-accrual with a fair value of $14.0 million, representing 1.5% of the total investment portfolio
•No additional debt investments placed on non-accrual during the quarter
◦Equity Portfolio of $85.2 million, excluding investment in I-45 Senior Loan Fund ("I-45 SLF")
▪$3.2 million in new equity co-investments
◦CSWC Investment in I-45 SLF of $57.6 million at fair value
▪I-45 SLF portfolio of $176.7 million
•Portfolio consists of 42 issuers: 97% 1st Lien Debt
▪$114.5 million of debt outstanding at I-45 SLF as of March 31, 2022
•I-45 SLF fund leverage of 1.59x debt to equity at fair value at quarter end
▪I-45 SLF paid a $1.9 million quarterly dividend to CSWC, an annualized yield of 12.9%
•Pre-Tax Net Investment Income: $12.0 million, or $0.50 per weighted average diluted share
•Dividends: Paid $0.48 per share Regular Dividend
◦105% LTM Pre-Tax NII Regular Dividend Coverage
•Net Realized and Unrealized Appreciation on Investments: $7.7 million
◦$6.3 million of net appreciation related to the equity portfolio
◦$1.4 million of net appreciation related to debt portfolio
•Balance Sheet:
◦Cash and Cash Equivalents: $11.4 million
◦Total Net Assets: $420.9 million
◦Net Asset Value (“NAV”) per Share: $16.86
▪Increase of 4.1% from $16.19 per share in prior quarter
Fiscal Year 2022 Financial Highlights
•Total Investment Portfolio: Increased by $248.2 million (Fair Value), from $688.4 million to $936.6 million, representing 36.1% growth, during the year
◦Credit Portfolio increased by $221.2 million
•Operating Leverage: Decreased to 2.20% as of March 31, 2022 from 2.42% as of March 31, 2021
•Pre-Tax Net Investment Income: $43.3 million for the fiscal year, or $1.90 per weighted average diluted share versus $1.79 per weighted average diluted share in the prior fiscal year, representing 6% growth
•Dividends: Declared and Paid Total Dividends of $2.52 per share
◦$1.82 per share in regular dividends
◦$0.70 per share in supplemental dividends
◦Undistributed Taxable Income ("UTI") balance at the end of the fiscal year ended March 31, 2022 was $0.47 per share
In commenting on the Company's results, Bowen Diehl, President and Chief Executive Officer, stated, “Fiscal year 2022 was another impressive year of asset growth and portfolio performance, as highlighted by our 36% net growth in investments at fair value and 10% growth in regular dividends paid. Our credit portfolio consists of 93% 1st lien senior secured debt, while our equity co-investment portfolio, representing 9% of our total assets, continues to produce attractive gains for our shareholders from many of the growing lower middle market companies. In fact, our equity co-investment portfolio generated almost $24 million in realized and unrealized gains during the year. Our internally managed structure continued to generate operating efficiencies as our operating leverage improved to 2.2%, which was down from 2.4% in the prior fiscal year. We further strengthened our balance sheet by raising almost $250 million in unsecured debt and equity capital during the fiscal year. Finally, during the year we began operating our wholly-owned small business investment company ("SBIC") subsidiary and have received $80 million in total leverage commitments from the Small Business Administration ("SBA"). We believe the construction of our investment portfolio and our balance sheet capitalization has us well positioned for any economic environment moving forward.”
Fourth Quarter Fiscal Year 2022 Investment Activities
During the quarter ended March 31, 2022, the Company originated $102.8 million in new commitments, consisting of investments in three new portfolio companies totaling $50.0 million, two refinancing transactions totaling $40.9 million, and add-on commitments in eight existing portfolio companies totaling $11.9 million. New portfolio company investment transactions that closed during the quarter ended March 31, 2022 are summarized as follows:
ATS Operating, LLC, $18.5 million 1st Lien Senior Secured Debt, $2.5 million Revolving Loan, $1.0 million Equity: America's Thrift Store is a thrift retailer with locations throughout the Southeast.
Zips Car Wash, LLC, $20.0 million Delayed Draw Term Loan: Zips Car Wash operates a number of car washes in the South, Southeast, Mid-Atlantic and Mountain West.
Cadmium, LLC, $7.4 million 1st Lien Senior Secured Debt, $0.6 million Revolving Loan: Cadmium, LLC is a fully-integrated, end-to-end event and continuous learning management platform for knowledge-driver end markets.
During the quarter ended March 31, 2022, the Company received full prepayments on four debt investments totaling $49.2 million.
American Nuts Operations LLC: Proceeds of $18.7 million, generating an IRR of 12.6%. The prepayment was associated with a refinancing transaction in which CSWC participated.
Alliance Sports Group, L.P.: Proceeds of $11.5 million, generating an IRR of 13.1%.
Allover Media, LLC: Proceeds of $11.3 million, generating an IRR of 14.7%.
GS Operating, LLC (dba Gexpro): Proceeds of $7.7 million, generating an IRR of 10.4%. The prepayment was associated with a refinancing transaction in which CSWC participated.
Fourth Quarter Fiscal Year 2022 Operating Results
For the quarter ended March 31, 2022, Capital Southwest reported total investment income of $21.0 million, compared to $22.3 million in the prior quarter. The decrease in total investment income was primarily attributable to an increase in prepayment fees received in the prior quarter, partially offset by an increase in average debt investments outstanding.
For the quarter ended March 31, 2022, total operating expenses (excluding interest expense) were $4.1 million as compared to $5.8 million in the prior quarter. The decrease was primarily related to an increase in accrued bonus compensation in the prior quarter.
For the quarter ended March 31, 2022, interest expense was $4.9 million as compared to the $4.7 million in the prior quarter. The increase during the quarter was due to an increase in average debt outstanding as compared to the prior quarter.
For the quarter ended March 31, 2022, total pre-tax net investment income was $12.0 million, compared to $11.8 million in the prior quarter.
During the quarter ended March 31, 2022, Capital Southwest recorded total net realized and unrealized gains on investments of $7.7 million, compared to $0.7 million in the prior quarter. For the quarter ended March 31, 2022, this included total net realized and unrealized gains on equity investments of $6.3 million and net realized and unrealized gains on debt investments of $1.4 million. The net increase in net assets resulting from operations was $19.7 million for the quarter, compared to $12.6 million in the prior quarter.
The Company’s NAV per share at March 31, 2022 was $16.86, as compared to $16.19 at December 31, 2021. The increase in NAV per share from the prior quarter is primarily due to net unrealized appreciation on the investment portfolio and issuance of common stock at a premium to NAV per share under the Equity ATM Program (as described below).
Fiscal Year 2022 Operating Results
For the year ended March 31, 2022, Capital Southwest reported total investment income of $82.2 million, compared to $68.1 million in the prior year. The increase in investment income was primarily attributable to an increase in average debt investments outstanding and an increase in prepayment fees received during the current year.
For the year ended March 31, 2022, total operating expenses (excluding interest expense) were $19.0 million, compared to $16.0 million in the prior year. The increase in operating expenses was primarily attributable to an increase in bonus accrual based on the Company's performance, as well as an increase in independent director compensation and the addition of a new independent board member. The increase was also attributable to increased costs related to insurance, valuations and employee recruiting during the current year.
For the year ended March 31, 2022, there was interest expense of $19.9 million, compared to $17.9 million in the prior year. The increase in interest expense during the year was due to an increase in average debt outstanding as compared to the prior year, partially offset by a decrease in the weighted average interest rate on our total debt.
For the year ended March 31, 2022, total pre-tax net investment income was $43.3 million, compared to $34.1 million in the prior year.
For the year ended March 31, 2022, there was tax expense of $0.6 million recorded, compared to $2.4 million in the prior year. The decrease in tax expense was due primarily to the write-off of the deferred tax asset at Capital Southwest Management Corporation at the time of the merger with and into CSWC in the prior year, as well as a decrease in excise tax during the current year.
During the year ended March 31, 2022, Capital Southwest recorded total net realized and unrealized gains on investments of $17.3 million, which included net realized and unrealized gains on equity investments of $20.6 million, net realized and unrealized losses on debt investments of $0.5 million and net unrealized losses on I-45 SLF of $2.8 million. The net increase in net assets resulting from operations was $42.8 million for the year, compared to the net increase in net assets resulting from operations of $50.9 million in the prior year. The decrease was primarily due to a realized loss on extinguishment of debt recognized in the year ended March 31, 2022 in connection with the redemption of the 5.375% Notes due 2024.
The Company’s NAV per share at March 31, 2022 was $16.86, as compared to $16.01 at March 31, 2021. The increase in NAV per share from the prior year was primarily due to net realized and unrealized appreciation on investments and the issuance of common stock at a premium to NAV per share under the Equity ATM Program.
Liquidity and Capital Resources
At March 31, 2022, Capital Southwest had approximately $11.4 million in unrestricted cash and money market balances, $205.0 million of total debt outstanding on the Credit Facility (as defined below), $138.7 million, net of unamortized debt issuance costs, of the January 2026 Notes (as defined below) outstanding, $146.5 million, net of unamortized debt issuance costs, of the October 2026 Notes (as defined below) outstanding and $38.4 million, net of unamortized debt issuance costs, of SBA Debentures (as defined below) outstanding. As of March 31, 2022, Capital Southwest had $126.3 million in available borrowings under the Credit Facility and $40.0 million in undrawn SBA Debenture commitments. The regulatory debt to equity ratio at the end of the quarter was 1.16 to 1.
On March 4, 2019, the Company established an "at-the-market" offering (the "Equity ATM Program"), pursuant to which the Company may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $100,000,000. On May 26, 2021, the Company (i) increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $250,000,000 from $100,000,000 and (ii) reduced the commission paid to the sales agents for the Equity ATM Program to 1.5% from 2.0% of the gross sales price of shares of the Company's common stock sold through the sales agents pursuant to the Equity ATM Program on and after May 26, 2021.
During the quarter ended March 31, 2022, the Company sold 1,037,297 shares of its common stock under the Equity ATM Program at a weighted-average price of $24.27 per share, raising $25.2 million of gross proceeds. Net proceeds were $24.8 million after commissions to the sales agents on shares sold. During the year ended March 31, 2022, the Company sold 3,872,031 shares of its common stock under the Equity ATM Program at a weighted-average price of $25.73 per share, raising $99.6 million of gross proceeds. Net proceeds were $98.1 million, after deducting commissions to the sales agents on shares sold.
Cumulative to date, the Company has sold 8,177,660 shares of its common stock under the Equity ATM Program at a weighted-average price of $22.44, raising $183.5 million of gross proceeds. Net proceeds were $180.3 million after commissions to the sales agents on shares sold. As of March 31, 2022, the Company has $66.5 million available under the Equity ATM Program.
In August 2021, the Company issued $100.0 million in aggregate principal amount of 3.375% Notes due 2026 (the "Existing October 2026 Notes"). The Existing October 2026 Notes were issued at a price of 99.418% of the aggregate principal amount of the Existing October 2026 Notes, resulting in a yield-to-maturity of 3.5%. In November 2021, the Company issued an additional $50.0 million in aggregate principal amount of the October 2026 Notes (the "Additional October 2026 Notes" together with the Existing October 2026 Notes, the "October 2026 Notes"). The Additional October 2026 Notes were issued at a price of 99.993% of the aggregate principal amount, resulting in a yield-to-maturity of approximately 3.375% at issuance. The Additional October 2026 Notes are treated as a single series with the Existing October 2026 Notes under the indenture and had the same terms as the Existing October 2026 Notes. The October 2026 Notes mature on October 1, 2026 and may be redeemed in whole or in part at any time prior to July 1, 2026, at par plus a "make-whole" premium, and thereafter at par. The October 2026 Notes bear interest at a rate of 3.375% per year, payable semi-annually in arrears on April 1 and October 1 of each year. The October 2026 Notes are the direct unsecured obligations of the Company and rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility and the SBA Debentures.
In August 2016, CSWC entered into a senior secured credit facility (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Facility”) to provide additional liquidity to support its investment and operational activities. The Credit Facility contains an accordion feature that allows CSWC to increase the total commitments under the Credit Facility up to $400 million from new and existing lenders on the same terms and conditions as the existing commitments. On August 9, 2021, CSWC entered into the Second Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement"). Prior to the Credit Agreement, (1) borrowings under the Credit Facility accrued interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 2.50% with no LIBOR floor, and (2) the total borrowing capacity was $340 million with commitments from a diversified group of eleven lenders. The Credit Agreement (1) decreased the total borrowing capacity under the Credit Facility to $335 million with commitments from a diversified group of ten lenders, (2) reduced the interest rate on borrowings to LIBOR plus 2.15% with no LIBOR floor and removed conditions related thereto as previously set forth in the Amended and Restated Senior Secured Revolving Credit Agreement, and (3) extended the end of the Credit Facility's revolver period from December 21, 2022 to August 9, 2025 and extended the final maturity from December 21, 2023 to August 9, 2026. The Credit Agreement also modified certain covenants in the Credit Facility, including, among other things, to increase the minimum obligors’ net worth test from $180 million to $200 million. CSWC pays unused commitment fees of 0.50% to 1.00% per annum, based on utilization, on the unused lender commitments under the Credit Facility.
On May 11, 2022, CSWC entered into Amendment No. 2 (the "Amendment") to the Credit Agreement. The Amendment changed the benchmark interest rate from LIBOR to Term SOFR. In addition, on May 11, 2022, CSWC entered into an Incremental Commitment Agreement, pursuant to which the total commitments under the Credit Agreement increased from $335 million to $380 million.
On April 20, 2021, our wholly owned subsidiary, Capital Southwest SBIC I, LP (“SBIC I”), received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended. The SBIC license allows SBIC I to obtain leverage by issuing SBA-guaranteed debentures ("SBA Debentures"), subject to the issuance of a leverage commitment by the SBA. SBA debentures are loans issued to an SBIC which have interest payable semi-annually and a ten-year maturity. The interest rate is fixed shortly after issuance at a market-driven spread
over U.S. Treasury Notes with ten-year maturities. Current statutes and regulations permit SBIC I to borrow up to $175 million in SBA Debentures with at least $87.5 million in regulatory capital, subject to SBA approval. On May 25, 2021, SBIC I received a leverage commitment from the SBA in the amount of $40.0 million to be issued on or prior to September 30, 2025. On January 28, 2022, SBIC I received an additional leverage commitment in the amount of $40.0 million to be issued on or prior to September 30, 2026.
In November 2015, I-45 SLF entered into a senior secured credit facility led by Deutsche Bank. The I-45 credit facility has total commitments outstanding of $150 million from a group of four bank lenders, which is scheduled to mature in March 2026. Borrowings under the I-45 credit facility bear interest at a rate equal to LIBOR plus 2.15%. As of March 31, 2022, I-45 SLF had $115 million in borrowings outstanding under its credit facility.
Share Repurchase Program
On July 28, 2021, the Company's board of directors (the "Board") approved a share repurchase program authorizing the Company to repurchase up to $20 million of its outstanding shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Securities Exchange Act of 1934. On August 31, 2021, the Company entered into a share repurchase agreement, which became effective immediately, and the Company will cease purchasing its common stock under the share repurchase program upon the earlier of, among other things: (1) the date on which the aggregate purchase price for all shares equals $20 million including, without limitation, all applicable fees, costs and expenses; or (2) upon written notice by the Company to the broker that the share repurchase agreement is terminated. During the year ended March 31, 2022, the Company did not repurchase any shares of the Company’s common stock under the share repurchase program.
Declared Total Dividend of $0.63 Per Share for Quarter Ended June 30, 2022
On April 27, 2022, the Board declared a total dividend of $0.63 per share for the quarter ended June 30, 2022, comprised of a regular dividend of $0.48 per share and a special dividend of $0.15 per share.
The Company's dividend will be payable as follows:
June 30, 2022 Dividend
Regular Quarterly Dividend
Amount Per Share: $0.48
Ex-Dividend Date: June 14, 2022
Record Date: June 15, 2022
Payment Date: June 30, 2022
Special Dividend
Amount Per Share: $0.15
Ex-Dividend Date: June 14, 2022
Record Date: June 15, 2022
Payment Date: June 30, 2022
When declaring dividends, the Board reviews estimates of taxable income available for distribution, which may differ from net investment income under generally accepted accounting principles. The final determination of taxable income for each year, as well as the tax attributes for dividends in such year, will be made after the close of the tax year.
Capital Southwest maintains a dividend reinvestment plan ("DRIP") that provides for the reinvestment of dividends on behalf of its registered stockholders who hold their shares with Capital Southwest’s transfer agent and registrar, American Stock Transfer and Trust Company. Under the DRIP, if the Company declares a dividend, registered stockholders who have opted into the DRIP by the dividend record date will have their dividend automatically reinvested into additional shares of Capital Southwest common stock.
Annual Meeting of Shareholders
The 2022 Annual Meeting of Shareholders of Capital Southwest Corporation will be held virtually on Wednesday, July 27, 2022, at 9:00 a.m. (Central Time).
Fourth Quarter 2022 Earnings Results Conference Call and Webcast
Capital Southwest has scheduled a conference call on Tuesday, May 24, 2022, at 11:00 a.m. Eastern Time to discuss the fourth quarter 2022 financial results. You may access the call by dialing (866) 502-8274 and using the Conference ID 2688004 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/mmc/p/o5fo9gmv.
A telephonic replay will be available through May 31, 2022 by dialing (855) 859-2056 and using the Conference ID 2688004. 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 Capital Southwest's Annual Report on Form 10-K for the year ended March 31, 2022 to be filed with the Securities and Exchange Commission and Capital Southwest’s Fourth Fiscal Quarter 2022 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, internally managed business development company with approximately $937 million in investments at fair value as of March 31, 2022. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses and makes investments ranging from $5 million to $35 million in securities across the capital structure, including first lien, second lien, and non-control equity co-investments. As a public company with a permanent capital base, Capital Southwest has 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 may contain statements that constitute forward-looking, which relate to future events or Capital Southwest’s future performance or financial condition, including statements relating to Capital Southwest's investment portfolio and balance sheet capitalization being well positioned for any economic environment moving forward. 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, capital, and lending markets; changes in the interest rate environment; regulatory changes; tax treatment and general economic and business conditions; our ability to operate our wholly owned subsidiary, SBIC I, as an SBIC; and uncertainties associated with the impact from the COVID-19 pandemic, including its impact on the global and U.S. capital markets and the global and U.S. economy, the length and duration of the
COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak; the effect of the COVID-19 pandemic on our business prospects and the operational and financial performance of our portfolio companies, including our ability and their ability to achieve their respective objectives, and the effects of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business.
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, 2022 and subsequent filings 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 Contact:
Michael S. Sarner, Chief Financial Officer
214-884-3829
| CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES | |||||||||||
| (In thousands, except shares and per share data) | |||||||||||
| March 31, | March 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Investments at fair value: | |||||||||||
| Non-control/Non-affiliate investments (Cost: $721,392 and $540,556, respectively) | $ | 747,132 | $ | 546,028 | |||||||
| Affiliate investments (Cost: $140,911 and $90,201, respectively) | 131,879 | 85,246 | |||||||||
| Control investments (Cost: $76,000 and $72,800, respectively) | 57,603 | 57,158 | |||||||||
| Total investments (Cost: $938,303 and $703,557, respectively) | 936,614 | 688,432 | |||||||||
| Cash and cash equivalents | 11,431 | 31,613 | |||||||||
| Receivables: | |||||||||||
| Dividends and interest | 12,106 | 10,533 | |||||||||
| Escrow | 1,344 | 1,150 | |||||||||
| Other | 2,238 | 171 | |||||||||
| Income tax receivable | 158 | 155 | |||||||||
| Deferred tax asset | — | — | |||||||||
| Debt issuance costs (net of accumulated amortization of $4,573 and $3,582, respectively) | 4,038 | 2,246 | |||||||||
| Other assets | 6,028 | 1,284 | |||||||||
| Total assets | $ | 973,957 | $ | 735,584 | |||||||
| Liabilities | |||||||||||
| SBA Debentures (Par value: $40,000 and $0, respectively) | $ | 38,352 | $ | — | |||||||
| October 2024 Notes (Par value: $0 and $125,000, respectively) | — | 122,879 | |||||||||
| January 2026 Notes (Par value: $140,000 and $140,000, respectively) | 138,714 | 138,425 | |||||||||
| October 2026 Notes (Par value: $150,000 and $0, respectively) | 146,522 | — | |||||||||
| Credit facility | 205,000 | 120,000 | |||||||||
| Other liabilities | 14,808 | 11,655 | |||||||||
| Accrued restoration plan liability | 2,707 | 2,979 | |||||||||
| Income tax payable | 1,240 | 50 | |||||||||
| Deferred income taxes | 5,747 | 3,345 | |||||||||
| Total liabilities | 553,090 | 399,333 | |||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Net Assets | |||||||||||
| Common stock, $0.25 par value: authorized, 40,000,000 shares; issued, 27,298,032 shares at March 31, 2022 and 23,344,836 shares at March 31, 2021 | 6,825 | 5,836 | |||||||||
| Additional paid-in capital | 448,235 | 356,447 | |||||||||
| Total distributable earnings | (10,256) | (2,095) | |||||||||
| Treasury stock - at cost, 2,339,512 shares | (23,937) | (23,937) | |||||||||
| Total net assets | 420,867 | 336,251 | |||||||||
| Total liabilities and net assets | $ | 973,957 | $ | 735,584 | |||||||
| Net asset value per share (24,958,520 shares outstanding at March 31, 2022 and 21,005,324 shares outstanding at March 31, 2021) | $ | 16.86 | $ | 16.01 | |||||||
| CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| (In thousands, except shares and per share data) | |||||||||||||||||
| Years Ended March 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Investment income: | |||||||||||||||||
| Interest income: | |||||||||||||||||
| Non-control/Non-affiliate investments | $ | 58,136 | $ | 42,880 | $ | 36,843 | |||||||||||
| Affiliate investments | 7,122 | 6,126 | 7,708 | ||||||||||||||
| Control investments | — | — | 265 | ||||||||||||||
| Payment-in-kind interest income: | |||||||||||||||||
| Non-control/Non-affiliate investments | 2,051 | 4,268 | 1,251 | ||||||||||||||
| Affiliate investments | 1,160 | 3,018 | 851 | ||||||||||||||
| Control investments | — | — | — | ||||||||||||||
| Dividend income: | |||||||||||||||||
| Non-control/Non-affiliate investments | 1,654 | 1,752 | 166 | ||||||||||||||
| Affiliate investments | 28 | 33 | 141 | ||||||||||||||
| Control investments | 6,720 | 6,609 | 12,136 | ||||||||||||||
| Fee income: | |||||||||||||||||
| Non-control/Non-affiliate investments | 4,833 | 3,233 | 1,090 | ||||||||||||||
| Affiliate investments | 494 | 122 | 143 | ||||||||||||||
| Control investments | — | — | 1,359 | ||||||||||||||
| Other income | 17 | 21 | 86 | ||||||||||||||
| Total investment income | 82,215 | 68,062 | 62,039 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Compensation | 8,838 | 7,756 | 7,310 | ||||||||||||||
| Share-based compensation | 3,585 | 2,944 | 2,853 | ||||||||||||||
| Interest | 19,924 | 17,941 | 15,836 | ||||||||||||||
| Professional fees | 2,489 | 2,193 | 2,029 | ||||||||||||||
| General and administrative | 4,077 | 3,115 | 3,717 | ||||||||||||||
| Total operating expenses | 38,913 | 33,949 | 31,745 | ||||||||||||||
| Income before taxes | 43,302 | 34,113 | 30,294 | ||||||||||||||
| Federal income, excise and other taxes | 181 | 637 | 1,380 | ||||||||||||||
| Deferred taxes | 434 | 1,805 | 682 | ||||||||||||||
| Total income tax provision (benefit) | 615 | 2,442 | 2,062 | ||||||||||||||
| Net investment income | $ | 42,687 | $ | 31,671 | $ | 28,232 | |||||||||||
| Realized gain (loss) | |||||||||||||||||
| Non-control/Non-affiliate investments | $ | 7,136 | $ | (6,908) | $ | 1,335 | |||||||||||
| Affiliate investments | 140 | (1,628) | 57 | ||||||||||||||
| Control investments | — | — | 44,300 | ||||||||||||||
| Taxes on deemed distribution of long-term capital gains | — | — | (3,461) | ||||||||||||||
| Income tax provision | (1,442) | — | — | ||||||||||||||
| Total net realized gain (loss) on investments, net of tax | 5,834 | (8,536) | 42,231 | ||||||||||||||
| Net unrealized appreciation (depreciation) on investments | |||||||||||||||||
| Non-control/Non-affiliate investments | 20,940 | 21,218 | (14,250) | ||||||||||||||
| Affiliate investments | (4,750) | (2,825) | (4,320) | ||||||||||||||
| Control investments | (2,755) | 12,598 | (73,561) | ||||||||||||||
| Income tax (provision) benefit | (1,968) | (2,236) | (683) | ||||||||||||||
| Total net unrealized appreciation (depreciation) on investments, net of tax | 11,467 | 28,755 | (92,814) | ||||||||||||||
| Net realized and unrealized gains (losses) on investments | 17,301 | 20,219 | (50,583) | ||||||||||||||
| Realized loss on extinguishment of debt | (17,087) | (1,007) | — | ||||||||||||||
| Realized loss on disposal of fixed assets | (86) | — | — | ||||||||||||||
| Net increase (decrease) in net assets from operations | $ | 42,815 | $ | 50,883 | $ | (22,351) | |||||||||||
| Pre-tax net investment income per share - basic and diluted | $ | 1.90 | $ | 1.79 | $ | 1.68 | |||||||||||
| Net investment income per share - basic and diluted | $ | 1.87 | $ | 1.66 | $ | 1.57 | |||||||||||
| Net increase (decrease) in net assets from operations - basic and diluted | $ | 1.87 | $ | 2.67 | $ | (1.24) | |||||||||||
| Weighted average shares outstanding – basic and diluted | 22,839,835 | 19,060,131 | 17,999,836 | ||||||||||||||
Q4 2022 Earnings Presentation 8333 Douglas Avenue, Suite 1100 | Dallas, Texas 75225 | 214.238.5700 | capitalsouthwest.com May 23, 2022 Capital Southwest Corporation
Page 2 Important Notices • These materials and any presentation of which they form a part are neither an offer to sell, nor a solicitation of an offer to purchase, any securities of Capital Southwest. • These materials and the presentations of which they are a part, and the summaries contained herein, do not purport to be complete and no obligation to update or otherwise revise such information is being assumed. Nothing shall be relied upon as a promise or representation as to the future performance of Capital Southwest. Such information is qualified in its entirety by reference to the more detailed discussions contained elsewhere in Capital Southwest’s public filings with the Securities and Exchange Commission (the "SEC"). • There is no guarantee that any of the estimates, targets or projections illustrated in these materials and any presentation of which they form a part will be achieved. Any references herein to any of the Capital Southwest’s past or present investments or its past or present performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments by Capital Southwest will be profitable or will equal the performance of these investments. • The information contained herein has been derived from financial statements and other documents provided by the portfolio companies unless otherwise stated. • Past performance is not indicative of future results. In addition, there can be no assurance that unrealized investments will be realized at the expected multiples shown as actual realized returns will depend on, among other factors, future operating results of each of Capital Southwest’s current portfolio companies, the value of the assets and economic conditions at the time of disposition, any related transaction costs, and the timing and manner of sale, all of which may differ from the assumptions on which Capital Southwest’s expected returns are based. In many instances, Capital Southwest will not determine the timing or manner of sale of its portfolio companies. • Capital Southwest has filed a registration statement (which contains the prospectus) with the SEC for any offering to which this communication may relate and may file one or more prospectus supplements to the prospectus in the future. Before you invest in any of Capital Southwest's securities, you should read the registration statement and the applicable prospectus and prospectus supplement(s), including the information incorporated by reference therein, in order to fully understand all of the implications and risks of an offering of Capital Southwest's securities. You should also read other documents Capital Southwest has filed with the SEC for more complete information about Capital Southwest and any offering of its securities. You may get these documents for free by visiting EDGAR on the SEC's website at www.sec.gov. Alternatively, Capital Southwest will arrange to send you any applicable prospectus and prospectus supplement(s) if you request such materials by calling us at (214) 238-5700. These materials are also made available, free of charge, on our website at www.capitalsouthwest.com. Information contained on our website is not incorporated by reference into this communication.
Page 3 • This presentation contains forward-looking statements relating to, among other things, the business, market conditions, financial condition and results of operations of Capital Southwest, the anticipated investment strategies and investments of Capital Southwest, and future market demand. Any statements that are not statements of historical fact are forward-looking statements. Forward-looking statements are often, but not always, preceded by, followed by, or include words such as "believe," "expect," "intend," "plan," "should" or similar words, phrases or expressions or the negative thereof. These statements are made on the basis of the current beliefs, expectations and assumptions of the management of Capital Southwest and speak only as of the date of this presentation. 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. • These risks include risks related to: changes in the markets in which Capital Southwest invests; changes in the financial, capital, and lending markets; changes in the interest rate environment; regulatory changes; tax treatment and general economic and business conditions; our ability to operate our wholly owned subsidiary, Capital Southwest SBIC I, LP, as a small business investment company ("SBIC"); and uncertainties associated with the continued impact from the COVID-19 pandemic, including its impact on the global and U.S. capital markets and the global and U.S. economy, the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak, the effect of the COVID-19 pandemic on our business prospects and the operational and financial performance of our portfolio companies, including our and their ability to achieve their respective objectives, and the effects of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business. • For a further discussion of some of the 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, 2022 and its subsequent filings with the SEC. Other unknown or unpredictable factors could also have a material adverse effect on Capital Southwest’s actual future results, performance, or financial condition. As a result of the foregoing, readers are cautioned not to place undue reliance on these forward-looking statements. Capital Southwest does not assume any obligation to revise or to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, or otherwise, except as may be required by law. Forward-Looking Statements
Page 4 Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Conference Call Participants
Page 5 • CSWC was formed in 1961, and elected to be regulated as a BDC in 1988 • Publicly traded on Nasdaq: Common Stock (“CSWC”) • Internally managed BDC with RIC tax treatment for U.S. federal income tax purposes • September 2015: completed tax free spin off of CSW Industrials ("Spin Off") (NASDAQ; "CSWI") • April 2021: received SBIC license from the U.S. Small Business Administration • 24 employees based in Dallas, Texas • Total Balance Sheet Assets of $974 MM as of March 31, 2022 • Manage I-45 Senior Loan Fund (“I-45 SLF”) in partnership with Main Street Capital Corporation (NYSE: “MAIN”) CSWC Company Overview CSWC is a middle-market lending firm focused on supporting the acquisition and growth of middle-market companies across the capital structure
Page 6 Fiscal Year 2022 Highlights Financial Highlights (1) Operating Leverage calculated as last twelve months operating expenses (excluding interest expense) divided by average annual assets • 18% FY 2022 Total Return to Shareholders ◦ $2.52 in total dividends per share paid during the year • NAV per share increased to $16.86 from $16.01 in prior year, an increase of 5% • Investments at Fair Value of $937 MM compared to $688 MM in prior year, an increase of 36% • Pre-Tax Net Investment Income increased to $1.90 per share from $1.79 per share in prior year, an increase of 6% • Paid Regular Dividends of $1.82 compared to $1.65 in prior year, an increase of 10% • Strengthened Balance Sheet through capital raising activities ◦ Raised $150.0 MM in gross proceeds of 3.375% Unsecured Notes ◦ Raised $99.6 MM in gross proceeds through Equity ATM Program at an average of 158% of the prevailing NAV per share • Began operations within our wholly-owned SBIC subsidiary (Capital Southwest SBIC I) ◦ Contributed $40 MM in equity capital and received leverage approval of $80 MM from the SBA • Operating Leverage(1) decreased to 2.2% as of 3/31/22 from 2.4% as of 3/31/21
Page 7 • Q4 2022 Pre-Tax Net Investment Income (“NII”) of $12.0 MM or $0.50 Per Share • Paid $0.48 per share Regular Dividend for the quarter ended March 31, 2022 ◦ Announced Regular Dividend of $0.48 per share and declared $0.15 per share Special Dividend for the quarter ending June 30, 2022 • Investment Portfolio at Fair Value increased to $936.6 MM from $876.8 MM in Prior Quarter ◦ $102.8 MM in total new committed investments ◦ $49.2 MM in total proceeds from four debt prepayments ◦ $7.7 MM in net realized and unrealized gains on the portfolio • Raised $25.2 MM in gross proceeds through Equity ATM Program during the quarter ◦ Sold shares at average price of $24.27, or 150% of the prevailing NAV per share • $126.3 MM Available on Credit Facility, $40.0 MM available on SBA leverage commitment to SBIC I, and $11.4 MM in cash and cash equivalents as of quarter end Q4 2022 Highlights Financial Highlights
Page 8 • In the Last Twelve Months Ending 3/31/22, CSWC generated $1.90 per share in Pre-Tax NII and paid out $1.82 per share in Regular Dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 107% since the 2015 Spin-Off • Total Special and Supplemental Dividends of $3.41 per share since the 2015 Spin-Off • Undistributed Taxable Income ("UTI") of $0.47 per share as of March 31, 2022 D iv id en d Pe r Sh ar e $0.45 $0.21 $0.24 $0.26 $0.28 $0.89 $0.44 $0.46 $0.48 $0.49 $0.50 $1.25 $0.51 $0.51 $0.51 $0.51 $0.52 $0.53 $0.54 $0.97 $0.48 $0.63 $0.19 $0.21 $0.24 $0.26 $0.28 $0.29 $0.34 $0.36 $0.38 $0.39 $0.40 $0.40 $0.41 $0.41 $0.41 $0.41 $0.42 $0.43 $0.44 $0.47 $0.48 $0.48 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.50 $0.26 $0.50 $0.75 $0.15 Regular Dividend Per Share Supplemental Dividend Per Share Special Dividend Per Share 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 3/31/19 6/30/19 9/30/19 12/31/19 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 $0 $0.25 $0.5 $0.75 $1 $1.25 $1.5 Track Record of Consistent Dividends Continues Dividend Yield – Quarterly Annualized Total Dividend / CSWC Share Price at Qtr. End 10.6% 5.2% 5.6% 6.3% 6.6% 19.7% 9.3% 9.6% 9.1% 9.4% 9.2% 24.0% 17.9% 14.5% 11.5%15.1% 9.4% 9.1% 8.6% 15.3% 8.1%
Page 9 History of Value Creation $17.68 $17.38 $18.63 $20.90 $22.71 $21.97 $24.90 $28.27 $17.68 $17.34 $17.80 $19.08 $18.62 $15.13 $16.01 $16.86 $0.26 $0.26 $1.16 $2.31 $2.71 $3.41 $0.04 $0.57 $1.56 $2.93 $4.53 $6.18 $8.00 Net Asset Value Per Share Cumulative Special/Supplemental Dividends Paid Per Share Cumulative Regular Dividends Paid Per Share 9/30/15 3/31/16 3/31/17 3/31/18 3/31/19 3/31/20 3/31/21 3/31/22 $0 $5 $10 $15 $20 $25 $30 Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $10.59 at 3/31/22 from 9/30/15 Spin-off of CSWI
Page 10 CORE: Lower Middle Market (“LMM”): CSWC led or Club Deals ◦ Companies with EBITDA between $3 MM and $20 MM ◦ Typical leverage of 2.0x – 4.0x Debt to EBITDA through CSWC debt position ◦ Commitment size up to $35 MM with hold sizes generally $5 MM to $35 MM ◦ Both Sponsored and Non-sponsored deals ◦ Securities include first lien, unitranche, and second lien ◦ Frequently make equity co-investments alongside CSWC debt OPPORTUNISTIC: Upper Middle Market (“UMM”): Syndicated or Club, First and Second Lien ▪ Companies typically have in excess of $20 MM in EBITDA ▪ Typical leverage of 3.0x – 5.5x Debt to EBITDA through CSWC debt position ▪ Hold sizes generally $5 MM to $20 MM ▪ Floating rate first and second lien debt securities ▪ More liquid assets relative to LMM investments ▪ Provides flexibility to invest/divest opportunistically based on market conditions and liquidity position Two Pronged Investment Strategy
Page 11 $ (M ill io ns ) $239 $272 $337 $351 $368 $382 $387 $456 $474 $487 $521 $531 $573 $671 $689 $745 $794 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 9/30/2021 12/31/2021 3/31/2022 $0.0 $200.0 $400.0 $600.0 $800.0 $1,000.0 Credit Portfolio Heavily Weighted Towards First Lien Investments Credit Portfolio Heavily Weighted to First Lien 93% of Credit Portfolio as of 3/31/22 in first lien senior secured loans Sub-DebtSecond LienFirst Lien 6%8% 85%82% 9%10% 7% 86% 7% 4% 86% 10% 4% 86% 10% 87% 9% 4% 87% 9% 4% 90% 8% 2% 90% 8% 2% 90% 8% 2% 91% 7% 2% 91% 7% 2% 92% 6% 2% 90% 8% 2% 91% 7% 2% 91% 7% 2% 93% 7%
Page 12 Q4 2022 Originations $102.8 MM in total new committed investments to three new portfolio companies and ten existing portfolio companies • $70.0 MM funded at close Portfolio Originations Q4 2022 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($000s) (1) Debt Spread Debt Yield to Maturity American Nuts Operations LLC Food, agriculture and beverage First Lien $24,900 $0 $0 7.75% 9.25% Zips Car Wash, LLC (2) Consumer services First Lien $0 $0 $20,000 7.25% 8.75% ATS Operating, LLC (dba America's Thrift Store) Consumer products & retail First Lien / Equity $18,500 $1,000 $2,500 6.50% 8.00% GS Operating, LLC (dba Gexpro) Distribution First Lien $9,427 $0 $6,573 6.00% 7.25% Cadmium, LLC Software & IT services First Lien $7,385 $0 $615 7.00% 8.88% Flip Electronics, LLC Technology products & components First Lien $2,255 $0 $2,818 7.50% 9.00% Air Conditioning Specialist, Inc. Consumer services First Lien / Equity $3,800 $124 $0 7.25% 8.75% National Credit Care, LLC Consumer services Equity $0 $2,000 $0 N/A N/A Delphi Behavioral Health Group, LLC Healthcare services First Lien $439 $0 $0 11.50% 13.00% RTIC Subsidiary Holdings, LLC Consumer products & retail First Lien $0 $0 $274 7.75% 9.50% Trafera, LLC Technology products & components Unsecured Convertible Note $82 $0 $0 10.00% 10.00% GrammaTech, Inc. Software & IT services Equity $0 $56 $0 N/A N/A ASC Ortho Management Company, LLC Healthcare services Equity $0 $51 $0 N/A N/A Total / Weighted Average $66,788 $3,231 $32,780 7.06% 8.57% (1) Unfunded Commitments consist of $27.9 MM in delayed draw term loans and $4.9 MM in revolvers (2) CSWC has funded $16.2 MM as of 3/31/22
Page 13 Track Record of CSWC Exits Continues Portfolio Prepayments Q4 2022 Name Industry Type Net Proceeds ($000) Realized Gain/Loss ($000s) IRR American Nuts Operations LLC Food, agriculture and beverage First Lien $18,648 $131 12.6% Alliance Sports Group, L.P. Consumer products & retail Subordinated Debt $11,521 $45 13.1% Allover Media, LLC Media, marketing & entertainment First Lien $11,267 $225 14.7% GS Operating, LLC (dba Gexpro) Distribution First Lien $7,742 $111 10.4% Total / Weighted Average $49,178 $512 12.9% • During the quarter, CSWC received four debt prepayments generating total proceeds of $49.2 MM and weighted average IRR of 12.9% • Cumulative IRR of 14.4% on 60 portfolio company exits generating $694.4 MM in proceeds since spin-off in September 2015 $49.2 MM in total proceeds from four debt prepayments
Page 14 Note: All metrics above exclude I-45 SLF (1) At March 31, 2022 and December 31,2021, we had equity ownership in approximately 57% and 56%, respectively, of our investments (2) The weighted-average annual effective yields were computed using the effective interest rates during the quarter for all debt investments at cost as of March 31, 2022, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments. As of March 31, 2022, there were three investments on non-accrual status. As of December 31, 2021, there were three investments on non-accrual status. Weighted-average annual effective yield is not a return to shareholders and is higher than what an investor in shares in our common stock will realize on its investment because it does not reflect our expenses or any sales load pad by an investor. (3) Includes CSWC debt investments only. Weighted average EBITDA metric is calculated using investment cost basis weighting. For the quarter ended March 31, 2022, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. For the quarter ended December 31, 2021, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful (4) Includes CSWC debt investments only. Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’s position, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA. Weighted average leverage is calculated using investment cost basis weighting. Management uses this metric as a guide to evaluate relative risk of its position in each portfolio debt investment. For the quarter ended March 31, 2022, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. For the quarter ended December 31, 2021, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful CSWC Portfolio Asset Mix by Market Maintaining appropriate portfolio leverage while receiving attractive risk adjusted returns Investment Portfolio - Statistics Q4 2022 (in $000's) 12/31/2021 3/31/2022 Total CSWC Portfolio Total CSWC Portfolio Number of Portfolio Companies 70 72 Total Cost $810,800 $862,303 Total Fair Value $819,176 $879,011 Average Hold Size Debt Investments (at Fair Value) $11,820 $12,213 Average Hold Size Equity Investments (at Fair Value) $1,910 $2,078 % First Lien Investments (at Fair Value) 82.9% 84.2% % Second Lien Investments (at Fair Value) 6.5% 6.0% % Subordinated Debt Investments (at Fair Value) 1.5% 0.1% % Equity (at Fair Value) (1) 9.1% 9.7% Wtd. Avg. Yield (2) 9.5% 9.3% Wtd. Avg. EBITDA of Issuer ($MM's) (3) $19.6 $20.9 Wtd. Avg. Leverage through CSWC Security (4) 3.9x 4.0x
Page 15 Investment Rating 12/31/2021 Investment Rating Upgrades Investment Rating Downgrades 3/31/2022 # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans Fair Value ($MM) % of Portfolio (FV) 1 8 $129.5 17.4% — $— —% — $— —% 7 $124.2 15.6% 2 60 $580.6 78.0% — $— —% — $— —% 64 $632.7 79.7% 3 5 $34.4 4.6% — $— —% 1 $2.2 0.3% 6 $36.6 4.6% 4 1 $0.2 —% — $— —% — $— —% 1 $0.3 —% Wtd. Avg. Investment Rating 1.9 1.9 Quarter-over-Quarter Investment Rating Migration Over 95% of all debt investments are currently rated a "1" or "2" as credit portfolio continues to demonstrate strong performance
Page 16 CSWC Portfolio Mix as of March 31, 2022 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current investment portfolio of $936.6 MM continues to be diverse across industries First Lien 79% I-45 SLF (a) 6% Second Lien 6% Equity (b) 9% Business Services 13% Consumer Products & Retail 10% Healthcare Services 9% Consumer Services 8% I-45 SLF LLC 6% Distribution 6% Food, Agriculture & Beverage 5% Media, Marketing & Entertainment 5% Financial Services 4% Technology Products & Components 4% Transportation & Logistics 4% (a) I-45 SLF consists of 97% first lien senior secured debt (b) Equity represents equity co-investments across 41 portfolio companies
Page 17 I-45 SLF Portfolio Overview Current I-45 SLF Portfolio (By Industry) I-45 SLF loan portfolio of $176.7 MM is 97% first lien with average hold size of 2.4% of the I-45 portfolio Telecommunications Retail Capital Equipment Services: Consumer Current I-45 SLF Portfolio (By Type) I-45 SLF Portfolio Statistics (In Thousands) 6/30/21 9/30/21 12/31/21 3/31/22 Total Debt Investments at Fair Value $169,610 $169,042 $180,052 $176,704 Fund Leverage (Debt to Equity) at FV 1.40x 1.30x 1.52x 1.59x Number of Issuers 38 38 42 42 Wtd. Avg. Issuer EBITDA (1) $77,851 $75,025 $72,800 $71,857 Avg. Investment Size as a % of Portfolio 2.6% 2.6% 2.4% 2.4% Wtd. Avg. Net Leverage on Investments (1) (2) 4.8x 4.7x 5.0x 4.2x Wtd. Avg. Spread to LIBOR 6.0% 5.9% 6.2% 6.2% Wtd. Avg. Duration (Yrs) 3.0 3.7 3.7 3.6 97% 3% First Lien Second Lien 15% 10% 10% 9% 8% Healthcare Products Consumer Services Business Services High Tech Industries Telecommunications (1) For the quarter ended March 31, 2022, one portfolio company is excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful (2) Through I-45 SLF security
Page 18 Income Statement (In Thousands, except per share amounts) Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Quarter Ended 3/31/22 Investment Income Interest Income $14,626 $16,100 $16,921 $17,611 PIK Interest Income 975 879 814 543 Dividend Income 2,657 2,070 1,714 1,961 Fees and Other Income 321 1,247 2,862 915 Total Investment Income $18,579 $20,296 $22,311 $21,030 Expenses Cash Compensation $1,432 $2,298 $3,353 $1,755 Share Based Compensation 1,076 923 849 737 General & Administrative 1,677 1,630 1,617 1,643 Total Expenses (excluding Interest Expense) $4,185 $4,851 $5,819 $4,135 Interest Expense $4,955 $5,405 $4,655 $4,909 Pre-Tax Net Investment Income $9,439 $10,040 $11,837 $11,986 Gains / Losses and Taxes Net Realized and Unrealized Gains on Investments $6,099 $2,805 $661 $7,736 Realized Losses on Extinguishment of Debt — (17,087) — — Realized Loss on Disposal of Fixed Assets — — — (86) Income Tax (Expense) / Benefit (396) (314) 62 33 Net Increase (Decrease) in Net Assets resulting from Operations $15,142 $(4,556) $12,560 $19,669 Weighted Average Diluted Shares Outstanding 21,202 22,534 23,433 24,202 Pre-Tax Net Investment Income Per Dil. Wtd. Average Share $0.45 $0.45 $0.51 $0.50 Net Increase (Decrease) in Net Assets Per Dil. Wtd. Average Share $0.71 $(0.20) $0.54 $0.82
Page 19 Operating Leverage Trend Continue to realize operating efficiencies of internally managed structure Period Ending To ta l A ss et s ($ M M ) O perating E xpenses as % of A vg A ssets $284 $326 $417 $552 $585 $736 $974 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.2% FY 16 FY 17 FY 18 FY19 FY20 FY21 FY22 $0 $200 $400 $600 $800 $1,000 2% 3% 4% 5% Total Assets Operating Expenses(1) as % of Average Total Assets Note: Operating Leverage calculated as last twelve months operating expenses (excluding interest expense) divided by average annual assets (1) Operating expenses exclude interest expense
Page 20 $16.19 $0.50 $(0.48) $0.06 $0.25 $0.32 $0.02 $16.86 12/31/21 NAV/Share Pre-Tax Net In vestm ent In come Regular Dividend Net Change in Valuation of Debt Portfo lio Net Change in Valuation of Equity Portfo lio Accretion fro m Equity Iss uance Other Corporate 3/31/22 NAV/Share $15 $16 $17 NAV per Share Bridge for Quarter Ended 3/31/22 Investment Portfolio $0.31 per Share Earnings / Dividends $0.02 per Share Corporate $0.34 per Share
Page 21 Significant Unused Debt Capacity with Long-Term Duration Earliest debt maturity occurs in January 2026 Facility Total Commitments Interest Rate Maturity Principal Drawn Undrawn Commitment January 2026 Notes (1) $140.0 MM 4.50% January 2026 $140.0 MM N/A I-45 Credit Facility (2) $150.0 MM L + 2.15% March 2026 $114.5 MM $35.5 MM Credit Facility (3) $335.0 MM L + 2.15% August 2026 $205.0 MM $126.3 MM (4) October 2026 Notes (5) $150.0 MM 3.375% October 2026 $150.0 MM N/A SBA Debentures $80.0 MM 2.60% (6) September 2031 (7) $40.0 MM $40.0 MM (8) P rin ci pa l P ay m en ts ($ M M ) Long-Term Debt Obligations (Calendar Year) $609.5 $15.0 $25.0140.0 114.5 205.0 150.0 January 2026 Notes I-45 Credit Facility Credit Facility October 2026 Notes SBIC I Debentures CY2021- CY2025 CY 2026 CY 2027 CY 2028 CY 2029 CY 2030 CY 2031 CY 2032 $0 $100 $200 $300 $400 $500 $600 (1) Redeemable in whole or in part at any time prior to October 31, 2025, at par plus a "make whole" premium, and thereafter at par (2) CSWC owns 80% of the equity and 50% of the voting rights of I-45 SLF LLC with a joint venture partner (3) The Credit Facility has an accordion feature that allows for an increase in total commitments up to $400 MM (4) Net of $3.7 MM in letters of credit outstanding (5) Redeemable in whole or in part at any time prior to July 1, 2026, at par plus a "make whole" premium, and thereafter at par (6) Weighted average interest rate of all pooled and non-pooled SBA Debentures as of March 31, 2022 (7) First pooled SBA Debentures mature on September 1, 2031 (8) Current statutes and regulations permit SBIC I to borrow up to $175 million in SBA Debentures with at least $87.5 million in regulatory capital, subject to SBA approval
Page 22 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Quarter Ended 3/31/22 Assets Portfolio Investments $798,647 $818,218 $876,765 $936,614 Cash & Cash Equivalents 16,543 26,840 18,668 11,431 Other Assets 20,858 21,764 17,122 25,912 Total Assets $836,048 $866,822 $912,555 $973,957 Liabilities SBA Debentures $— $16,709 $27,965 $38,352 October 2024 Notes 123,041 — — — January 2026 Notes 138,504 138,545 138,630 138,714 October 2026 Notes — 97,264 146,357 146,522 Credit Facility 190,000 215,000 190,000 205,000 Other Liabilities 16,408 17,359 22,266 24,502 Total Liabilities $467,953 $484,877 $525,218 $553,090 Shareholders Equity Net Asset Value $368,095 $381,945 $387,337 $420,867 NAV per Share $16.58 $16.36 $16.19 $16.86 Regulatory Debt to Equity 1.23x 1.18x 1.23x 1.16x
Page 23 Portfolio Statistics Continuing to build a well performing credit portfolio (In Thousands) Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Quarter Ended 3/31/22 Portfolio Statistics Fair Value of Debt Investments $671,257 $689,421 $744,681 $793,834 Average Debt Investment Hold Size $11,377 $11,490 $11,820 $12,213 Fair Value of Debt Investments as a % of Par 97% 97% 97% 97% % of Investment Portfolio on Non-Accrual (at Fair Value) 1.8% 3.0% 1.6% 1.5% Weighted Average Investment Rating (1) 1.96 1.96 1.90 1.92 Weighted Average Yield on Debt Investments 10.04% 9.66% 9.48% 9.30% Total Fair Value of Portfolio Investments $798,647 $818,218 $876,765 $936,614 Weighted Average Yield on all Portfolio Investments 10.12% 9.60% 9.35% 9.01% Investment (Mix Debt vs. Equity) (2)(3) 91% / 9% 91% / 9% 91% / 9% 90% / 10% (1) 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. Weighted average investment rating calculated at cost (2) Excludes CSWC equity investment in I-45 SLF (3) At Fair Value
Page 24 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Quarter Ended 3/31/22 Investment Income Breakdown Cash Interest $13,939 $15,370 $16,164 $16,785 Cash Dividends 2,657 2,069 1,714 1,962 PIK Income 975 879 814 543 Amortization of purchase discounts and fees 688 731 758 828 Management/Admin Fees 227 327 340 259 Prepayment Fees & Other Income 93 920 2,520 653 Total Investment Income $18,579 $20,296 $22,310 $21,030 Key Metrics Cash Income as a % of Investment Income 91% 92% 93% 93% % of Total Investment Income that is Recurring 96% 95% 89% 96%
Page 25 Key Financial Metrics Strong Pre-Tax Net Investment Income and Return on Equity driven by net portfolio growth and investment performance (1) Return on Equity is calculated as the quarterly annualized Pre-Tax NII, Realized Earnings, or Total Earnings, respectively, divided by equity at the end of the prior quarter (2) Realized Earnings and Earnings include ($17.1) MM or ($0.76) per weighted average diluted share for realized losses on extinguishment of debt in the 9/30/21 quarter Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Quarter Ended 3/31/22 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.45 $0.45 $0.51 $0.50 Pre-Tax Net Investment Income Return on Equity (ROE) (1) 11.12% 10.75% 12.35% 12.24% Realized Earnings Per Wtd Avg Diluted Share $0.38 ($0.17) $0.62 $0.52 Realized Earnings Return on Equity (ROE) (1)(2) 9.53% (4.14)% 15.25% 12.86% Earnings Per Wtd Avg Diluted Share $0.71 ($0.20) $0.54 $0.81 Earnings Return on Equity (ROE) (1)(2) 17.84% (4.88)% 13.11% 20.08% Regular Dividends per Share $0.43 $0.44 $0.47 $0.48 Supplemental Dividends per Share $0.10 $0.10 $0.50 $— Total Dividends per Share $0.53 $0.54 $0.97 $0.48
Page 26 CSWC Portfolio Well Positioned for Rising Interest Rate Environment Fixed vs. Floating Portfolio Exposure (1) Note: Illustrative change in annual NII is based on a projection of CSWC’s existing debt investments as of March 31, 2022, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Month LIBOR of 0.96% at March 31, 2022. The results of this analysis include I-45 SLF, which is comprised of 98% floating rate assets and liabilities (1) Portfolio Exposure includes I-45 SLF assets pro rata as a % of CSWC’s equity investment in the fund Change in Base Interest Rates Illustrative Annual NII Change ($'s) Illustrative Annual NII Change (Per Share) (25 bps) $561,919 $0.02 25 bps $1,055,146 $0.04 50 bps $2,417,430 $0.10 75 bps $3,782,906 $0.15 100 bps $5,165,095 $0.21 125 bps $6,658,005 $0.27 150 bps $8,170,474 $0.33 2% 98% Fixed Floating
Page 27 Corporate Information Board of Directors Senior Management Fiscal Year End Interested Directors Bowen S. Diehl March 31 Bowen S. Diehl President & Chief Executive Officer Independent Directors Independent Auditor David R. Brooks Michael S. Sarner RSM US LLP Chicago, ILChristine S. Battist Chief Financial Officer, Secretary & Treasurer T. Duane Morgan Jack D. Furst Joshua S. Weinstein William R. Thomas Senior Managing Director Corporate Counsel Ramona Rogers-Windsor Eversheds Sutherland (US) LLP Investor Relations Michael S. Sarner Capital Southwest Corporate Offices & Website 214-884-3829 8333 Douglas Avenue msarner@capitalsouthwest.com Transfer Agent 11th Floor American Stock Transfer & Trust Company, LLC Dallas, TX 75225 Securities Listing 800-937-5449 www.capitalsouthwest.com Nasdaq: "CSWC" (Common Stock) www.amstock.com Industry Analyst Coverage Firm Analyst Contact Information Ladenburg Thalmann & Co., Inc. Mickey M. Schleien, CFA Direct: 305-572-4131 JMP Securities, LLC Devin Ryan Direct: 415-835-8900 Hovde Group Bryce Rowe Direct: 804-318-0969 Jefferies, LLC Kyle Joseph Direct: 510-418-0754 Raymond James & Associates Robert Dodd Direct: 901-579-4560 Oppenheimer & Co., Inc. Mitchel Penn Direct: 212-667-7136