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): August 5, 2019
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.) |
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):
☐ | 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)) | ||
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 August 5, 2019, 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 August 6, 2019. 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
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: August 5, 2019
By: | /s/ Bowen S. Diehl | |
Name: Bowen S. Diehl | ||
Title: Chief Executive Officer and President | ||
Exhibit 99.1
 | 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 First Fiscal Quarter Ended June 30, 2019 and Announces Total Dividends of $0.50 Per Share for the Quarter Ended September 30, 2019
CSWC Reports Pre-Tax Net Investment Income of $0.44 Per Share
Dallas, Texas – August 5, 2019 – 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 first fiscal quarter ended June 30, 2019.
First Quarter Fiscal Year 2020 Financial Highlights
• | Total Investment Portfolio: $533.5 million |
◦ | Credit Portfolio of $381.7 million: |
▪ | 87% 1st Lien Senior Secured Debt |
▪ | $34.7 million in new committed credit investments |
▪ | One 1st Lien Senior Secured Debt investment currently on non-accrual with a fair value of $7.9 million, representing 1.5% of the total investment portfolio |
▪ | Weighted Average Yield on Debt Investments: 11.7% |
◦ | Equity Portfolio of $87.0 million, excluding investment in I-45 Senior Loan Fund ("I-45 SLF") |
◦ | CSWC Investment in I-45 SLF of $64.8 million |
▪ | I-45 SLF portfolio of $234.7 million |
▪ | Portfolio consists of 50 issuers: 95% 1st Lien Debt and 5% 2nd Lien Debt |
▪ | I-45 SLF paid a $2.9 million quarterly dividend to CSWC, an annualized yield of 17.7% |
• | Pre-Tax Net Investment Income: $7.7 million, or $0.44 per weighted average diluted share |
• | Dividends: Paid $0.39 per share in Regular Dividend, plus $0.10 per share Supplemental Dividend for the quarter ended June 30, 2019 |
◦ | Total Dividends for the quarter ended June 30, 2019 of $0.49 per share |
• | Net Realized and Unrealized Portfolio Depreciation: $0.6 million, or $0.04 per weighted average diluted share |
• | Balance Sheet: |
◦ | Cash and Cash Equivalents: $12.0 million |
◦ | Total Net Assets: $328.8 million |
◦ | Net Asset Value (“NAV”) per Share: $18.58 |
In commenting on the Company's results, Bowen Diehl, President and Chief Executive Officer, stated, “We are pleased to announce another quarter of solid growth in our investment portfolio and earnings. As we look ahead, we continue to be excited about the opportunities in the Lower Middle Market while our deal pipeline remains strong. We continue to employ our conservative, late-cycle credit underwriting principals in a market where competition remains intense and the economy, while being late in the credit cycle, appears to be showing resilience in the short term. With our board’s declaration of a total dividend of $0.50 for the September quarter, this will mark our 15th consecutive quarter of increasing shareholder distributions. Finally, this quarter we continued to strengthen our balance sheet, diversifying our capital sources by adding a new bank lender to our credit facility, while also continuing to add equity capital to the capital structure through our equity ATM program.”
First Quarter Fiscal Year Investment Activities
During the quarter ended June 30, 2019, the Company originated two new investments and two follow-on investments totaling $34.7 million in commitments. New investment transactions that occurred during the quarter ended June 30, 2019 are summarized as follows:
iEnergizer Limited, $15.0 million 1st Lien Senior Secured Debt: iEnergizer is a leading global provider of high value-added, multi-channel content transformation solutions and high margin business process outsourcing solutions.
Driven, Inc., $12.0 million 1st Lien Senior Secured Debt: Driven, Inc. is an eDiscovery consultancy and information management company that supports customers across the data life cycle primarily as it relates to litigation support.
Vistar Media Inc., $6.6 million add-on to 1st Lien Senior Secured Debt: Vistar Media is a digital marketing firm servicing the digital out-of-home advertising industry.
Zenfolio, Inc., $1.1 million add-on to 1st Lien Senior Secured Debt: Zenfolio, Inc. is a SaaS platform for professional and amateur photographers.
During the quarter ended June 30, 2019, the Company received full prepayment on one investment totaling $20.0 million.
Prism Spectrum Holdings LLC: Proceeds of $20.0 million, generating a realized gain of $0.2 million and an IRR of 10.9%.
First Fiscal Quarter 2020 Operating Results
For the quarter ended June 30, 2019, Capital Southwest reported total investment income of $15.8 million, compared to $14.3 million in the prior quarter. The increase in investment income was attributable to an increase in average debt investments outstanding.
For the quarter ended June 30, 2019, total operating expenses (excluding interest expense) were $4.3 million, compared to $3.8 million in the prior quarter. The increase in expenses was primarily due to a one-time expense related to the acceleration of restricted stock award vesting upon the retirement of an employee, payroll taxes related to the annual employee bonus payment, as well as employee recruiting costs for a new hire during the quarter.
For the quarter ended June 30, 2019, interest expense was $3.8 million, compared to $3.3 million in the prior quarter. The increase in interest expense was due to increased average debt outstanding on the revolving credit facility and the amortization of $0.2 million of remaining debt issuance costs associated with the ATM debt distribution agreement (as defined below).
For the quarter ended June 30, 2019, total pre-tax net investment income was $7.7 million, compared to $7.2 million in the prior quarter.
For the quarter ended June 30, 2019, tax expense remained flat at $0.3 million, as compared to the prior quarter.
During the quarter ended June 30, 2019, Capital Southwest recorded total net realized and unrealized losses on investments of $0.6 million, compared to total net realized and unrealized gains on investments of $3.6 million in the prior quarter. For the quarter ended June 30, 2019, this included total net realized gains on investments of $1.2 million and net unrealized depreciation on investments of $1.9 million, of which $1.7 million was the reversal of net unrealized appreciation recognized in prior periods due to realized gains noted above. The net increase in net assets resulting from operations was $6.7 million for the quarter, compared to $10.5 million in the prior quarter.
The Company’s NAV at June 30, 2019 was $18.58 per share, as compared to $18.62 at March 31, 2019. The decrease in NAV per share from the prior quarter is primarily due to the supplemental dividend of $0.10 per share.
Liquidity and Capital Resources
At June 30, 2019, Capital Southwest had approximately $12.0 million in unrestricted cash and money market balances, $151 million of total debt outstanding on its revolving credit facility and $75.4 million, net of unamortized debt issuance costs, of the December 2022 Notes outstanding. As of June 30, 2019, Capital Southwest had $140.6 million in available borrowings under the revolving credit facility. The debt to equity ratio at the end of the quarter was 0.69 to 1.
In December 2018, the Company entered into the Amended and Restated Senior Secured Revolving Credit Agreement (the "Amended and Restated Agreement"), and a related Amended and Restated Guarantee, Pledge and Security Agreement, to amend and restate its Senior Secured Revolving Credit Facility (the "Credit Facility"). The Amended and Restated Agreement (1) increased the total commitments by $60 million from $210 million to an aggregate total of $270 million, provided by a diversified group of nine lenders, (2) increased the Credit Facility's accordion feature to $350 million under the Credit Facility from new and existing lenders on the same terms and conditions as the existing commitments, (3) reduced the interest rate on borrowings from LIBOR plus 3.00% to LIBOR plus 2.50%, subject to certain conditions as outlined in the Amended and Restated Agreement, (4) reduced the minimum asset coverage with respect to senior securities representing indebtedness from 200% to 150% after the date on which such minimum asset coverage is permitted to be reduced by the Company under applicable law, and (5) extended the Credit Facility's revolving period from November 16, 2020 to December 21, 2022 and the final maturity was extended from November 16, 2021 to December 21, 2023.
On May 23, 2019, the Company entered into an Incremental Assumption Agreement, which increased the total commitments under the Credit Facility by $25 million. The increase was executed under the accordion feature of the Credit Facility and increased total commitments from $270 million to $295 million.
On June 11, 2018, the Company entered into an "At-The-Market" ("ATM") debt distribution agreement, pursuant to which it may offer for sale, from time to time, up to $50 million in aggregate principal amount of the December
2022 Notes through B. Riley FBR, Inc., acting as its sales agent. Sales of the December 2022 Notes may be made in negotiated transactions or transactions that are deemed to be "at the market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Global Select Market, or similar securities exchanges or sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.
During the three months ended June 30, 2019, the Company did not sell any December 2022 Notes. The Company has no current intention of issuing additional December 2022 Notes under this ATM debt distribution agreement. Therefore, during the three months ended June 30, 2019, the Company amortized $0.2 million of the remaining debt issuance costs associated with the ATM debt distribution agreement, which is included in interest expense in the Consolidated Statement of Operations.
On March 4, 2019, the Company entered into separate equity distribution agreements with certain sales agents through which it may offer and sell, from time to time, shares of its common stock having an aggregate offering price of up to $50,000,000 (the "Equity ATM Program"). During the quarter ended June 30, 2019, the Company sold 195,549 shares of its common stock under the Equity ATM Program at a weighted-average price of $21.66 per share, raising $4.2 million of gross proceeds. Net proceeds were $4.1 million after commissions to the sales agents on shares sold. Cumulative to date, the Company has sold 459,205 shares of its common stock under the Equity ATM Program at a weighted-average price of $21.55, raising $9.9 million of gross proceeds.
Additionally, I-45 SLF has total commitments outstanding of $165 million from a group of four bank lenders in its Deutsche Bank led credit facility, which is scheduled to mature in July 2022. As of June 30, 2019, I-45 SLF had $155 million in borrowings outstanding under its credit facility.
Share Repurchase Program
On January 25, 2016, Capital Southwest announced that its Board of Directors authorized the repurchase of up to $10.0 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 share repurchase program because it believes that the Company’s common stock may be undervalued from time to time due to market volatility.
During the quarter ended June 30, 2019, the Company did not repurchase any shares of the Company's common stock under the share repurchase program. Cumulative to date, the Company has repurchased a total of 46,363 shares at an average price of $16.67 per share, including commissions paid. The Company currently has approximately $9.2 million available for additional repurchases under the program.
Declared Dividend of $0.50 Per Share for Quarter Ended September 30, 2019
On July 31, 2019, the Board declared total dividends of $0.50 per share for the quarter ended September 30, 2019, comprised of a Regular Dividend of $0.40 per share and a Supplemental Dividend of $0.10 per share.
The Company's dividend will be payable as follows:
September 30, 2019 Dividend
Amount Per Share: $0.50
Ex-Dividend Date: September 13, 2019
Record Date: September 16, 2019
Payment Date: September 30, 2019
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.
First Quarter 2020 Earnings Results Conference Call and Webcast
Capital Southwest has scheduled a conference call on Tuesday, August 6, 2019, at 11:00 a.m. Eastern Time to discuss the first quarter 2020 financial results. You may access the call by dialing (866) 502-8274 and using the Conference ID 4229687 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/3pc3miyc.
A telephonic replay will be available through August 13, 2019 by dialing (855) 859-2056 and using the Conference ID 4229687. 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 June 30, 2019 to be filed with the Securities and Exchange Commission and Capital Southwest’s First Fiscal Quarter 2020 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 $329 million in net assets as of June 30, 2019. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 million to $25 million investments across the capital structure, including first lien, unitranche, second
lien, subordinated debt 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 contains historical information and forward-looking statements 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, regulatory changes, tax treatment 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, 2019 and subsequent filings, including the "Risk Factors" sections therein, 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) | |||||||
June 30, | March 31, | ||||||
2019 | 2019 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Investments at fair value: | |||||||
Non-control/Non-affiliate investments (Cost: $334,669 and $305,596, respectively) | $ | 331,045 | $ | 304,663 | |||
Affiliate investments (Cost: $80,790 and $79,277, respectively) | 83,625 | 80,905 | |||||
Control investments (Cost: $73,415 and $93,182, respectively) | 118,821 | 138,503 | |||||
Total investments (Cost: $488,874 and $478,055, respectively) | 533,491 | 524,071 | |||||
Cash and cash equivalents | 11,969 | 9,924 | |||||
Receivables: | |||||||
Dividends and interest | 10,105 | 9,252 | |||||
Escrow | 418 | 370 | |||||
Other | 1,099 | 1,244 | |||||
Income tax receivable | 143 | 183 | |||||
Deferred tax asset | 1,672 | 1,807 | |||||
Debt issuance costs (net of accumulated amortization of $1,998 and $1,814, respectively) | 3,401 | 3,364 | |||||
Other assets | 1,878 | 1,628 | |||||
Total assets | $ | 564,176 | $ | 551,843 | |||
Liabilities | |||||||
Notes (Par value: $77,136 and $77,136, respectively) | $ | 75,440 | $ | 75,099 | |||
Credit facility | 151,000 | 141,000 | |||||
Other liabilities | 5,688 | 6,708 | |||||
Accrued restoration plan liability | 3,048 | 3,073 | |||||
Deferred income taxes | 186 | — | |||||
Total liabilities | 235,362 | 225,880 | |||||
Commitments and contingencies (Note 11) | |||||||
Net Assets | |||||||
Common stock, $0.25 par value: authorized, 25,000,000 shares; issued, 20,036,569 shares at June 30, 2019 and 19,842,528 shares at March 31, 2019 | 5,009 | 4,961 | |||||
Additional paid-in capital | 285,925 | 281,205 | |||||
Total distributable earnings | 61,817 | 63,734 | |||||
Treasury stock - at cost, 2,339,512 shares | (23,937 | ) | (23,937 | ) | |||
Total net assets | 328,814 | 325,963 | |||||
Total liabilities and net assets | $ | 564,176 | $ | 551,843 | |||
Net asset value per share (17,697,057 shares outstanding at June 30, 2019 and 17,503,016 shares outstanding at March 31, 2019) | $ | 18.58 | $ | 18.62 | |||
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
(Unaudited) | |||||||
(In thousands, except shares and per share data) | |||||||
Three Months Ended | |||||||
June 30, | |||||||
2019 | 2018 | ||||||
Investment income: | |||||||
Interest income: | |||||||
Non-control/Non-affiliate investments | $ | 9,031 | $ | 6,032 | |||
Affiliate investments | 2,050 | 1,452 | |||||
Control investments | 265 | 159 | |||||
Dividend income: | |||||||
Non-control/Non-affiliate investments | 87 | 23 | |||||
Affiliate investments | 19 | 38 | |||||
Control investments | 3,913 | 3,014 | |||||
Interest income from cash and cash equivalents | 16 | 4 | |||||
Fees and other income | 418 | 385 | |||||
Total investment income | 15,799 | 11,107 | |||||
Operating expenses: | |||||||
Compensation | 2,021 | 1,910 | |||||
Share-based compensation | 837 | 475 | |||||
Interest | 3,806 | 2,373 | |||||
Professional fees | 626 | 488 | |||||
Net pension expense | 36 | 40 | |||||
General and administrative | 789 | 825 | |||||
Total operating expenses | 8,115 | 6,111 | |||||
Income before taxes | 7,684 | 4,996 | |||||
Income tax expense | 324 | 379 | |||||
Net investment income | $ | 7,360 | $ | 4,617 | |||
Realized gain | |||||||
Non-control/Non-affiliate investments | $ | 1,049 | $ | 200 | |||
Affiliate investments | 1 | — | |||||
Control investments | 167 | 18,619 | |||||
Total net realized gain on investments before income tax | 1,217 | 18,819 | |||||
Net unrealized (depreciation) appreciation on investments | |||||||
Non-control/Non-affiliate investments | (2,972 | ) | 4,532 | ||||
Affiliate investments | 1,206 | (671 | ) | ||||
Control investments | 85 | (15,963 | ) | ||||
Income tax (provision) benefit | (183 | ) | 319 | ||||
Total net unrealized (depreciation) appreciation on investments, net of tax | (1,864 | ) | (11,783 | ) | |||
Net realized and unrealized (losses) gains on investments | $ | (647 | ) | $ | 7,036 | ||
Net increase in net assets from operations | $ | 6,713 | $ | 11,653 | |||
Pre-tax net investment income per share - basic and diluted | $ | 0.44 | $ | 0.31 | |||
Net investment income per share – basic and diluted | $ | 0.42 | $ | 0.29 | |||
Net increase in net assets from operations – basic and diluted | $ | 0.38 | $ | 0.72 | |||
Weighted average shares outstanding – basic | 17,535,924 | 16,180,291 | |||||
Weighted average shares outstanding – diluted | 17,535,924 | 16,201,443 | |||||
Capital Southwest Corporation Q1 2020 Earnings Presentation August 6, 2019 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com
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. • 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. Page 2
Forward-Looking Statements • 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. • 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, 2019 and its subsequent filings with the Securities and Exchange Commission, including the "Risk Factors" section therein. 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. Page 3
Conference Call Participants Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Page 4
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 • CSWC was formed in 1961, and elected to be regulated as a BDC in 1988 • Publicly-traded on Nasdaq: Common Stock (“CSWC”) and December 2022 Notes (“CSWCL”) • Internally Managed BDC with RIC tax treatment for U.S. federal income tax purposes • December 2014: announced intent to spin-off industrial growth company (“CSW Industrials”; Nasdaq: "CSWI") tax free • January 2015: launched credit investment strategy • September 2015: completed tax free spin off of CSWI • 21 employees based in Dallas, Texas • Total Balance Sheet Assets of $564MM as of June 30, 2019 • Manage I-45 Senior Loan Fund (“I-45 SLF”) in partnership with Main Street Capital (Nasdaq: “MAIN”) Page 5
Q1 2020 Highlights Financial Highlights • Q1 2020 Pre-Tax Net Investment Income (“NII”) of $7.7MM or $0.44 per share • Paid $0.39 per share in Regular Dividends, plus $0.10 per share Supplemental Dividend ◦ Total Dividends for the quarter of $0.49 per share • Investment Portfolio at Fair Value increased to $533MM from $524MM in prior quarter ◦ $34.7MM committed to two new portfolio companies and two add-ons ◦ $20.0MM in proceeds from exit of one portfolio company, generating a realized gain of $0.2MM and IRR of 10.9% • Received $2.9MM dividend from I-45 SLF, an annualized yield of 17.7% at fair value ◦ Up from $2.5MM in prior quarter • Raised $4.2MM in gross proceeds through Equity ATM Program during the quarter ◦ Sold 195,549 shares at a weighted average price of $21.66 per share (1.17x NAV per share) ◦ Cumulatively, raised $9.9MM in gross proceeds at a weighted average price of $21.55 per share since inception of the Equity ATM Program in March 2019 • Upsized Revolving Credit Facility by $25MM to $295MM in commitments in May 2019 • $140.6MM available on Credit Facility and $12.0MM in cash and cash equivalents as of quarter end Page 6
Track Record of Increasing Dividends Continues • In the last twelve months ending 6/30/19, CSWC generated $1.62 per share in Pre-Tax NII and paid out $1.47 per share in regular dividends ◦ Fifteen consecutive quarters of regular dividend per share growth • Cumulative Regular Dividend Coverage of 105% since the 2015 spin-off • Announced Supplemental Dividend Program in June 2018 ◦ Expect to pay $0.10 per share Supplemental Dividend per quarter going forward, subject to Board approval $1.0 19.7% $0.89 $0.8 e r a h S $0.6 9.1% 9.4% r 10.6% 0.60 9.6% e 9.3% $0.49 $0.50 P $0.48 $0.45 $0.46 d $0.44 n 0.10 0.10 0.10 e $0.4 6.6% 0.10 d 6.3% 0.10 i 5.6% v 5.2% i 0.26 $0.28 4.2% $0.26 D $0.24 $0.21 3.0% $0.17 $0.2 1.8% 0.38 0.39 0.40 1.2% $0.11 0.34 0.36 0.24 0.26 0.28 0.29 $0.04 $0.06 0.17 0.19 0.21 0.06 0.11 $0.0 0.04 /16 /16 /16 /16 /17 /17 /17 /17 /18 018 018 018 019 019 019 3/31 6/30 9/30 2/31 3/31 6/30 9/30 2/31 3/31 0/2 0/2 1/2 1/2 0/2 0/2 0 0 0 1 0 0 0 1 0 6/3 9/3 12/3 3/3 6/3 9/3 Regular Dividend Per Share Supplemental Dividend Per Share Dividend Yield – Quarterly Annualized Total Dividend / CSWC Share Price at Qtr. End Page 7
Two Pronged Investment Strategy CORE: Lower Middle Market (“LMM”): CSWC led or Club Deals • Companies with EBITDA between $3 MM and $15 MM • Typical leverage of 2.0x – 4.0x Debt to EBITDA through CSWC debt position • Commitment size up to $25 MM with hold sizes generally $10 MM to $20 MM • Both Sponsored and Non-sponsored deals • Securities include first lien, unitranche, second lien and subordinated debt • 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 $50 MM in EBITDA • Typical leverage of 3.0x – 5.5x Debt to EBITDA through CSWC debt position • Hold sizes generally $5 MM to $15 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 Page 8
Strong Track Record and Growing First Lien Credit Portfolio CSWC Credit Portfolio heavily weighted towards First Lien and LMM Investments • First Lien and LMM Investments have increased to 87% and 76% of the credit portfolio, respectively, as of 6/30/19 Credit Portfolio Heavily Weighted to First Lien Robust LMM Credit Portfolio Growth 500.0 500.0 400.0 $381.7 400.0 $381.7 $367.7 $367.7 $350.7 $350.7 $336.7 $336.7 24% ) 87% ) 22% s 300.0 86% s 23% n 300.0 $272.1 n $272.1 o 26% o i i l l l $239.1 86% $239.1 l i $226.5 85% i $226.5 M 27% M ( 200.0 $181.7$187.3 86% ( $187.3 76% $ 200.0 $181.7 28% 78% $167.5 82% $ $167.5 31% $151.4 $151.4 $137.6 79% $137.6 77% 73% 45% 74% 69% 51% 73% 100.0 60% 64% 100.0 58% 62% 78% 69% 72% 80% 49% 55% 27% 32% 28% 22% 17% 13% 10% 7% 9% 10% 10% 9% 42% 0.0 11% 8% 8% 9% 10% 8% 8% 7% 6% 4% 4% 4% 0.0 20% 22% 6 6 7 7 7 7 8 8 8 8 9 9 1 1 1 1 1 1 1 1 1 1 1 1 16 16 17 17 17 17 18 18 18 18 19 19 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 1 1 0 0 1 1 0 0/2 1/2 1/2 0/2 0/2 1/2 1/2 0/2 0/2 1/2 1/2 0/2 9/3 2/3 3/3 6/3 9/3 2/3 3/3 6/3 9/3 2/3 3/3 6/3 /3 /3 /3 /3 /3 /3 /3 /3 /3 /3 /3 /3 1 1 1 9 12 3 6 9 12 3 6 9 12 3 6 Sub-Debt Second Lien First Lien LMM UMM Page 9
CSWC Originations - Q1 2020 $34.7MM in new committed investments during the quarter (all funded at close) at a weighted average debt YTM of 11.1% Portfolio Origination Q1 2020 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread Debt Yield to Name Industry Type Market ($000s) ($000s) Close ($000s) over LIBOR Maturity Media, Marketing & Vistar Media, Inc. Entertainment 1st Lien / Warrants LMM $6,600 $0 $0 10.00% 13.90% Zenfolio, Inc. Business Services 1st Lien LMM $1,108 $0 $0 9.00% 16.40% iEnergizer Limited Business Services 1st Lien UMM $15,000 $0 $0 6.00% 9.20% Driven, Inc. Business Services 1st Lien LMM $12,000 $0 $0 8.00% 11.51% Total $34,708 $0 $0 7.5% 11.1% Note: Market refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) Page 10
Track Record of CSWC Exits Continues $20.0MM in proceeds from one exit during the quarter • Exited Prism Spectrum Holdings generating a realized gain of $0.2MM and IRR of 10.9% • Cumulative IRR of 15.7% on 26 portfolio exits generating $181.9MM in proceeds since launch of credit strategy in January 2015 Portfolio Repayments and Exits Q1 2020 Net Proceeds Realized Gain Name Industry Type Market ($000) ($000s) IRR Prism Spectrum Holdings Environmental Services 1st Lien / Equity LMM $20,000 $226 10.88% Total / Weighted Average $20,000 $226 10.9% Note: Market refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) Page 11
CSWC Portfolio Asset Mix by Market Maintaining conservative portfolio leverage while receiving attractive risk adjusted returns Investment Portfolio - Statistics Q1 2020 Lower Middle Upper Middle (1) (In Thousands) Market Market Number of Portfolio Companies 26 11 Total Cost $324,025 $96,849 Total Fair Value $376,985 $91,693 Average Hold Size (at Cost) $12,463 $8,804 % First Lien Investments (at Cost) 78.0% 84.8% % Second Lien Investments (at Cost) 6.6% 15.2% % Subordinated Debt Investments (at Cost) 4.5% 0.0% % Equity (at Cost) 10.9% 0.0% Wtd. Avg. Yield (2)(3) 12.2% 9.9% Wtd. Avg. EBITDA of Issuer ($MM's) (3) $8.8 $65.6 Wtd. Avg. Leverage through CSWC Security (3) (4) 3.4x 3.4x Note: All metrics above exclude the I-45 Senior Loan Fund (1) At June 30, 2019, we had equity ownership in approximately 69.2% of our LMM 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 June 30, 2019, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments. Weighted-average annual effective yield 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 paid by an investor (3) Weighted average metrics are calculated using investment cost basis weighting (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. Management uses this metric as a guide to evaluate relative risk of its position in each portfolio debt investment. For the quarter ended June 30, 2019, one portfolio company is excluded from this calculation due to reporting a debt to adjusted EBITDA ratio that was not meaningful Page 12
CSWC Portfolio Mix as of 6/30/19 at Fair Value Current Investment Portfolio of $533MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Telecommunications: 1% Software & IT Services: 1% Restaurants: 1% Financial Services: 2% Energy Services (Midstream): 2% MRI (dba Equity Co- Environmental Services: 2% Commodities & Mining: 2% SpotSee Investments: 6% Transportation & Logistics: Business Services: Holdings): 10% 4% 15% Senior Subordinated Debt: 3% Consumer Services: 4% Second Lien: 7% Media, Marketing, & Consumer Products and Retail: 4% Entertainment: 12% Distribution: I-45 SLF LLC First Lien: 5% (95% first lien): 62% Food, 12% Agriculture & Beverage: 5% I-45 SLF LLC: 12% Healthcare Products: 6% Industrial Healthcare Products: 10% Services: 11% Page 13
I-45 Portfolio Overview I-45 loan portfolio of $235MM is 95% first lien with average hold size of 2.0% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) 5% 2% Telecommunications 2% Telecommunications 2% 17% 3% 4% 7% 13% Retail 5% 95% 4% Retail 2% 11% 7% Healthcare & Pharmaceuticals 9% 9% Capital EquipmentCapital Equipment First Lien Second Lien Services: Consumer I-45 Portfolio Statistics (In Thousands) 9/30/2018 12/31/2018 3/31/2019 6/30/2019 Total Debt Investments at Fair Value $229,711 $238,727 $237,547 $234,700 Number of Issuers 46 48 48 50 Wtd. Avg. Issuer EBITDA $72,253 $69,738 $68,109 $70,807 Avg. Investment Size as a % of Portfolio 2.2% 2.1% 2.1% 2.0% Wtd. Avg. Net Leverage on Investments (1) 3.8x 3.7x 3.6x(2) 3.9x(2) Wtd. Avg. Spread to LIBOR 6.3% 6.3% 6.3% 6.4% Wtd. Avg. Duration (Yrs) 4.4 4.2 3.9 4.0 (1) Through I-45 Security (2) One portfolio company is excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful Page 14
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/18 12/31/18 3/31/19 6/30/19 Investment Income Interest Income $9,232 $10,070 $10,320 $11,346 Dividend Income 3,158 3,352 3,342 4,019 Fees and Other Income 205 449 646 434 Total Investment Income $12,595 $13,871 $14,308 $15,799 Expenses Cash Compensation $1,963 $2,007 $1,835 $2,021 Share Based Compensation 482 607 707 837 General & Administrative 1,239 1,134 1,233 1,451 Total Expenses (excluding Interest) $3,684 $3,748 $3,775 $4,309 Interest Expense $3,109 $3,347 $3,349 $3,806 Pre-Tax Net Investment Income $5,802 $6,776 $7,184 $7,684 Taxes and Gain / (Loss) Income Tax Benefit (Expense) $(256) $(101) $(312) $(324) Net realized gain (loss) on investments 94 1,883 58 1,217 Net increase (decrease) in unrealized appreciation of investments 948 (4,238) 3,567 (1,864) Net increase (decrease) in net assets resulting from operations $6,588 $4,320 $10,497 $6,713 Weighted Average Diluted Shares Outstanding 16,323 17,123 17,296 17,536 Pre-Tax Net Investment Income Per Dil. Wtd. Average Share $0.36 $0.40 $0.42 $0.44 Page 15
Operating Leverage Trend Continue to realize operating efficiencies of internally-managed structure migrating to a target operating leverage of sub-2.5% $1,000 6% s t e s $800 s 5% A g v A ) 4.9% f M o M $564 $600 % $ $552 ( s s a t e 4.2% 4% s s e s $417 s A n l e a $400 p t 3.7% $326 x o E T $284 g n i 3% t 3.1% a 3.0% r $200 e p O $0 2% FY 16 FY 17 FY 18 FY 19 Q1 FY20 Period Ending Total Assets Operating Expenses(1) as % of Average Total Assets Note: FY16 includes only the quarters after the 2015 spin-off. Q1 FY20 is quarterly annualized. (1) Operating expenses exclude interest expense Page 16
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/18 12/31/18 3/31/19 6/30/19 Assets Portfolio Investments $491,601 $496,740 $524,071 $533,491 Cash & Cash Equivalents 10,193 10,774 9,924 11,969 Deferred Tax Asset 2,060 2,294 1,807 1,672 Other Assets 12,653 13,973 16,041 17,044 Total Assets $516,507 $523,781 $551,843 $564,176 Liabilities December 2022 Notes $73,407 $74,960 $75,099 $75,440 Credit Facility 127,000 122,000 141,000 151,000 Other Liabilities 8,252 9,145 9,781 8,922 Total Liabilities $208,659 $206,105 $225,880 $235,362 Shareholders Equity Net Asset Value $307,848 $317,676 $325,963 $328,814 NAV per Share(1) $18.84 $18.43 $18.62 $18.58 Debt to Equity 0.65x 0.62x 0.66x 0.69x (1) NAV per Share includes the impact of $0.40 per share in supplemental dividends paid over the last 12 months Page 17
Significant Unused Debt Capacity with Long-Term Duration Earliest Debt Maturity occurs in July 2022 Facility Total Commitments Interest Rate Maturity Principal Drawn Undrawn Commitment Credit Facility(1) $295.0 MM L + 2.50% subject to December 2023 $151.0 MM $140.6 MM(3) certain conditions December 2022 Notes $77.1 MM 5.95% December 2022 $77.1 MM N/A (NASDAQ: "CSWCL") (2) I-45 Credit Facility (4) $165.0 MM L + 2.40% July 2022 $155.0 MM $10.0 MM Long-Term Debt Obligations (Calendar Year) ) $250 $232.1 M $225 M $155.0 $ ( $200 s t $175 n $151.0 e $150 m $151.0 y $125 a P $100 l a $75 p i $77.1 c $50 n i r $25 P $0 CY2019 CY2020 CY2021 CY2022 CY2023 CY2024 Credit Facility December 2022 Notes I-45 Credit Facility (1) The facility has an accordion feature that allows for an increase in total commitments up to $350 MM. Principal Drawn is based upon outstanding balances as of 6/30/19 (2) Redeemable at CSWC’s option beginning December 2019. Principal drawn is based upon outstanding balances as of 6/30/19 (3) Net of $3.4 MM in letters of credit outstanding (4) CSWC owns 80% of the equity and 50% of the voting rights of I-45 SLF LLC with a joint venture partner Page 18
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 9/30/18 12/31/18 3/31/19 6/30/19 Portfolio Statistics Fair Value of Debt Investments $336,717 $350,685 $367,727 $381,704 Average Debt Investment Hold Size $10,204 $10,627 $10,506 $10,906 Fair Value of Debt Investments as a % of Par 99% 98% 97% 97% % of Investment Portfolio on Non-Accrual (at Fair Value) 0.0% 1.7% 2.0% 1.5% Weighted Average Investment Rating (1) 2.0 1.9 1.9 1.9 Weighted Average Yield on Debt Investments 11.61% 11.56% 11.58% 11.73% Total Fair Value of Portfolio Investments $491,601 $496,740 $524,071 $533,491 Weighted Average Yield on all Portfolio Investments (2) 11.02% 11.08% 10.96% 11.62% Investment Mix (Debt vs. Equity) (3) (4) 79% / 21% 81% / 19% 80% / 20% 81% / 19% Investment Mix (Yielding vs. Non-Yielding) (4) 92% / 8% 94% / 6% 94% / 6% 95% / 5% (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 (2) Includes dividends from Media Recovery, Inc. and I-45 Senior Loan Fund (3) Excludes CSWC equity investment in I-45 Senior Loan Fund (4) At Fair Value Page 19
Investment Income Detail Constructing a portfolio of investments with recurring cash yield • Non-Cash and Non-Recurring investment income remain a minor portion of Total Investment Income Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 9/30/18 12/31/18 3/31/19 6/30/19 Investment Income Breakdown Cash Interest $8,815 $9,561 $9,760 $10,526 Cash Dividends 3,112 3,295 3,282 3,959 PIK Income 93 211 298 424 Amortization of purchase discounts and fees 375 367 336 472 Management/Admin Fees 191 206 197 62 Prepayment Fees & Other Income 9 231 435 356 Total Investment Income $12,595 $13,871 $14,308 $15,799 Key Metrics Cash Income as a % of Investment Income 96% 96% 96% 94% % of Total Investment Income that is Recurring (1) 99% 98% 97% 95% (1) Non-Recurring income principally made up of loan prepayment and amendment fees Page 20
Key Financial Metrics Strong Pre-Tax Net Investment Income and Regular Dividend growth driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 9/30/18 12/31/18 3/31/19 6/30/19 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.36 $0.40 $0.42 $0.44 Pre-Tax Net Investment Income Return on Equity (ROE)(1) 7.53% 8.40% 9.01% 9.41% Realized Earnings Per Wtd Avg Diluted Share $0.35 $0.50 $0.40 $0.49 Realized Earnings Return on Equity (ROE)(1) 7.32% 10.61% 8.70% 10.51% Earnings Per Wtd Avg Diluted Share $0.40 $0.25 $0.61 $0.38 Total Earnings Return on Equity (ROE)(1) 8.56% 5.36% 13.17% 8.22% Regular Dividends per Share $0.34 $0.36 $0.38 $0.39 Supplemental Dividends per Share $0.10 $0.10 $0.10 $0.10 Total Dividends per Share $0.44 $0.46 $0.48 $0.49 Dividend Yield (2) 9.27% 9.57% 9.13% 9.36% (1) Return on Equity is calculated as the quarterly annualized Pre-Tax NII, Realized Earnings, or Total Earnings, respectively, divided by equity at the end of the prior quarter (2) Dividend Yield is calculated as the quarterly annualized Total Dividend divided by share price at quarter end Page 21
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 3% 97% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (100 bps) $(2,310,579) $(0.13) (75 bps) (1,787,054) (0.10) (50 bps) (1,263,529) (0.07) (25 bps) (692,713) (0.04) 25 bps 692,713 0.04 50 bps 1,387,323 0.08 75 bps 2,085,706 0.12 100 bps 2,784,089 0.16 (1) Portfolio Exposure includes I-45 assets pro rata as a % of CSWC’s equity investment in the fund Note: Illustrative change in annual NII is based on a projection of CSWC’s existing debt investments as of 6/30/19, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Month LIBOR of 2.32% at 6/30/19. The results of this analysis include the I-45 Senior Loan Fund, which is comprised of 100% floating rate assets and liabilities Page 22
Corporate Information Board of Directors Senior Management Fiscal Year End Inside 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 Christine S. Battist Chief Financial Officer, Secretary & Treasurer Chicago, IL T. Duane Morgan Jack D. Furst William R. Thomas Investor Relations Corporate Counsel Michael S. Sarner Capital Southwest Eversheds Sutherland (US) LLP 214-884-3829 Corporate Offices & Website msarner@capitalsouthwest.com 5400 LBJ Freeway Transfer Agent 13th Floor Securities Listing American Stock Transfer & Trust Company, LLC Dallas, TX 75240 Nasdaq: "CSWC" (Common Stock) 800-937-5449 http://www.capitalsouthwest.com Nasdaq: "CSWCL" (Notes) www.amstock.com Industry Analyst Coverage Firm Analyst Contact Information Ladenburg Thalmann Mickey M. Schleien, CFA Direct: 305-572-4131 Janney Montgomery Scott, LLC Mitchel Penn, CFA Direct: 410-583-5976 JMP Securities Christopher York Direct: 415-835-8965 B. Riley FBR Tim Hayes Direct: 703-312-1819 Page 23