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): January 31, 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.) | ||||||
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)) | ||||||||||
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 January 31, 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, as amended (the "Exchange Act"), nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the "Securities Act"), except as shall be expressly set forth by reference in a future filing.
Item 7.01 Regulation FD Disclosure.
The Company expects to hold a conference call with analysts and investors on February 1, 2022. 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 Exchange Act, nor shall it be deemed incorporated by reference into any filing under the Securities Act, 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: January 31, 2022
| 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 Third Fiscal Quarter Ended December 31, 2021 and Announces Increase in Quarterly Dividend to $0.48 per share for the Quarter Ended March 31, 2022
CSWC Reports Pre-Tax Net Investment Income of $0.51 Per Share for Quarter Ended December 31, 2021
Dallas, Texas – January 31, 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 third fiscal quarter ended December 31, 2021.
Third Quarter Fiscal Year 2022 Financial Highlights
•Total Investment Portfolio: $876.8 million
◦Credit Portfolio of $744.7 million:
▪91% 1st Lien Senior Secured Debt
▪$261.5 million in new committed credit investments
▪Weighted Average Yield on Debt Investments: 9.5%
▪Three credit investments currently on non-accrual with a fair value of $14.0 million, representing 1.6% of the total investment portfolio
•No additional credit investments placed on non-accrual during the quarter
◦Equity Portfolio of $74.5 million, excluding investment in I-45 Senior Loan Fund ("I-45 SLF")
▪$6.8 million in new equity co-investments
◦CSWC Investment in I-45 SLF of $57.6 million at fair value
▪I-45 SLF portfolio of $180.0 million
•Portfolio consists of 42 issuers: 95% 1st Lien Debt
▪$109.5 million of debt outstanding at I-45 SLF as of December 31, 2021
•I-45 SLF fund leverage of 1.52x debt to equity at fair value at quarter end
▪I-45 SLF paid a $1.7 million quarterly dividend to CSWC; an annualized yield of 11.8%
•Pre-Tax Net Investment Income: $11.8 million, or $0.51 per weighted average diluted share
•Dividends: Paid $0.47 per share Regular Dividend and $0.50 per share Supplemental Dividend
◦105% LTM Pre-Tax NII Regular Dividend Coverage
◦Total Dividends for the quarter ended December 31, 2021 of $0.97 per share
◦Undistributed Taxable Income at quarter end estimated at $0.32 per share
•Net Realized and Unrealized Appreciation on Investments: $0.7 million
◦$4.8 million of net appreciation related to the equity portfolio
◦$2.1 million of net depreciation related to the credit portfolio
◦$2.0 million of net depreciation related to I-45 SLF LLC
•Balance Sheet:
◦Cash and Cash Equivalents: $18.7 million
◦Total Net Assets: $387.3 million
◦Net Asset Value (“NAV”) per Share: $16.19
In commenting on the Company’s results, Bowen Diehl, President and Chief Executive Officer, stated, “Our portfolio continued to perform well this quarter, producing $0.51 of Pre-Tax Net Investment Income. Deal activity during the quarter was record setting, as we closed new commitments of approximately $268.3 million during the quarter. We also saw record volume in repayment activity with $158.4 million in proceeds received, generating $7.4 million in realized gains and a weighted average IRR on the exits of 16.2%. On the capitalization front, we continued to programmatically raise equity through our equity ATM program, raising $16.0 million in gross proceeds at 159% of the prevailing NAV per share during the quarter. Additionally, we raised $50 million in new institutional unsecured bonds with a coupon of 3.375%. As of the end of the quarter, our SBIC subsidiary had drawn $29 million of our initial $40 million leverage commitment from the Small Business Administration (the "SBA") at a weighted average interest rate of 1.43%. As a reminder, current SBA regulations provide for the ability to borrow up to $175 million in SBA-guaranteed debentures with at least $87.5 million in regulatory capital, subject to SBA approval. These financing activities continue to increase our earnings power allowing us to once again increase the dividend this quarter from $0.47 per share to $0.48 per share.”
Third Quarter Fiscal Year Investment Activities
Originations
During the quarter ended December 31, 2021, the Company originated investments in fourteen new portfolio companies and twelve existing portfolio companies, totaling $268.3 million in capital commitments. New portfolio company investment transactions that closed during the quarter ended December 31, 2021 are summarized as follows:
Winter Services Operations, LLC, $20.0 million 1st Lien Senior Secured Debt, $4.4 million Delayed Draw Term Loan, $4.4 million Revolving Loan: Winter Services provides snow and ice management services and de-icing agent distribution to commercial, industrial, and government customers across a growing footprint primarily based in the upper Midwest.
National Credit Care, LLC, $22.5 million 1st Lien Senior Secured Debt: National Credit Care is the second largest credit repair organization in the United States, consulting customers on credit health with the end goal of qualifying for a mortgage or receiving a lower mortgage rate.
Catbird NYC, LLC, $16.0 million 1st Lien Senior Secured Debt, $4.0 million Revolving Loan, $1.6 million Preferred Equity: Catbird NYC is a direct-to-consumer business that designs, manufactures, and sells Catbird brand delicate fine jewelry and offers a curated selection of jewelry and other products from third-party designers.
South Coast Terminals, LLC, $18.1 million 1st Lien Senior Secured Debt, $1.9 million Revolving Loan: South Coast Terminals is an independent contract manufacturer, bulk storage provider, packager and processor of specialty chemicals and lubricant additives.
ArborWorks, LLC, $13.0 million 1st Lien Senior Secured Debt, $3.0 million Revolving Loan, $0.1 million Preferred Equity: ArborWorks is a professional tree care firm that specializes in providing utility line clearing and vegetation management services on the West Coast.
Mercury Acquisition 2021, LLC (dba Tele-Town Hall), $12.5 million 1st Lien Senior Secured Debt, $3.3 million 2nd Lien Debt, Preferred Equity: Mercury Acquisition is a provider of mass communication service solutions that allow its customers to engage and manage large-scale audiences simultaneously using ultra-high-capacity, real-time voice and messaging products that provide significantly greater functionality than traditional webinar and conferencing services.
The Producto Group, LLC, $13.8 million 1st Lien Senior Secured Debt, $1.5 million Common Equity: The Producto Group is a manufacturer of high precision metal and plastic tooling components.
Lash OpCo, LLC, $6.5 million 1st Lien Senior Secured Debt, $7.0 million Delayed Draw Term Loan, $0.5 million Revolving Loan: Lash OpCo is a beauty-focused platform consisting of five brands, focused on eyelash beauty products and serum manufacturing.
Infolinks Media Buyco, LLC, $7.8 million 1st Lien Senior Secured Debt, $2.3 million Delayed Draw Term Loan, $1.0 million Common Equity: Infolinks is an exclusive digital ad placement provider that helps publishers monetize premium ad space through placement arrangements with programmatic buyers.
Air Conditioning Specialist, Inc., $9.0 million 1st Lien Senior Secured Debt, $1.0 million Revolving Loan, $0.5 million Preferred Equity: Air Conditioning Specialist is a provider of heating, ventilation, and air conditioning maitenance, retrofit, and new construction installation and service.
SIB Holdings, LLC, $7.4 million 1st Lien Senior Secured Debt, $1.9 million Delayed Draw Term Loan, $0.7 million Revolving Loan, $0.5 million Common Equity: SIB Holdings offers spend management and contract optimization solutions across a wide range of industries to help reduce their fixed overhead costs.
Spotlight AR, LLC, $7.5 million 1st Lien Senior Secured Debt, $2.0 million Revolving Loan, $0.8 million Common Equity: Spotlight is a provider of specialty analyst relations leveraging a proprietary software platform to unify the complexities of analyst relations processes and deliver expertise to its technology and services customers.
Everest Transportation Systems, LLC, $7.5 million 1st Lien Senior Secured Debt, $1.7 million Delayed Draw Term Loan: Everest Transportation Systems is a freight brokerage business that acts as an intermediary between large and medium shippers (with goods to move) and a fragmented base of carriers (with trucks to move goods).
ISI Enterprises, LLC, $5.0 million 1st Lien Senior Secured Debt, $2.0 million Revolving Loan, $1.0 million Preferred Equity: ISI Enterprises is a provider of managed services catering to the US Defense Industrial Base that need to comply with the National Industrial Security Program Operating Manual and Cybersecurity Maturity Model Certification regulations.
Prepayments and Exits
During the quarter ended December 31, 2021, the Company received full prepayments on eleven debt investments totaling $151.9 million and proceeds from the sale of one equity investment totaling $6.5 million.
VTX Holdings, Inc. (dba Vertex One): Proceeds of $21.6 million, generating an IRR of 13.9%.
ICS Distribution, LLC (dba Relevant Rental Solutions): Proceeds of $20.5 million, generating an IRR of 13.6%.
Clickbooth.com, LLC: Proceeds of $18.2 million, generating an IRR of 11.9%.
KMS, Inc.: Proceeds of $16.0 million, generating an IRR of 9.4%.
Broad Sky Networks LLC: Proceeds of $15.8 million, generating an IRR of 13.6%.
ASC Ortho Management Company, LLC: Proceeds of $15.0 million, generating an IRR of 12.1%.
ESCP DTFS, Inc. (dba Industrial Specialty Services): Proceeds of $11.7 million, generating an IRR of 12.3%.
Capital Pawn Holdings, LLC: Proceeds of $8.9 million, generating an IRR of 12.1%.
Adams Publishing Group, LLC: Proceeds of $8.6 million, generating an IRR of 11.2%.
Sonobi, Inc.: Proceeds of $8.5 million, generating an IRR of 13.7%.
Chemistry Rx Holdings, LLC: Proceeds of $7.1 million, generating an IRR of 14.8%.
Danforth Advisors, LLC: Proceeds of $6.5 million from sale of equity investment, generating an IRR of 99.2%.
Third Fiscal Quarter 2022 Operating Results
For the quarter ended December 31, 2021, Capital Southwest reported total investment income of $22.3 million, compared to $20.3 million in the prior quarter. The increase in investment income was primarily attributable to an increase in average debt investments outstanding and an increase in prepayment fees received from portfolio companies.
For the quarter ended December 31, 2021, total operating expenses (excluding interest expense) were $5.8 million, compared to $4.9 million in the prior quarter. The increase in expenses was primarily attributable to an increase in bonus accrual based on the Company's anticipated year end performance.
For the quarter ended December 31, 2021, interest expense was $4.7 million as compared to $5.4 million in the prior quarter. The decrease was primarily due to the redemption of the $140 million in aggregate principal amount of the October 2024 Notes (as defined below), which had an interest rate of 5.375%, and the issuance of the $150 million in aggregate principal amount of the October 2026 Notes (as defined below), which have an interest rate of 3.375%.
For the quarter ended December 31, 2021, total pre-tax net investment income was $11.8 million, compared to $10.0 million in the prior quarter.
For the quarter ended December 31, 2021, Capital Southwest had a tax benefit of $0.1 million as compared to a tax provision of $0.3 million in the previous quarter. The decrease was primarily related to activity in our Taxable Subsidiary.
During the quarter ended December 31, 2021, Capital Southwest recorded total net realized and unrealized gains on investments of $0.7 million, compared to $2.8 million in the prior quarter. For the quarter ended December 31, 2021, this included net realized and unrealized gains on equity investments of $4.8 million, net realized and unrealized losses on debt investments of $2.1 million and net unrealized losses on I-45 SLF LLC of $2.0 million. The net increase in net assets resulting from operations was $12.6 million for the quarter, compared to a net decrease in net assets of $4.6 million in the prior quarter.
The Company’s NAV at December 31, 2021 was $16.19 per share, as compared to $16.36 at September 30, 2021. The decrease in NAV per share from the prior quarter is due to the supplemental dividend of $0.50 per share paid to shareholders during the quarter, offset by 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 (as described below).
Liquidity and Capital Resources
At December 31, 2021, Capital Southwest had approximately $18.7 million in unrestricted cash and money market balances, $190.0 million of total debt outstanding on the Credit Facility, $138.6 million, net of unamortized debt issuance costs, of the 4.50% Notes due January 2026 outstanding, $146.4 million, net of unamortized debt issuance costs, of the October 2026 Notes and $28.0 million, net of unamortized debt issuance costs, of SBA Debentures (as defined below) outstanding. As of December 31, 2021, Capital Southwest had $141.7 million in available borrowings under the Credit Facility and $11.0 million in undrawn SBA Debenture commitments. The regulatory debt to equity ratio at the end of the quarter was 1.23 to 1.
The Company has an "at-the-market" offering (the "Equity ATM Program") 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 December 31, 2021, the Company sold 616,156 shares of its common stock under the Equity ATM Program at a weighted-average price of $25.97 per share, raising $16.0 million of gross proceeds. Net proceeds were $15.8 million after commissions to the sales agents on shares sold. Cumulative to date, the Company has sold 7,140,363 shares of its common stock under the Equity ATM Program at a weighted-average price of $22.17, raising $158.3 million of gross proceeds. Net proceeds were $155.5 million after commissions to the sales agents on shares sold. As of December 31, 2021, the Company has $91.7 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, beginning on April 1, 2022. 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 April 20, 2021, our wholly owned subsidiary, Capital Southwest SBIC I, LP (“SBIC I”), received a license from the SBA to operate as a Small Business Investment Company ("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.
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 December 31, 2021, I-45 SLF had $109.5 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 shall 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 quarter ended December 31, 2021, the Company did not repurchase any shares of the Company’s common stock under the share repurchase program.
Declared Dividend of $0.48 Per Share for Quarter Ended March 31, 2022
On January 26, 2022, the Board declared a quarterly dividend of $0.48 per share for the quarter ended March 31, 2022.
The Company's dividend will be payable as follows:
Quarterly Dividend
Amount Per Share: $0.48
Ex-Dividend Date: March 14, 2022
Record Date: March 15, 2022
Payment Date: March 31, 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.
Third Quarter 2022 Earnings Results Conference Call and Webcast
Capital Southwest has scheduled a conference call on Tuesday, February 1, 2022, at 11:00 a.m. Eastern Time to discuss the third quarter 2022 financial results. You may access the call by dialing (866) 502-8274 and using the Conference ID 4575014 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/gtr5rdsv.
A telephonic replay will be available through February 8, 2022 by dialing (855) 859-2056 and using the Conference ID 4575014. An audio archive of the conference call will also be available on the Investor Relations section of Capital Southwest’s website.
For a more detailed discussion of the financial and other information included in this press release, please refer to the Capital Southwest Form 10-Q for the period ended December 31, 2021 to be filed with the Securities and Exchange Commission and Capital Southwest’s Third 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 $877 million in investments at fair value as of December 31, 2021. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 million to $30 million investments 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 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, capital, and lending markets; 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 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 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, 2021 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) | |||||||||||
| December 31, | March 31, | ||||||||||
| 2021 | 2021 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Investments at fair value: | |||||||||||
| Non-control/Non-affiliate investments (Cost: $673,871 and $540,556, respectively) | $ | 691,229 | $ | 546,028 | |||||||
| Affiliate investments (Cost: $136,929 and $90,201, respectively) | 127,947 | 85,246 | |||||||||
| Control investments (Cost: $76,000 and $72,800, respectively) | 57,589 | 57,158 | |||||||||
| Total investments (Cost: $886,800 and $703,557, respectively) | 876,765 | 688,432 | |||||||||
| Cash and cash equivalents | 18,668 | 31,613 | |||||||||
| Receivables: | |||||||||||
| Dividends and interest | 8,966 | 10,533 | |||||||||
| Escrow | 1,344 | 1,150 | |||||||||
| Other | 274 | 171 | |||||||||
| Income tax receivable | 33 | 155 | |||||||||
| Debt issuance costs (net of accumulated amortization of $4,340 and $3,582, respectively) | 4,271 | 2,246 | |||||||||
| Other assets | 2,234 | 1,284 | |||||||||
| Total assets | $ | 912,555 | $ | 735,584 | |||||||
| Liabilities | |||||||||||
| SBA Debentures (Par value: $29,000 and $0, respectively) | $ | 27,965 | $ | — | |||||||
| October 2024 Notes (Par value: $0 and $125,000, respectively) | — | 122,879 | |||||||||
| January 2026 Notes (Par value: $140,000 and $140,000, respectively) | 138,630 | 138,425 | |||||||||
| October 2026 Notes (Par value: $150,000 and $0, respectively) | 146,357 | — | |||||||||
| Credit facility | 190,000 | 120,000 | |||||||||
| Other liabilities | 13,392 | 11,655 | |||||||||
| Accrued restoration plan liability | 2,853 | 2,979 | |||||||||
| Income tax payable | 1,527 | 50 | |||||||||
| Deferred tax liability | 4,494 | 3,345 | |||||||||
| Total liabilities | 525,218 | 399,333 | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Net Assets | |||||||||||
| Common stock, $0.25 par value: authorized, 40,000,000 shares; issued, 26,265,215 shares at December 31, 2021 and 23,344,836 shares at March 31, 2021 | 6,566 | 5,836 | |||||||||
| Additional paid-in capital | 424,250 | 356,447 | |||||||||
| Total distributable (loss) earnings | (19,542) | (2,095) | |||||||||
| Treasury stock - at cost, 2,339,512 shares | (23,937) | (23,937) | |||||||||
| Total net assets | 387,337 | 336,251 | |||||||||
| Total liabilities and net assets | $ | 912,555 | $ | 735,584 | |||||||
| Net asset value per share (23,925,703 shares outstanding at December 31, 2021 and 21,005,324 shares outstanding at March 31, 2021) | $ | 16.19 | $ | 16.01 | |||||||
| CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| (In thousands, except shares and per share data) | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Investment income: | |||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | $ | 14,805 | $ | 11,306 | $ | 42,873 | $ | 31,010 | |||||||||||||||
| Affiliate investments | 2,116 | 1,774 | 4,774 | 5,715 | |||||||||||||||||||
| Control investments | — | — | — | — | |||||||||||||||||||
| Payment-in-kind interest income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | 614 | 980 | 1,717 | 3,224 | |||||||||||||||||||
| Affiliate investments | 200 | 627 | 951 | 1,265 | |||||||||||||||||||
| Control investments | — | — | — | — | |||||||||||||||||||
| Dividend income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | — | 1,235 | 1,570 | 1,589 | |||||||||||||||||||
| Affiliate investments | 9 | — | 9 | — | |||||||||||||||||||
| Control investments | 1,705 | 1,681 | 4,862 | 5,144 | |||||||||||||||||||
| Fee income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | 2,591 | 1,394 | 4,005 | 2,817 | |||||||||||||||||||
| Affiliate investments | 267 | 40 | 413 | 107 | |||||||||||||||||||
| Control investments | — | — | — | — | |||||||||||||||||||
| Other income | 4 | 3 | 12 | 18 | |||||||||||||||||||
| Total investment income | 22,311 | 19,040 | 61,186 | 50,889 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Compensation | 3,353 | 2,444 | 7,083 | 6,125 | |||||||||||||||||||
| Share-based compensation | 849 | 771 | 2,848 | 2,236 | |||||||||||||||||||
| Interest | 4,655 | 4,528 | 15,015 | 13,253 | |||||||||||||||||||
| Professional fees | 607 | 538 | 1,956 | 1,691 | |||||||||||||||||||
| General and administrative | 1,010 | 787 | 2,968 | 2,339 | |||||||||||||||||||
| Total operating expenses | 10,474 | 9,068 | 29,870 | 25,644 | |||||||||||||||||||
| Income before taxes | 11,837 | 9,972 | 31,316 | 25,245 | |||||||||||||||||||
| Federal income, excise and other taxes | 68 | 195 | 283 | 587 | |||||||||||||||||||
| Deferred taxes | (130) | 1,260 | 365 | 1,003 | |||||||||||||||||||
| Total income tax provision (benefit) | (62) | 1,455 | 648 | 1,590 | |||||||||||||||||||
| Net investment income | $ | 11,899 | $ | 8,517 | $ | 30,668 | $ | 23,655 | |||||||||||||||
| Realized gain (loss) | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | $ | 4,017 | $ | (127) | $ | 6,561 | $ | (5,325) | |||||||||||||||
| Affiliate investments | 140 | — | 140 | (1,628) | |||||||||||||||||||
| Control investments | — | — | — | — | |||||||||||||||||||
| Income tax provision | (1,442) | — | (1,442) | — | |||||||||||||||||||
| Total net realized gain (loss) on investments, net of tax | 2,715 | (127) | 5,259 | (6,953) | |||||||||||||||||||
| Net unrealized (depreciation) appreciation on investments | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | 3,165 | 5,593 | 12,558 | 16,417 | |||||||||||||||||||
| Affiliate investments | (3,849) | 245 | (4,700) | (1,012) | |||||||||||||||||||
| Control investments | (2,049) | 2,152 | (2,769) | 11,075 | |||||||||||||||||||
| Income tax benefit (provision) | 679 | (719) | (783) | (1,968) | |||||||||||||||||||
| Total net unrealized (depreciation) appreciation on investments, net of tax | (2,054) | 7,271 | 4,306 | 24,512 | |||||||||||||||||||
| Net realized and unrealized gains on investments | 661 | 7,144 | 9,565 | 17,559 | |||||||||||||||||||
| Realized loss on extinguishment of debt | — | (262) | (17,087) | (548) | |||||||||||||||||||
| Net increase (decrease) in net assets from operations | $ | 12,560 | $ | 15,399 | $ | 23,146 | $ | 40,666 | |||||||||||||||
| Pre-tax net investment income per share - basic and diluted | $ | 0.51 | $ | 0.52 | $ | 1.40 | $ | 1.36 | |||||||||||||||
| Net investment income per share – basic and diluted | $ | 0.51 | $ | 0.45 | $ | 1.37 | $ | 1.27 | |||||||||||||||
| Net increase (decrease) in net assets from operations – basic and diluted | $ | 0.54 | $ | 0.80 | $ | 1.03 | $ | 2.18 | |||||||||||||||
| Weighted average shares outstanding – basic and diluted | 23,432,522 | 19,134,824 | 22,393,935 | 18,629,463 | |||||||||||||||||||
Q3 2022 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com February 1, 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; 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, 2021 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 $913 MM as of December 31, 2021 • Manage I-45 Senior Loan Fund (“I-45 SLF”) in partnership with Main Street Capital (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 • Q3 2022 Pre-Tax Net Investment Income (“NII”) of $11.8 MM or $0.51 per share ◦ Paid $0.47 per share Regular Dividend ◦ Paid $0.50 per share Supplemental Dividend • Increased Regular Dividend to $0.48 per share for the quarter ending March 31, 2022, an increase of 2.1% compared to the prior quarter • Investment Portfolio at Fair Value increased to $877 MM from $818 MM in prior quarter ◦ $268.3 MM in total new committed investments, of which $213.5 MM was funded at close ◦ $158.4 MM in total proceeds from eleven debt prepayments and one equity exit ▪ Danforth equity exit generated a realized gain of $5.6 MM and an IRR of 99.2% • Completed add-on of $50 MM in aggregate principal of 3.375% Notes due October ("October 2026 Notes") in November 2021 • Raised $16.0 MM in gross proceeds through Equity ATM Program during the quarter ◦ Sold shares at weighted-average price of $25.97 per share, or 159% of the prevailing NAV per share • $141.7 MM available on Credit Facility, $11.0 MM available on initial SBA leverage commitment to SBIC I, and $18.7 MM in cash and cash equivalents as of quarter end Q3 2022 Highlights Financial Highlights
Page 7 • In the last twelve months ended 12/31/2021, CSWC generated $1.84 per share in Pre-Tax NII and paid out $1.76 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 $0.32 per share as of December 31, 2021 Track Record of Consistent Dividends Continues Dividend Yield – Quarterly Annualized Total Dividend / CSWC Share Price at Qtr. End 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 $0.19 $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 $0.10 $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 Regular Dividend Per Share Supplemental Dividend Per Share Special Dividend Per Share 3/31/17 6/30/17 9/30/17 12/31/17 03/31/18 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 3/31/2021 $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 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% 15.1% 14.5% 11.5% 9.4% 9.1% 8.6% 15.3%
Page 8 History of Value Creation $17.68$17.22$17.38$17.49$17.95$18.26$18.63$19.00$19.54$19.98 $20.90$21.58$21.99$22.04$22.71$23.16$23.38$23.07 $21.97$22.30 $23.22 $24.11 $24.90 $26.00$26.32 $27.12 $17.68$17.22$17.34$17.39$17.74$17.88$17.8 $17.96$18.26$18.44$19.08$18.87$18.84$18.43$18.62$18.58$18.30 $16.74 $15.13$14.95$15.36$15.74$16.01$16.58$16.36$16.19 $0.00 $0.00 $0.04 $0.10 $0.21 $0.38 $0.83 $1.04 $1.28 $1.54 $1.82 $2.71 $3.15 $3.61 $4.09 $4.58 $5.08 $6.33 $6.84 $7.35 $7.86 $8.37 $8.89 $9.42 $9.96$10.93 Net Asset Value Per Share Cumulative Dividends Paid Per Share 9/30/2015 12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017 6/30/2017 9/30/2017 12/31/2017 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 $0.00 $3.00 $6.00 $9.00 $12.00 $15.00 $18.00 $21.00 $24.00 $27.00 Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $9.44 per share at 12/31/2021 from 9/30/2015 Spin-off of CSWI
Page 9 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 $30 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 $15 MM ▪ Securities include 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 Investment Strategy
Page 10 Credit Portfolio Heavily Weighted Towards First Lien Investments 91% of Credit Portfolio as of 12/31/2021 in first lien senior secured loans Credit Portfolio Heavily Weighted to First Lien $ (M ill io ns ) $272 $337 $351 $368 $382 $387 $456 $474 $487 $521 $531 $573 $671 $689 $745 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 $0.0 $200.0 $400.0 $600.0 $800.0 Sub-DebtSecond LienFirst Lien 6% 85% 9% 7% 86% 7% 4% 86% 10% 86% 10% 4% 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%
Page 11 $268.3 MM in total new committed investments to fourteen new portfolio companies and twelve existing portfolio companies Q3 2022 Originations Portfolio Originations Q3 2022 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($000s) Debt Yield to Maturity Winter Services Operations, LLC Business services First Lien $20,000 $— $8,889 8.50% National Credit Care, LLC Consumer services First Lien $22,500 $— $— 8.88% Catbird NYC, LLC Consumer products & retail First Lien / Equity $16,000 $1,500 $4,125 9.15% KMS, Inc. Distribution First Lien $16,000 $— $4,571 8.69% South Coast Terminals, LLC Specialty chemicals First Lien $18,065 $— $1,935 7.96% ArborWorks, LLC Environmental Services First Lien / Equity $13,540 $100 $2,460 8.88% Mercury Acquisition 2021, LLC (dba Tele-Town Hall) Telecommunications First Lien / Second Lien $15,800 $— $— 10.65% The Producto Group, LLC Industrial products First Lien / Equity $13,770 $1,500 $— 10.90% Lash OpCo, LLC Consumer products & retail First Lien $6,500 $— $7,481 8.88% Infolinks Media Buyco, LLC Media, marketing & entertainment First Lien / Equity $7,750 $588 $2,662 7.80% • $213.5 MM funded at close
Page 12 Q3 2022 Originations Portfolio Originations Q3 2022 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($000s) Debt Yield to Maturity SIB Holdings, LLC Business services First Lien / Equity $7,427 $500 $2,573 7.43% Air Conditioning Specialist, Inc. Consumer services First Lien / Equity $9,000 $500 $1,000 8.95% Spotlight AR, LLC Business services First Lien / Equity $7,500 $750 $2,000 8.88% Cityvet, Inc. Healthcare services First Lien $— $— $10,000 9.42% Klein Hersh, LLC Business services First Lien $9,875 $— $— 8.25% Everest Transportation Systems, LLC Transportation and logistics First Lien $9,167 $— $— 9.63% ISI Enterprises, LLC Software & IT services First Lien / Equity $5,000 $1,000 $2,000 8.88% NinjaTrader, Inc. Financial services First Lien $3,900 $— $3,036 7.78% Zenfolio Inc. Business services First Lien $4,000 $— $— 10.50% Lighting Retrofit International, LLC (dba Envocore) Environmental Services First Lien $— $— $1,042 8.00% Well-Foam, Inc. Energy services (upstream) First Lien $— $— $1,000 10.40% GS Operating, LLC Distribution First Lien $800 $— $— 8.50% VTX Holdings, Inc. (dba Vertex One) Software & IT services Equity $— $200 $— N/A Roseland Management, LLC Healthcare services Equity $— $136 $— N/A LGM Pharma, LLC Healthcare products Subordinated Debt $88 $— $— 25.00% Delphi Behavioral Health Group, LLC Healthcare services First Lien $70 $— $— 13.00% Total / Wtd. Avg $206,752 $6,774 $54,774 (1) 8.97% (1) Unfunded Commitments consist of $32.2 MM in delayed draw term loans, $22.1 MM in revolvers, and $0.5 MM in unfunded equity
Page 13 Portfolio Exits Q3 2022 Name Industry Type Net Proceeds ($000s) Realized Gain ($000s) IRR VTX Holdings, Inc. (dba Vertex One) Software & IT services First Lien - Last Out $21,575 $316 13.9% ICS Distribution, LLC (dba Relevant Rental Solutions) Industrial services First Lien - Last Out $20,500 $315 13.6% Clickbooth.com, LLC Media, marketing & entertainment First Lien $18,169 $194 12.0% KMS, Inc. Distribution First Lien - First Out $16,000 $— 9.4% Broad Sky Networks, LLC Telecommunications First Lien $15,788 $288 13.6% ASC Ortho Management Company, LLC Healthcare services First Lien / Second Lien $15,012 $114 12.1% ESCP DTFS, Inc. (dba Industrial Specialty Services) Industrial services First Lien $11,700 $150 12.3% Capital Pawn Holdings, LLC Consumer products & retail First Lien $8,854 $11 12.1% Adams Publishing Group, LLC Media, marketing & entertainment First Lien $8,647 $91 11.2% Sonobi, Inc. Media, marketing & entertainment First Lien $8,500 $140 13.7% Chemistry Rx Holdings, LLC Specialty chemicals First Lien $7,096 $123 14.8% Danforth Advisors, LLC Business services Equity $6,517 $5,642 99.2% Total / Weighted Average $158,358 $7,384 16.2% Track Record of CSWC Exits Continues • During the quarter, CSWC exited eleven debt investments and one equity investment, generating total proceeds of $158.4 MM and an IRR of 16.2% • Cumulative IRR of 14.6% on 56 portfolio company exits generating $637.6 MM in proceeds since launch of credit strategy in January 2015 $158.4 MM in total proceeds from twelve portfolio company exits
Page 14 CSWC Investment Portfolio Composition Note: All metrics above exclude the I-45 Senior Loan Fund (1) At December 31, 2021 and September 30, 2021, we had equity ownership in approximately 56% and 49%, 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 December 31, 2021, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments. As of December 31, 2021, there were three investments on non-accrual status. As of September 30, 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 paid by an investor (3) Includes CSWC debt investments only. Weighted average EBITDA metric is calculated using investment cost basis weighting. 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. For the quarter ended September 30, 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 December 31, 2021, 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 September 30, 2021, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful Maintaining conservative portfolio leverage while receiving attractive risk-adjusted returns Investment Portfolio - Statistics Q3 2022 9/30/2021 12/31/2021 (In Thousands) Total CSWC Portfolio Total CSWC Portfolio Number of Portfolio Companies 63 70 Total Cost $749,521 $810,800 Total Fair Value $758,580 $819,176 Average Hold Size Debt Investments (at Fair Value) $11,685 $11,820 Average Hold Size Equity Investments (at Fair Value) $2,231 $1,910 % First Lien Investments (at Fair Value) 82.4% 82.9% % Second Lien Investments (at Fair Value) 6.8% 6.5% % Subordinated Debt Investments (at Fair Value) 1.6% 1.5% % Equity (at Fair Value) 9.1% 9.1% Wtd. Avg. Yield (2) 9.7% 9.5% Wtd. Avg. EBITDA of Issuer ($MM's) (3) $17.4 $19.6 Wtd. Avg. Leverage through CSWC Security (4) 4.1x 3.9x
Page 15 Four loans upgraded and no loans downgraded during the quarter Investment Rating 9/30/2021 Investment Rating Upgrades Investment Rating Downgrades 12/31/2021 # of Loans Fair Value ($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 $112.5 15.8% 2 $29.5 4.0% 0 $0.0 —% 8 $129.5 17.4% 2 53 $515.8 73.7% 2 $24.1 3.2% 0 $0.0 —% 60 $580.6 78.0% 3 6 $58.9 9.7% 0 $0.0 —% 0 $0.0 —% 5 $34.4 4.6% 4 1 $2.3 0.8% 0 $0.0 —% 0 $0.0 —% 1 $0.2 0.0% Wtd. Avg. Investment Rating (at Cost) 1.96 1.90 Credit Portfolio Investment Rating Migration
Page 16 CSWC Portfolio Mix as of 12/31/2021 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $877 MM continues to be diverse across industries First Lien 78% I-45 SLF LLC (a) 7% Second Lien 6% Subordinated Debt 1% Equity (b) 8% Business Services 14% Healthcare Services 10% Consumer Products & Retail 9% I-45 SLF LLC 7% Media, Marketing & Entertainment 6% Distribution 6% Consumer Services 5% Food, Agriculture & Beverage 5% Financial Services 5% Transportation & Logistics 4% Education 4% Technology Products & Components 4% Healthcare Products 4% Software & IT Services 3% (a) I-45 SLF consists of 95% first lien senior secured debt (b) Equity represents equity co-investments across 39 portfolio companies
Page 17 I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $180.0 MM is 95% first lien senior secured debt with average hold size of 2.4% of the I-45 portfolio (1) Through I-45 security Telecommunications Services: Consumer Current I-45 Portfolio (By Type) I-45 Portfolio Statistics (In Thousands) 3/31/2021 6/30/2021 9/30/2021 12/31/2021 Total Investments at Fair Value $164,351 $169,610 $169,042 $180,052 Fund Leverage (Debt to Equity) at Fair Value 1.27x 1.40x 1.30x 1.52x Number of Issuers 36 38 38 42 Wtd. Avg. Issuer EBITDA $77,649 $77,851 $75,025 $72,800 Avg. Investment Size as a % of Portfolio 2.8% 2.6% 2.6% 2.4% Wtd. Avg. Net Leverage on Investments (1) 4.4x 4.8x 4.7x 5.0x Wtd. Avg. Spread to LIBOR 6.0% 6.0% 5.9% 6.2% Wtd. Avg. Duration (Yrs) 3.0 3.0 3.7 3.7 95% 5% First Lien Non-First Lien Telecommunications Business Services Consumer Products and Retail Healthcare Products 13% 12% 11% 10%8% High Tech Industries
Page 18 Income Statement (In Thousands, except per share amounts) Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Investment Income Interest Income $12,282 $14,626 $16,100 $16,921 PIK Interest Income 2,796 975 879 814 Dividend Income 1,661 2,657 2,070 1,714 Fees and Other Income 434 321 1,247 2,862 Total Investment Income $17,173 $18,579 $20,296 $22,311 Expenses Cash Compensation $1,631 $1,432 $2,298 $3,353 Share Based Compensation 708 1,076 923 849 General & Administrative 1,278 1,677 1,630 1,617 Total Expenses (excluding Interest) $3,617 $4,185 $4,851 $5,819 Interest Expense $4,688 $4,955 $5,405 $4,655 Pre-Tax Net Investment Income $8,868 $9,439 $10,040 $11,837 Gains / Losses and Taxes Net Realized and Unrealized Gains on Investments $2,660 $6,099 $2,805 $661 Realized Losses on Extinguishment of Debt (459) — (17,087) — Income Tax (Expense) / Benefit (852) (396) (314) 62 Net increase (decrease) in Net Assets Resulting from Operations $10,217 $15,142 $(4,556) $12,560 Weighted Average Diluted Shares Outstanding 20,376 21,202 22,534 23,433 Pre-Tax NII Per Diluted Weighted Average Share $0.44 $0.45 $0.45 $0.51
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 Expenses as % of A vg A ssets $284 $326 $417 $552 $585 $736 $836 $867 $913 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.3% 2.3% 2.3% FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 Q1 FY 22 Q2 FY22 Q3 FY22 $0 $200 $400 $600 $800 $1,000 1% 2% 3% 4% 5% 6% 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 $16.36 $0.51 $(0.47) $(0.50) $(0.09) $0.20 $(0.09) $0.24 $0.03 $16.19 9/30/2021 NAV/Share Pre- Tax Net I nvest ment In come Regular Dividend Supplem ental Dividend Net C hange in Debt P ortfo lio Net C hange in Equity Portfo lio Net C hange in I-4 5 Portfo lio Accr etio n fro m Equity Iss uance Other Corporat e 12/31/2021 NAV/Share $14 $14.5 $15 $15.5 $16 $16.5 $17 $17.5 NAV per Share Bridge from Quarter Ended 9/30/2021 Earnings / Dividends $(0.46) per Share Investment Portfolio Valuation Change $0.02 per Share Other Corporate $0.27 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 $109.5 MM $40.5 MM Credit Facility (3) $335.0 MM L + 2.15% August 2026 $190.0 MM $141.7 MM (4) October 2026 Notes (5) $150.0 MM 3.375% October 2026 $150.0 MM N/A SBA Debentures $40.0 MM 1.43% (6) September 2031 (7) $29.0 MM $11.0 MM (8) P rin ci pa l P ay m en ts ($ M M ) Long-Term Debt Obligations (Calendar Year) $589.5 $29.0 140.0 109.5 190.0 150.0 January 2026 Notes I-45 Credit Facility Credit Facility October 2026 Notes SBIC I CY2021- CY2025 CY 2026 CY 2027 CY 2028 CY 2029 CY 2030 CY 2031 $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 $3.3 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 for the three months ended December 31, 2021 (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 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Assets Portfolio Investments $688,432 $798,647 $818,218 $876,765 Cash & Cash Equivalents 31,613 16,543 26,840 18,668 Other Assets 15,539 20,858 21,764 17,122 Total Assets $735,584 $836,048 $866,822 $912,555 Liabilities SBA Debentures $— $— $16,709 $27,965 October 2024 Notes 122,879 123,041 — — January 2026 Notes 138,425 138,504 138,545 138,630 October 2026 Notes — — 97,264 146,357 Credit Facility 120,000 190,000 215,000 190,000 Other Liabilities 18,029 16,408 17,359 22,266 Total Liabilities $399,333 $467,953 $484,877 $525,218 Shareholders Equity Net Asset Value $336,251 $368,095 $381,945 $387,337 Net Asset Value per Share $16.01 $16.58 $16.36 $16.19 Regulatory Debt to Equity 1.13x 1.23x 1.18x 1.23x
Page 23 Portfolio Statistics (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 Senior Loan Fund (3) At Fair Value Continuing to build a well performing credit portfolio (In Thousands) Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Portfolio Statistics Fair Value of Debt Investments $572,614 $671,257 $689,421 $744,681 Average Debt Investment Hold Size $11,228 $11,377 $11,490 $11,820 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% Weighted Average Investment Rating (1) 2.00 1.96 1.96 1.90 Weighted Average Yield on Debt Investments 10.76% 10.04% 9.66% 9.48% Total Fair Value of Portfolio Investments $688,432 $798,647 $818,218 $876,765 Weighted Average Yield on all Portfolio Investments 10.22% 10.12% 9.60% 9.35% Investment Mix (Debt vs. Equity) (2)(3) 92% / 8% 91% / 9% 91% / 9% 91% / 9%
Page 24 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Investment Income Breakdown Cash Interest $11,668 $13,939 $15,370 $16,164 Cash Dividends 1,660 2,657 2,069 1,714 PIK Income 2,796 975 879 814 Amortization of purchase discounts and fees 616 688 731 758 Management/Admin Fees 234 227 327 340 Prepayment Fees & Other Income 199 93 920 2,520 Total Investment Income $17,173 $18,579 $20,296 $22,310 Key Metrics Cash Income as a % of Investment Income 80% 91% 92% 93% % of Total Investment Income that is Recurring 99% 96% 95% 89%
Page 25 Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield 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 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.44 $0.45 $0.45 $0.51 Pre-Tax Net Investment Income Return on Equity (ROE)(1) 11.06% 11.12% 10.75% 12.35% Realized Earnings Per Wtd Avg Diluted Share $0.29 $0.38 $(0.17) $0.62 Realized Earnings Return on Equity (ROE)(1) 7.45% 9.53% (4.14)%(2) 15.25% Earnings Per Wtd Avg Diluted Share $0.50 $0.71 $(0.20) $0.54 Earnings Return on Equity (ROE)(1) 12.74% 17.84% (4.88)%(2) 13.11% Regular Dividends per Share $0.42 $0.43 $0.44 $0.47 Supplemental/Special Dividends per Share $0.10 $0.10 $0.10 $0.50 Total Dividends per Share $0.52 $0.53 $0.54 $0.97
Page 26 Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure (1) Note: Illustrative change in annual NII is based on a projection of CSWC’s existing debt investments as of 12/31/2021, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Month LIBOR of 0.21% at 12/31/2021. The results of this analysis include the I-45 Senior Loan Fund, which is comprised of 98% floating rate debt assets and 100% floating rate liabilities (1) Portfolio Exposure includes I-45 assets pro rata as a % of CSWC’s equity investment in the fund Change in Base Interest Rates Illustrative Annual NII Change ($'s) Illustrative Annual NII Change (Per Share) (25 bps) 535,329 0.02 25 bps (639,947) (0.03) 50 bps (1,279,894) (0.05) 75 bps (1,824,168) (0.08) 100 bps (887,763) (0.04) 125 bps 349,572 0.01 150 bps 1,606,072 0.07 4% 96% Fixed Floating
Page 27 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 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 5400 Lyndon B. Johnson Freeway msarner@capitalsouthwest.com Transfer Agent 13th Floor American Stock Transfer & Trust Company, LLC Dallas, TX 75240 Securities Listing 800-937-5449 http://www.capitalsouthwest.com Nasdaq: "CSWC" (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 B. Riley Securities Sarkis Sherbetchyan Direct: 310-689-5221 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