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): October 28, 2024
(Exact Name Of Registrant As Specified In Charter)
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||
(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 | ||||||
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 October 28, 2024, 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 October 29, 2024. 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 | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
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: October 28, 2024
| By: | /s/ Michael S. Sarner | |||||||
| Name: Michael S. Sarner | ||||||||
| Title: Chief Financial Officer | ||||||||
Exhibit 99.1
 | 8333 Douglas Avenue, Suite 1100 Dallas, Texas 75225 T 214.238.5700 F 214.238.5701 | |||||||
Capital Southwest Announces Financial Results for Second Fiscal Quarter Ended September 30, 2024, Declares Regular Dividend of $0.58 per share and Supplemental Dividend of $0.05 per share for the Quarter Ending December 31, 2024
CSWC Reports Pre-Tax Net Investment Income of $0.64 Per Share for Quarter Ended September 30, 2024
Dallas, Texas – October 28, 2024 – 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 second fiscal quarter ended September 30, 2024.
Second Quarter Fiscal Year 2025 Financial Highlights
•Total Investment Portfolio: $1.5 billion
◦Credit Portfolio of $1.4 billion:
▪98% 1st Lien Senior Secured Debt
▪$88.0 million in new committed credit investments during the quarter
▪Weighted Average Yield on Debt Investments: 12.9%
▪Current non-accruals with a fair value of $52.2 million, representing 3.5% of the total investment portfolio
◦Equity Portfolio of $134.5 million
▪$1.8 million in new equity co-investments during the quarter
•Pre-Tax Net Investment Income: $30.0 million, or $0.64 per weighted average share outstanding
•LTM Operating Leverage: 1.7% for the quarter ended September 30, 2024
•Dividends: Paid $0.58 per share Regular Dividend and $0.06 per share Supplemental Dividend
◦119% LTM Pre-Tax NII Regular Dividend Coverage
◦Total Dividends for the quarter ended September 30, 2024 of $0.64 per share
•Net Realized and Unrealized Depreciation: $8.5 million, or 0.6% of total investments at fair value
◦$1.3 million of net depreciation related to the equity portfolio
◦$7.2 million of net depreciation related to the credit portfolio
•Balance Sheet:
◦Cash and Cash Equivalents: $47.2 million
◦Total Net Assets: $791.3 million
◦Net Asset Value (“NAV”) per Share: $16.59
In commenting on the Company’s results, Bowen Diehl, President and Chief Executive Officer, stated, “The September quarter was another strong quarter for Capital Southwest. Our portfolio continued to perform well, producing $0.64 of pre-tax net investment income per share for the quarter, which earned both our $0.58 per share regular dividend and our $0.06 per share supplemental dividend paid for the quarter. Originations for the quarter were $90 million, offset by $45 million in prepayments. Due to delayed deal closings past the end of the September quarter, as well as an exceptionally strong current backlog of deals in diligence, we expect very robust net portfolio growth for the quarter ending December 31, 2024. In consideration of the strong performance of our portfolio, the Board of Directors has again declared a regular dividend of $0.58 per share for the quarter ending December 31, 2024. Our Board of Directors has also declared a supplemental dividend of $0.05 per share for the quarter ending December 31, 2024, resulting in total dividends for the quarter ending December 31, 2024 of $0.63 per share. While future dividend declarations are at the discretion of our Board of Directors, it is our intent to continue to distribute quarterly supplemental dividends for the foreseeable future. Finally, we continued our capital raising track record during the quarter raising over $20 million on our Equity ATM Program and adding $25 million in new commitments to our Corporate Credit Facility.”
Second Quarter Fiscal Year Investment Activities
Originations
During the quarter ended September 30, 2024, the Company originated $89.8 million in new commitments, consisting of investments in four new portfolio companies totaling $73.0 million and add-on commitments in 11 portfolio companies totaling $16.8 million. New portfolio company investment transactions that closed during the quarter ended September 30, 2024 are summarized as follows:
InSure Home Corporation, $25.0 million 1st Lien Senior Secured Debt: The company is an insurance holding company owning vertically integrated, diversified specialty insurance service entities and risk bearing insurance carriers.
Campany Roof Maintenance, LLC, $12.9 million 1st Lien Senior Secured Debt, $1.1 million Revolving Loan, $6.0 million Delayed Draw Term Loan, $0.3 million Preferred Equity: The company is a commercial and residential reroofing and roof maintenance company.
LEHR Upfitters, LLC, $10.0 million 1st Lien Senior Secured Debt, $1.7 million Revolving Loan, $5.2 million Delayed Draw Term Loan, $0.7 million Preferred Equity: The company provides regional vehicular upfitting services and wholesale parts to law enforcement, departments of transit and fire/EMS departments across the West and Pacific Northwest regions.
UPS Intermediate, LLC, $10.0 million Split Lien Term Loan: The company provides maintenance, repair and overhaul services for a comprehensive range of industrial rotating equipment.
Prepayments and Exits
During the quarter ended September 30, 2024, the Company received full prepayments on four debt investments totaling $45.2 million.
Acceleration, LLC: Proceeds of $26.6 million, generating an IRR of 16.1%.
South Coast Terminals, LLC: Proceeds of $14.4 million, generating an IRR of 11.3%.
Retail Services WIS Corporation: Proceeds of $2.6 million, generating an IRR of 17.2%.
ADS Tactical, Inc.: Proceeds of $1.6 million, generating an IRR of 15.6%.
Second Fiscal Quarter 2025 Operating Results
For the quarter ended September 30, 2024, Capital Southwest reported total investment income of $48.7 million, compared to $51.4 million in the prior quarter. The decrease in investment income was primarily attributable to a decrease in distributions received from our equity investments, as well as a decrease in amendment and prepayment fees received during the quarter.
For the quarter ended September 30, 2024, total operating expenses (excluding interest expense) were $6.1 million, compared to $7.6 million in the prior quarter. The decrease was primarily attributable to a decrease in accrued bonus compensation in the current quarter and a decrease in professional fees primarily due to non-recurring fees incurred in the previous quarter in connection with the compensation consultant engaged by the Compensation Committee.
For the quarter ended September 30, 2024, interest expense was $12.6 million, compared to $12.4 million in the prior quarter. The increase was primarily attributable to an increase in average debt outstanding.
For the quarter ended September 30, 2024, total pre-tax net investment income was $30.0 million, compared to $31.3 million in the prior quarter.
For the quarter ended September 30, 2024, there was a tax benefit of $1.2 million, compared to a tax provision of $2.4 million in the prior quarter. The benefit includes a $1.5 million deferred tax benefit, which is primarily attributable to an increase in the tax basis of investments held at the Taxable Subsidiary due to pass-through income, resulting in a decrease in tax appreciation.
During the quarter ended September 30, 2024, Capital Southwest recorded total net realized and unrealized losses on investments of $8.5 million, compared to $14.8 million of total net realized and unrealized losses in the prior quarter. For the quarter ended September 30, 2024, the total net realized and unrealized losses on investments reflected net realized and unrealized losses on debt investments of $7.2 million and net realized and unrealized losses on equity investments of $1.3 million. The net increase in net assets resulting from operations was $22.7 million for the quarter, compared to $14.0 million in the prior quarter.
The Company’s NAV at September 30, 2024 was $16.59 per share, as compared to $16.60 the prior quarter. The decrease in NAV per share from the prior quarter is primarily due to net realized and unrealized losses on investments, partially offset by the issuance of common stock at a premium to NAV per share through the Equity ATM Program (as described below).
Liquidity and Capital Resources
At September 30, 2024, Capital Southwest had approximately $47.2 million in unrestricted cash and money market balances and $406.2 million of unused capacity under the Corporate Credit Facility (as defined below) and the SPV Credit Facility (as defined below). The regulatory debt to equity ratio at the end of the quarter was 0.80 to 1.
As of September 30, 2024, Capital Southwest had the following borrowings outstanding:
•$200.0 million of total debt outstanding on the Corporate Credit Facility
•$78.0 million of total debt outstanding on the SPV Credit Facility
•$139.6 million, net of unamortized debt issuance costs, of the 4.50% Notes due January 2026
•$148.5 million, net of unamortized debt issuance costs, of the 3.375% Notes due October 2026
•$69.9 million, net of unamortized debt issuance costs, of the 7.75% Notes due August 2028
•$149.1 million, net of unamortized debt issuance costs, of SBA Debentures (as defined below)
In August 2016, CSWC entered into a senior secured credit facility (the “Corporate Credit Facility”) to provide additional liquidity to support its investment and operational activities. Borrowings under the Corporate Credit Facility accrue interest on a per annum basis at a rate equal to the applicable SOFR rate plus 2.15%. On August 2, 2023, CSWC entered into the Third Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement") that (1) increased commitments under the Corporate Credit Facility from $400 million to $435 million; (2) added an uncommitted accordion feature that could increase the maximum commitments up to $750 million; (3) extended the end of the Corporate Credit Facility's revolving period from August 9, 2025 to August 2, 2027 and extended the final maturity from August 9, 2026 to August 2, 2028; and (4) amended several financial covenants. On December 7, 2023, the Company entered into an Incremental Commitment and Assumption Agreement that increased the total commitments under the accordion feature of the Credit Agreement by $25 million, which increased total commitments from
$435 million to $460 million. The $25 million increase was provided by one new lender, bringing the total bank syndicate to ten participants.
On March 1, 2024, the Company entered into Amendment No. 1 to the Credit Agreement (the "Amendment"). The Amendment amended the Credit Agreement and other related loan documents to, among other things, permit the Company to enter into special purpose vehicle financings and exclude assets held by any such special purpose vehicle from the assets pledged as collateral securing the Corporate Credit Facility.
On September 12, 2024, the Company entered into an Incremental Commitment and Assumption Agreement that increased the total commitments under the accordion feature of the Credit Agreement by $25 million, which increased total commitments from $460 million to $485 million. The $25 million increase was provided by one new lender, bringing the total bank syndicate to 11 participants.
On February 2, 2024, the Company formed Capital Southwest SPV LLC ("SPV"). SPV is a wholly owned special purpose vehicle that was formed to hold investments for the SPV Credit Facility (as defined below) to support our investment and operating activities. On March 20, 2024, SPV entered into a special purpose vehicle financing credit facility (the "SPV Credit Facility"). The SPV Credit Facility included an initial commitment of $150 million. Pursuant to the terms of the loan agreement, on June 20, 2024, total commitments automatically increased from $150 million to $200 million. The SPV Credit Facility also includes an accordion feature that allows increases up to $400 million of total commitments from new and existing lenders on the same terms and conditions as the existing commitments. Borrowings under the SPV Credit Facility bear interest at three-month Term SOFR plus 2.50% per annum during the revolving period ending on March 20, 2027 and three-month Term SOFR plus an applicable margin of 2.85% thereafter. SPV (i) paid unused commitment fees of 0.10% through April 20, 2024 and (ii) pays unused commitment fees of 0.35% thereafter, on the unused lender commitments under the SPV Credit Facility, in addition to other customary fees. Under the SPV Credit Facility, SPV also pays a utilization fee based on the amount of borrowings utilized. The SPV Credit Facility matures on March 20, 2029.
The Company has an "at-the-market" offering (the "Equity ATM Program"), pursuant to which the Company may offer and sell, from time to time through sales agents, shares of its common stock. On May 21, 2024, the Company increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program from $650 million to $1 billion. During the quarter ended September 30, 2024, the Company sold 839,099 shares of its common stock under the Equity ATM Program at a weighted-average price of $24.49 per share, raising $20.6 million of gross proceeds. Net proceeds were $20.2 million after commissions to the sales agents on shares sold. As of September 30, 2024, the Company has $412.2 million available under the Equity ATM Program.
On April 20, 2021, our wholly owned subsidiary, Capital Southwest SBIC I, LP (“SBIC I”), received a license from the Small Business Administration (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 that 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. On December 20, 2023, SBIC I received an additional leverage commitment in the amount of $45.0 million to be issued on or prior to September 30, 2028. As of September 30, 2024, SBIC I had a total leverage commitment from the SBA in the amount of $175.0 million, of which $22.0 million remains unused.
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, as amended. On August 31, 2021, the Company entered into a share repurchase agreement, which became effective immediately, and the Company will cease purchasing its common stock under the share repurchase program upon the earlier of, among other things: (1) the date on which the aggregate purchase price for all shares equals $20 million including, without limitation, all applicable fees, costs and expenses; or (2) upon written notice by the Company to the broker that the share repurchase agreement is terminated. During the quarter ended September 30, 2024, the Company did not repurchase any shares of the Company’s common stock under the share repurchase program.
Regular Dividend of $0.58 Per Share and Supplemental Dividend of $0.05 Per Share for Quarter Ended December 31, 2024
On October 23, 2024, the Board declared a total dividend of $0.63 per share for the quarter ending December 31, 2024, comprised of a Regular Dividend of $0.58 per share and a Supplemental Dividend of $0.05 per share.
The Company's dividend will be payable as follows:
Regular Dividend
Amount Per Share: $0.58
Ex-Dividend Date: December 13, 2024
Record Date: December 13, 2024
Payment Date: December 31, 2024
Supplemental Dividend
Amount Per Share: $0.05
Ex-Dividend Date: December 13, 2024
Record Date: December 13, 2024
Payment Date: December 31, 2024
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.
Second Quarter 2025 Earnings Results Conference Call and Webcast
Capital Southwest has scheduled a conference call on Tuesday, October 29, 2024, at 11:00 a.m. Eastern Time to discuss the second quarter 2025 financial results. You may access the call by using the Investor Relations section of Capital Southwest's website at www.capitalsouthwest.com, or by using http://edge.media-server.com/mmc/p/gwbdghtk.
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's Form 10-Q for the period ended September 30, 2024 to be filed with the Securities and Exchange Commission (the "SEC") and Capital Southwest’s Second Fiscal Quarter 2025 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 $1.5 billion in investments at fair value as of September 30, 2024. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 million to $50 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, including, but not limited to, the statements about Capital Southwest's future performance and financial performance and financial condition, Capital Southwest's ability to continue to grow its balance sheet, and the timing, form and amount of any distributions or supplemental dividends in the future. Forward-looking statements are statements that are not historical statements and can often be identified by words such as "will," "believe," "expect" and similar expressions and variations or negatives of these words. These statements are based on management's current expectations, assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. These risks include risks related to: changes in the markets in which Capital Southwest invests; changes in the financial, capital, and lending markets; changes in the interest rate environment and its impact on our business and our portfolio companies; regulatory changes; tax treatment; our ability to operate our wholly owned subsidiary, Capital Southwest SBIC I, LP, as a small business investment company; an economic downturn and its impact on the ability of our portfolio companies to operate and the investment opportunities available to us; the impact of supply chain constraints and labor shortages on our portfolio companies; and the elevated levels of inflation and its impact on our portfolio companies and the industries in which we invests.
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, 2024 and any subsequent filings with the SEC, including the "Risk Factors" sections therein, 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) | |||||||||||
| September 30, | March 31, | ||||||||||
| 2024 | 2024 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Investments at fair value: | |||||||||||
Non-control/Non-affiliate investments (Cost: $1,301,871 and $1,276,690, respectively) | $ | 1,297,261 | $ | 1,286,355 | |||||||
Affiliate investments (Cost: $212,180 and $200,013, respectively) | 201,870 | 190,206 | |||||||||
Control investments (Cost: $8,613 and $0, respectively) | 9,376 | — | |||||||||
Total investments (Cost: $1,522,664 and $1,476,703, respectively) | 1,508,507 | 1,476,561 | |||||||||
| Cash and cash equivalents | 47,237 | 32,273 | |||||||||
| Receivables: | |||||||||||
| Dividends and interest | 29,981 | 22,928 | |||||||||
| Escrow | — | 16 | |||||||||
| Other | 1,477 | 7,276 | |||||||||
| Income tax receivable | 484 | 336 | |||||||||
Debt issuance costs (net of accumulated amortization of $9,013 and $7,741, respectively) | 10,611 | 10,928 | |||||||||
| Other assets | 6,201 | 6,440 | |||||||||
| Total assets | $ | 1,604,498 | $ | 1,556,758 | |||||||
| Liabilities | |||||||||||
| SBA Debentures (net of $3,936 and $4,305, respectively, of unamortized debt issuance costs) | $ | 149,064 | $ | 148,695 | |||||||
| January 2026 Notes (net of $443 and $612, respectively, of unamortized debt issuance costs) | 139,557 | 139,388 | |||||||||
| October 2026 Notes (net of $1,538 and $1,923, respectively, of unamortized debt issuance costs) | 148,462 | 148,077 | |||||||||
| August 2028 Notes (net of $1,927 and $2,182, respectively, of unamortized debt issuance costs) | 69,948 | 69,693 | |||||||||
| Credit Facilities | 278,000 | 265,000 | |||||||||
| Other liabilities | 14,259 | 17,381 | |||||||||
| Accrued restoration plan liability | 561 | 570 | |||||||||
| Income tax payable | 799 | 281 | |||||||||
| Deferred tax liability | 12,590 | 11,997 | |||||||||
| Total liabilities | 813,240 | 801,082 | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Net Assets | |||||||||||
Common stock, $0.25 par value: authorized, 75,000,000 shares at September 30, 2024 and March 31, 2024; issued, 47,686,685 shares at September 30, 2024 and 45,050,759 shares at March 31, 2024 | 11,922 | 11,263 | |||||||||
| Additional paid-in capital | 855,177 | 796,945 | |||||||||
| Total distributable (loss) earnings | (75,841) | (52,532) | |||||||||
| Total net assets | 791,258 | 755,676 | |||||||||
| Total liabilities and net assets | $ | 1,604,498 | $ | 1,556,758 | |||||||
Net asset value per share (47,686,685 shares outstanding at September 30, 2024 and 45,050,759 shares outstanding at March 31, 2024) | $ | 16.59 | $ | 16.77 | |||||||
| CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| (In thousands, except shares and per share data) | |||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Investment income: | |||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | $ | 38,621 | $ | 33,657 | $ | 76,557 | $ | 64,297 | |||||||||||||||
| Affiliate investments | 4,727 | 4,298 | 9,486 | 8,477 | |||||||||||||||||||
| Control investments | 350 | — | 642 | — | |||||||||||||||||||
| Payment-in-kind interest income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | 1,835 | 963 | 4,308 | 1,877 | |||||||||||||||||||
| Affiliate investments | 563 | 563 | 1,141 | 1,305 | |||||||||||||||||||
| Dividend income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | 572 | 287 | 2,939 | 786 | |||||||||||||||||||
| Affiliate investments | — | 31 | 51 | 91 | |||||||||||||||||||
| Control investments | — | 2,166 | — | 4,310 | |||||||||||||||||||
| Fee income: | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | 954 | 349 | 2,918 | 1,294 | |||||||||||||||||||
| Affiliate investments | 584 | 360 | 918 | 517 | |||||||||||||||||||
| Control investments | 9 | 21 | 67 | 45 | |||||||||||||||||||
| Other income | 491 | 82 | 1,033 | 139 | |||||||||||||||||||
| Total investment income | 48,706 | 42,777 | 100,060 | 83,138 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Compensation | 1,990 | 2,333 | 5,456 | 4,843 | |||||||||||||||||||
| Share-based compensation | 1,538 | 1,236 | 2,762 | 2,199 | |||||||||||||||||||
| Interest | 12,587 | 10,481 | 25,034 | 20,162 | |||||||||||||||||||
| Professional fees | 1,095 | 989 | 2,452 | 1,944 | |||||||||||||||||||
| General and administrative | 1,482 | 1,327 | 3,056 | 2,576 | |||||||||||||||||||
| Total operating expenses | 18,692 | 16,366 | 38,760 | 31,724 | |||||||||||||||||||
| Income before taxes | 30,014 | 26,411 | 61,300 | 51,414 | |||||||||||||||||||
| Federal income, excise and other taxes | 325 | (150) | 542 | 449 | |||||||||||||||||||
| Deferred taxes | (1,476) | (633) | 734 | (785) | |||||||||||||||||||
| Total income tax (benefit) provision | (1,151) | (783) | 1,276 | (336) | |||||||||||||||||||
| Net investment income | $ | 31,165 | $ | 27,194 | $ | 60,024 | $ | 51,750 | |||||||||||||||
| Realized (loss) gain | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | $ | (10,289) | $ | 210 | $ | (9,485) | $ | (5,596) | |||||||||||||||
| Affiliate investments | — | 152 | 167 | (6,503) | |||||||||||||||||||
| Control investments | — | — | (260) | — | |||||||||||||||||||
| Income tax provision | — | 28 | — | (293) | |||||||||||||||||||
| Total net realized (loss) gain on investments, net of tax | (10,289) | 390 | (9,578) | (12,392) | |||||||||||||||||||
| Net unrealized appreciation (depreciation) on investments | |||||||||||||||||||||||
| Non-control/Non-affiliate investments | (1,866) | (6,204) | (14,226) | (3,921) | |||||||||||||||||||
| Affiliate investments | 3,669 | (1,038) | (552) | 8,131 | |||||||||||||||||||
| Control investments | (8) | 1,560 | 762 | 2,166 | |||||||||||||||||||
| Income tax benefit (provision) | 13 | 1,083 | 289 | 1,063 | |||||||||||||||||||
| Total net unrealized appreciation (depreciation) on investments, net of tax | 1,808 | (4,599) | (13,727) | 7,439 | |||||||||||||||||||
| Net realized and unrealized (losses) gains on investments | (8,481) | (4,209) | (23,305) | (4,953) | |||||||||||||||||||
| Realized loss on extinguishment of debt | — | (361) | — | (361) | |||||||||||||||||||
| Net increase in net assets from operations | $ | 22,684 | $ | 22,624 | $ | 36,719 | $ | 46,436 | |||||||||||||||
| Pre-tax net investment income per share - basic and diluted | $ | 0.64 | $ | 0.67 | $ | 1.32 | $ | 1.33 | |||||||||||||||
| Net investment income per share – basic and diluted | $ | 0.66 | $ | 0.69 | $ | 1.29 | $ | 1.34 | |||||||||||||||
| Net increase in net assets from operations – basic and diluted | $ | 0.48 | $ | 0.57 | $ | 0.79 | $ | 1.20 | |||||||||||||||
| Weighted average shares outstanding – basic and diluted | 47,242,863 | 39,698,396 | 46,458,435 | 38,653,879 | |||||||||||||||||||
Q2 2025 Earnings Presentation 8333 Douglas Avenue, Suite 1100 | Dallas, Texas 75225 | 214.238.5700 | capitalsouthwest.com October 29, 2024 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; the impact of interest rate volatility; the impact of supply chain constraints and labor difficulties on our portfolio companies; elevated levels of inflation and its impact on Capital Southwest's portfolio companies and the industries in which it invests; 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 an economic downturn and its impact on the ability of our portfolio companies to operate and the investment opportunities available to us. • 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 or the fiscal year ended March 31, 2024 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 Josh S. Weinstein Senior Managing Director and Chief Investment Officer Chris Rehberger Executive Vice President and 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”) and 7.75% Notes due 2028 ("CSWCZ") • Internally Managed BDC with RIC tax treatment for U.S. federal income tax purposes • 32 employees based in Dallas, Texas • Total Balance Sheet Assets of $1.6 B as of September 30, 2024 • Operate Capital Southwest SBIC I, LP, a wholly-owned subsidiary • Maintain investment grade issuer ratings of Baa3 from Moody's and BBB- from Fitch 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 • Q2 2025 Pre-Tax Net Investment Income (“NII”) of $30.0 MM or $0.64 per share • Declared Regular Dividend of $0.58 per share for the quarter ending December 31, 2024 ◦ In addition, declared Supplemental Dividend of $0.05 per share for the quarter ending December 31, 2024 • Investment Portfolio at Fair Value of approximately $1.5 B ◦ $89.8 MM in total new committed investments to four new portfolio companies and eleven existing portfolio companies ◦ $45.2 MM in total proceeds from four debt prepayments generating a weighted average IRR of 14.5% • Net Asset Value per share of $16.59 as of September 30, 2024 • Increased total commitments on existing Corporate Credit Facility to $485 MM from $460 MM during the quarter • Raised $20.6 MM in gross proceeds through Equity ATM Program during the quarter ◦ Sold shares at weighted-average price of $24.49 per share, or 148% of the prevailing NAV per share • Regulatory Debt to Equity ended at 0.80x for the quarter • $428 MM of total availability and $47 MM in cash and cash equivalents as of quarter end ◦ $406 MM available on Credit Facilities and $22 MM of SBA Debentures available to be drawn Q2 2025 Highlights Financial Highlights
Page 7 • In the last twelve months ended 9/30/2024, CSWC generated $2.73 per share in Pre-Tax NII and paid out $2.29 per share in Regular Dividends ◦ LTM Pre-Tax NII Regular Dividend Coverage of 119% • Cumulative Pre-Tax NII Regular Dividend Coverage of 111% since launch of credit strategy in 2015 • Total of $4.06 per share Special and Supplemental Dividends declared since launch of credit strategy in 2015 • Estimated Undistributed Taxable Income ("UTI") of $0.64 per share as of September 30, 2024 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 $0.54 $0.97 $0.48 $0.63 $0.50 $0.57 $0.58 $0.59 $0.62 $0.63 $0.63 $0.63 $0.64 $0.63 $0.44 $0.47 $0.48 $0.48 $0.50 $0.52 $0.53 $0.54 $0.56 $0.57 $0.57 $0.57 $0.58 $0.58 $0.10 $0.50 $0.05 $0.05 $0.05 $0.06 $0.06 $0.06 $0.06 $0.06 $0.05 $0.15 Regular Dividend Per Share Supplemental Dividend Per Share Special Dividend Per Share 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 12/31/2022 3/31/2023 6/30/2023 9/30/2023 12/31/2023 3/31/2024 6/30/2024 9/30/2024 12/31/2024 $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 8.6% 15.3% 8.1% 13.7% 13.3% 13.0% 11.8% 12.0% 10.8% 10.6% 10.1% 9.7% 10.1%
Page 8 History of Value Creation $17.68 $17.38 $18.63 $20.90 $22.71 $21.97 $24.90 $28.27 $30.06 $32.93 $33.39 $34.02 $17.68 $17.34 $17.80 $19.08 $18.62 $15.13 $16.01 $16.86 $16.37 $16.77 $16.60 $16.59 $0.26 $0.26 $1.16 $2.31 $2.71 $3.41 $3.66 $3.89 $3.95 $4.01 $0.04 $0.57 $1.56 $2.93 $4.53 $6.18 $8.00 $10.03 $12.27 $12.84 $13.42 Net Asset Value Per Share Cumulative Special/Supplemental Dividends Paid Per Share Cumulative Regular Dividends Paid Per Share 9/30/2015 3/31/2016 3/31/2017 3/31/2018 3/31/2019 3/31/2020 3/31/2021 3/31/2022 3/31/2023 3/31/2024 6/30/2024 9/30/2024 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 Total Value (Net Asset Value + Cumulative Dividends Paid) Increase from Credit Strategy of $16.34 per share through 9/30/2024
Page 9 CSWC leads financing transactions, primarily backing private equity firms that generally fit the following parameters • Flexible financing solutions to fund growth, changes of control, or other corporate events • Investments are diverse among industries, geographic regions, and end markets • Companies with EBITDA between $3 MM and $25 MM • Typical leverage of 2.5x – 4.5x Debt to EBITDA through CSWC debt position and Loan-to-Value of 25% - 50% • Investments generally range in size from $5 MM to $50 MM • Both sponsored and non-sponsored deals • Floating rate first lien debt securities • Frequently make equity co-investments alongside CSWC debt Lower Middle Market Credit Strategy
Page 10 Granular Credit Portfolio Heavily Weighted Towards First Lien Investments 98% of credit portfolio in first lien senior secured loans with an average investment hold size of 1.0% as of 9/30/2024 Credit Portfolio Heavily Weighted to First Lien $ (M illi on s) Average H old S ize % $93 $167 $239 $368 $474 $573 $794 $1,038 $1,345 $1,335 $1,374 5.6% 3.6% 3.8% 2.9% 2.3% 1.9% 1.5% 1.3% 0.9% 1.0% 1.0% Sub-Debt Second Lien First Lien Average Hold Size % 3/31/2016 3/31/2017 3/31/2018 3/31/2019 3/31/2020 3/31/2021 3/31/2022 3/31/2023 3/31/2024 6/30/2024 9/30/2024 $0 $250 $500 $750 $1,000 $1,250 —% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 64% 28% 8% 82% 10% 8% 4% 10% 86% 90% 8% 2% 6% 92% 2% 93% 7% 96% 4% 43% 41% 16% 97% 3% 98% 2% 98% 2%
Page 11 $89.8 MM in total new committed investments to four new portfolio companies and eleven existing portfolio companies Q2 2025 Originations Portfolio Originations Q2 2025 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($000s) Debt Yield to Maturity InSure Home Corporation Financial Services First Lien $25,000 $— $— 12.5% Campany Roof Maintenance, LLC Consumer Services First Lien / Equity $12,921 $250 $7,079 11.7% LEHR Upfitters, LLC Commercial Services & Supplies First Lien / Equity $10,004 $725 $6,996 11.0% UPS Intermediate, LLC Industrial Services First Lien $10,000 $— $— 11.2% Central Medical Supply, LLC Healthcare Equipment & Supplies First Lien $8,750 $— $1,000 13.1% Cavalier Buyer, Inc. (DBA James River Cardiology) Healthcare Services First Lien / Equity $4,000 $143 $— 12.8% Scrip Inc. Healthcare Equipment & Supplies First Lien $— $— $1,300 12.6% Heat Trak, LLC(1) Consumer Products First Lien / Equity $500 $— $— 15.0% Student Resource Center, LLC Education Equity $— $356 $— N/A Lab Logistics, LLC Transportation & Logistics First Lien $239 $— $40 11.8% Island Pump and Tank, LLC Environmental Services Equity $— $239 $— N/A Acceleration Partners, LLC Media & Marketing First Lien $199 $— $— 13.0% Other Equity Co-Investments Various Equity $— $77 $— N/A Total / Wtd. Avg $71,614 $1,789 $16,414 12.1% • $73.4 MM funded at close (1) CSWC received additional warrants as part of the add-on transaction
Page 12 Portfolio Exits Q2 2025 Name Industry Type Total Proceeds ($000s) Realized Gain / (Loss) ($000s) IRR Acceleration, LLC Media & Marketing First Lien $26,544 $387 16.1% South Coast Terminals, LLC Chemicals First Lien $14,413 $168 11.3% Retail Services WIS Corporation Data Processing & Outsourced Services First Lien $2,639 $15 17.2% ADS Tactical, Inc. Aerospace & Defense First Lien $1,601 $14 15.6% Total / Wtd. Avg $45,197 $584 14.5% Track Record of CSWC Exits Continues • During the quarter, CSWC exited four debt investments generating proceeds of $45.2 MM and a weighted average IRR of 14.5% • Cumulative weighted average IRR of 13.9% on 86 portfolio company exits, generating $1.1 B in proceeds since launch of credit strategy in January 2015 Refinancing activity in the portfolio continued this quarter as the lending market remains very competitive
Page 13 CSWC Investment Portfolio Composition (1) At September 30, 2024 and June 30, 2024, we had equity ownership in approximately 61% and 59%, 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 September 30, 2024, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments (3) The weighted average annual effective yields on total investments were calculated by dividing total investment income, exclusive of non-recurring fees, by average total investments at fair value (4) Includes CSWC debt investments only. Weighted average EBITDA metric is calculated using investment cost basis weighting. For the quarters ended September 30, 2024 and June 30, 2024, twelve portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. (5) 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. For the quarters ended September 30, 2024 and June 30, 2024, twelve portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. Maintaining appropriate portfolio leverage while receiving attractive risk- adjusted returns Investment Portfolio - Statistics (in $000's) 6/30/2024 9/30/2024 Total CSWC Portfolio Total CSWC Portfolio Number of Portfolio Companies 117 118 Total Cost $1,484,078 $1,522,664 Total Fair Value $1,468,126 $1,508,507 Average Hold Size Debt Investments (at Fair Value) $12,717 $13,086 Average Hold Size Equity Investments (at Fair Value) $1,925 $1,868 % First Lien Investments (at Fair Value) 88.9% 89.2% % Second Lien Investments (at Fair Value) 1.9% 1.8% % Subordinated Debt Investments (at Fair Value) 0.1% 0.1% % Equity (at Fair Value) (1) 9.1% 8.9% Wtd. Avg. Yield on Debt Investments (2) 13.3% 12.9% Wtd. Avg. Yield on Total Investments (3) 13.5% 12.7% Wtd. Avg. EBITDA of Issuer ($MM's) (4) $19.7 $19.8 Wtd. Avg. Leverage through CSWC Security (5) 3.8x 3.8x
Page 14 Approximately 94% of all debt investments are currently rated a "1" or "2" as credit portfolio continues to demonstrate solid performance Investment Rating 6/30/2024 Investment Rating Upgrades Investment Rating Downgrades 9/30/2024 # of Loans Fair Value ($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 19 $196.8 14.7% 4 $55.1 4.0% — $— —% 23 $247.5 18.0% 2 120 $1,036.8 77.7% 1 $24.9 1.8% — $— —% 114 $1,037.5 75.5% 3 10 $99.7 7.5% — $— —% 1 $11.7 0.9% 10 $87.8 6.4% 4 2 $1.9 0.1% — $— —% — $— —% 2 $1.1 0.1% Wtd. Avg. Investment Rating (at Cost) 1.98 1.92 Quarter-over-Quarter Investment Rating Migration Note: We utilize an internally developed investment rating system to rate the performance and monitor the expected level of returns for each debt investment in our portfolio. The investment rating system takes into account both quantitative and qualitative factors of the portfolio company and the investments held therein. Investment Ratings range from a rating of 1, which represents the least amount of risk in our portfolio, to 4, which indicates that the investment is performing materially below underwriting expectations.
Page 15 CSWC Portfolio Mix as of September 30, 2024 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of approximately $1.5 B continues to be heavily weighted towards first lien investments and diverse across industries First Lien 89.2% Second Lien 1.8% Senior Subordinated Debt 0.1% Equity 8.9% Healthcare Services 13% Food, Agriculture & Beverage 9% Consumer Products 8% Consumer Services 7% Financial Services 7% Media & Marketing 7% Business Services 7% Transportation & Logistics 5% Software & IT Services 4% Environmental Services 4% Healthcare Equipment & Supplies 3% Industrial Machinery 3% Industrial Products 3% Specialty Retail 3% Note: Equity represents equity co-investments across 72 portfolio companies.
Page 16 Income Statement (In Thousands, except per share amounts) Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Investment Income Interest Income $37,841 $39,923 $42,987 $43,698 PIK Interest Income 4,073 2,953 3,051 2,398 Dividend Income 4,672 1,887 2,418 572 Fees and Other Income 1,980 1,668 2,898 2,038 Total Investment Income $48,566 $46,431 $51,354 $48,706 Expenses Cash Compensation $3,919 $1,869 $3,466 $1,990 Share Based Compensation 1,188 1,131 1,224 1,538 General & Administrative 2,220 2,209 2,931 2,577 Total Expenses (excluding Interest) $7,327 $5,209 $7,621 $6,105 Interest Expense $11,473 $11,453 $12,447 $12,587 Pre-Tax Net Investment Income $29,766 $29,769 $31,286 $30,014 Gains / Losses and Taxes Net Realized and Unrealized Losses $(5,375) $(15,927) $(14,824) $(8,481) Realized Loss on Extinguishment of Debt — — — — Income Tax (Expense) / Benefit (907) (373) (2,427) 1,151 Net increase in Net Assets Resulting from Operations $23,484 $13,469 $14,035 $22,684 Weighted Average Diluted Shares Outstanding 41,514 44,101 45,665 47,243 Pre-Tax NII Per Diluted Weighted Average Share $0.72 $0.68 $0.69 $0.64 Net Increase in Net Assets Per Dil. Wtd. Average Share $0.57 $0.31 $0.31 $0.48
Page 17 Operating Leverage Trend Continuing to improve Operating Leverage through benefits 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 $974 $1,258 $1,557 $1,544 $1,604 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.2% 1.9% 1.7% 1.8% 1.7% FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 Q1 FY 25 Q2 FY 25 $0 $250 $500 $750 $1,000 $1,250 $1,500 1% 2% 3% 4% 5% 6% Total Assets Operating Expenses as % of Average Total Assets Note: Operating Leverage calculated as last twelve months operating expenses (excluding interest expense) divided by average annual assets
Page 18 $16.60 $0.64 $(0.58) $(0.06) $(0.15) $(0.03) $0.13 $0.04 $16.59 6/3 0/2 02 4 N AV/Shar e Pre- Tax Net I nv est ment In com e Regu lar Divi den d Sup ple ment al D ivi den d Net C han ge in Valu ati on of Debt Port fol io Net C han ge in Valu ati on of Equ ity Port fol io Accr eti on fro m Equ ity Iss uan ce Othe r C orp ora te 9/3 0/2 02 4 N AV/Shar e $14 $14.5 $15 $15.5 $16 $16.5 $17 $17.5 $18 NAV per Share Bridge for Quarter Ended 9/30/24 Earnings / Dividends $0.00 per Share Investment Portfolio Valuation Change $(0.18) per Share Other Corporate $0.17 per Share
Page 19 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 October 2026 Notes (2) $150.0 MM 3.375% October 2026 $150.0 MM N/A Corporate Credit Facility $485.0 MM Term SOFR + 2.15% August 2028 $200.0 MM $284.1 MM (3) August 2028 Notes (4) $71.9 MM 7.75% August 2028 $71.9 MM N/A SPV Credit Facility $200.0 MM Term SOFR + 2.50% March 2029 $78.0 MM $122.0 MM SBA Debentures $175.0 MM 4.32% (5) September 2031 (6) $153.0 MM $22.0 MM P rin ci pa l P ay m en ts ($ M M ) Long-Term Debt Obligations (Calendar Year) $290.0 $271.9 $231.0 $140.0 $78.0 $200.0 $150.0 $71.9 $153.0 January 2026 Notes SPV Facility Corporate Credit Facility October 2026 Notes August 2028 Notes SBA Debentures CY 2024 CY 2025 CY 2026 CY 2027 CY 2028 CY 2029 - Thereafter $0 $150 $300 $450 $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) 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 (3) Net of $0.9 MM in letters of credit outstanding (4) Redeemable in whole or in part at Capital Southwest's option on or after August 1, 2025 (5) Weighted average interest rate of all SBA Debentures for the three months ended September 30, 2024 (6) First SBA Debentures mature on September 1, 2031
Page 20 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Assets Portfolio Investments $1,365,037 $1,476,561 $1,468,126 $1,508,507 Cash & Cash Equivalents 23,605 32,273 33,299 47,237 Other Assets 40,845 47,924 42,607 48,754 Total Assets $1,429,487 $1,556,758 $1,544,032 $1,604,498 Liabilities SBA Debentures $126,081 $148,695 $148,880 $149,064 January 2026 Notes 139,304 139,388 139,472 139,557 October 2026 Notes 147,884 148,077 148,269 148,462 August 2028 Notes 69,566 69,693 69,820 69,948 Credit Facilities 195,000 265,000 229,000 278,000 Other Liabilities 30,687 30,229 31,260 28,209 Total Liabilities $708,522 $801,082 $766,701 $813,240 Shareholders Equity Net Asset Value $720,965 $755,676 $777,331 $791,258 Net Asset Value per Share $16.77 $16.77 $16.60 $16.59 Regulatory Debt to Equity 0.77x 0.82x 0.75x 0.80x
Page 21 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 is calculated at cost. (2) At Fair Value Continuing to build a well performing credit portfolio (In Thousands) Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Portfolio Statistics Fair Value of Debt Investments $1,181,737 $1,344,559 $1,335,279 $1,374,041 Average Debt Investment Hold Size $13,741 $12,566 $12,717 $13,086 Fair Value of Debt Investments as a % of Par 97% 96% 95% 95% % of Investment Portfolio on Non-Accrual (at Fair Value) 2.2% 2.3% 1.9% 3.5% Weighted Average Investment Rating (1) 1.91 1.95 1.98 1.92 Weighted Average Yield on Debt Investments 13.53% 13.29% 13.26% 12.87% Fair Value of All Portfolio Investments $1,365,037 $1,476,561 $1,468,126 $1,508,507 Weighted Average Yield on all Portfolio Investments 13.74% 12.67% 13.49% 12.73% Investment Mix (Debt vs. Equity) (2) 90% / 10% 91% / 9% 91% / 9% 91% / 9%
Page 22 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Investment Income Breakdown Cash Interest $36,743 $38,881 $41,998 $42,629 Cash Dividends 4,672 1,887 2,418 572 PIK Income 4,073 2,953 3,051 2,398 Amortization of Purchase Discounts and Fees 1,292 1,254 1,531 1,560 Management/Admin Fees 467 469 465 480 Prepayment Fees & Other Income 1,319 987 1,891 1,067 Total Investment Income $48,566 $46,431 $51,354 $48,706 Key Metrics Cash Income as a % of Investment Income (1) 92% 94% 94% 95% % of Total Investment Income that is Recurring 93% 98% 94% 98% (1) Includes Purchase Discounts and Fees previously received in cash
Page 23 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 Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.72 $0.68 $0.69 $0.64 Pre-Tax Net Investment Income Return on Equity (ROE)(1) 17.42% 16.10% 16.34% 15.31% Realized Earnings Per Wtd Avg Diluted Share $0.51 $0.22 $0.65 $0.44 Realized Earnings Return on Equity (ROE)(1) 12.30% 5.27% 15.45% 10.65% Earnings Per Wtd Avg Diluted Share $0.57 $0.31 $0.31 $0.48 Earnings Return on Equity (ROE)(1) 13.75% 7.28% 7.33% 11.57% Regular Dividends per Share $0.57 $0.57 $0.57 $0.58 Supplemental / Special Dividends per Share $0.06 $0.06 $0.06 $0.06 Total Dividends per Share $0.63 $0.63 $0.63 $0.64
Page 24 Note: Illustrative change in annual NII does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in the portfolio. It also does not adjust for other business developments, including future originations and repayments. Accordingly, no assurances can be given that actual results would not differ materially from the table above. Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure Change in Base Interest Rates Illustrative Annual NII Change ($'s) Illustrative Annual NII Change ($ Per Share) (200 bps) (21,129,113) (0.44) (150 bps) (15,846,835) (0.33) (100 bps) (10,564,556) (0.22) (50 bps) (5,282,278) (0.11) 50 bps 5,282,278 0.11 2.5% 97.5% Fixed Floating
Page 25 Corporate Information Board of Directors Senior Management Fiscal Year End Inside Director 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 Jack D. Furst William R. Thomas Josh S. Weinstein Ramona Rogers-Windsor Senior Managing Director & Chief Investment Officer Corporate Counsel Eversheds Sutherland (US) LLP Corporate Offices & Website Investor Relations 8333 Douglas Avenue Michael S. Sarner Suite 1100 Capital Southwest Dallas, TX 75225 214-884-3829 http://www.capitalsouthwest.com msarner@capitalsouthwest.com Transfer Agent Equiniti Trust Company, LLC Securities Listing www.equiniti.com Nasdaq: "CSWC" (Common Stock) Nasdaq: "CSWCZ" (7.75% Notes due 2028) Industry Analyst Coverage Firm Analyst Contact Information Ladenburg Thalmann & Co., Inc. Mickey Schleien Direct: 305-572-4131 Citizens JMP Brian McKenna Direct: 585-217-7407 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 UBS Securities, LLC Douglas Harter Direct: 212-882-0080 B. Riley Securities Bryce Rowe Direct: 703-312-1820