Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q3 2018 Earnings Presentation
23 slides from Capital Southwest's earnings presentation, Feb 5, 2018
Slide 1: Capital Southwest Corporation Q3 2018 Earnings Presentation
Capital Southwest Corporation Q3 2018 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 Dallas, Texas 75240 214.238.5700 capitalsouthwest.com February 6, 2018
Slide 2: Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 relating to, among other things, the business, financial condition and results of operations of Capital Southwest, the anticipated investment strategies and investments of
Slide 3: Conference Call Participants
Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Conference Call Participants
Slide 4: CSWC Company Overview
CSWC is a middle-market lending firm focused on supporting the acquisition and growth of middle-market companies across the capital structure CSWC was formed in 1961, and became a BDC in 1988 Publicly-traded on NASDAQ: Common Stock (“CSWC”) and Notes (“CSWCL”) Internally Managed BDC with RIC status
Slide 5: Q3 2018 Highlights
Financial Highlights Q3 2018 Pre-Tax Net Investment Income (“NII”) of $4.3 MM or $0.27 per share Declared and Paid Quarterly Dividend of $0.26 per share Total Annualized Earnings Return on Equity of 13.9% for the quarter NAV per share increased to $18.44 from $18.26 Net Portfolio Growth of 14%, incr
Slide 6: Significant Progress in Capital Formation
Capital Raising Highlights Amended ING Credit Facility Increased the facility commitments to $180 MM with an accordion to $250 MM Amended key terms, including reducing interest rate to L + 3.00% with a step-down and extending maturity to November 2021 Raised $57.5 MM in Notes Offering (“NASDAQ: CSWC
Slide 7: Track Record of Dividend and NAV Growth Continues
Over the past four quarters, CSWC has generated $0.96 per share in Pre-Tax NII and paid out $0.90 per share in regular dividends LTM dividend coverage of 107% of Pre-Tax NII Eight consecutive quarters of dividend per share growth In addition, paid out a Special Dividend of $0.26 in Q4 2017 generated
Slide 8: Funded Path to Target Leverage
Capitalization in place today to achieve target leverage of 0.75x - 0.85x $145 MM currently undrawn on credit facility ($180 MM total committed) Significant potential NII growth without additional capital required to be raised Funded Path to Target Leverage Debt Outstanding ($MM) Credit Facility Dra
Slide 9: Two Pronged Investment Strategy
CORE: Lower Middle Market (“LMM”): CSWC led or Club Deals Companies with EBITDA between $3 MM and $15 MM Typical leverage of 2x – 4x Debt to EBITDA through CSWC debt Commitment size up to $20 MM with hold sizes generally $10 to $15 MM Both Sponsored and Non-sponsored deals Securities include first l
Slide 10: Strong Quarter of CSWC Originations
Strong Quarter of CSWC Originations $71.1 MM in new committed investments during the quarter ($66.1 MM funded) at a weighted average debt YTM of 11.4% At close, $3.0 MM Revolver was unfunded At close, $2.0 MM Revolver was unfunded The investment is structured as a first lien last out term loan Note:
Slide 11: Q3 2018 CSWC Portfolio Prepayments
Q3 2018 CSWC Portfolio Prepayments Prepayments continue to demonstrate our track record of generating attractive risk adjusted returns on shareholders’ capital During the quarter, received $21.1 MM in proceeds from three Upper Middle Market exits with a weighted average IRR of 13% Since launch of cr
Slide 12: CSWC Portfolio Asset Mix by Market
CSWC Portfolio Asset Mix by Market Lower Middle Market 1st Lien portfolio growth continues Note: All metrics above exclude the I-45 Senior Loan Fund At December 31, 2017, we had equity ownership in approximately 70.6% of our LMM investments The weighted-average annual effective yields were computed
Slide 13: Robust Lower Middle Market First Lien Portfolio
Robust Lower Middle Market First Lien Portfolio CSWC Balance Sheet Portfolio continues to migrate to LMM and 1st Lien Investments LMM Investments have increased to 69% of the credit portfolio at 12/31/17 from 18% at 6/30/16 First Lien Investments have increased to 79% of the credit portfolio at 12/3
Slide 14: CSWC Portfolio Mix as of 12/31/17 at Fair Value
CSWC Portfolio Mix as of 12/31/17 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $367 MM continues to be granular and diverse
Slide 15: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Composition (1) Debt Portfolio Exposure at 12/31/17 Well-Positioned for Rising Interest Rate Environment Note: Illustrative change in NII is based on a projection of CSWC’s existing debt investments as of 12/31/17, adjusted only for changes in B
Slide 16: I-45 Portfolio Overview
I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $218 MM is 96% first lien with average hold size of 2.3% (1) Through I-45 Security Telecommunications Retail Capital Equipment Services: Business Healthcare & Pharmaceuticals Current I-45 Portfolio (By Type) 3/31/201
Slide 17: Income Statement
Income Statement (In Thousands, except per share amounts) Quarter Ended 3/31/17 Quarter Ended 6/30/17 Quarter Ended 9/30/17 Quarter Ended 12/31/17 Investment Income Interest Income $4,113 $4,520 $5,282 $5,566 Dividend Income $3,002 $3,004 $3,088 $3,149 Fees and Other Income $611 $200 $139 $304 Total
Slide 18: Balance Sheet
Balance Sheet (In Thousands, except per share amounts) Quarter Ended 3/31/2017 Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 Quarter Ended 12/31/2017 Assets Portfolio Investments $286,880 $306,582 $321,860 $367,120 Cash & Cash Equivalents $22,386 $12,359 $33,329 $20,527 Deferred Tax Asset $2,017 $
Slide 19: Portfolio Statistics
Portfolio Statistics 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 Includes dividends from Media Recovery, Inc. and I-45 Senior Loan Fund Excludes CSWC equi
Slide 20: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration As of December 31, 2017, CSWC’s credit facility had $180.0 MM in total commitments, with an accordion feature which could increase total commitments up to $250.0 MM Based upon outstanding balances as of December 31, 2017 Issued in December 201
Slide 21: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield Non-Recurring income principally made up of acceleration of unamortized OID and prepayment fees Recurring cash interest income continues to grow quarter over quarter Higher non-recurring prepayment fees in Q3
Slide 22: Financial Highlights
Financial Highlights Solid Earnings Growth as portfolio continues to perform Quarter Ended 3/31/2017 Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 Quarter Ended 12/31/2017 Financial Highlights Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.22 $0.22 $0.25 $0.27 Annualized Pre-Tax Net In
Slide 23: Corporate Information
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 Auditor Independent Directors Michael S. Sarner David R. Brooks Chief Financial Officer, Secretary & Treasurer Jack D. Fu