Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — IPO Roadshow (May 2021)
27 slides from Capital Southwest's IPO roadshow presentation, May 26, 2021
Slide 1: Q4 2021 Earnings Presentation
Q4 2021 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com May 26, 2021 Capital Southwest Corporation Filed Pursuant to Rule 433 Issuer Free Writing Prospectus dated May 26, 2021 Relating to Registration Statement No. 333-2324
Slide 2: Important Notices
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 herei
Slide 3: Forward-looking statements
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. A
Slide 4: Conference Call Participants
Page 4 Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Conference Call Participants
Slide 5: CSWC Company Overview
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") • April
Slide 6: Fiscal Year 2021 Highlights
Page 6 Fiscal Year 2021 Highlights Financial Highlights (1) Operating Leverage calculated as last twelve months operating expenses (excluding interest expense) divided by average annual assets • 119% FY 2021 Total Return to Shareholders ◦ Share price appreciated to $22.16 from $11.42 in prior year,
Slide 7: Q4 2021 Highlights
Page 7 • Q4 2021 Pre-Tax Net Investment Income (“NII”) of $8.9 MM or $0.44 Per Share • Paid $0.42 per share in Regular Dividends and $0.10 per share Supplemental Dividend for the quarter ended March 31, 2021 ◦ Increased Regular Dividend to $0.43 per share and declared $0.10 per share Supplemental Di
Slide 8: Dividends per share history
Page 8 • In the Last Twelve Months Ending 3/31/21, CSWC Generated $1.79 Per Share in Pre-Tax NII and Paid Out $1.65 Per Share in Regular Dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 107% since the 2015 spin-off • Announced Supplemental Dividend Program in June 2018 ◦ Expect to pay
Slide 9: History of Value Creation
Page 9 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 $17.68$17.22$17.34$17.39$17.74$17.88$17.80$17.96$18.26$18.44 $19.08$18.87$18.84$18.43$18.62$18.58$18.30 $16.74 $15.13
Slide 10: Core Lower Middle Market and Opportunistic Upper Middle Market
Page 10 CORE: Lower Middle Market (“LMM”): CSWC led or Club Deals ◦ Companies with EBITDA between $3 MM and $20 MM ◦ Typical leverage of 2.0x – 4.0x Debt to EBITDA through CSWC debt position ◦ Commitment size up to $25 MM with hold sizes generally $10 MM to $20 MM ◦ Both Sponsored and Non-sponsored
Slide 11: Credit Portfolio Heavily Weighted Towards LMM and First Lien
Page 11 $ (M ill io ns ) $239 $272 $337 $351 $368 $382 $387 $456 $474 $487 $521 $531 $573 3/3 1/2 01 8 6/3 0/2 01 8 9/3 0/2 01 8 12 /31 /20 18 3/3 1/2 01 9 6/3 0/2 01 9 9/3 0/2 01 9 12 /31 /20 19 3/3 1/2 02 0 6/3 0/2 02 0 9/3 0/2 02 0 12 /31 /20 20 3/3 1/2 02 1 0.0 100.0 200.0 300.0 400.0 500.0 600.
Slide 12: Q4 2021 Originations
Page 12 Q4 2021 Originations $77.3 MM in total new committed investments, consisting of $77.0 MM committed to six new portfolio companies and $0.3 MM committed to one existing portfolio company Portfolio Originations Q4 2021 Name Industry Type Market Total Debt Funded at Close ($000s) Total Equity F
Slide 13: Track Record of CSWC Exits Continues
Page 13 Track Record of CSWC Exits Continues Note: Market refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) Portfolio Prepayments Q4 2021 Name Industry Type Market Net Proceeds ($000) Realized Gain/Loss ($000s) IRR Environmental Pest Service Management Company, LLC Consumer servi
Slide 14: CSWC Portfolio Asset Mix by Market
Page 14 CSWC Portfolio Asset Mix by Market Maintaining appropriate portfolio leverage while receiving attractive risk adjusted returns Investment Portfolio - Statistics Q4 2021 (In Thousands) Lower Middle Market (1) Upper Middle Market Number of Portfolio Companies 44 10 Total Cost $551,144 $79,613
Slide 15: Investment Rating Migration
Page 15 Investment Rating 12/31/2020 Investment Rating Upgrades Investment Rating Downgrades 3/31/2021 # of Loans Fair Value ($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 4 $
Slide 16: CSWC Portfolio Mix as of March 31, 2021
Page 16 CSWC Portfolio Mix as of March 31, 2021 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current investment portfolio of $688.4 MM continues to be diverse across industries First Lien 76% I-45 SLF LLC 8% Second Lien 5% Subordinated Debt 2% Equit
Slide 17: I-45 Portfolio Overview
Page 17 I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $164.4 MM is 95% first lien with average hold size of 2.8% of the I-45 portfolio Telecommunications Retail Capital Equipment Services: Consumer Current I-45 Portfolio (By Type) I-45 Portfolio Statistics (In T
Slide 18: Income Statement
Page 18 Income Statement (In Thousands, except per share amounts) Quarter Ended 6/30/20 Quarter Ended 9/30/20 Quarter Ended 12/31/20 Quarter Ended 3/31/21 Investment Income Interest Income $12,645 $13,882 $14,687 $15,078 Dividend Income 1,957 1,860 2,916 1,661 Fees and Other Income 562 943 1,437 434
Slide 19: Operating Leverage Continues to Improve
Page 19 Operating Leverage Continues to Improve Continue to realize operating efficiencies of internally managed structure Period Ending T ot al A ss et s ($ M M ) O perating E xpenses as % of A vg A ssets $284 $326 $417 $552 $585 $736 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% FY 16 FY 17 FY 18 FY19 FY20 FY21 $
Slide 20: NAV per Share Bridge
Page 20 $15.74 $0.44 $(0.42) $(0.10) $0.08 $(0.04) $0.09 $0.27 $(0.05) $16.01 12 /31 /20 N AV /Sh are Pr e-T ax N et Inv est me nt Inc om e Re gu lar D ivi de nd Su pp lem en tal D ivi de nd Ne t C ha ng e i n U M M D eb t ( Inc lud es I-4 5) Ne t C ha ng e i n L M M D eb t P ort fol io Ne t C ha ng
Slide 21: Significant Unused Debt Capacity with Long-Term Duration
Page 21 (1) The Credit Facility has an accordion feature that allows for an increase in total commitments up to $400 MM (2) Net of $3.1 MM in letters of credit outstanding (3) Redeemable in whole or in part at any time prior to July 1, 2024, at par plus a "make whole" premium, and thereafter at par
Slide 22: Balance Sheet
Page 22 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 6/30/20 Quarter Ended 9/30/20 Quarter Ended 12/31/20 Quarter Ended 3/31/21 Assets Portfolio Investments $587,178 $631,197 $648,773 $688,432 Cash & Cash Equivalents 14,986 16,011 43,724 31,613 Other Assets 16,932 17,057 16,3
Slide 23: Portfolio Statistics
Page 23 Portfolio Statistics Continuing to build a well performing credit portfolio (In Thousands) Quarter Ended 6/30/20 Quarter Ended 9/30/20 Quarter Ended 12/31/20 Quarter Ended 3/31/21 Portfolio Statistics Fair Value of Debt Investments $487,195 $520,651 $531,103 $572,614 Average Debt Investment
Slide 24: Investment Income Detail
Page 24 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 6/30/20 Quarter Ended 9/30/20 Quarter Ended 12/31/20 Quarter Ended 3/31/21 Investment Income Breakdown Cash Interest $11,008 $11,581 $12,413 $11,668 Cash Dividends 1,957 1,
Slide 25: Key Financial Metrics
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
Slide 26: Interest Rate Sensitivity
Page 26 Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) Note: Illustrative change in annual NII is based on a projection of CSWC’s existing debt investments as of March 31, 2021, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Month
Slide 27: Corporate Information
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 Chicago, ILChristine S. Battist Chief Fina