Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q2 FY2022 Earnings Presentation
26 slides from Capital Southwest's earnings presentation, Nov 1, 2021
Slide 1: Q2 2022 Earnings Presentation
Q2 2022 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com November 2, 2021 Capital Southwest Corporation
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") (NASDAQ
Slide 6: Q2 2022 Highlights
Page 6 • Q2 2022 Pre-Tax Net Investment Income (“NII”) of $10.0 MM or $0.45 per share • Paid $0.44 per share Regular Dividend and $0.10 per share Supplemental Dividend for the quarter ended September 30, 2021 ◦ Increased Regular Dividend to $0.47 per share and declared $0.50 per share Supplemental D
Slide 7: Track Record of Consistent Dividends Continues
Page 7 • In the last twelve months ended 9/30/2021, CSWC generated $1.85 per share in Pre-Tax NII and paid out $1.70 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 t
Slide 8: History of Value Creation
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 $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 $16.7
Slide 9: Investment Strategy
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 $30 MM with hold sizes generally $10 MM to $25 MM ◦ Both Sponsored and Non-sponsored d
Slide 10: Credit Portfolio Heavily Weighted Towards First Lien Investments
Page 10 Credit Portfolio Heavily Weighted Towards First Lien Investments 91% of Credit Portfolio as of 9/30/2021 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 6/30/2018 9/30/20
Slide 11: Q2 2022 Portfolio Originations
Page 11 $112.9 MM in total new committed investments to six new portfolio companies and four existing portfolio companies Q2 2022 Originations (1) Unfunded Commitments consist of $14.6 MM in revolving loans and $21.2 in delayed draw term loans Portfolio Originations Q2 2022 Name Industry Type Total
Slide 12: Portfolio Exits Q2 2022
Page 12 Portfolio Exits Q2 2022 Name Industry Type Net Proceeds ($000s) Realized Gain ($000s) IRR Landpoint, LLC Business Services First Lien $18,510 $272 13.00% Vistar Media Inc. Media, marketing & entertainment First Lien / Equity $12,833 $1,329 16.14% Electronic Transaction Consultants, LLC Softw
Slide 13: CSWC Investment Portfolio Composition
Page 13 CSWC Investment Portfolio Composition Maintaining conservative portfolio leverage while receiving attractive risk-adjusted returns Note: All metrics above exclude the I-45 Senior Loan Fund (1) At September 30, 2021 and June 30, 2021, we had equity ownership in approximately 49% and 51%, resp
Slide 14: Credit Portfolio Investment Rating Migration
Page 14 Two loans upgraded and two loans downgraded during the quarter Investment Rating 6/30/2021 Investment Rating Upgrades Investment Rating Downgrades 9/30/2021 # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans Fair Value ($MM) % of Portfo
Slide 15: CSWC Portfolio Mix as of 9/30/2021
Page 15 CSWC Portfolio Mix as of 9/30/2021 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $818 MM continues to be diverse across industries First Lien 77% I-45 SLF LLC 7% Second Lien 6% Subordinated Debt 2% Equity 8% He
Slide 16: I-45 Portfolio Overview
Page 16 I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $169.0 MM is 95% first lien senior secured debt with average hold size of 2.6% of the I-45 portfolio (1) Through I-45 security Telecommunications Services: Consumer Current I-45 Portfolio (By Type) I-45 Portf
Slide 17: Income Statement
Page 17 Income Statement (In Thousands, except per share amounts) Quarter Ended 12/31/20 Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Investment Income Interest Income $13,079 $12,282 $14,626 $16,100 PIK Interest Income 1,608 2,796 975 879 Dividend Income 2,916 1,661 2,657 2,070
Slide 18: Operating Leverage Trend
Page 18 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 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.3% 2.3% FY 16 FY 17 FY 18 FY 19 FY 20
Slide 19: NAV per Share Bridge from Quarter Ended 6/30/2021
Page 19 $16.58 $0.45 $(0.44) $(0.10) $0.00 $0.20 $(0.07) $0.47 $(0.76) $0.03 $16.36 6/30/2021 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
Slide 20: Significant Unused Debt Capacity with Long-Term Duration
Page 20 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 +
Slide 21: Balance Sheet
Page 21 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 12/31/20 Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Assets Portfolio Investments $648,773 $688,432 $798,647 $818,218 Cash & Cash Equivalents 43,724 31,613 16,543 26,840 Other Assets 16,337 15,539 20,8
Slide 22: Portfolio Statistics
Page 22 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 equi
Slide 23: Investment Income Detail
Page 23 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 12/31/20 Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Investment Income Breakdown Cash Interest $12,413 $11,668 $13,939 $15,370 Cash Dividends 2,916 1,
Slide 24: Key Financial Metrics
Page 24 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 25: Interest Rate Sensitivity
Page 25 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 9/30/2021, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Mont
Slide 26: Corporate Information
Page 26 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