Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Investor Presentation (September 2015)
25 slides from Capital Southwest's investor presentation, Sep 23, 2015
Slide 1: Capital Southwest Corporation Investor Presentation
Capital Southwest CorporationInvestor PresentationNASDAQ: CSWC 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 972.233.8242 | capitalsouthwest.com September 2015
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: Overview of Capital Southwest (CSWC)
CSWC was formed in 1961, as an SBIC, and became a BDC in 1988Publicly-traded on Nasdaq under CSWC tickerInternally-managed BDC with RIC status for tax purposesIn December 2014, announced split into two separate companies with spin-off of industrial growth company (“CSW Industrials”; Nasdaq: CSWI) to
Slide 4: Investment Highlights
Internally-managed BDC with no legacy issues and significant investable dry powderCredit investment strategy focused on middle-market lending opportunitiesPortfolio construction designed with granularity and diversity among asset classes to support attractive and sustainable dividendHigh-quality ori
Slide 5: Long History of Value Creation
Long History of Value Creation CSWC was formed in 1961 with an initial equity investment of $14.9 MM, representing the only equity capital raisedCSWC grew net asset value to $769 MM as of June 30, 2015 From that initial investment through June 30, 2015, CSWC generated $348.5 MM of distributions to s
Slide 6: Structure and Strategy Misaligned
Structure and Strategy Misaligned Portfolio Composition Impediment to Value Creation Historical All-Equity Investment Strategy Challenges All Surmountable Strategy Misaligned with BDC / RIC Structure CSWC’s strategy was to invest solely in equity and hold almost indefinitely Certain investments have
Slide 7: Separate Two Business Models: Better Fit and Focus
Separate Two Business Models: Better Fit and Focus CSWCShareholders CSW Industrials(C-Corp) CSWC(BDC / RIC) CSVC(SBIC) RectorSeal Whitmore Jet-Lube Smoke Guard Balco CapStar Anticipated unlevered asset base (NAV) of ~$275 MM ($17.65/Share)(2) CSWC CSW Industrials Chief Executive Officer – Bowen Dieh
Slide 8: Corporate Transformation Well Underway
Corporate Transformation Well Underway 2015 2013 2014 June 2013 Joe Armes appointed as CEO January 2014 Joe Armes appointed as Chairman and David Brooks and William Thomas elected to the Board March 2014 Bowen Diehl hired as CIO and to-be-CEO of CSWC post- spin July 2014 Jack Furst elected to the Bo
Slide 9: Portfolio Rotation Focused on Credit
Portfolio Rotation Focused on Credit 6/30/2014 (1) PF 9/30/2015(2) Since June 2014, CSWC has made significant strides towards its strategy of simplifying its structure and focusing on middle-market creditExited 8 portfolio companies for $210 MM in proceedsInvested $42 MM in 8 middle-market credit in
Slide 10: I-45 SLF Overview
Commentary Overall structure similar to other SSLFsSPE created to house loan investments CSWC and MAIN commit capital to SPESPE “Lender” lends money alongside capital from CSWC and MAINFund capital (CSWC + MAIN + Lender) used to purchase large market first lien loansAdministrative “back office” matt
Slide 11: Bowen Diehl, Chief Investment Officer
Mr. Diehl joined Capital Southwest in 2014 and leads the firm's investment activities. He brings almost 20 years of experience in sourcing, structuring, and managing investments in a variety of industries. Mr. Diehl came to Capital Southwest from American Capital, Ltd., which he joined in 2001 and w
Slide 12: Investment Team
Over the past 12 months, CSWC has rebuilt the investment team by bringing in both junior and senior team members with strong credit expertise in both the direct lending and syndicated markets Investment Team Name Title Years Experience Year Joined CSWC Relevant Experience Joe Armes Chairman, Preside
Slide 13: Potential Earning Assets Under Management
Potential Earning Assets Under Management Potential Investable Assets CSWC’s current equity capital base is expected to translate into earning AUM of $600 MM-$650 MM once the balance sheet is fully ramped with appropriate leverageBalance sheet anticipated to support $200 MM - $250 MM of leverageDebt
Slide 14: Operating Expense Framework
Operating Expense Framework CSWC Operating Expenses LTM 6/30/15 Operating Expenses / Average Assets CSWC’s run-rate operating expenses reflect $9 MM of recurring costs (or 3.3% of its post spin asset base of $275 MM)Management is targeting a long term operating expense ratio of ~2.5% of assetsTarget
Slide 15: Balanced Allocation Strategy for Equity Capital
Balanced Allocation Strategy for Equity Capital ApproximatePost-Spin Equity Capital$275 MM I-45 SLFUpper Middle MarketSenior Loan Fund Senior Secured Loans2nd Lien / Last Out Unitranche SBICLower Middle Market Credit Legacy Equity $68 MM $65M – $95 MM $75 MM – $100 MM Leverage: 2.0x$136 MM$204 MM 31
Slide 16: Portfolio Company Attributes by Asset Class
Portfolio Company Attributes by Asset Class Upper Middle Market Syndicated 1st Lien Upper Middle Market Syndicated 2nd Lien Last Out Unitranche Lower Middle Market Sub Debt / Secured Sub Debt Lower Middle Market Senior Secured Debt EquityCo-Invest EBITDA Size $50 MM+ $50 MM+ $8 - $15 MM $5 - $15 MM
Slide 17: Growing Pipeline Across Multiple Origination Channels
Growing Pipeline Across Multiple Origination Channels Deal Flow Deal Flow by Source Total: 3Q15-2Q16 December 2014 March 2015 June 2015 September 2015 [Estimated]
Slide 18: CSWC Taps Into a Broad Network of Deal Sources
CSWC Taps Into a Broad Network of Deal Sources Intermediaries and Lending Partners Private Equity
Slide 19: Disciplined Investment Process: Investment Criteria
Disciplined Investment Process: Investment Criteria Experienced Management Team with Meaningful Equity Ownership Relevant experience and track record of successSignificant economic interest in the future success of the company Strong Competitive Position Sustainable Business Model Diversification of
Slide 20: Disciplined Investment Process: Focus on Capital Preservation
Disciplined Investment Process: Focus on Capital Preservation Extensive network of long standing private equity, intermediary, and co-lender relationshipsTeam effort led by senior membersSystematic CRM-driven relationship trackingEmphasis on partnership-centric approachStructural and size flexibilit
Slide 21: Maintaining Investment Discipline as Pipeline Grows
Maintaining Investment Discipline as Pipeline Grows Total Deals Reviewed265 Indicative Terms Submitted62 Initial IC Review15 Diligence Final ICApproval8 8 Portfolio Companies$42 MM Invested LTM September 2015
Slide 22: Credit Investments Since Strategy Launch
Company Date Invested Type Cost Fair Value Interest Rate Effective Yield Business Description Debt 3/18/15 2nd Lien $6.9 MM $7.0 MM L+875(1) 10.6% Provides data collection through online and mobile surveys using proprietary consumer and business panels 4/17/15 2nd Lien $6.8 MM $7.0 MM L+925(1) 11.5%
Slide 23: Legacy Equity Assets
Company Date Invested Type Cost Fair Value Business Description Legacy Equity Assets 11/4/97 Equity $5.4 MM $30.1 MM Impact, tilt monitoring and temperature sensing devices to detect mishandling shipments 6/29/12 Equity & Debt $6.0 MM $8.7 MM Manufactures, installs and rents spill containment system
Slide 24: Strategic Decision to Retain Investment in MRI
Strategic Decision to Retain Investment in MRI Historical Financial Results Overview of MRI Future Growth Prospects CSWC-Guided Transformation 2011 – Divested equipment monitoring product line of ShockWatch2013 – Divested DPC division2013 – ShockWatch acquired ShockLog 2014 – Divested DataSpan divis
Slide 25: Investment Highlights
Internally-managed BDC with no legacy issues and significant investable dry powderCredit investment strategy focused on middle-market lending opportunitiesPortfolio construction designed with granularity and diversity among asset classes to support attractive and sustainable dividendHigh-quality ori
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