Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — IPO Roadshow (November 2020)
26 slides from Capital Southwest's IPO roadshow presentation, Nov 2, 2020
Slide 1: Capital Southwest Corporation Q2 2021 Earnings Presentation
Filed Pursuant to Rule 433 Issuer Free Writing Prospectus dated November 2, 2020 Relating to Registration Statement No. 333-232492 Capital Southwest Corporation Q2 2021 Earnings Presentation November 2, 2020 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsou
Slide 2: Important Notices
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 n
Slide 3: Forward-Looking Statements
Forward-Looking Statements • 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 fut
Slide 4: Conference Call Participants
Conference Call Participants Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Page 4
Slide 5: CSWC Company Overview
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 elected to be regulated as a BDC in 1988 • Publicly-traded on Nasdaq: Common Stock (“CSWC”) and December
Slide 6: Q2 2021 Highlights
Q2 2021 Highlights Financial Highlights • Q2 2021 Pre-Tax Net Investment Income (“NII”) of $8.1 MM or $0.44 per share • Paid $0.41 per share Regular Dividend and $0.10 per share Supplemental Dividend for the quarter ended September 30, 2020 ◦ Declared $0.41 per share Regular Dividend and $0.10 per s
Slide 7: Track Record of Consistent Dividends Continues
Track Record of Consistent Dividends Continues • In the last twelve months ending 9/30/2020, CSWC generated $1.68 per share in Pre-Tax NII and paid out $1.63 per share in regular dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 106% since the 2015 spin-off • Announced Supplemental Div
Slide 8: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $5.54 per share at 9/30/2020 from 9/30/2015 Spin-off of CSWI $24.00 $23.16 $23.38 $23.07 $23.22 $22.71 $22.30 $21.58 $21.99 $22.04 $21.97 $20.90 $21.00 $19.98 $19.54 $3.15 $4.09 $4.58 $5.08 $19.00 $1.82 $
Slide 9: Two Pronged Investment Strategy
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 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 Spon
Slide 10: Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments
Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments LMM and First Lien Investments are 82% and 91% of the credit portfolio, respectively, as of 9/30/2020 Robust LMM Credit Portfolio Growth Credit Portfolio Heavily Weighted to First Lien 600.0 $600.0 $521 $521 $487 $474 $487 $474
Slide 11: CSWC Originations
CSWC Originations $66.3 MM in total new committed investments, consisting of $43.7 MM committed to four new portfolio companies and $22.6 MM committed to six existing portfolio companies Portfolio Originations Q2 2021 Total Debt Total Equity Unfunded Name Industry Type Market Funded at Close Funded
Slide 12: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $20.8 MM in proceeds from two Lower Middle Market prepayments during the quarter • Full prepayment of Danforth Advisors first lien debt investment, generating a realized gain of $91K and IRR of 12.4% • Full prepayment of Trinity 3 first lien debt investment, gene
Slide 13: CSWC Portfolio Asset Mix by Market
CSWC Portfolio Asset Mix by Market Maintaining conservative portfolio leverage while receiving attractive risk adjusted returns Investment Portfolio - Statistics Q2 2021 Lower Middle Upper Middle (1) (In Thousands) Market Market Number of Portfolio Companies 39 12 Total Cost $473,201 $104,821 Total
Slide 14: Credit Portfolio Investment Rating Migration
Credit Portfolio Investment Rating Migration Two Loans Upgraded and No Loans Downgraded During the Quarter as Credit Portfolio Continues to Improve Investment Rating Investment Rating Investment Rating 6/30/2020 Upgrades Downgrades 9/30/2020 Fair % of Fair % of Fair % of Fair % of # of Value Portfol
Slide 15: CSWC Portfolio Mix as of 9/30/2020 at Fair Value
CSWC Portfolio Mix as of 9/30/2020 at Fair Value Current Investment Portfolio of $631.2 MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Subordinated Debt 2% Second Lien 6% Equity 8% Business Services: 13% Media, Marketing
Slide 16: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $177.5 MM is 96% first lien with average hold size of 2.4% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Telecommunications Telecommunications 16% 4% Consumer Products 15% and Retail 96% 12% 8% 10% Healthcar
Slide 17: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/19 3/31/20 6/30/20 9/30/20 Investment Income Interest Income $11,685 $12,650 $12,645 $13,882 Dividend Income 2,688 2,149 1,957 1,860 Fees and Other Income 1,611 239 562 943 Total I
Slide 18: Operating Leverage Trend
Operating Leverage Trend Continue to realize operating efficiencies of internally managed structure migrating to a target operating leverage of sub-2.5% 6% $800 Op erating Expenses as % of Avg Assets $664 5% $619 $600 4.9% $585 $552 4.2% $417 4% $400 $326 3.7% To tal Assets ($MM) $284 3% $200 3.0% 2
Slide 19: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/19 3/31/20 6/30/20 9/30/20 Assets Portfolio Investments $558,552 $553,072 $587,178 $631,197 Cash & Cash Equivalents 22,966 13,744 14,986 16,011 Other Assets 17,830 18,143 16,932 17,05
Slide 20: NAV per Share Bridge from Quarter Ended 6/30/2020
NAV per Share Bridge from Quarter Ended 6/30/2020 $16 $15.5 $0.44 $0.07 $0.03 $15.36 $0.38 $15 $14.95 $(0.41) $(0.10) $14.5 Earnings / Dividends Investment Portfolio Other Corporate $(0.07) per Share $0.45 per Share $14 Regular Dividend Other Corporate 6/30/2020 NAV/Share Supplemental Dividend 9/30/
Slide 21: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration Earliest Debt Maturity occurs in December 2022 Facility Total Commitments Interest Rate Maturity Principal Drawn Undrawn Commitment (1) L + 2.50% subject to certain (2) Credit Facility $325.0 MM conditions December 2023 $187.0 MM $134.6 MM Dec
Slide 22: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 12/31/19 3/31/20 6/30/20 9/30/20 Portfolio Statistics Fair Value of Debt Investments $456,095 $474,333 $487,195 $520,651 Average Debt Investment Hold Siz
Slide 23: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 12/31/19 3/31/20 6/30/20 9/30/20 Investment Income Breakdown Cash Interest $10,430 $11,421 $11,008 $11,581 Cash Dividends 2,703 2,150 1,95
Slide 24: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 12/31/19 3/31/20 6/30/20 9/30/20 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 25: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 2% 98% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (50 bps) 1,241,458 0.07 (25 bps) 559,958 0.03 25 bps (551,580) (0.03) 50 bps (1,103,161) (0.06) 75 b
Slide 26: 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 Directors Independent Auditor David R. Brooks Michael S. Sarner RSM US Christine S. Battist Chief Financial Officer, Secr