Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q3 2020 Earnings Presentation
25 slides from Capital Southwest's earnings presentation, Feb 4, 2020
Slide 1: Capital Southwest Corporation Q3 2020 Earnings Presentation
Capital Southwest Corporation Q3 2020 Earnings Presentation February 4, 2020 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com
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: Q3 2020 Highlights
Q3 2020 Highlights Financial Highlights • Q3 2020 Pre-Tax Net Investment Income (“NII”) of $7.9 MM or $0.44 per share • Paid $0.40 per share in Regular Dividends, plus $0.10 per share Supplemental Dividend and $0.75 per share Special Dividend ◦ Total Dividends for the quarter of $1.25 per share • In
Slide 7: Dividend Per Share
Track Record of Strong Dividend Yield and Consistent Dividend Coverage • In the last twelve months ending 12/31/2019, CSWC generated $1.72 per share in Pre-Tax NII and paid out $1.57 per share in regular dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 108% since the 2015 spin-off • D
Slide 8: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $5.39 at 12/31/2019 from 9/30/2015 Spin-off of CSWI $23.38 $23.07 $24 $22.71 $23.16 $21.58 $21.99 $22.04 $20.90 $21 $19.54 $19.98 $3.15 $4.09 $4.58 $5.08 $1.82 $2.71 $3.61 $6.33 $18.26 $18.63 $19.00 $1.54
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 First Lien and LMM Investments
Credit Portfolio Heavily Weighted Towards First Lien and LMM Investments First Lien and LMM Investments have increased to 90% and 81% of the credit portfolio, respectively, as of 12/31/2019 Credit Portfolio Heavily Weighted to First Lien Robust LMM Credit Portfolio Growth 600.0 600.0 500.0 500.0 $45
Slide 11: CSWC Originations
CSWC Originations $92.4 MM in total new committed investments, consisting of $89.1 MM committed to new portfolio companies and $3.3 MM committed to existing portfolio companies Portfolio Originations Q3 2020 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread
Slide 12: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $55.5 MM in proceeds from one prepayment and one sale during the quarter • Sale of Media Recovery equity investment, generating a realized gain of $44.3 MM and IRR of 11.8% • Full prepayment of Chandler Signs subordinated debt investment, generating a realized ga
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 Q3 2020 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 32 11 Total Cost $404,006 $100,697 Total
Slide 14: CSWC Portfolio Mix as of 12/31/19 at Fair Value
CSWC Portfolio Mix as of 12/31/19 at Fair Value Current Investment Portfolio of $558.6 MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Restaurants: 1% Senior Commodities & Mining: 2% Subordinated Energy Services (Midstrea
Slide 15: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $206.2 MM is 96% first lien with average hold size of 2.2% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Telecommunications 4% Telecommunications 15% 6% 3% 14% Consumer Products 6% and Retail 8% Retail 96% 1
Slide 16: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 3/31/19 6/30/19 9/30/19 12/31/19 Investment Income Interest Income $10,320 $11,346 $11,237 $11,685 Dividend Income 3,342 4,019 3,587 2,688 Fees and Other Income(1) 646 434 394 1,611 Tota
Slide 17: 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 Operating Expenses as % of Avg Assets 5% $585 $599 4.9% $564 Total Assets ($MM) $600 $552 4.2% $417 4% $400 $326 $284 3.7% 3% $200 3.1% 3.0
Slide 18: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 3/31/19 6/30/19 9/30/19 12/31/19 Assets Portfolio Investments $524,071 $533,491 $538,876 $558,552 Cash & Cash Equivalents 9,924 11,969 30,019 22,966 Deferred Tax Asset 1,807 1,672 1,628 1,3
Slide 19: NAV per Share Bridge from Quarter Ended 9/30/2019
NAV per Share Bridge from Quarter Ended 9/30/2019 $20.0 $19.5 $19.0 $0.44 $18.5 $18.30 $0.15 $18.0 $(0.40) $(0.10) $17.5 $(0.48) $17.0 $16.74 $(0.75) $(0.19) $16.5 $(0.23) $16.0 Net Investment Income / Investment Portfolio MRI Sale Dividends $15.5 $15.0 a re e nd d ) oli o d x ct a re Sh om de d en
Slide 20: 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 Credit Facility (1) $295.0 MM L + 2.50% subject to certain December 2023 $124.0 MM $167.6 MM (2) conditions Dec
Slide 21: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 3/31/19 6/30/19 9/30/19 12/31/19 Portfolio Statistics Fair Value of Debt Investments $367,727 $381,704 $387,168 $456,095 Average Debt Investment Hold Siz
Slide 22: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield • Non-Cash and Non-Recurring investment income remain a minor portion of Total Investment Income Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 3/31/19 6/30/19 9/30/19 12/31/19 Investme
Slide 23: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Regular Dividend growth driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 3/31/19 6/30/19 9/30/19 12/31/19 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Di
Slide 24: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 2% 98% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (100 bps) $(1,921,287) $(0.11) (75 bps) (1,723,716) (0.10) (50 bps) (1,195,064) (0.07) (25 bps) (612
Slide 25: 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