Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q1 2021 Earnings Presentation
25 slides from Capital Southwest's earnings presentation, Aug 4, 2020
Slide 1: Capital Southwest Corporation Q1 2021 Earnings Presentation
Capital Southwest Corporation Q1 2021 Earnings Presentation August 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: Q1 2021 Highlights
Q1 2021 Highlights Financial Highlights • Q1 2021 Pre-Tax Net Investment Income (“NII”) of $7.2 MM or $0.40 per share • Paid $0.41 per share Regular Dividend and $0.10 per share Supplemental Dividend for the quarter ended June 30, 2020 ◦ Declared $0.41 per share Regular Dividend and $0.10 per share
Slide 7: Dividend Per Share
Track Record of Consistent Dividends Continues • In the last twelve months ending 6/30/2020, CSWC generated $1.66 per share in Pre-Tax NII and paid out $1.62 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 $4.62 at 6/30/2020 from 9/30/2015 Spin-off of CSWI $24.00 $23.38 $23.07 $22.71 $23.16 $21.58 $21.99 $22.04 $21.97 $22.30 $20.90 $21.00 $19.54 $19.98 $4.09 $4.58 $5.08 $18.63 $19.00 $1.82 $2.71 $3.15 $3.61
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 have increased to 85% and 90% of the credit portfolio, respectively, as of 6/30/2020 Robust LMM Credit Portfolio Growth Credit Portfolio Heavily Weighted to First Lien 600.0 $600.0 $487 500.0 $474
Slide 11: CSWC Originations
CSWC Originations $30.0 MM in total new committed investments, consisting of $20.8 MM committed to new portfolio companies and $9.2 MM committed to existing portfolio companies Portfolio Originations Q1 2021 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Yield t
Slide 12: 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 Q1 2021 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 36 11 Total Cost $452,387 $91,978 Total F
Slide 13: Quarter-over-Quarter Investment Rating Migration
Quarter-over-Quarter Investment Rating Migration No Investment Rating Downgrades During the Quarter as Portfolio Stabilized Investment Rating Investment Rating Investment Rating 3/31/2020 6/30/2020 Upgrades Downgrades Fair % of Fair % of Fair % of Fair % of # of # of # of # of Value Portfolio Value
Slide 14: CSWC Portfolio Mix as of 06/30/20 at Fair Value
CSWC Portfolio Mix as of 06/30/20 at Fair Value Current Investment Portfolio of $587.2 MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Senior Subordinated Debt 2% Second Lien 6% Equity 7% Business Services: 15% I-45 SLF L
Slide 15: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $172.6 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 4% 16% Consumer Products 15% and Retail 96% 12% 8% 10% Healthcar
Slide 16: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/19 12/31/19 3/31/20 6/30/20 Investment Income Interest Income $11,237 $11,685 $12,650 $12,645 Dividend Income 3,587 2,688 2,149 1,957 Fees and Other Income 394 1,611 239 562 Total I
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% $619 $600 4.9% $585 $552 Total Assets ($MM) 4.2% $417 4% $400 $326 3.7% $284 3% $200 3.0% 2.8% 2.4
Slide 18: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/19 12/31/19 3/31/20 6/30/20 Assets Portfolio Investments $538,876 $558,552 $553,072 $587,178 Cash & Cash Equivalents 30,019 22,966 13,744 14,986 Deferred Tax Asset 1,628 1,336 1,402 1,
Slide 19: NAV per Share Bridge from Quarter Ended 3/31/2020
NAV per Share Bridge from Quarter Ended 3/31/2020 $16 $0.40 $15.5 $0.25 $15.13 $(0.41) $(0.14) $15 $14.95 $(0.10) $(0.18) $14.5 Earnings / Dividends Investment Portfolio Other Corporate $(0.11) per Share $0.11 per Share $14 e e end 5) io t e har com idend id I-4 tfol ran /Sh ar V/S In Div Div es or
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 L + 2.50% subject to certain Credit Facility (1) $325.0 MM December 2023 $182.0 MM $139.6 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) 9/30/19 12/31/19 3/31/20 6/30/20 Portfolio Statistics Fair Value of Debt Investments $387,168 $456,095 $474,333 $487,195 Average Debt Investment Hold Siz
Slide 22: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield • Non-Cash and Non-Recurring investment income remain a minor portion of Total Investment Income Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 9/30/19 12/31/19 3/31/20 6/30/20 Investme
Slide 23: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 9/30/19 12/31/19 3/31/20 6/30/20 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 24: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 2% 98% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (50 bps) 1,204,357 0.06 (25 bps) 563,285 0.03 25 bps (563,285) (0.03) 50 bps (1,124,518) (0.06) 75 b
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