Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Investor Presentation (December 2017)
33 slides from Capital Southwest's investor presentation, Dec 8, 2017
Slide 1: Capital Southwest Corporation Investor Presentation
Capital Southwest Corporation Investor Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com December 2017 Exhibit 99.1
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: CSWC Senior Management
CSWC Senior Management Bowen S. Diehl Joined Capital Southwest in March 2014 Former Senior Investment Professional at American Capital (2001 – 2014) Co-Head of Sponsor Finance Group at American Capital (2007 – 2014) 15 years of investing experience in middle market debt and equity BE – Vanderbilt Un
Slide 4: 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 became a BDC in 1988 Publicly-traded on Nasdaq under CSWC ticker Internally Managed BDC with RIC status for tax purposes 18 emplo
Slide 5: Pre-2015 Challenges
Pre-2015 Challenges Significant Market Discount to NAV Until spin off announcement, CSWC traded at a significant discount to NAV Virtually 100% of CSWC’s portfolio was invested in equity There was significant concentration in two industrial companies, with very large embedded capital gains Did not p
Slide 6: Solution: 2015 Tax Free Spin of Industrial Assets
Solution: 2015 Tax Free Spin of Industrial Assets CSW Industrials, Inc.(2) NASDAQ Ticker CSWI Market Cap $749.8 million Debt $53.9 million Revenue $351.2 million EBITDA $60.4 million EV/EBITDA Multiple 12.8x CSWC Pre-Spinoff - 6/30/14 CSWC Portfolio - 6/30/2014 (1) 6/30/2014 portfolio mix is pro for
Slide 7: Portfolio Rotation to Income Generation
Portfolio Rotation to Income Generation 6/30/2014 (excl. CSWI Companies) 9/30/2017 Investable Assets Since June 2014, CSWC has transformed its investment portfolio increasing income earning assets from 1% of the investable portfolio to 85% Exited 22 legacy portfolio equity investments, generating $2
Slide 8: Key Highlights since launch of Credit Strategy
Built investment and finance teams made up of people with long track records of investing in the middle market Of the 18 employees, 15 joined CSWC since launching the middle market lending strategy Invested $275 MM in 38 middle-market credit assets on balance sheet Credit portfolio consists of $187
Slide 9: Evolution of CSWC Generating Consistent Dividend and NAV Growth
Dividend Yield has increased as credit portfolio grows (6.1%2 at 12/7/17 vs. 1.2% at 3/31/16) NAV growth is key to driving value for all stakeholders ($18.26 per share at 9/30/17 vs $17.34 per share at 3/31/16) Over the past seven quarters ending 9/30/17, CSWC has generated $1.11 per share in Pre-Ta
Slide 10: Two Pronged Investment Strategy
Lower Middle Market (“LMM”): CSWC led or Club Deals Companies with EBITDA between $3 MM and $15 MM Typical leverage of 2x – 4x Debt to EBITDA through CSWC debt Commitment size up to $20 MM with hold sizes generally $10 to $15 MM Both Sponsored and Non-sponsored deals Securities include first lien, u
Slide 11: Portfolio Statistics by Investment Strategy
Portfolio Statistics by Investment Strategy Portfolio statistics illustrate CSWC’s prudent investment underwriting Note: All metrics above exclude the I-45 Senior Loan Fund At September 30, 2017, we had equity ownership in approximately 84.6% of our LMM investments. The weighted-average annual effec
Slide 12: Credit Portfolio Mix
Balance Sheet Credit Portfolio Mix Credit portfolio has grown to $187 MM and 73% first lien exposure at 9/30/17 Credit Portfolio (Fair Value)
Slide 13: Portfolio Mix as of 9/30/17 at Fair Value
Portfolio Mix as of 9/30/17 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Portfolio of $322 MM continues to be granular, diverse, and focused on income generating securities
Slide 14: Senior Loan Fund (I-45) Joint Venture with Main Street
Joint Venture with Main Street Capital Corporation (NASDAQ: MAIN) Fund invests in predominately Upper Middle Market first lien loans Total target fund size of $250 MM Total Equity Commitment of $85 MM from CSWC (80%) and MAIN (20%) Total Debt Commitment of $165 MM through Credit Facility led by Deut
Slide 15: I-45 Portfolio Remains Granular and Diverse
I-45 Portfolio Remains Granular and Diverse $224 MM in Portfolio Assets generate attractive risk adjusted returns 1 Through I-45 Security Current I-45 Portfolio (By Industry) Telecommunications Retail Capital Equipment Media: Advertising, Printing & Pub. Healthcare & Pharmaceuticals
Slide 16: CSWC Capitalization
$180 MM Credit Facility: led by ING (eight banks) Includes accordion up to $250 MM $56 MM drawn as of 9/30/2017 Matures November 2021; L + 300 with step-down to L + 275 Balance Sheet Cash: Approximately $33 MM of cash and cash equivalents as of 9/30/2017 Regulatory Leverage (Debt/Equity): 0.2x to 1.
Slide 17: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Composition (1) Debt Portfolio Exposure at 9/30/17 Well-Positioned for Changes to Base Interest Rates Note: Illustrative change in NII is based on CSWC’s existing debt investments as of 9/30/17, adjusted only for changes in Base Rates. The resul
Slide 18: Advantages of the Internally Managed BDC Structure
Management interests are directly aligned with all Stakeholders Both the asset manager and the managed investment assets are consolidated and therefore all stakeholders have an interest in both entities Management owns equity directly in the BDC All management activities flow to the benefit of all s
Slide 19: Appendix A: Investment and Finance Teams
Appendix A: Investment and Finance Teams
Slide 20: Investment Team with Strong Credit Experience
CSWC has assembled an investment team made up of individuals with extensive track records in middle market lending Investment Team with Strong Credit Experience Name Title Years Experience Year Joined CSWC Relevant Experience Bowen Diehl Chief Executive Officer / CIO 22 2014 Managing Director and Co
Slide 21: Appendix B: Underwriting & Portfolio Management
Appendix B: Underwriting & Portfolio Management
Slide 22: Disciplined Investment Process: Investment Criteria
Disciplined Investment Process: Investment Criteria Experienced Management Team with Meaningful Equity Ownership Relevant experience and track record of success Significant economic interest in the future success of the company Strong Competitive Position Sustainable Business Model Diversification o
Slide 23: Disciplined Process: Focus on Capital Preservation
Disciplined Process: Focus on Capital Preservation Extensive network of long standing private equity, intermediary, and co-lender relationships Team effort led by senior members Systematic CRM-driven relationship tracking Emphasis on partnership-centric approach Structural and size flexibility impor
Slide 24: Maintaining Investment Discipline as Pipeline Grows
Maintaining Investment Discipline as Pipeline Grows Total Deals Reviewed 480 Indicative Terms Submitted 165 Initial IC Review 20 Diligence & Closed 11 11 Portfolio Companies (2.3%) $105 MM Invested Lower Middle Market Total Deals Reviewed 40 Preliminary Due Diligence 24 IC Review 5 Commitment / Bid
Slide 25: 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 26: Portfolio Monitoring Process
Team-based approach with objectives to: Continually evaluate portfolio Identify potential problems early Prompt deal teams to proactively address issues Monitoring mechanisms Monthly/quarterly financials Regular communication with management/sponsor/agent Board observation/membership rights in direc
Slide 27: Valuation Process Overview
Valuation Process Overview Step 3 CFO and Treasurer review valuation results Final Valuation And Sr. Mgmt. Sign-offs Step 1 Valuation Models updated by Deal Teams Step 2 Finance Department begins valuation analysis Step 5 Internal Valuation Meeting (Sr. Management, Deal Teams, Finance Dept.) Audit C
Slide 28: Appendix C: Financial Statements
Appendix C: Financial Statements
Slide 29: Balance Sheet
Balance Sheet Portfolio Investments Quarter Ended 12/31/2016 $267,131 Quarter Ended 3/31/2017 Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 $321,860 Cash & Cash Equivalents $32,671 $33,329 Deferred Tax Asset. $1,940 $1,846 Other Assets $10,592 $11,635 Total Assets $312,334 ‘$368,670 Liabilities a
Slide 30: Income Statement
Income Statement Quarter Ended 12/31/16 eal Penance Expenses "ash Compensation Quarter Ended 3/31/17 Quarter Ended 6/30/17 Quarter Ended 9/30/17 c io $1,476 $1,704 $1,638 $1,606 Share Based Compensation $321 $382 $368 $384 General & Administrative $14a $1,360 $1,228 $1,364 $172 $172 $172 $173, Total
Slide 31: Portfolio Statistics
Portfolio Statistics 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. Includes dividends from Media Recovery, Inc. and I-45 Senior Loan Fund. Excludes CSWC eq
Slide 32: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield Non-Recurring income principally made up of acceleration of unamortized OID and prepayment fees Recurring cash interest income continues to grow quarter over quarter Earned less non-recurring prepayment fees i
Slide 33: Corporate Information
Corporate Information Board of Directors ‘Senior Management Fiscal Year End le Directors Bowen S. Diehl Bowen 5. Diehl President & Chief Executive Officer Independent Auditor Independent Directors hhael S. Sarner RSMUS bi Chicago, Ik Chief Financial Officer, Secretary & Treasurer » Corporate Counsel
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