Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q4 2018 Earnings Presentation
22 slides from Capital Southwest's earnings presentation, Jun 4, 2018
Slide 1: Capital Southwest Corporation Q4 2018 Earnings Presentation
Capital Southwest Corporation Q4 2018 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 Dallas, Texas 75240 214.238.5700 capitalsouthwest.com June 5, 2018
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, market conditions, financial condition and results of operations of Capital Southwest, the anticipated investment strategies
Slide 3: Conference Call Participants
Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Conference Call Participants
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: Common Stock (“CSWC”) and Unsecured Notes (“CSWCL”) Internally Managed BDC with R
Slide 5: Fiscal Year 2018 Highlights
Earned Pre-Tax NII of $1.02 per share in FY 2018 versus $0.61 per share in FY 2017 NAV grew to $19.08 per share at 3/31/18 from $17.80 per share at 3/31/17 Total Return on Equity of 13.7% for FY 2018 versus 8.5% in FY 2017 Total Dividends increased 25% to $0.99 per share in FY 2018 versus $0.79 per
Slide 6: Q4 2018 Highlights
Financial Highlights Q4 2018 Pre-Tax Net Investment Income (“NII”) of $4.5 MM or $0.28 per share Less than $0.01 per share from combination of fees on prepayments and PIK income Declared and Paid Quarterly Dividend of $0.28 per share Total Annualized Earnings Return on Equity of 20.1% for the quarte
Slide 7: Track Record of Dividend and NAV Growth Continues
1.2 % 1.8 % 3.0 % 4.2 % 10.6%1 5.2 % 5.6 % 6.3% 6.6% In FY 2018, CSWC generated $1.02 per share in Pre-Tax NII and paid out $0.99 per share in regular dividends LTM dividend coverage of 103% of Pre-Tax NII Nine consecutive quarters of regular dividend per share growth In addition, paid out a Supplem
Slide 8: 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 2x – 4x Debt to EBITDA through CSWC debt Commitment size up to $25 MM with hold sizes generally $10 MM to $20 MM Both Sponsored and Non-sponsored deals Securities include firs
Slide 9: Steady Quarter of CSWC Originations
Steady Quarter of CSWC Originations $26.7 MM in new committed investments during the quarter ($20.3 MM funded at close) at a weighted average debt YTM of 11.2% At close, $2.0 MM Revolver was unfunded At close, $2.0 MM Revolver was unfunded and $1.5 MM DDTL was unfunded At close, $900k DDTL was unfun
Slide 10: CSWC Portfolio Prepayments
CSWC Portfolio Prepayments Prepayments continue to demonstrate our track record of generating attractive risk adjusted returns on shareholders’ capital During the quarter, prepayments slowed as we received $5.0 MM in proceeds from one Upper Middle Market exit, generating an IRR of 13.0% Cumulative I
Slide 11: CSWC Portfolio Asset Mix by Market
CSWC Portfolio Asset Mix by Market Maintaining appropriate portfolio leverage while receiving attractive risk adjusted returns Note: All metrics above exclude the I-45 Senior Loan Fund At March 31, 2018, we had equity ownership in approximately 73.7% of our LMM investments The weighted-average annua
Slide 12: Robust Lower Middle Market First Lien Portfolio
Robust Lower Middle Market First Lien Portfolio CSWC Credit Portfolio continues to migrate to LMM and First Lien Investments LMM Investments have increased to 72% of the credit portfolio at 3/31/18 from 18% at 6/30/16 First Lien Investments have increased to 82% of the credit portfolio at 3/31/18 fr
Slide 13: CSWC Portfolio Mix as of 3/31/18 at Fair Value
CSWC Portfolio Mix as of 3/31/18 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $393 MM continues to be granular and diverse
Slide 14: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Composition (1) Debt Portfolio Exposure at 3/31/18 Well-Positioned for Rising Interest Rate Environment Note: Illustrative change in NII is based on a projection of CSWC’s existing debt investments as of 3/31/18, adjusted only for changes in Bas
Slide 15: I-45 Portfolio Overview
I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $221 MM is 94% first lien with average hold size of 2.3% (1) Through I-45 Security Telecommunications Retail Capital Equipment Aerospace & Defense Healthcare & Pharmaceuticals Current I-45 Portfolio (By Type) (In Tho
Slide 16: Income Statement
Income Statement (In Thousands, except per share amounts) Quarter Ended 6/30/17 Quarter Ended 9/30/17 Quarter Ended 12/31/17 Quarter Ended 3/31/18 Investment Income Interest Income $4,520 $5,282 $5,566 $6,575 Dividend Income $3,004 $3,088 $3,149 $3,069 Fees and Other Income $200 $139 $304 $230 Total
Slide 17: Balance Sheet
Balance Sheet (In Thousands, except per share amounts) Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 Quarter Ended 12/31/2017 Quarter Ended 3/31/2018 Assets Portfolio Investments $306,582 $321,860 $367,120 $393,095 Cash & Cash Equivalents $12,359 $33,329 $20,527 $7,907 Deferred Tax Asset $1,858 $1
Slide 18: 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 equi
Slide 19: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration As of March 31, 2018, CSWC’s credit facility had $180.0 MM in total commitments with $40.0 MM drawn. The facility was increased subsequent to quarter end to $210.0 MM with the addition of a new lender in April 2018 and an increase in commitmen
Slide 20: 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 PIK and OID income remain a minor portion of Investment Income Lower non-recurring prepayment fees in Q4 2018 ver
Slide 21: Financial Highlights
Financial Highlights Strong Earnings ROE as Portfolio continues to appreciate Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 Quarter Ended 12/31/2017 Quarter Ended 3/31/2018 Financial Highlights Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.22 $0.25 $0.27 $0.28 Annualized Pre-Tax Net I
Slide 22: 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 Auditor Independent Directors Michael S. Sarner David R. Brooks Chief Financial Officer, Secretary & Treasurer Jack D. Fu