Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — IPO Roadshow (February 2021)
27 slides from Capital Southwest's IPO roadshow presentation, Feb 2, 2021
Slide 1: Q3 2021 Earnings Presentation
Q3 2021 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com February 2, 2021 Capital Southwest Corporation Filed Pursuant to Rule 433 Issuer Free Writing Prospectus dated February 2, 2021 Relating to Registration Statement No.
Slide 2: Important Notices
Page 2 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 herei
Slide 3: Forward-Looking Statements
Page 3 • 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 future market demand. A
Slide 4: Conference Call Participants
Page 4 Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Conference Call Participants
Slide 5: CSWC Company Overview
Page 5 • CSWC was formed in 1961, and elected to be regulated as a BDC in 1988 • Publicly-traded on Nasdaq: Common Stock (“CSWC”) • Internally Managed BDC with RIC tax treatment for U.S. federal income tax purposes • December 2014: announced intent to spin-off industrial growth company (“CSW Industr
Slide 6: Q3 2021 Highlights
Page 6 • Q3 2021 Pre-Tax Net Investment Income (“NII”) of $10.0 MM or $0.52 per share • Paid $0.41 per share Regular Dividend and $0.10 per share Supplemental Dividend for the quarter ended December 31, 2020 ◦ Increased Regular Dividend to $0.42 per share and declared $0.10 per share Supplemental Di
Slide 7: Track Record of Consistent Dividends Continues
Page 7 • In the last twelve months ended 12/31/2020, CSWC generated $1.76 per share in Pre-Tax NII and paid out $1.64 per share in regular dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 108% since the 2015 spin-off • Announced Supplemental Dividend Program in June 2018 ◦ Expect to p
Slide 8: History of Value Creation
Page 8 History of Value Creation $17.68 $17.22 $17.38 $17.49 $17.95 $18.26 $18.63 $19.00 $19.54 $19.98 $20.90 $21.58 $21.99 $22.04 $22.71 $23.16 $23.38 $23.07 $21.97 $22.30 $23.22 $24.11 $17.68 $17.22 $17.34 $17.39 $17.74 $17.88 $17.8 $17.96 $18.26 $18.44 $19.08 $18.87 $18.84 $18.43 $18.62 $18.58 $1
Slide 9: Investment Strategy: Lower and Upper Middle Market
Page 9 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 Sponsored and Non-sponsored d
Slide 10: Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments
Page 10 Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments LMM and First Lien Investments are 86% and 91% of the credit portfolio, respectively, as of 12/31/2020 Credit Portfolio Heavily Weighted to First LienRobust LMM Credit Portfolio Growth $ (M ill io ns ) $226 $239 $272 $3
Slide 11: Q3 2021 Originations
Page 11 $57.5 MM in total new committed investments, consisting of $47.4 MM committed to three new portfolio companies and $10.1 MM committed to three existing portfolio companies Q3 2021 Originations Note: Market refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) (1) Capital Sout
Slide 12: Originations Subsequent to Quarter End
Page 12 Originations Subsequent to Quarter End Portfolio Originations FY Q4 2021 To Date Name Industry Type Market Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($000s) Debt Spread Debt Yield to Maturity Unidentified Buyer/seller of closeout go
Slide 13: Portfolio Prepayments Q3 2021
Page 13 Portfolio Prepayments Q3 2021 Name Industry Type Market Net Proceeds ($000s) Realized Gain ($000s) IRR Tinuiti Inc. Media, Marketing & Entertainment Equity LMM $9,510 $8,118 73.18% Coastal Television Broadcasting Holdings, LLC Media, Marketing & Entertainment First Lien LMM $7,950 $145 21.29
Slide 14: CSWC Portfolio Asset Mix by Market
Page 14 CSWC Portfolio Asset Mix by Market Maintaining conservative portfolio leverage while receiving attractive risk adjusted returns Note: All metrics above exclude the I-45 Senior Loan Fund (1) At December 31, 2020, we had equity ownership in approximately 61.5% of our LMM investments (2) The we
Slide 15: Credit Portfolio Investment Rating Migration
Page 15 Credit Portfolio Investment Rating Migration Two Loans Upgraded and No Loans Downgraded During the Quarter as Credit Portfolio Continues to Improve Investment Rating 9/30/2020 Investment Rating Upgrades Investment Rating Downgrades 12/31/2020 # of Loans Fair Value ($MM) % of Portfolio (FV) #
Slide 16: CSWC Portfolio Mix as of 12/31/2020 at Fair Value
Page 16 CSWC Portfolio Mix as of 12/31/2020 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $648.8 MM continues to be diverse across industries First Lien 74% I-45 SLF LLC 10% Second Lien 6% Subordinated Debt 2% Equity 8
Slide 17: I-45 Portfolio Overview
Page 17 I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $159.6 MM is 94% first lien with average hold size of 2.6% of the I-45 portfolio (1) Through I-45 security (2) Two portfolio companies are excluded from this calculation due to a reported debt to adjusted EBI
Slide 18: Income Statement
Page 18 Income Statement (In Thousands, except per share amounts) Quarter Ended 3/31/20 Quarter Ended 6/30/20 Quarter Ended 9/30/20 Quarter Ended 12/31/20 Investment Income Interest Income $12,650 $12,645 $13,882 $14,687 Dividend Income 2,149 1,957 1,860 2,916 Fees and Other Income 239 562 943 1,437
Slide 19: Operating Leverage Trend
Page 19 Operating Leverage Trend Continue to realize operating efficiencies of internally managed structure Period Ending T ot al A ss et s ($ M M ) O perating E xpenses as % of A vg A ssets $284 $326 $417 $552 $585 $619 $664 $709 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.6% 2.6% FY 16 FY 17 FY 18 FY 19 FY 20
Slide 20: NAV per Share Bridge from Quarter Ended 9/30/2020
Page 20 $15.36 $0.52 $(0.41) $(0.10) $0.04 $(0.01) $0.33 $0.04 $(0.03) $15.74 9/3 0/2 02 0 N AV /Sh are Pre -T ax N et Inv est me nt Inc om e Re gu lar D ivi de nd Su pp lem en tal D ivi de nd Ne t C ha ng e i n U MM D eb t (I nc lud es I-4 5) Ne t C ha ng e i n L MM D eb t Ne t C ha ng e i n E qu i
Slide 21: Significant Unused Debt Capacity with Long-Term Duration
Page 21 (1) The Credit Facility has an accordion feature that allows for an increase in total commitments up to $400 MM (2) Net of $3.1 MM in letters of credit outstanding (3) Redeemable in whole or in part at CSWC’s option at any time. Subsequent to quarter end, CSWC fully repaid the outstanding ba
Slide 22: Balance Sheet
Page 22 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 3/31/20 Quarter Ended 6/30/20 Quarter Ended 9/30/20 Quarter Ended 12/31/20 Assets Portfolio Investments $553,072 $587,178 $631,197 $648,773 Cash & Cash Equivalents 13,744 14,986 16,011 43,724 Other Assets 18,143 16,932 17,0
Slide 23: Portfolio Statistics
Page 23 Portfolio Statistics (1) 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. Weighted average investment rating calculated at cost (2) Excludes CSWC equi
Slide 24: Investment Income Detail
Page 24 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 3/31/20 Quarter Ended 6/30/20 Quarter Ended 9/30/20 Quarter Ended 12/31/20 Investment Income Breakdown Cash Interest $11,421 $11,008 $11,581 $12,413 Cash Dividends 2,150 1,
Slide 25: Key Financial Metrics
Page 25 Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance (1) Return on Equity is calculated as the quarterly annualized Pre-Tax NII, Realized Earnings, or Total Earnings, respectively, divided by equity at the end
Slide 26: Interest Rate Sensitivity
Page 26 Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) Note: Illustrative change in annual NII is based on a projection of CSWC’s existing debt investments as of 12/31/2020, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Month LIBO
Slide 27: Corporate Information
Page 27 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 Chicago, ILChristine S. Battist Chief Fina