Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q4 2021 Earnings Presentation
27 slides from Capital Southwest's earnings presentation, May 26, 2021
Slide 1: Capital Southwest Corporation Q4 2021 Earnings Presentation
Capital Southwest Corporation Q4 2021 Earnings Presentation May 26, 2021 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”) • Internally
Slide 6: Fiscal Year 2021 Highlights
Fiscal Year 2021 Highlights Financial Highlights • 119% FY 2021 Total Return to Shareholders ◦ Share price appreciated to $22.16 from $11.42 in prior year, an increase of 94% ◦ $2.05 in total dividends per share paid during the year • NAV per share increased to $16.01 from $15.13 in prior year, an i
Slide 7: Q4 2021 Highlights
Q4 2021 Highlights Financial Highlights • Q4 2021 Pre-Tax Net Investment Income (“NII”) of $8.9 MM or $0.44 Per Share • Paid $0.42 per share in Regular Dividends and $0.10 per share Supplemental Dividend for the quarter ended March 31, 2021 ◦ Increased Regular Dividend to $0.43 per share and declare
Slide 8: Dividend Per Share
Track Record of Increasing Dividends Continues • In the Last Twelve Months Ending 3/31/21, CSWC Generated $1.79 Per Share in Pre-Tax NII and Paid Out $1.65 Per Share in Regular Dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 107% since the 2015 spin-off • Announced Supplemental Divid
Slide 9: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $7.22 at 3/31/21 from 9/30/15 Spin-off of CSWI $24.90 $24.11 $23.38$23.07 $24 $22.71$23.16 $23.22 $21.58 $21.99$22.04 $21.97$22.30 $20.90 $21 $19.54 $19.98 $4.09 $4.58 $5.08 $18.63 $19.00 $1.82 $2.71 $3.1
Slide 10: 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 $20 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 11: CSWC Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments
CSWC Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments LMM and First Lien Investments have increased to 88% and 92% of the credit portfolio as of 3/31/21, respectively Robust LMM Credit Portfolio Growth Credit Portfolio Heavily Weighted to First Lien 700.0 700.0 600.0 $573 600
Slide 12: Q4 2021 Originations
Q4 2021 Originations $77.3 MM in total new committed investments, consisting of $77.0 MM committed to six new portfolio companies and $0.3 MM committed to one existing portfolio company Portfolio Originations Q4 2021 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Deb
Slide 13: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $23.1 MM in total proceeds from two portfolio company exits • During the quarter, CSWC received two prepayments generating total proceeds of $23.1 MM and weighted average IRR of 8.2% • Cumulative IRR of 15.5% on 38 portfolio company exits generating $383.5 MM in
Slide 14: CSWC Portfolio Asset Mix by Market
CSWC Portfolio Asset Mix by Market Maintaining appropriate portfolio leverage while receiving attractive risk adjusted returns Investment Portfolio - Statistics Q4 2021 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 44 10 Total Cost $551,144 $79,613 Total Fa
Slide 15: Quarter-over-Quarter Investment Rating Migration
Quarter-over-Quarter Investment Rating Migration One loan upgraded and one loan downgraded during the quarter as credit portfolio continues to demonstrate strong performance Investment Rating Investment Rating Investment Rating 12/31/2020 3/31/2021 Upgrades Downgrades Fair % of Fair % of Fair % of F
Slide 16: CSWC Portfolio Mix as of March 31, 2021 at Fair Value
CSWC Portfolio Mix as of March 31, 2021 at Fair Value Current investment portfolio of $688.4 MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Subordinated Debt 2% Second Lien 5% Equity 9% Business Services: 13% I-45 SLF LL
Slide 17: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $164.4 MM is 95% first lien with average hold size of 2.8% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Consumer Products & Retail Telecommunications 5% 14% High Tech Industries 13% 11% 95% Healthcare Servi
Slide 18: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/20 9/30/20 12/31/20 3/31/21 Investment Income Interest Income $12,645 $13,882 $14,687 $15,078 Dividend Income 1,957 1,860 2,916 1,661 Fees and Other Income 562 943 1,437 434 Total I
Slide 19: Operating Leverage Continues to Improve
Operating Leverage Continues to Improve Continue to realize operating efficiencies of internally managed structure $1,000 4.9% 5% Operating Expenses as % of Avg Assets $736 $750 4.2% Total Assets ($MM) $585 $552 4% 3.7% $500 $417 $326 3.0% $284 2.8% 3% $250 2.4% $0 2% FY 16 FY 17 FY 18 FY19 FY20 FY2
Slide 20: NAV per Share Bridge since Quarter Ended 3/31/2021
NAV per Share Bridge since Quarter Ended 3/31/2021 $17 $0.44 $0.27 $16.01 $16 $0.09 $(0.05) $15.74 $0.08 $(0.42) $(0.10) $(0.04) Earnings / Dividends Investment Portfolio Corporate $(0.08) per Share $0.13 per Share $0.22 per Share $15 re io re e 1) d nd 5) io e nc om en ha ol ha ol r( I-4 de ua id r
Slide 21: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration Earliest debt maturity occurs in December 2023 Facility Total Commitments Interest Rate Maturity Principal Drawn Undrawn Commitment L + 2.50% subject to certain Credit Facility(1) $340.0 MM December 2023 $120.0 MM $216.9 MM(2) conditions Octob
Slide 22: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/20 9/30/20 12/31/20 3/31/21 Assets Portfolio Investments $587,178 $631,197 $648,773 $688,432 Cash & Cash Equivalents 14,986 16,011 43,724 31,613 Other Assets 16,932 17,057 16,337 15,53
Slide 23: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 6/30/20 9/30/20 12/31/20 3/31/21 Portfolio Statistics Fair Value of Debt Investments $487,195 $520,651 $531,103 $572,614 Average Debt Investment Hold Siz
Slide 24: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 6/30/20 9/30/20 12/31/20 3/31/21 Investment Income Breakdown Cash Interest $11,008 $11,581 $12,413 $11,668 Cash Dividends 1,957 1,860 2,91
Slide 25: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 6/30/20 9/30/20 12/31/20 3/31/21 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 26: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 4% 96% Fixed Floating Change in Base Interest Illustrative Annual Illustrative Annual NII Rates NII Change ($'s) Change (Per Share) (25 bps) $328,699 $0.02 25 bps $(423,036) $(0.02) 50 bps $(846,071) $(0.04) 75 bps $(1,233,834) $(0.
Slide 27: 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