Company Summary: Capital Southwest Corporation (CSWC)

Business Overview

• Type: Internally managed, closed-end, non-diversified investment company
• Regulation: Regulated as a Business Development Company (BDC) under the Investment Company Act of 1940; also elected to be classified as a Regulated Investment Company (RIC) for U.S. federal tax purposes
• Headquarters: Dallas, Texas
  • Address: 8333 Douglas Avenue, Suite 1100, Dallas, TX 75225
• Employees: 30 as of March 31, 2025
• Website: www.capitalsouthwest.com

Investment Focus

• Strategy: Provides customized debt and equity financing to middle market companies primarily within the United States
• Geography: Mainly U.S.-based companies
• Industries: Broad range, across various sectors
• Target Companies:
  • Revenue: Typically $3 million to $25 million in EBITDA
  • Investment Size: $5 million to $50 million per deal
  • Focus on established companies with positive cash flow, proven management teams, and strong market positions
• Investment Types:
  • Debt: Primarily invests in first lien secured debt securities (senior loans secured by portfolio company assets)
  • Equity: May also invest in preferred stock, common stock, and warrants alongside debt investments or through direct stock holdings
• Portfolio Characteristics: Diversified across multiple companies, industries, and geographic regions with some holdings potentially exceeding 5% of total assets or 10% of voting securities

Business Model & Investment Process

• Partnering: Works with entrepreneurs, management teams, financial sponsors, and private equity firms to fund growth, acquisitions, or other corporate events
• Operational Approach:
  • Uses rigorous underwriting policies
  • Active portfolio management with regular financial monitoring (monthly, quarterly, annual)
  • Routine quarterly meetings with portfolio company management
  • Offers managerial assistance to portfolio companies
• Investment Lifecycle:
  • Deal origination through extensive relationships with banks, private equity firms, attorneys, accountants, and brokers
  • Due diligence involving site visits, financial analysis, industry research, legal review, and management background checks
  • Approvals by a dedicated Investment Committee and Board of Directors
  • Exit strategies include debt refinancing, prepayment, or sale of portfolio companies

Financial & Regulatory Details

• Assets & Capital:
  • As of March 31, 2025:
    • Total Assets: Estimated to be over $1.88 billion
    • Debt Outstanding (various instruments):
      • Corporate Credit Facility: $235 million (secured by company assets)
      • SPV Credit Facility: $108 million (secured by SPV assets)
      • Notes due 2026: $148.8 million
      • Notes due 2028: $70.2 million
      • Convertible notes due 2029: $223.1 million
• Leverage:
  • Asset coverage ratio: 211%
  • Borrowing capacity: Up to 150% asset coverage after borrowing
• Investment Ratings: Internal system from 1 (least risk) to 4 (highest risk), used to monitor portfolio performance
• Valuation: Portfolio investments valued quarterly in good faith, with independent third-party review
• Dividend Policy: Pays quarterly dividends, possibly paid in cash or stock, with an emphasis on distributing at least 90% of taxable income to maintain RIC status
• Securities:
  • Common Stock: Listed on Nasdaq Global Select Market under ticker "CSWC"
  • Preferred Stock, Warrants, and Debt Securities (Notes)
• Additional Regulations:
  • Limited issuance of securities below NAV, subject to shareholder approval if below NAV
  • Maintains compliance with SEC regulations and IRS requirements
  • Operates under restrictions such as asset diversification and offering managerial assistance as mandated for BDCs

Subsidiaries & Affiliates

• Taxable Subsidiary: Capital Southwest Equity Investments, Inc.
• SBIC Subsidiaries:
  • SBIC I: Licensed April 20, 2021, with $175 million in SBA-guaranteed debentures
  • SBIC II: Licensed April 17, 2025
  • These subsidiaries invest in small businesses, primarily within SBA size standards (net worth under $24M, income under $8M)
  • They have SBA leverage limits and are regulated by the SBA

Summary

Capital Southwest Corporation focuses on providing flexible, customized senior debt, subordinated debt, preferred stock, and equity investments in lower middle market U.S. companies. It leverages extensive industry relationships, employs rigorous underwriting, and actively monitors portfolio companies to generate attractive risk-adjusted returns through current income and capital appreciation. The company employs leverage, manages regulatory compliance under the 1940 Act and IRS rules, and supports its operations with 30 employees and a Board of Directors.