PART I FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) The unaudited consolidated financial statements present the company's financial position, operations, changes in net assets, and cash flows for recent periods [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities%20as%20of%20September%2030%2C%202023%20(Unaudited)%20and%20March%2031%2C%202023) Total assets and net assets increased from March to September 2023, driven by growth in investments and cash | Metric | Sep 30, 2023 (in thousands) | Mar 31, 2023 (in thousands) | |:---|:---|:---| | **Total Assets** | $1,416,913 | $1,257,684 | | **Total Liabilities** | $759,139 | $667,276 | | **Total Net Assets** | $657,774 | $590,408 | | **Net Asset Value per Share** | $16.46 | $16.37 | - Total investments at fair value increased from **$1,206,388 thousand** on March 31, 2023, to **$1,353,566 thousand** on September 30, 2023[14](index=14&type=chunk) - Cash and cash equivalents increased from **$21,585 thousand** to **$23,020 thousand**[14](index=14&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)%20for%20the%20three%20and%20six%20months%20ended%20September%2030%2C%202023%20and%202022) Net investment income grew significantly for the three and six months ended September 30, 2023, due to higher total investment income | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | **Total Investment Income** | $42,777 | $26,799 | $83,138 | $49,342 | | **Total Operating Expenses** | $16,366 | $11,821 | $31,724 | $21,734 | | **Net Investment Income** | $27,194 | $14,444 | $51,750 | $26,882 | | **Net Increase in Net Assets from Operations** | $22,624 | $9,458 | $46,436 | $11,968 | | **Net Investment Income per Share** | $0.69 | $0.52 | $1.34 | $1.01 | - Net investment income for the three months ended September 30, 2023, **increased by 88.3%** year-over-year[7](index=7&type=chunk) - Net increase in net assets from operations for the six months ended September 30, 2023, **increased by 288.0%** year-over-year[7](index=7&type=chunk) [Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets%20(Unaudited)%20for%20the%20three%20and%20six%20months%20ended%20September%2030%2C%202023%20and%202022) Total net asset value increased due to net investment income and common stock issuances, partially offset by dividends | Metric (in thousands) | Balances at March 31, 2023 | Balances at September 30, 2023 | |:---|:---|:---| | **Total Net Asset Value** | $590,408 | $657,774 | | Issuance of common stock | $44,872 | $22,493 | | Net investment income | $24,556 | $27,194 | | Dividends to shareholders | $(22,916) | $(24,769) | | Net realized loss on investments | $(12,782) | $29 | | Net unrealized appreciation on investments | $12,038 | $(4,599) | - Total Net Asset Value **increased by $67,366 thousand** from March 31, 2023, to September 30, 2023[16](index=16&type=chunk) - Common stock issuances contributed significantly to the increase in net assets, with **$44,872 thousand** for the six months ended June 30, 2023, and **$22,493 thousand** for the three months ended September 30, 2023[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)%20for%20the%20six%20months%20ended%20September%2030%2C%202023%20and%202022) Operating activities used cash, which was largely offset by cash from financing activities, resulting in a net increase in cash | Metric (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | **Net Cash Used in Operating Activities** | $(104,417) | $(95,558) | | **Net Cash Used in Investing Activities** | $(2) | $(156) | | **Net Cash Provided by Financing Activities** | $105,854 | $114,521 | | **Net Increase in Cash and Cash Equivalents** | $1,435 | $18,807 | | **Cash and Cash Equivalents at End of Period** | $23,020 | $30,238 | - Purchases and originations of investments were a major use of cash in operating activities, totaling **$(206,011) thousand** for the six months ended September 30, 2023[9](index=9&type=chunk) - Financing activities were primarily driven by borrowings under credit facilities (**$165,000 thousand**) and proceeds from common stock offerings (**$67,390 thousand**) for the six months ended September 30, 2023[9](index=9&type=chunk) [Consolidated Schedule of Investments](index=7&type=section&id=Consolidated%20Schedule%20of%20Investments%20as%20of%20September%2030%2C%202023%20(Unaudited)%20and%20March%2031%2C%202023) The investment portfolio is detailed by type, industry, and specific companies, showing principal, cost, and fair values | Investment Type | Fair Value (Sep 30, 2023, in thousands) | Cost (Sep 30, 2023, in thousands) | |:---|:---|:---| | Non-control/Non-affiliate investments | $1,132,316 | $1,117,439 | | Affiliate investments | $167,828 | $162,716 | | Control investments | $53,422 | $80,800 | | **Total Investments** | **$1,353,566** | **$1,360,955** | - As of September 30, 2023, the portfolio included investments in **95 companies**, with an aggregate cost of **$1,361.0 million**[86](index=86&type=chunk) - The majority of investments are in Non-control/Non-affiliate categories, representing **83.7% of investment assets** at fair value[591](index=591&type=chunk) [Notes to Consolidated Financial Statements](index=45&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes explain the company's accounting policies, investment details, borrowings, and other financial information [1. ORGANIZATION AND BASIS OF PRESENTATION](index=46&type=section&id=1.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) The company operates as an internally managed BDC providing financing to middle-market companies - CSWC is an internally managed BDC, focusing on customized debt and equity financing for lower middle market (LMM) and opportunistic upper middle market (UMM) companies[139](index=139&type=chunk)[114](index=114&type=chunk) - The company operates a wholly-owned taxable subsidiary to help satisfy the Regulated Investment Company (RIC) tax requirement that at least **90% of gross income** must be qualifying investment income[140](index=140&type=chunk)[617](index=617&type=chunk) - CSWC's wholly-owned subsidiary, Capital Southwest SBIC I, LP (SBIC I), operates under an SBA license and is consolidated for financial reporting purposes[618](index=618&type=chunk)[141](index=141&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=48&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines key accounting policies for fair value, income recognition, taxes, and stock-based compensation - Investments are stated at fair value, determined by the Valuation Committee subject to Board oversight, using significant unobservable **Level 3 inputs**[121](index=121&type=chunk)[146](index=146&type=chunk) - Payment-in-kind (PIK) interest is added to the principal balance and recorded as interest income, affecting taxable income and required shareholder distributions even if cash is not yet collected[151](index=151&type=chunk) - CSWC maintains RIC tax treatment by distributing at least **90% of investment company taxable income**, with a wholly-owned taxable subsidiary handling certain portfolio company interests to preserve RIC status[130](index=130&type=chunk)[131](index=131&type=chunk)[290](index=290&type=chunk) [3. INVESTMENTS](index=53&type=section&id=3.%20INVESTMENTS) The investment portfolio is detailed by type, industry, and geography, with first lien loans comprising the majority | Investment Type | Sep 30, 2023 Fair Value (in thousands) | Mar 31, 2023 Fair Value (in thousands) | |:---|:---|:---| | First lien loans | $1,141,280 | $1,000,984 | | Second lien loans | $37,034 | $35,820 | | Subordinated debt | $760 | $791 | | Preferred equity | $66,440 | $63,393 | | Common equity & warrants | $54,630 | $54,144 | | I-45 SLF LLC | $53,422 | $51,256 | | **Total Investments** | **$1,353,566** | **$1,206,388** | | Top 3 Industries (Sep 30, 2023) | Fair Value (in thousands) | % of Total Portfolio | |:---|:---|:---| | Healthcare Services | $176,397 | 13.0% | | Business Services | $163,911 | 12.1% | | Media & Marketing | $163,541 | 12.1% | | Top 3 Geographic Regions (Sep 30, 2023) | Fair Value (in thousands) | % of Total Portfolio | |:---|:---|:---| | Northeast | $337,330 | 24.9% | | West | $264,461 | 19.6% | | Southwest | $238,578 | 17.6% | [4. FAIR VALUE MEASUREMENTS](index=56&type=section&id=4.%20FAIR%20VALUE%20MEASUREMENTS) The Valuation Committee oversees the fair value process for all portfolio investments, which use Level 3 inputs - The Valuation Committee, designated by the Board, determines the fair value of investments lacking readily available market quotations, using significant unobservable **Level 3 inputs**[166](index=166&type=chunk)[195](index=195&type=chunk) - CSWC utilizes Market Approach, Income Approach, Enterprise Value Waterfall Approach, and NAV Valuation Method for valuing different security types[173](index=173&type=chunk)[232](index=232&type=chunk) | Asset Category | Valuation Technique | Significant Unobservable Inputs | Weighted Average (Sep 30, 2023) | |:---|:---|:---|:---| | First lien loans | Income Approach | Discount Rate | 13.6% | | Preferred equity | Enterprise Value Waterfall Approach | EBITDA Multiple | 9.9x | | Common equity & warrants | Enterprise Value Waterfall Approach | Discount Rate | 16.6% | [5. BORROWINGS](index=64&type=section&id=5.%20BORROWINGS) This note details outstanding borrowings, including the Credit Facility, various Notes, and SBA Debentures | Borrowing Type | Outstanding Balance (Sep 30, 2023, in thousands) | Recorded Value (Sep 30, 2023, in thousands) | |:---|:---|:---| | SBA Debentures | $130,000 | $126,376 | | Credit Facility | $250,000 | $250,000 | | January 2026 Notes | $140,000 | $139,220 | | October 2026 Notes | $150,000 | $147,633 | | August 2028 Notes | $71,875 | $69,438 | | **Total** | **$741,875** | **$732,667** | - The Credit Facility commitments increased from **$400 million to $435 million**, with an extended maturity to August 2, 2028[273](index=273&type=chunk) - The August 2028 Notes, issued in June 2023, bear interest at **7.75% per year** and are listed on the Nasdaq Global Select Market[253](index=253&type=chunk) [6. INCOME TAXES](index=68&type=section&id=6.%20INCOME%20TAXES) CSWC maintains its status as a Regulated Investment Company (RIC) by distributing at least 90% of its taxable income - CSWC qualified for RIC tax treatment as of September 30, 2023, and intends to maintain this status, requiring timely distribution of at least **90% of investment company taxable income**[287](index=287&type=chunk)[259](index=259&type=chunk) - The taxable subsidiary helps CSWC hold interests in pass-through entities, ensuring compliance with RIC income requirements by taxing income at the subsidiary level[290](index=290&type=chunk) | Deferred Tax Item (in thousands) | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Total deferred tax asset | $1,125 | $219 | | Total deferred tax liabilities | $(11,483) | $(12,336) | | **Total net deferred tax (liabilities) assets** | **$(10,358)** | **$(12,117)** | [7. SHAREHOLDERS' EQUITY](index=70&type=section&id=7.%20SHAREHOLDERS'%20EQUITY) This note covers equity capital activities, including public offerings, the Equity ATM Program, and share management - In November 2022, CSWC completed an underwritten public equity offering, raising **$46.0 million in gross proceeds** ($44.1 million net) from 2,534,436 shares[294](index=294&type=chunk) | Equity ATM Program (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Number of shares sold | 3,627,458 | 3,644,568 | | Gross proceeds received | $68,416 | $73,666 | | Net proceeds received | $67,390 | $72,561 | | Weighted average price per share | $18.86 | $20.21 | - As of September 30, 2023, CSWC had **$236.9 million available** under its Equity ATM Program[323](index=323&type=chunk) - On April 26, 2023, the Board approved the cancellation of **2,339,512 shares** of treasury stock[300](index=300&type=chunk) [8. STOCK BASED COMPENSATION PLANS](index=72&type=section&id=8.%20STOCK%20BASED%20COMPENSATION%20PLANS) This note describes the company's restricted stock plans for employees and non-employee directors - Restricted stock awards for employees generally vest in equal annual installments over a **four-year period** from the grant date[301](index=301&type=chunk) - Non-employee directors receive shares equivalent to **$50,000 annually**, vesting one year from the grant date[328](index=328&type=chunk) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | |:---|:---|:---| | Total share based compensation expense | $1,200 | $1,100 | | Related to non-employee directors | $100 | $35.5 | | Metric (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Total share based compensation expense | $2,200 | $1,900 | | Related to non-employee directors | $100 | $35.5 | - As of September 30, 2023, total remaining unrecognized compensation expense was **$10.6 million**, to be amortized over approximately 2.8 years[305](index=305&type=chunk) [9. OTHER EMPLOYEE COMPENSATION](index=73&type=section&id=9.%20OTHER%20EMPLOYEE%20COMPENSATION) This note details the company's 401(k) plan, including eligibility and matching contributions - CSWC contributes up to **4.5% of eligible compensation** to its 401(k) plan for full-time employees, with immediate vesting[331](index=331&type=chunk) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | |:---|:---|:---| | Matching contributions | $34.5 | $31.4 | | Metric (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Matching contributions | $100 | $100 | [10. COMMITMENTS AND CONTINGENCIES](index=74&type=section&id=10.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines unfunded commitments to portfolio companies and operating lease obligations | Commitment Type (in thousands) | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Total Revolving Loans | $105,715 | $87,554 | | Total Delayed Draw Term Loans | $25,147 | $37,083 | | **Total Unfunded Debt Commitments** | **$130,862** | **$124,637** | | Unfunded Equity Commitments (in thousands) | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Catbird NYC, LLC | $125 | $125 | | Infolinks Media Buyco, LLC | $412 | $412 | | **Total Unfunded Equity Commitments** | **$537** | **$537** | | Operating Lease Payments (in thousands) | Amount | |:---|:---| | Year ending March 31, 2024 | $206 | | 2025 | $416 | | 2026 | $426 | | 2027 | $436 | | 2028 | $446 | | Thereafter | $2,132 | | **Total** | **$4,062** | - As of September 30, 2023, CSWC had **$0.9 million** in letters of credit issued and outstanding on behalf of portfolio companies[312](index=312&type=chunk) [11. RELATED PARTY TRANSACTIONS](index=77&type=section&id=11.%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with I-45 SLF LLC, a joint venture, including dividends and administrative fees - CSWC had dividends receivable from I-45 SLF LLC of **$2.2 million** as of September 30, 2023, and **$1.9 million** as of March 31, 2023[364](index=364&type=chunk) - Administrative fee income from I-45 SLF LLC was **$21.0 thousand** for the three months ended September 30, 2023, and **$45.4 thousand** for the six months ended September 30, 2023[364](index=364&type=chunk) [12. SUMMARY OF PER SHARE INFORMATION](index=78&type=section&id=12.%20SUMMARY%20OF%20PER%20SHARE%20INFORMATION) This note provides key per share data, financial ratios, and total investment returns for recent periods | Per Share Data | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Investment income | $2.15 | $1.84 | | Operating expenses | $(0.82) | $(0.81) | | Net investment income | $1.34 | $1.01 | | Net asset value (End of period) | $16.46 | $16.53 | | Weighted-average basic and diluted shares outstanding | 38,654 | 26,757 | | Ratios and Supplemental Data | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Ratio of net investment income to average net assets | 16.15% | 12.07% | | Total investment return | 36.14% | (24.06)% | | Total return based on change in NAV | 7.94% | 4.74% | [13. SUBSEQUENT EVENTS](index=79&type=section&id=13.%20SUBSEQUENT%20EVENTS) This note reports on a quarterly dividend declaration and an increase in authorized common stock shares - On October 25, 2023, the Board declared a total dividend of **$0.63 per share** ($0.57 regular, $0.06 supplemental) for the quarter ending December 31, 2023[344](index=344&type=chunk) - On October 11, 2023, authorized common stock shares were increased from **40,000,000 to 75,000,000** after shareholder approval[367](index=367&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=83&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition, investment strategy, portfolio, asset quality, and operational results [OVERVIEW](index=84&type=section&id=OVERVIEW) The company is an internally managed BDC providing customized financing to lower and upper middle market companies - CSWC is an internally managed BDC specializing in customized debt and equity financing for LMM companies (EBITDA $3.0M-$20.0M) and opportunistic loans for UMM companies (EBITDA >$20.0M)[352](index=352&type=chunk)[406](index=406&type=chunk) - The company's internally managed structure provides a beneficial operating expense structure, with LTM operating expenses as a percentage of LTM average total assets at **1.84%** for the six months ended September 30, 2023[354](index=354&type=chunk) - The investment objective is to produce attractive risk-adjusted returns by generating current income from debt investments and capital appreciation from equity investments[375](index=375&type=chunk) [CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES](index=85&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20USE%20OF%20ESTIMATES) Investment valuation and revenue recognition are the most critical accounting estimates due to the portfolio's size - Investment valuation and revenue recognition are identified as the most critical accounting estimates[378](index=378&type=chunk)[408](index=408&type=chunk) - The investment portfolio at fair value represented approximately **95.5% of total assets** as of September 30, 2023[409](index=409&type=chunk) - Fair value for the investment portfolio is determined in good faith by the Valuation Committee, consistent with 1940 Act requirements and ASC 820[410](index=410&type=chunk)[409](index=409&type=chunk) [INVESTMENT PORTFOLIO COMPOSITION](index=86&type=section&id=INVESTMENT%20PORTFOLIO%20COMPOSITION) The investment portfolio grew to $1.35 billion, consisting primarily of floating-rate debt investments across 95 companies - Total investment portfolio value increased to **$1,353.6 million** as of September 30, 2023, from $1,206.4 million as of March 31, 2023[383](index=383&type=chunk) - As of September 30, 2023, **97.2% of the debt investment portfolio** (at fair value) bore interest at floating rates, with 100.0% subject to contractual minimum interest rates[414](index=414&type=chunk) | Metric | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Number of portfolio companies | 94 | 85 | | % of portfolio at fair value - debt | 90.7% | 89.8% | | % of investments at fair value secured by first lien | 87.8% | 86.7% | | Weighted average annual effective yield on debt investments | 13.5% | 12.8% | | Weighted average leverage through CSWC security | 3.6x | 4.0x | [Portfolio Asset Quality](index=87&type=section&id=Portfolio%20Asset%20Quality) The majority of the debt portfolio is performing as expected, with a small portion on non-accrual status - CSWC employs an internally developed **1-4 investment rating system** to monitor debt investment performance and expected returns[50](index=50&type=chunk) | Investment Rating | Debt Investments at Fair Value (Sep 30, 2023, in thousands) | Percentage of Debt Portfolio | |:---|:---|:---| | 1 (Least Risk) | $162,854 | 13.8% | | 2 (Performing as Expected) | $980,104 | 83.1% | | 3 (Below Expectations) | $29,513 | 2.5% | | 4 (Substantially Increased Risk) | $6,603 | 0.6% | | **Total** | **$1,179,074** | **100.0%** | - Investments on non-accrual status represented approximately **2.0% of the total investment portfolio's fair value** and 2.9% of its cost as of September 30, 2023[228](index=228&type=chunk)[381](index=381&type=chunk) [Investment Activity](index=88&type=section&id=Investment%20Activity) The six months ended September 30, 2023, saw significant new and follow-on investments, net of repayments and sales - For the six months ended September 30, 2023, new debt investments totaled **$146.0 million**, follow-on debt investments were **$40.5 million**, and equity investments totaled **$7.5 million**[229](index=229&type=chunk) - Proceeds from sales of debt and equity investments totaled **$17.3 million**, and contractual principal repayments were approximately **$31.5 million**[229](index=229&type=chunk) - Compared to the same period in 2022, new debt investments decreased slightly from $156.1 million to $146.0 million, while total investment originations remained robust[229](index=229&type=chunk)[230](index=230&type=chunk) [RESULTS OF OPERATIONS](index=90&type=section&id=RESULTS%20OF%20OPERATIONS) Net investment income and net assets from operations increased substantially due to higher investment income [Comparison of three months ended September 30, 2023 and September 30, 2022](index=90&type=section&id=Comparison%20of%20three%20months%20ended%20September%2030%2C%202023%20and%20September%2030%2C%202022) Net investment income increased 88.3% year-over-year, driven by a 59.6% rise in total investment income | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Net Change Amount | % Change | |:---|:---|:---|:---|:---| | Total investment income | $42,777 | $26,799 | $15,978 | 59.6% | | Interest expense | $(10,481) | $(6,629) | $(3,852) | 58.1% | | Other operating expenses | $(5,885) | $(5,192) | $(693) | 13.3% | | Net investment income | $27,194 | $14,444 | $12,750 | 88.3% | | Net increase (decrease) in net assets from operations | $22,624 | $9,458 | $13,166 | 139.2% | - Total investment income increased by **$16.0 million**, primarily from a 29.6% increase in the cost basis of debt investments and rising benchmark interest rates[203](index=203&type=chunk) - Interest expense increased by **$3.9 million** due to higher average borrowings and an increase in the weighted average interest rate on total debt from 3.93% to 5.42%[205](index=205&type=chunk)[206](index=206&type=chunk) - Net unrealized depreciation on investments totaled **$4.6 million** for the three months ended September 30, 2023[174](index=174&type=chunk) [Comparison of six months ended September 30, 2023 and September 30, 2022](index=93&type=section&id=Comparison%20of%20six%20months%20ended%20September%2030%2C%202023%20and%20September%2030%2C%202022) Net investment income surged 92.5% year-over-year, driven by a 68.5% increase in total investment income | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Net Change Amount | % Change | |:---|:---|:---|:---|:---| | Total investment income | $83,138 | $49,342 | $33,796 | 68.5% | | Interest expense | $(20,162) | $(12,113) | $(8,049) | 66.4% | | Other operating expenses | $(11,562) | $(9,621) | $(1,941) | 20.2% | | Net investment income | $51,750 | $26,882 | $24,868 | 92.5% | | Net increase in net assets from operations | $46,436 | $11,968 | $34,468 | 288.0% | - Total investment income increased by **$33.8 million**, primarily due to a 29.6% increase in the cost basis of debt investments and rising benchmark interest rates[84](index=84&type=chunk) - Interest expense increased by **$8.0 million**, driven by higher average borrowings and an increase in the weighted average interest rate on total debt from 3.73% to 5.33%[86](index=86&type=chunk) - Net unrealized appreciation on investments was **$7.4 million** for the six months ended September 30, 2023, a significant improvement from net unrealized depreciation of $8.6 million in the prior year[83](index=83&type=chunk)[455](index=455&type=chunk) [FINANCIAL LIQUIDITY AND CAPITAL RESOURCES](index=96&type=section&id=FINANCIAL%20LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Liquidity is generated from operations, public offerings, and credit facilities, and is considered adequate for the next year - Primary liquidity sources include cash flows from operations, net proceeds from public offerings of debt and equity, advances from the Credit Facility, and SBA Debentures[432](index=432&type=chunk) - Management believes current liquidity is adequate to meet needs for the next twelve months, with plans to fund investment activities through existing cash, operating cash flows, and available borrowings[432](index=432&type=chunk) - As of September 30, 2023, the Company's asset coverage ratio was **229%**, exceeding the regulatory requirement of 150%[462](index=462&type=chunk)[453](index=453&type=chunk) [Cash Flows](index=96&type=section&id=Cash%20Flows) Cash increased by $1.4 million, as cash from financing activities offset cash used in operating activities - Net increase in cash and cash equivalents was **$1.4 million** for the six months ended September 30, 2023[433](index=433&type=chunk) - Operating activities used **$104.4 million** in cash, mainly due to **$206.0 million** in new portfolio investments[433](index=433&type=chunk) - Financing activities provided **$105.9 million**, primarily from August 2028 Notes ($69.7 million), Equity ATM Program ($67.4 million), and Credit Facility borrowings ($15.0 million)[433](index=433&type=chunk) [Financing Transactions](index=96&type=section&id=Financing%20Transactions) Recent financing activities include an increased Credit Facility, issuance of August 2028 Notes, and SBA Debenture utilization - The Credit Facility commitments increased from **$400 million to $435 million**, with an uncommitted accordion feature up to $750 million, and maturity extended to August 2, 2028[435](index=435&type=chunk) - The August 2028 Notes, issued in June 2023, totaled approximately **$71.9 million** in principal amount, bearing 7.75% interest[445](index=445&type=chunk) - As of September 30, 2023, all approved SBA Debenture commitments have been utilized, with an aggregate principal amount of **$130.0 million** outstanding[500](index=500&type=chunk)[476](index=476&type=chunk) [Equity Capital Activities](index=100&type=section&id=Equity%20Capital%20Activities) The company raised capital through a public equity offering and its Equity ATM Program, and also cancelled treasury stock - A public equity offering in November 2022 raised **$46.0 million in gross proceeds** from 2,534,436 shares[449](index=449&type=chunk) | Equity ATM Program (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Number of shares sold | 3,627,458 | 3,644,568 | | Gross proceeds received | $68,416 | $73,666 | | Net proceeds received | $67,390 | $72,561 | - As of September 30, 2023, **$236.9 million remained available** under the Equity ATM Program[450](index=450&type=chunk) - On April 26, 2023, **2,339,512 shares of treasury stock were cancelled**, increasing authorized and unissued shares[481](index=481&type=chunk) [Contractual Obligations](index=101&type=section&id=Contractual%20Obligations) Contractual obligations include operating leases and principal and interest payments on various debt instruments | Contractual Obligations (in thousands) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |:---|:---|:---|:---|:---|:---| | Operating lease obligations | $4,062 | $411 | $852 | $893 | $1,906 | | Credit Facility | $344,513 | $19,577 | $39,046 | $285,890 | — | | January 2026 Notes | $155,750 | $6,300 | $149,450 | — | — | | October 2026 Notes | $167,718 | $5,062 | $10,125 | $152,531 | — | | August 2028 Notes | $99,727 | $5,570 | $11,141 | $83,016 | — | | **Total** | **$771,770** | **$36,920** | **$210,614** | **$522,330** | **$1,906** | [OFF-BALANCE SHEET ARRANGEMENTS](index=101&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) Off-balance sheet arrangements consist of unfunded debt and equity commitments to portfolio companies - Total unfunded commitments were approximately **$131.4 million** as of September 30, 2023[508](index=508&type=chunk) - These commitments include **$0.9 million in letters of credit** issued and outstanding on behalf of portfolio companies, expiring between February and August 2024[508](index=508&type=chunk) - CSWC believes its assets, including **$23.0 million in cash** and **$184.4 million in available Credit Facility borrowings**, provide adequate coverage for unfunded commitments[483](index=483&type=chunk) [RECENT DEVELOPMENTS](index=102&type=section&id=RECENT%20DEVELOPMENTS) Recent developments include a quarterly dividend declaration and an increase in authorized common stock - On October 25, 2023, the Board of Directors declared a total dividend of **$0.63 per share** ($0.57 regular, $0.06 supplemental) for the quarter ending December 31, 2023[510](index=510&type=chunk) - On October 11, 2023, authorized common stock shares were increased from **40,000,000 to 75,000,000** after shareholder approval[484](index=484&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=102&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, particularly interest rate fluctuations [Interest Rate Risk](index=102&type=section&id=Interest%20Rate%20Risk) The company is exposed to interest rate risk due to its portfolio of floating-rate investments and liabilities - As of September 30, 2023, approximately **97.2% of CSWC's debt investment portfolio** (at fair value) bore interest at floating rates, all subject to contractual minimum interest rates[487](index=487&type=chunk) - The Credit Facility accrues interest at Adjusted Term SOFR plus 2.15% per annum, while other debt has fixed interest rates[487](index=487&type=chunk)[513](index=513&type=chunk) | Basis Point Change | Increase (decrease) in net investment income (in thousands) | Increase (decrease) net investment income per share | |:---|:---|:---| | (200 bps) | $(19,110) | $(0.48) | | (150 bps) | $(14,333) | $(0.36) | | (100 bps) | $(9,555) | $(0.24) | | (50 bps) | $(4,778) | $(0.12) | | 50 bps | $4,778 | $0.12 | - CSWC regularly assesses its interest rate risk but was not a party to any hedging arrangements as of September 30, 2023[513](index=513&type=chunk) [Item 4. Controls and Procedures](index=103&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control - Disclosure controls and procedures were deemed **effective** as of September 30, 2023[517](index=517&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended September 30, 2023[491](index=491&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=104&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The company has **no currently pending material legal proceedings** to which it is a party or to which any of its assets are subject[520](index=520&type=chunk) [Item 1A. Risk Factors](index=104&type=section&id=Item%201A.%20Risk%20Factors) Risk factors have been updated to reflect the transition from LIBOR to alternative reference rates like SOFR - The primary material change to risk factors relates to the replacement of LIBOR with alternative reference rates, such as **CME Term SOFR**[531](index=531&type=chunk)[493](index=493&type=chunk) - Concerns exist that alternative reference rates may not yield the same or similar economic results as LIBOR over the life of transactions[521](index=521&type=chunk)[493](index=493&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=105&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's share repurchase program, with no activity in the recent quarter [Issuer Purchases of Equity Securities](index=105&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) No shares were repurchased under the authorized $20 million share repurchase program during the quarter - The Board of Directors approved a share repurchase program authorizing the company to repurchase up to **$20 million** of its outstanding common stock[523](index=523&type=chunk) - **No shares were repurchased** under the share repurchase program during the three months ended September 30, 2023[524](index=524&type=chunk) [Item 3. Defaults Upon Senior Securities](index=105&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report - Not applicable, indicating **no defaults** upon senior securities[497](index=497&type=chunk) [Item 4. Mine Safety Disclosures](index=106&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report - None, indicating **no mine safety disclosures**[526](index=526&type=chunk) [Item 5. Other Information](index=106&type=section&id=Item%205.%20Other%20Information) No directors or officers entered into Rule 10b5-1(c) or non-Rule 10b5-1 trading arrangements - No director or officer entered into any **Rule 10b5-1(c) trading arrangements** or non-Rule 10b5-1 trading arrangements during the period[498](index=498&type=chunk) [Item 6. Exhibits](index=106&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including organizational documents, debt agreements, and certifications - Exhibits include organizational documents, debt instruments, the Third Amended and Restated Senior Secured Revolving Credit Agreement, and certifications[538](index=538&type=chunk) Signatures [SIGNATURES](index=107&type=section&id=SIGNATURES) The report is duly signed by the President and CEO and the CFO as of October 31, 2023 - The report was signed by Bowen S. Diehl, President and Chief Executive Officer, and Michael S. Sarner, Chief Financial Officer, Secretary, and Treasurer, on **October 31, 2023**[541](index=541&type=chunk)

Capital Southwest (NASDAQ:CSWC) Q1 2024 Earnings Conference Call August 8, 2023 11:00 AM ET Company Participants Chris Rehberger - Vice President, Finance Bowen Diehl - Chief Executive Officer Michael Sarner - Chief Financial Officer Conference Call Participants Kyle Joseph - Jefferies Bryce Rowe - B. Riley Operator Thank you for joining today's Capital Southwest First Quarter Fiscal Year 2024 Earnings Call. Participating on the call today are Bowen Diehl CEO; Michael Sarner, CFO; and Chris Rehberger, VP Fi ...

Constructing a portfolio of investments with recurring cash yield | --- | --- | --- | --- | --- | |----------------------------------------------------------------------------------------------|------------------------|-------------------------|------------------------|------------------------| | (In Thousands) | Quarter Ended 9/30/22 | Quarter Ended 12/31/22 | Quarter Ended 3/31/23 | Quarter Ended 6/30/23 | | Investment Income Breakdown | | | | | | | | | | | | Cash Interest | $21,173 | $26,619 | $30,712 | ...

FORM 10-Q Cover Page The cover page identifies CAPITAL SOUTHWEST CORPORATION as the registrant, its Nasdaq listing, and filing status as a non-accelerated filer [Registrant Information](index=1&type=section&id=Registrant%20Information) Identifies CAPITAL SOUTHWEST CORPORATION as the Texas-incorporated registrant, listing its Dallas executive offices and Nasdaq trading symbols - Registrant: **CAPITAL SOUTHWEST CORPORATION**, incorporated in Texas[2](index=2&type=chunk) - Trading Symbols: **CSWC** (Common Stock, $0.25 par value), **CSWCZ** (7.75% Notes due 2028) on The Nasdaq Global Select Market[2](index=2&type=chunk)[3](index=3&type=chunk) [Filing Status](index=1&type=section&id=Filing%20Status) The registrant is a non-accelerated filer, not an emerging growth or shell company, and has filed all required reports - Filing Status: **Non-accelerated filer**[4](index=4&type=chunk) - Not an emerging growth company or a shell company[4](index=4&type=chunk)[12](index=12&type=chunk) - Compliance: Registrant has filed all required reports in the preceding 12 months[24](index=24&type=chunk) [Securities Registered](index=1&type=section&id=Securities%20Registered) The company's Common Stock and 7.75% Notes due 2028 are registered on Nasdaq, with 39,939,918 shares outstanding - Securities registered: Common Stock ($0.25 par value) and 7.75% Notes due 2028[3](index=3&type=chunk) - Exchange: The Nasdaq Global Select Market[3](index=3&type=chunk) - Shares Outstanding: **39,939,918 shares** of Common Stock as of August 4, 2023[24](index=24&type=chunk) PART I FINANCIAL INFORMATION Presents unaudited consolidated financial statements and management's discussion for the quarter ended June 30, 2023 [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) Presents unaudited consolidated financial statements including assets, operations, net assets, cash flows, and detailed investment schedules [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Details the company's financial position, showing an increase in total assets and net assets from March 31 to June 30, 2023 | Metric (in thousands) | June 30, 2023 | March 31, 2023 | | :-------------------- | :------------ | :------------- | | Total Assets | $1,337,003 | $1,257,684 | | Total Liabilities | $700,802 | $667,276 | | Total Net Assets | $636,201 | $590,408 | | Net Asset Value per Share | $16.38 | $16.37 | - Total investments at fair value increased from $1,206,388 thousand to $1,285,318 thousand (QoQ increase of $78,930 thousand)[7](index=7&type=chunk) - August 2028 Notes (par value $71,875 thousand) were introduced, contributing $69,327 thousand to liabilities as of June 30, 2023[7](index=7&type=chunk) - Credit facility balance decreased from $235,000 thousand to $195,000 thousand[7](index=7&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Reports a significant increase in net investment income and net assets from operations for the three months ended June 30, 2023 | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | | Total Investment Income | $40,361 | $22,543 | | Total Operating Expenses | $15,358 | $9,913 | | Income Before Taxes | $25,003 | $12,630 | | Total Income Tax Provision | $447 | $192 | | Net Investment Income | $24,556 | $12,438 | | Net Realized (Loss) Gain | $(12,782) | $2,320 | | Net Unrealized Appreciation (Depreciation) | $12,038 | $(12,248) | | Net Increase in Net Assets from Operations | $23,812 | $2,510 | - Total investment income increased by $17,818 thousand (79.0%) YoY, primarily due to a $17.5 million increase in interest income from debt investments[28](index=28&type=chunk)[101](index=101&type=chunk) - Net investment income increased by $12,118 thousand (97.4%) YoY[28](index=28&type=chunk)[136](index=136&type=chunk) - Net realized loss on investments was $(12,782) thousand in Q2 2023, compared to a gain of $2,320 thousand in Q2 2022[28](index=28&type=chunk) [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Reflects the increase in total net assets driven by operations and common stock issuance, offset by shareholder dividends | Metric (in thousands) | March 31, 2023 | June 30, 2023 | | :-------------------- | :------------- | :------------ | | Balances at Period Start | $590,408 | $590,408 | | Issuance of Common Stock | $44,872 | $44,872 | | Cancellation of Treasury Stock | $(0) | $(0) | | Share-based Compensation | $963 | $963 | | Dividends to Shareholders | $(22,916) | $(22,916) |\ | Net Increase from Operations | $23,812 | $23,812 | | Balances at Period End | $636,201 | $636,201 | - Total net assets increased by $45,793 thousand from March 31, 2023, to June 30, 2023[18](index=18&type=chunk) - Issuance of common stock contributed $44,872 thousand to net assets[18](index=18&type=chunk) - Dividends to shareholders amounted to $(22,916) thousand[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Shows a net decrease in cash and cash equivalents, with operating activities using funds and financing activities providing them | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | | Net Cash Used in Operating Activities | $(55,626) | $(69,803) | | Net Cash Used in Investing Activities | $(2) | $(156) | | Net Cash Provided by Financing Activities | $55,321 | $77,298 | | Net (Decrease) Increase in Cash and Cash Equivalents | $(307) | $7,339 | | Cash and Cash Equivalents at End of Period | $21,278 | $18,770 | - Operating activities used $55.6 million, primarily due to $104.1 million in new investments, partially offset by $24.7 million from debt repayments and $3.4 million from equity sales[31](index=31&type=chunk)[140](index=140&type=chunk) - Financing activities provided $55.3 million, including $69.7 million from August 2028 Notes, $44.9 million from Equity ATM Program, and $4.9 million from SBA Debentures, offset by $40.0 million net repayments on Credit Facility and $22.9 million in dividends[31](index=31&type=chunk)[140](index=140&type=chunk) [Consolidated Schedule of Investments](index=8&type=section&id=Consolidated%20Schedule%20of%20Investments) Provides a detailed breakdown of the investment portfolio by control, affiliate, and non-control/non-affiliate categories [Consolidated Schedule of Investments as of June 30, 2023](index=8&type=section&id=Consolidated%20Schedule%20of%20Investments%20as%20of%20June%2030%2C%202023) Details the investment portfolio composition as of June 30, 2023, dominated by non-control/non-affiliate investments | Investment Type (in thousands) | Fair Value (June 30, 2023) | Cost (June 30, 2023) | | :----------------------------- | :------------------------- | :------------------- | | Non-control/Non-affiliate | $1,046,398 | $1,025,318 | | Affiliate | $187,058 | $180,907 | | Control | $51,862 | $80,800 | | **Total Investments** | **$1,285,318** | **$1,287,025** | - Non-control/Non-affiliate investments represent approximately **81.4%** of the Company's investment assets at fair value[217](index=217&type=chunk) - Affiliate investments represent approximately **14.6%** of the Company's investment assets at fair value[243](index=243&type=chunk) - Control investments represent approximately **4.0%** of the Company's investment assets at fair value[243](index=243&type=chunk) [Non-control/Non-affiliate Investments (June 30, 2023)](index=8&type=section&id=Non-control%2FNon-affiliate%20Investments%20%28June%2030%2C%202023%29) Focuses on the largest segment of the portfolio, primarily first lien loans across diverse industries - Total Non-control/Non-affiliate investments at fair value: **$1,046,398 thousand** (Cost: $1,025,318 thousand)[7](index=7&type=chunk)[211](index=211&type=chunk) - Key industries include Media & Marketing, Healthcare Services, Software & IT Services, and Consumer Products & Retail[20](index=20&type=chunk)[21](index=21&type=chunk)[23](index=23&type=chunk)[35](index=35&type=chunk) - Majority of debt investments bear interest at floating rates, primarily SOFR-based, with contractual minimum interest rates[217](index=217&type=chunk) [Affiliate Investments (June 30, 2023)](index=21&type=section&id=Affiliate%20Investments%20%28June%2030%2C%202023%29) Outlines investments where the company owns between 5% and 25% of voting securities - Total Affiliate investments at fair value: **$187,058 thousand** (Cost: $180,907 thousand)[7](index=7&type=chunk)[241](index=241&type=chunk) - Examples include investments in Air Conditioning Specialist, Inc., Catbird NYC, LLC, Central Medical Supply LLC, and Roseland Management, LLC[215](index=215&type=chunk)[234](index=234&type=chunk)[241](index=241&type=chunk) - These investments are generally defined as those where the company owns between **5% and 25%** of the voting securities[243](index=243&type=chunk) [Control Investments (June 30, 2023)](index=24&type=section&id=Control%20Investments%20%28June%2030%2C%202023%29) Details investments where the company owns more than 25% of voting securities, primarily I-45 SLF LLC - Total Control investments at fair value: **$51,862 thousand** (Cost: $80,800 thousand)[7](index=7&type=chunk)[241](index=241&type=chunk) - Primary control investment is an **80% LLC equity interest in I-45 SLF LLC**, a joint venture with Main Street Capital Corporation[241](index=241&type=chunk)[341](index=341&type=chunk) - Control investments are defined as those where the company owns **more than 25%** of the voting securities[243](index=243&type=chunk) [Consolidated Schedule of Investments as of March 31, 2023](index=27&type=section&id=Consolidated%20Schedule%20of%20Investments%20as%20of%20March%2031%2C%202023) Presents the investment portfolio composition as of March 31, 2023, with a similar structure to the June 30, 2023, portfolio | Investment Type (in thousands) | Fair Value (March 31, 2023) | Cost (March 31, 2023) | | :----------------------------- | :-------------------------- | :-------------------- | | Non-control/Non-affiliate | $966,627 | $947,829 | | Affiliate | $188,505 | $191,523 | | Control | $51,256 | $80,800 |\ | **Total Investments** | **$1,206,388** | **$1,220,152** | - Non-control/Non-affiliate investments represented approximately **80.1%** of the Company's investment assets at fair value[313](index=313&type=chunk) - Affiliate investments represented approximately **15.6%** of the Company's investment assets at fair value[291](index=291&type=chunk) - Control investments represented approximately **4.2%** of the Company's investment assets at fair value[291](index=291&type=chunk) [Non-control/Non-affiliate Investments (March 31, 2023)](index=27&type=section&id=Non-control%2FNon-affiliate%20Investments%20%28March%2031%2C%202023%29) Details the non-control/non-affiliate investments as of March 31, 2023, focusing on first lien loans in various sectors - Total Non-control/Non-affiliate investments at fair value: **$966,627 thousand** (Cost: $947,829 thousand)[7](index=7&type=chunk)[284](index=284&type=chunk) - Investments are spread across industries such as Media & Marketing, Healthcare Services, Food, Agriculture & Beverage, and Software & IT Services[273](index=273&type=chunk)[278](index=278&type=chunk)[280](index=280&type=chunk)[282](index=282&type=chunk)[284](index=284&type=chunk) [Affiliate Investments (March 31, 2023)](index=39&type=section&id=Affiliate%20Investments%20%28March%2031%2C%202023%29) Presents affiliate investments as of March 31, 2023, including debt and equity instruments in various companies - Total Affiliate investments at fair value: **$188,505 thousand** (Cost: $191,523 thousand)[7](index=7&type=chunk)[312](index=312&type=chunk) - Investments include various debt and equity instruments in companies such as Air Conditioning Specialist, Inc., Catbird NYC, LLC, and Central Medical Supply LLC[285](index=285&type=chunk)[312](index=312&type=chunk) [Control Investments (March 31, 2023)](index=42&type=section&id=Control%20Investments%20%28March%2031%2C%202023%29) Details control investments as of March 31, 2023, primarily the 80% LLC equity interest in I-45 SLF LLC - Total Control investments at fair value: **$51,256 thousand** (Cost: $80,800 thousand)[7](index=7&type=chunk)[312](index=312&type=chunk) - The main control investment is an **80% LLC equity interest in I-45 SLF LLC**[312](index=312&type=chunk) [Notes to Consolidated Financial Statements](index=44&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, investment valuation, borrowings, income taxes, and other financial disclosures [1. ORGANIZATION AND BASIS OF PRESENTATION](index=45&type=section&id=1.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) Describes Capital Southwest Corporation's structure as an internally managed BDC and its investment strategy - Capital Southwest Corporation is an internally managed BDC, regulated under the 1940 Act, and elects RIC tax treatment[318](index=318&type=chunk)[295](index=295&type=chunk) - Investment Objective: Produce attractive risk-adjusted returns from debt investments (current income) and equity investments (capital appreciation)[85](index=85&type=chunk) - Investment Strategy: Focus on LMM companies (EBITDA $3.0M-$20.0M, investments $5.0M-$35.0M) and opportunistically UMM companies (EBITDA >$20.0M, investments $5.0M-$20.0M)[318](index=318&type=chunk)[506](index=506&type=chunk)[536](index=536&type=chunk) - SBIC I: Wholly-owned subsidiary licensed as a Small Business Investment Company, consolidated for financial reporting[319](index=319&type=chunk)[320](index=320&type=chunk) - Investment Classification: Control (25%+ voting securities), Affiliate (5%-25% voting securities), Non-Control/Non-Affiliate (neither)[321](index=321&type=chunk) - Qualifying Assets: As of June 30, 2023, **85.2%** of total assets (at fair value) were qualifying assets under the 1940 Act[299](index=299&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=47&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines key accounting policies, including fair value measurement, revenue recognition, and treatment of PIK interest - Investments are stated at fair value, determined by the Valuation Committee using Level 3 inputs, as **100%** of the portfolio consists of privately held debt and equity instruments[303](index=303&type=chunk)[46](index=46&type=chunk) - Interest and dividend income is recorded on an accrual basis; loans are placed on non-accrual status when collectability is uncertain. As of June 30, 2023, **1.7% of fair value** and **2.5% of cost** were on non-accrual status (vs. 0.3% and 1.3% at March 31, 2023)[353](index=353&type=chunk)[354](index=354&type=chunk) - PIK interest is added to the principal balance and recorded as interest income, affecting RIC distribution requirements even if not collected in cash. For Q2 2023, **4.1%** of total investment income was from PIK interest (vs. 3.0% in Q2 2022)[355](index=355&type=chunk) - The company operates in a singular segment as an investment company[304](index=304&type=chunk) - New accounting guidance (ASU 2022-03) on fair value measurement of equity securities with contractual sale restrictions is effective after December 15, 2023; the company does not expect a material impact[364](index=364&type=chunk) [3. INVESTMENTS](index=51&type=section&id=3.%20INVESTMENTS) Provides a detailed breakdown of the investment portfolio by type, industry, and geographic region Investment Portfolio Composition (in thousands) | Investment Type | Fair Value (June 30, 2023) | % of Total Portfolio (FV) | Cost (June 30, 2023) | % of Total Portfolio (Cost) | | :---------------- | :------------------------- | :------------------------ | :------------------- | :-------------------------- | | First lien loans | $1,075,200 | 83.7% | $1,081,838 | 84.1% | | Second lien loans | $34,935 | 2.7% | $44,030 | 3.4% | | Subordinated debt | $780 | 0.1% | $752 | 0.1% | | Preferred equity | $67,659 | 5.2% | $45,479 | 3.5% | | Common equity & warrants | $54,882 | 4.3% | $34,126 | 2.6% | | I-45 SLF LLC | $51,862 | 4.0% | $80,800 | 6.3% | | **Total** | **$1,285,318** | **100.0%** | **$1,287,025** | **100.0%** | Top 5 Industries by Fair Value (June 30, 2023, in thousands) | Industry | Fair Value (June 30, 2023) | % of Total Portfolio (FV) | | :----------------------------- | :------------------------- | :------------------------ | | Business Services | $164,196 | 12.8% | | Media & Marketing | $163,882 | 12.8% | | Healthcare Services | $135,403 | 10.5% | | Consumer Products and Retail | $98,022 | 7.6% | | Consumer Services | $97,949 | 7.6% | Top 5 Geographic Regions by Fair Value (June 30, 2023, in thousands) | Region | Fair Value (June 30, 2023) | % of Total Portfolio (FV) | | :------------ | :------------------------- | :------------------------ | | Northeast | $300,600 | 23.4% | | West | $252,718 | 19.7% | | Southeast | $251,212 | 19.5% | | Southwest | $227,175 | 17.7% | | Midwest | $157,164 | 12.2% | - I-45 SLF LLC is a joint venture primarily investing in syndicated senior secured loans to the UMM, with a diverse geographic and industry set[341](index=341&type=chunk)[345](index=345&type=chunk) [4. FAIR VALUE MEASUREMENTS](index=54&type=section&id=4.%20FAIR%20VALUE%20MEASUREMENTS) Details the fair value measurement process, relying on Level 3 inputs for privately held debt and equity instruments - Valuation Process: Led by the Valuation Committee (comprised of company officers) as the Valuation Designee, subject to Board oversight, for investments without readily available market quotations[79](index=79&type=chunk) - Fair Value Hierarchy: **100%** of the investment portfolio (excluding NAV-measured investments) is valued using Level 3 inputs due to the private nature of the debt and equity instruments[46](index=46&type=chunk)[66](index=66&type=chunk) - Valuation Approaches: Market Approach, Income Approach (discounting contractual cash flows using Required Market Yield), Enterprise Value Waterfall Approach (for equity, allocating enterprise value based on liquidation preference), and NAV Valuation Method (for investment funds)[51](index=51&type=chunk)[53](index=53&type=chunk)[57](index=57&type=chunk)[60](index=60&type=chunk) Fair Value Hierarchy (June 30, 2023, in thousands) | Asset Category | Total | Level 1 | Level 2 | Level 3 | | :------------------------ | :------------ | :------ | :------ | :---------- | | First lien loans | $1,075,200 | — | — | $1,075,200 | | Second lien loans | $34,935 | — | — | $34,935 | | Subordinated debt | $780 | — | — | $780 | | Preferred equity | $67,659 | — | — | $67,659 | | Common equity & warrants | $54,882 | — | — | $54,882 | | Investments measured at NAV | $51,862 | — | — | — | | **Total Investments** | **$1,285,318**| **—** | **—** | **$1,233,456**| - No transfers between fair value levels occurred during the three months ended June 30, 2023, and 2022[72](index=72&type=chunk) [5. BORROWINGS](index=62&type=section&id=5.%20BORROWINGS) Details outstanding borrowings, including credit facilities, various notes, and SBA Debentures, and compliance with covenants Borrowings Outstanding (in thousands) | Debt Instrument | Outstanding Balance (June 30, 2023) | Recorded Value (June 30, 2023) | | :-------------- | :---------------------------------- | :----------------------------- | | SBA Debentures | $125,000 | $121,352 | | Credit Facility | $195,000 | $195,000 | | January 2026 Notes | $140,000 | $139,135 | | October 2026 Notes | $150,000 | $147,448 | | August 2028 Notes | $71,875 | $69,327 | | **Total** | **$681,875** | **$672,262** | - Credit Facility: Borrowings outstanding were **$195.0 million** at June 30, 2023. Interest expense was $4.9 million (Q2 2023) vs. $1.9 million (Q2 2022), with weighted average interest rate increasing from 3.16% to 7.36%[379](index=379&type=chunk) - August 2028 Notes: Issued in June 2023 for **$71.9 million** aggregate principal, bearing 7.75% interest, maturing August 1, 2028[384](index=384&type=chunk)[431](index=431&type=chunk) - SBA Debentures: Carrying amount **$121.4 million** at June 30, 2023. Weighted average interest rate increased from 2.50% (Q2 2022) to 3.94% (Q2 2023)[433](index=433&type=chunk) - Asset Coverage: Company's asset coverage was **237%** as of June 30, 2023, exceeding the 150% regulatory requirement[391](index=391&type=chunk) [6. INCOME TAXES](index=66&type=section&id=6.%20INCOME%20TAXES) Explains the company's RIC tax treatment, the role of its Taxable Subsidiary, and deferred tax assets/liabilities - RIC Status: Company qualifies for RIC tax treatment, requiring annual distribution of at least **90%** of investment company taxable income[408](index=408&type=chunk)[437](index=437&type=chunk) - Taxable Subsidiary: Holds certain LLC interests to help maintain RIC status; taxed at corporate rates, not consolidated for tax purposes[442](index=442&type=chunk) Estimated Distributable Income (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net increase in net assets from operations | $23,812 | $2,510 | | Estimated distributable income before deductions for distributions | $19,571 | $8,673 | - Deferred Tax Liability: The Taxable Subsidiary had a deferred tax liability of **$11.9 million** at June 30, 2023 (vs. $12.1 million at March 31, 2023)[415](index=415&type=chunk)[417](index=417&type=chunk) - Income Tax Provision: Net income tax provision of **$0.4 million** for Q2 2023, primarily from U.S. federal excise tax and Taxable Subsidiary provision[447](index=447&type=chunk) [7. SHAREHOLDERS' EQUITY](index=69&type=section&id=7.%20SHAREHOLDERS%27%20EQUITY) Details changes in shareholders' equity, including public offerings, the ATM Program, and treasury stock cancellation - Public Equity Offering (Nov 2022): Sold **2,534,436 shares** at $18.15/share, raising **$44.1 million** net proceeds[448](index=448&type=chunk) - Equity ATM Program: Increased maximum offering to **$650.0 million** in August 2022. Cumulative sales of **19,140,580 shares** at $20.39/share, raising **$384.0 million** net proceeds to date. **$259.7 million** available as of June 30, 2023[475](index=475&type=chunk)[450](index=450&type=chunk) - Treasury Stock: **2,339,512 shares** of treasury stock cancelled on April 26, 2023, increasing authorized and unissued shares[422](index=422&type=chunk)[573](index=573&type=chunk) - Share Repurchases: No shares repurchased under the $20 million share repurchase program during Q2 2023 and Q2 2022[479](index=479&type=chunk)[120](index=120&type=chunk) [8. STOCK BASED COMPENSATION PLANS](index=71&type=section&id=8.%20STOCK%20BASED%20COMPENSATION%20PLANS) Describes the company's stock-based compensation plans, including vesting schedules and expense recognition - 2021 Employee Plan: Makes **1,200,000 shares** of common stock available for issuance to employees, with **722,267 shares** remaining as of June 30, 2023. Awards generally vest in equal annual installments over four years[482](index=482&type=chunk)[481](index=481&type=chunk) - 2021 Non-Employee Director Plan: Makes **120,000 shares** available for non-employee directors, with **107,895 shares** remaining as of June 30, 2023. Shares vest one year from grant date[424](index=424&type=chunk) - Compensation Expense: Total share-based compensation expense was **$1.0 million** for Q2 2023 (vs. $0.8 million for Q2 2022)[483](index=483&type=chunk) - Unrecognized Compensation: **$11.6 million** remaining as of June 30, 2023, to be amortized over a weighted-average vesting period of approximately 3.0 years[456](index=456&type=chunk) [9. OTHER EMPLOYEE COMPENSATION](index=72&type=section&id=9.%20OTHER%20EMPLOYEE%20COMPENSATION) Briefly describes the company's 401(k) plan and matching contributions for eligible employees - 401(k) Plan: All full-time employees are eligible to participate[458](index=458&type=chunk) - Company Contributions: Up to **4.5%** of eligible compensation, fully vested immediately. Matching contributions were approximately **$0.1 million** for both Q2 2023 and Q2 2022[458](index=458&type=chunk) [10. COMMITMENTS AND CONTINGENCIES](index=73&type=section&id=10.%20COMMITMENTS%20AND%20CONTINGENCIES) Details unfunded debt and equity commitments, operating lease obligations, and legal contingencies Total Unfunded Debt Commitments (in thousands) | Commitment Type | June 30, 2023 | March 31, 2023 | | :------------------------ | :------------ | :------------- | | Total Revolving Loans | $105,187 | $87,554 | | Total Delayed Draw Term Loans | $24,747 | $37,083 | | **Total Unfunded Debt Commitments** | **$129,934** | **$124,637** | Unfunded Debt Commitments by Expiration Year (in thousands) | Expiration Year | June 30, 2023 | | :-------------- | :------------ | | 2024 | $16,353 | | 2025 | $10,912 | | 2026 | $9,615 | | 2027 | $38,925 | | 2028 | $41,290 | | 2029 | $12,839 | - Unfunded Equity Commitments: Total **$537 thousand** for both June 30, 2023, and March 31, 2023[463](index=463&type=chunk) - Letters of Credit: **$0.9 million** issued and outstanding as of June 30, 2023, not recorded as a liability[493](index=493&type=chunk) - Operating Lease: New office lease commenced Feb 1, 2022, expires Sep 30, 2032. Lease expense was **$0.1 million** for both Q2 2023 and Q2 2022. Remaining lease term 9.3 years, discount rate 7.57%[464](index=464&type=chunk)[465](index=465&type=chunk) - Legal Proceedings: No currently pending material legal proceedings[467](index=467&type=chunk) [11. RELATED PARTY TRANSACTIONS](index=76&type=section&id=11.%20RELATED%20PARTY%20TRANSACTIONS) Clarifies no management fees from portfolio companies and highlights transactions with I-45 SLF LLC - No management fees received from portfolio companies during Q2 2023 and Q2 2022[468](index=468&type=chunk) - Dividends Receivable from I-45 SLF LLC: **$2.1 million** (June 30, 2023) vs. $1.9 million (March 31, 2023)[468](index=468&type=chunk) - Administrative Fee Income from I-45 SLF LLC: **$24.5 thousand** for Q2 2023[468](index=468&type=chunk) [12. SUMMARY OF PER SHARE INFORMATION](index=77&type=section&id=12.%20SUMMARY%20OF%20PER%20SHARE%20INFORMATION) Provides per share data and key ratios, including investment income, operating expenses, and total investment return Per Share Data (Three Months Ended June 30) | Metric | 2023 | 2022 | | :---------------------- | :---- | :---- | | Investment income | $1.07 | $0.89 | | Operating expenses | $(0.40)| $(0.39)| | Net investment income | $0.65 | $0.49 | | Net realized (loss) gain, net of tax | $(0.34)| $0.09 | | Net unrealized appreciation (depreciation), net of tax | $0.32 | $(0.48)| | Total increase from investment operations | $0.63 | $0.10 | | Net asset value, end of period | $16.38| $16.54| Ratios and Supplemental Data (Three Months Ended June 30) | Metric | 2023 | 2022 | | :-------------------------------------- | :------ | :------ | | Ratio of operating expenses to average net assets | 9.88% | 9.12% | | Ratio of net investment income to average net assets | 15.80% | 11.48% | | Total investment return | 14.23% | (19.72)%| | Total return based on change in NAV | 3.67% | 1.84% | | Per share market value at end of period | $19.72 | $18.42 | | Weighted-average basic and diluted shares outstanding | 37,598 | 25,514 | [13. SUBSEQUENT EVENTS](index=78&type=section&id=13.%20SUBSEQUENT%20EVENTS) Discloses dividend declarations and the amendment of the Senior Secured Revolving Credit Agreement - Dividend Declaration: On August 3, 2023, a total dividend of **$0.62 per share** ($0.56 regular, $0.06 supplemental) was declared for Q3 2023[500](index=500&type=chunk)[576](index=576&type=chunk) - Credit Facility Amendment: On August 2, 2023, the Third Amended and Restated Senior Secured Revolving Credit Agreement increased commitments from **$400 million to $435 million**, added an uncommitted accordion feature up to **$750 million**, and extended the revolving period to August 2, 2027, and final maturity to August 2, 2028[531](index=531&type=chunk)[175](index=175&type=chunk) [Consolidated Schedule of Investments in and Advances to Affiliates](index=78&type=section&id=Consolidated%20Schedule%20of%20Investments%20in%20and%20Advances%20to%20Affiliates) Provides a detailed breakdown of investments in and advances to affiliate and control companies Control Investments (in thousands) | Portfolio Company | Type of Investment | Fair Value (March 31, 2023) | Unrealized Gain/(Loss) | Fair Value (June 30, 2023) | | :---------------- | :----------------- | :-------------------------- | :--------------------- | :------------------------- | | I-45 SLF LLC | 80% LLC equity interest | $51,256 | $606 | $51,862 | Total Affiliate Investments (in thousands) | Metric | Fair Value (March 31, 2023) | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Unrealized Gain/(Loss) | Fair Value (June 30, 2023) | | :------------------------------------ | :-------------------------- | :-------------- | :--------------- | :------------------- | :--------------------- | :------------------------- | | Total Affiliate Investments | $188,505 | $26,113 | $(30,091) | $(6,638) | $9,169 | $187,058 | - Gross additions include new investments, follow-on investments, accrued PIK interest, and OID accretion[503](index=503&type=chunk) - Gross reductions include principal repayments, sales, and security exchanges[503](index=503&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=82&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on financial condition and operational results, covering strategy, portfolio, and liquidity [OVERVIEW](index=83&type=section&id=OVERVIEW) Reaffirms Capital Southwest Corporation's role as an internally managed BDC focusing on LMM and UMM companies - Internally managed BDC, specializing in customized debt and equity financing for LMM and UMM companies[85](index=85&type=chunk)[505](index=505&type=chunk) - Investment objective: attractive risk-adjusted returns from current income (debt) and capital appreciation (equity)[85](index=85&type=chunk) - Internally managed structure provides a beneficial operating expense structure, with LTM operating expenses (excluding interest) as a percentage of LTM average total assets at **1.90%** for Q2 2023 (vs. 2.07% for Q2 2022)[538](index=538&type=chunk) [CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES](index=84&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20USE%20OF%20ESTIMATES) Identifies investment valuation and revenue recognition as critical estimates, detailing fair value and non-accrual policies - Most critical accounting estimates: investment valuation and revenue recognition[87](index=87&type=chunk)[326](index=326&type=chunk) - Investment portfolio at fair value represented **96.1%** of total assets at June 30, 2023 (vs. 95.9% at March 31, 2023)[509](index=509&type=chunk) - Fair value determination for investments without readily available market quotations is performed by the Valuation Committee, subject to Board oversight, using Level 3 inputs[540](index=540&type=chunk) - Non-accrual status: Investments on non-accrual status represented **1.7% of fair value** and **2.5% of cost** at June 30, 2023 (vs. 0.3% and 1.3% at March 31, 2023)[542](index=542&type=chunk) [INVESTMENT PORTFOLIO COMPOSITION](index=85&type=section&id=INVESTMENT%20PORTFOLIO%20COMPOSITION) Presents key metrics and composition of the investment portfolio, including debt and equity percentages and yields Investment Portfolio Key Metrics | Metric | June 30, 2023 | March 31, 2023 | | :------------------------------------------ | :------------ | :------------- | | Number of portfolio companies | 90 | 86 | | Fair value (in thousands) | $1,285,318 | $1,206,388 | | Cost (in thousands) | $1,287,025 | $1,220,152 | | % of portfolio at fair value - debt | 90.1% | 89.8% | | % of portfolio at fair value - equity | 9.9% | 10.2% | | % of investments at fair value secured by first lien | 87.2% | 86.7% | | Weighted average annual effective yield on debt investments | 12.9% | 12.8% | | Weighted average annual effective yield on total investments | 12.6% | 12.1% | | Weighted average EBITDA (in thousands) | $20,172 | $21,049 | | Weighted average leverage through CSWC security | 3.8x | 4.0x | - Floating Rate Debt: Approximately **97.2%** of the debt investment portfolio (at fair value) bore interest at floating rates, with **100.0%** subject to contractual minimum interest rates as of June 30, 2023[92](index=92&type=chunk) - Fixed Rate Debt: Approximately **2.8%** of the debt investment portfolio (at fair value) bore interest at fixed rates as of June 30, 2023[92](index=92&type=chunk) [Portfolio Asset Quality](index=86&type=section&id=Portfolio%20Asset%20Quality) Describes the internal investment rating system and the distribution of debt portfolio investments by risk rating - Investment Rating System: Utilizes a 1-4 scale to rate debt investments based on quantitative and qualitative factors, including expected returns and collectability[516](index=516&type=chunk) - Rating 1: Least risk, performing materially above expectations, favorable trends[95](index=95&type=chunk) - Rating 2: Performing as expected, favorable to neutral trends (all new loans initially rated 2)[547](index=547&type=chunk) - Rating 3: Performing below expectations, neutral to negative trends, potential impairment of interest payments[517](index=517&type=chunk) - Rating 4: Performing materially below expectations, negative trends, likely impairment of interest and principal payments[96](index=96&type=chunk) Debt Portfolio Investment Ratings (June 30, 2023, in thousands) | Investment Rating | Debt Investments at Fair Value | Percentage of Debt Portfolio | | :---------------- | :----------------------------- | :--------------------------- | | 1 | $153,118 | 14.8% | | 2 | $839,456 | 80.9% | | 3 | $44,726 | 4.3% | | 4 | $295 | 0.0% | | **Total** | **$1,037,595** | **100.0%** | - Non-accrual status: **1.7% of fair value** and **2.5% of cost** at June 30, 2023 (YoY increase from 0.3% and 1.3% at March 31, 2023)[550](index=550&type=chunk) [Investment Activity](index=87&type=section&id=Investment%20Activity) Summarizes investment and divestment activities, including new investments, repayments, and fair value changes Total Portfolio Investment Activity (Three Months Ended June 30, 2023, in thousands) | Activity | First Lien Loans | Second Lien Loans | Subordinated Debt | Preferred & Common Equity | I-45 SLF, LLC | Total | | :-------------------------------------- | :--------------- | :---------------- | :---------------- | :------------------------ | :------------ | :------------ | | Fair value, beginning of period | $1,000,984 | $35,820 | $791 | $117,537 | $51,256 | $1,206,388 | | New investments | $99,134 | — | — | $4,972 | — | $104,106 | | Proceeds from sales of investments | — | — | — | $(3,402) | — | $(3,402) | | Principal repayments received | $(24,785) | $(71) | $(20) | — | — | $(24,876) | | Realized (loss) gain | $(10,414) | — | — | $(1,713) | — | $(12,127) | | Unrealized gain (loss) | $10,972 | $(876) | — | $1,356 | $606 | $12,058 | | Fair value, end of period | $1,075,200 | $34,935 | $780 | $122,541 | $51,862 | $1,285,318 | - Q2 2023: New debt investments of **$81.2 million**, follow-on debt investments of **$13.3 million**, and equity investments of **$5.0 million**[521](index=521&type=chunk) - Q2 2023: Contractual principal repayments of **$18.2 million**, proceeds from sales of equity investments of **$3.4 million**[521](index=521&type=chunk) - Q2 2022: New debt investments of **$105.0 million**, follow-on debt investments of **$15.9 million**, and equity investments of **$3.3 million**[582](index=582&type=chunk) - Q2 2022: Contractual principal repayments of **$3.8 million**, full prepayments of **$47.9 million**, proceeds from sales of equity investments of **$1.7 million**[582](index=582&type=chunk) [RESULTS OF OPERATIONS](index=89&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes financial performance, highlighting increases in investment income and net investment income Key Financial Results (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Net Change | % Change | | :------------------------------------------ | :---------- | :---------- | :---------- | :------- | | Total investment income | $40,361 | $22,543 | $17,818 | 79.0% | | Interest expense | $(9,681) | $(5,484) | $(4,197) | 76.5% | | Other operating expenses | $(5,677) | $(4,429) | $(1,248) | 28.2% | | Income before taxes | $25,003 | $12,630 | $12,373 | 98.0% | | Income tax expense | $447 | $192 | $255 | 132.8% | | Net investment income | $24,556 | $12,438 | $12,118 | 97.4% | | Net realized (loss) gain on investments, net of tax | $(12,782) | $2,320 | $(15,102) | (650.9)% |\ | Net unrealized (depreciation) appreciation on investments, net of tax | $12,038 | $(12,248) | $24,286 | 198.3% | | Net increase (decrease) in net assets from operations | $23,812 | $2,510 | $21,302 | 848.7% | - Total investment income increased by **79.0% YoY**, primarily due to a **$17.5 million** increase in interest income from debt investments, driven by a 27.9% increase in cost basis of debt investments and higher weighted average yield[101](index=101&type=chunk) - Total interest expense increased by **$4.2 million (76.5%) YoY**, due to increased average borrowings and a higher weighted average interest rate (3.51% to 5.23%)[585](index=585&type=chunk) - Total employee compensation expense increased by **$1.1 million (47.0%) YoY**, mainly due to higher accrued bonus compensation[103](index=103&type=chunk) Net Realized (Loss) Gain on Investments (Three Months Ended June 30, in thousands) | Category | 2023 (Net Total Gain (Loss)) | 2022 (Net Total Gain (Loss)) | | :------- | :--------------------------- | :--------------------------- | | Debt | $(10,748) | $1,321 | | Equity | $(2,034) | $999 | | **Total**| **$(12,782)** | **$2,320** | Net Unrealized (Depreciation) Appreciation on Investments (Three Months Ended June 30, 2023, in thousands) | Category | Accounting reversals of net unrealized (appreciation) (gains) losses recognized in prior periods due to net realized (gains) losses recognized during the current period | Net unrealized (depreciation) appreciation relating to portfolio investments | Total Net Unrealized (Depreciation) Appreciation | | :------- | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :--------------------------------------------------------------------------- | :------------------------------------------------- | | Debt | $10,527 | $(431) | $10,096 | | Equity | $1,900 | $(564) | $1,336 | | I-45 SLF LLC | — | $606 | $606 | | **Total**| **$12,427** | **$(389)** | **$12,038** | [FINANCIAL LIQUIDITY AND CAPITAL RESOURCES](index=92&type=section&id=FINANCIAL%20LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Discusses liquidity sources, financing transactions, equity activities, and contractual obligations - Liquidity Sources: Cash flows from operations, public offerings of debt/equity, Credit Facility advances, and SBA Debentures[107](index=107&type=chunk) - Adequate Liquidity: Management believes existing cash, investments, and Credit Facility commitments are adequate for the next twelve months[107](index=107&type=chunk) [Cash Flows](index=92&type=section&id=Cash%20Flows) Details cash flow activities, showing a net decrease in cash due to operating and financing movements - Q2 2023 Net Cash Change: Net decrease of **$0.3 million** in cash and cash equivalents[140](index=140&type=chunk) - Operating Activities (Q2 2023): Used **$55.6 million**, mainly for **$104.1 million** in new investments, partially offset by **$24.7 million** from debt repayments and **$3.4 million** from equity sales[140](index=140&type=chunk) - Financing Activities (Q2 2023): Provided **$55.3 million**, including **$69.7 million** from August 2028 Notes, **$44.9 million** from Equity ATM Program, and **$4.9 million** from SBA Debentures, offset by **$40.0 million** net repayments on Credit Facility and **$22.9 million** in dividends[140](index=140&type=chunk) - Cash and Cash Equivalents (June 30, 2023): Approximately **$21.3 million**[140](index=140&type=chunk) [Financing Transactions](index=92&type=section&id=Financing%20Transactions) Outlines various debt instruments, their terms, outstanding balances, and compliance with covenants - Credit Facility: Total commitments increased to **$400 million** (Nov 2022). Borrowings outstanding **$195.0 million** (June 30, 2023). Weighted average interest rate **7.36%** (Q2 2023) vs. 3.16% (Q2 2022)[110](index=110&type=chunk)[111](index=111&type=chunk) - January 2026 Notes: **$140.0 million** aggregate principal, 4.50% interest, maturing Jan 31, 2026. Carrying amount **$139.1 million** (June 30, 2023)[144](index=144&type=chunk)[145](index=145&type=chunk) - October 2026 Notes: **$150.0 million** aggregate principal, 3.375% interest, maturing Oct 1, 2026. Carrying amount **$147.4 million** (June 30, 2023)[146](index=146&type=chunk)[147](index=147&type=chunk) - August 2028 Notes: Issued June 2023 for **$71.9 million** aggregate principal, 7.75% interest, maturing Aug 1, 2028. Carrying amount **$69.3 million** (June 30, 2023)[148](index=148&type=chunk) - SBA Debentures: Total leverage commitment of **$130.0 million**, with **$5.0 million** unused (June 30, 2023). Carrying amount **$121.4 million** (June 30, 2023). Weighted average interest rate **3.94%** (Q2 2023) vs. 2.50% (Q2 2022)[149](index=149&type=chunk)[600](index=600&type=chunk) [Equity Capital Activities](index=96&type=section&id=Equity%20Capital%20Activities) Covers the company's equity-related capital activities, including the Equity ATM Program and the cancellation of treasury stock - Equity ATM Program: Maximum amount increased to **$650.0 million** (Aug 2022). Cumulative sales of **19,140,580 shares** at $20.39/share, raising **$384.0 million** net proceeds. **$259.7 million** available as of June 30, 2023[601](index=601&type=chunk)[119](index=119&type=chunk) Equity ATM Program Sales (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Number of shares sold | 2,527,458 | 2,262,852 | | Gross proceeds received | $45,572 | $46,753 | | Net proceeds received | $44,888 | $46,052 | | Weighted average price per share | $18.03 | $20.66 | - Treasury Stock: **2,339,512 shares** cancelled on April 26, 2023[573](index=573&type=chunk) - Share Repurchase Program: No shares repurchased during Q2 2023 and Q2 2022 under the $20 million program[572](index=572&type=chunk) [Contractual Obligations](index=97&type=section&id=Contractual%20Obligations) Summarizes contractual obligations, including operating leases and debt, with payments due by period Contractual Obligations (June 30, 2023, in thousands) | Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :---------------------- | :------ | :--------------- | :-------- | :-------- | :---------------- | | Operating lease obligations | $4,162 | $409 | $848 | $887 | $2,018 | | Credit Facility | $240,275| $14,600 | $29,120 | $196,555 | — | | January 2026 Notes | $158,900| $6,300 | $152,600 | — | — | | October 2026 Notes | $167,718| $5,062 | $10,125 | $152,531 | — | | August 2028 Notes | $100,454| $4,905 | $11,141 | $11,141 | $73,267 | | **Total** | **$671,509**| **$31,276** | **$203,834**| **$361,114**| **$75,285** | - The company believes its assets and available borrowings provide adequate coverage for unfunded commitments[575](index=575&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=97&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) Describes unfunded commitments to extend financing and fund equity capital to portfolio companies - Off-balance sheet risk: Unfunded commitments to extend credit and fund equity capital to portfolio companies[604](index=604&type=chunk) - Total unfunded commitments: Approximately **$130.5 million** at June 30, 2023 (vs. $125.2 million at March 31, 2023)[122](index=122&type=chunk) - Letters of Credit: **$0.9 million** issued and outstanding as of June 30, 2023, not recorded as a liability[122](index=122&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=97&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses exposure to market risk, particularly interest rate risk, and the impact of LIBOR transition - Market Risk: Exposure to changes in interest rates, commodity prices, equity prices, and other market factors[606](index=606&type=chunk) - Interest Rate Risk: Net investment income is sensitive to the difference between borrowing and investment rates. A rising interest rate environment could increase cost of funds and reduce net investment income[608](index=608&type=chunk) - Floating Rate Investments: As of June 30, 2023, **97.2%** of the debt investment portfolio bore floating rates (**100%** with contractual minimums), primarily utilizing SOFR[607](index=607&type=chunk) - Fixed Rate Liabilities: October 2026 Notes, January 2026 Notes, August 2028 Notes, and SBA Debentures have fixed interest rates[156](index=156&type=chunk) Hypothetical Impact of Base Rate Changes on Net Investment Income (June 30, 2023, in thousands) | Basis Point Change | Increase (decrease) in net income | Increase (decrease) net investment income per share | | :----------------- | :-------------------------------- | :-------------------------------------------------- | | (200 bps) | $(19,108) | $(0.49) | | (150 bps) | $(14,331) | $(0.37) | | (100 bps) | $(9,554) | $(0.25) | | (50 bps) | $(4,777) | $(0.12) | | 50 bps | $4,777 | $0.12 | - LIBOR Transition: LIBOR tenors ceased on June 30, 2023. Loans referencing LIBOR have been amended to CME Term SOFR, which may not yield similar economic results[581](index=581&type=chunk)[181](index=181&type=chunk) [Item 4. Controls and Procedures](index=99&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of disclosure controls and procedures and no material changes in internal control over financial reporting - Disclosure Controls and Procedures: Management concluded they were effective as of June 30, 2023[158](index=158&type=chunk) - Internal Control over Financial Reporting: No material changes during the three months ended June 30, 2023[179](index=179&type=chunk) PART II OTHER INFORMATION Provides additional information on legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=101&type=section&id=Item%201.%20Legal%20Proceedings) States that there are no currently pending material legal proceedings - No currently pending material legal proceedings[159](index=159&type=chunk) [Item 1A. Risk Factors](index=101&type=section&id=Item%201A.%20Risk%20Factors) Notes no material changes to risk factors, except for an updated risk factor regarding LIBOR decommissioning - No material changes to risk factors, except for the decommissioning of LIBOR[581](index=581&type=chunk) - LIBOR Decommissioning: Overnight, one, three, six, and twelve months USD LIBOR tenors ceased on June 30, 2023. Loans have transitioned to CME Term SOFR[581](index=581&type=chunk)[181](index=181&type=chunk) - Alternative Reference Rates: CME Term SOFR may not yield the same or similar economic results as LIBOR, and an established liquid trading market may not develop[160](index=160&type=chunk)[161](index=161&type=chunk)[181](index=181&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=101&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no unregistered sales of equity securities or share repurchases during the period - No unregistered sales of equity securities[162](index=162&type=chunk) - No shares repurchased under the share repurchase program during Q2 2023[183](index=183&type=chunk) [Item 3. Defaults Upon Senior Securities](index=102&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Reports no defaults upon senior securities - No defaults upon senior securities[184](index=184&type=chunk) [Item 4. Mine Safety Disclosures](index=102&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable - Not applicable[185](index=185&type=chunk) [Item 5. Other Information](index=102&type=section&id=Item%205.%20Other%20Information) Confirms no other information to report and no director/officer trading arrangements - No other information to report under sub-items (a) and (b)[186](index=186&type=chunk)[168](index=168&type=chunk) - No director or officer entered into Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the period[187](index=187&type=chunk) - Company has insider trading policies designed to promote compliance with insider trading laws[169](index=169&type=chunk) [Item 6. Exhibits](index=102&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including corporate governance and debt instrument documents - Exhibits include corporate governance documents (Articles of Incorporation, Bylaws), debt instrument indentures (4.50% Notes due 2026, 3.375% Notes due 2026, 7.75% Notes due 2028), and the Third Amended and Restated Senior Secured Revolving Credit Agreement[189](index=189&type=chunk) - Certifications by President/CEO and CFO are filed herewith, as required by Rule 13a-14(a) and 13a-14(b) of the Exchange Act and Section 1350 of Sarbanes-Oxley Act[189](index=189&type=chunk)[171](index=171&type=chunk) SIGNATURES Contains the duly authorized signatures of the President/CEO and CFO for Capital Southwest Corporation [Signatures](index=104&type=section&id=Signatures) Provides the authorized signatures of the President and CEO, and CFO, Secretary, and Treasurer - Signed by Bowen S. Diehl, President and Chief Executive Officer, and Michael S. Sarner, Chief Financial Officer, Secretary and Treasurer[193](index=193&type=chunk) - Date of signing: August 8, 2023[193](index=193&type=chunk)

Eversheds Sutherland (US) LLP Investor Relations American Stock Transfer & Trust Company, LLC 800-937-5449 SI Capital Southwest Corporation May 23, 2023 Important Notices · These materials and the presentations of which they are a part, and the summaries contained herein, do not purport to be complete and no obligation to update or otherwise revise such information is being assumed. Nothing shall be relied upon as a promise or representation as to the future performance of Capital Southwest. Such informatio ...

Capital Southwest (NASDAQ:CSWC) Q4 2023 Earnings Conference Call May 23, 2023 11:00 AM ET Company Participants Bowen Diehl - Chief Executive Officer Michael Sarner - Chief Financial Officer Chris Rehberger - Vice President, Finance Conference Call Participants Mickey Schleien - Ladenburg Thalmann Erik Zwick - Hovde Group Robert Dodd - Raymond James Operator Thank you for joining today's Capital Southwest Fourth Quarter and Fiscal Year 2023 Earnings Call. Participating on the call today are Bowen Diehl, CEO; ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2023 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 814-00061 CAPITAL SOUTHWEST CORPORATION (Exact na ...

• These materials and the presentations of which they are a part, and the summaries contained herein, do not purport to be complete and no obligation to update or otherwise revise such information is being assumed. Nothing shall be relied upon as a promise or representation as to the future performance of Capital Southwest. Such information is qualified in its entirety by reference to the more detailed discussions contained elsewhere in Capital Southwest's public filings with the Securities and Exchange Com ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Capital Southwest Corporation and its subsidiaries, including statements of assets and liabilities, operations, changes in net assets, cash flows, and detailed schedules of investments, along with comprehensive notes explaining the company's organization, accounting policies, and specific financial items [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) The Consolidated Statements of Assets and Liabilities show an increase in total assets and liabilities, and a significant rise in total net assets from March 31, 2022, to December 31, 2022, primarily driven by increased investments and capital contributions Consolidated Statements of Assets and Liabilities (in thousands) | Category | December 31, 2022 | March 31, 2022 | | :--------------------------------- | :------------------ | :----------------- | | **Assets:** | | | | Total investments (at fair value) | $1,150,046 | $936,614 | | Cash and cash equivalents | $21,686 | $11,431 | | Total assets | $1,202,157 | $973,957 | | **Liabilities:** | | | | Total liabilities | $640,670 | $553,090 | | **Net Assets:** | | | | Total net assets | $561,487 | $420,867 | | Net asset value per share | $16.25 | $16.86 | - Total assets increased by **$228.2 million (23.4%)** from $973.9 million at March 31, 2022, to $1,202.1 million at December 31, 2022, primarily due to an increase in investments at fair value[11](index=11&type=chunk) - Total net assets increased by **$140.6 million (33.4%)** from $420.8 million at March 31, 2022, to $561.4 million at December 31, 2022[11](index=11&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations show a substantial increase in net investment income for both the three and nine months ended December 31, 2022, compared to the prior year, driven by higher investment income, despite increased operating expenses. However, net realized and unrealized losses on investments significantly impacted the net increase in net assets from operations Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total investment income | $32,766 | $22,311 | $82,108 | $61,186 | | Total operating expenses | $14,087 | $10,474 | $35,821 | $29,870 | | Net investment income | $19,425 | $11,899 | $46,307 | $30,668 | | Net realized (loss) gain on investments | $(11,086) | $2,715 | $(17,401) | $5,259 | | Net unrealized (depreciation) appreciation | $(5,390) | $(2,054) | $(13,989) | $4,306 | | Net increase (decrease) in net assets from operations | $2,949 | $12,560 | $14,917 | $23,146 | | Net investment income per share | $0.62 | $0.51 | $1.64 | $1.37 | - Total investment income increased by **46.9%** for the three months and **34.2%** for the nine months ended December 31, 2022, compared to the same periods in 2021[13](index=13&type=chunk)[302](index=302&type=chunk)[312](index=312&type=chunk) - Net investment income increased by **63.2%** for the three months and **51.0%** for the nine months ended December 31, 2022, compared to the same periods in 2021[13](index=13&type=chunk)[307](index=307&type=chunk)[316](index=316&type=chunk) - The company recognized significant net realized and unrealized losses on investments for both the three months (**$(16.5) million**) and nine months (**$(31.4) million**) ended December 31, 2022, contrasting with gains in the prior year[13](index=13&type=chunk)[308](index=308&type=chunk)[317](index=317&type=chunk) [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) The Consolidated Statements of Changes in Net Assets reflect a substantial increase in net assets from March 31, 2022, to December 31, 2022, primarily driven by significant common stock issuances, despite net realized and unrealized losses from operations and dividend distributions Consolidated Statements of Changes in Net Assets (in thousands) | Metric | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net assets, March 31 | $420,867 | $336,251 | | Net investment income | $46,307 | $30,668 | | Net realized (loss) gain on investments | $(17,401) | $5,259 | | Net unrealized (depreciation) appreciation | $(13,989) | $4,306 | | Dividends to shareholders | $(50,177) | $(46,847) | | Issuance of common stock | $174,169 | $73,346 | | Net assets, December 31 | $561,487 | $387,337 | - Net assets increased from **$420.8 million** at March 31, 2022, to **$561.4 million** at December 31, 2022[15](index=15&type=chunk) - Issuance of common stock contributed **$174.1 million** in the nine months ended December 31, 2022, significantly higher than $73.3 million in the same period of 2021[15](index=15&type=chunk) - Dividends to shareholders increased to **$50.1 million** for the nine months ended December 31, 2022, from $46.8 million in the prior year[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The Consolidated Statements of Cash Flows indicate a net increase in cash and cash equivalents for the nine months ended December 31, 2022, primarily due to significant cash provided by financing activities, which offset cash used in operating activities Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(193,648) | $(139,103) | | Net cash used in investing activities | $(159) | $0 | | Net cash provided by financing activities | $204,062 | $126,158 | | Net increase (decrease) in cash and cash equivalents | $10,255 | $(12,945) | | Cash and cash equivalents at end of period | $21,686 | $18,668 | - Operating activities used **$193.6 million** in cash for the nine months ended December 31, 2022, primarily due to $343.4 million in new portfolio investments[17](index=17&type=chunk)[322](index=322&type=chunk) - Financing activities provided **$204.1 million** in cash, driven by $174.1 million from common stock offerings and $62.4 million from SBA Debentures, partially offset by $50.1 million in dividends[17](index=17&type=chunk)[322](index=322&type=chunk) - The company experienced a net increase of **$10.3 million** in cash and cash equivalents for the nine months ended December 31, 2022, a reversal from a net decrease of $12.9 million in the prior year[17](index=17&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk) [Consolidated Schedule of Investments](index=8&type=section&id=Consolidated%20Schedule%20of%20Investments) The Consolidated Schedule of Investments provides a detailed breakdown of the company's portfolio by investment type, industry, and geographic region, showing a significant increase in total investments and a continued focus on first lien loans and diverse industries Investment Portfolio Composition by Type (Fair Value, in thousands) | Investment Type | Dec 31, 2022 | % of Total | Mar 31, 2022 | % of Total | | :------------------------ | :----------- | :--------- | :----------- | :--------- | | First lien loans | $954,000 | 83.0% | $739,872 | 79.0% | | Second lien loans | $35,446 | 3.1% | $52,645 | 5.6% | | Subordinated debt | $852 | 0.1% | $1,317 | 0.1% | | Preferred equity | $61,283 | 5.3% | $44,663 | 4.8% | | Common equity & warrants | $50,840 | 4.4% | $40,514 | 4.3% | | I-45 SLF LLC | $47,625 | 4.1% | $57,603 | 6.2% | | **Total Investments** | **$1,150,046** | **100.0%** | **$936,614** | **100.0%** | Top 5 Industries by Fair Value (in thousands) | Industry | Dec 31, 2022 | % of Total | Mar 31, 2022 | % of Total | | :-------------------------- | :----------- | :--------- | :----------- | :--------- | | Media & Marketing | $142,382 | 12.4% | $43,463 | 4.6% | | Business Services | $127,741 | 11.1% | $123,697 | 13.2% | | Healthcare Services | $108,710 | 9.5% | $88,131 | 9.4% | | Consumer Services | $90,019 | 7.8% | $71,730 | 7.7% | | Consumer Products & Retail | $86,771 | 7.5% | $90,457 | 9.7% | Investment Portfolio by Geographic Region (Fair Value, in thousands) | Region | Dec 31, 2022 | % of Total | Mar 31, 2022 | % of Total | | :------------- | :----------- | :--------- | :----------- | :--------- | | Southeast | $239,539 | 20.8% | $136,588 | 14.6% | | Northeast | $230,643 | 20.1% | $225,578 | 24.1% | | West | $228,254 | 19.8% | $163,924 | 17.5% | | Southwest | $222,872 | 19.4% | $206,057 | 22.0% | | Midwest | $155,675 | 13.6% | $132,308 | 14.1% | | I-45 SLF LLC | $47,625 | 4.1% | $57,603 | 6.1% | | International | $25,438 | 2.2% | $14,556 | 1.6% | - Total investments at fair value increased by **$213.4 million (22.8%)** from $936.6 million at March 31, 2022, to $1,150.0 million at December 31, 2022[11](index=11&type=chunk)[128](index=128&type=chunk) - First lien loans continue to be the largest component, increasing from **79.0% to 83.0%** of the total portfolio by fair value[128](index=128&type=chunk) [Notes to Consolidated Financial Statements](index=36&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide essential context and detailed explanations for the consolidated financial statements, covering the company's operational structure, significant accounting policies, investment specifics, valuation methodologies, debt obligations, tax treatment, equity activities, compensation plans, commitments, related party transactions, per share data, and subsidiary information [1. ORGANIZATION AND BASIS OF PRESENTATION](index=37&type=section&id=1.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) Capital Southwest Corporation is an internally managed Business Development Company (BDC) and Regulated Investment Company (RIC) focused on providing customized financing to lower middle market (LMM) and upper middle market (UMM) companies, with a significant portion of its assets invested in qualifying assets and managed through a wholly-owned SBIC subsidiary - Capital Southwest Corporation (CSWC) is an internally managed BDC, regulated under the 1940 Act, and has elected to be treated as a RIC for U.S. federal income tax purposes[84](index=84&type=chunk)[85](index=85&type=chunk) - The company specializes in customized financing for LMM companies (EBITDA **$3.0M-$20.0M**, investments **$5.0M-$35.0M**) and opportunistically targets UMM companies (EBITDA **>$20.0M**, investments **$5.0M-$20.0M**)[87](index=87&type=chunk) - CSWC operates a wholly-owned SBIC subsidiary (Capital Southwest SBIC I, LP) which has a similar investment strategy and is consolidated for financial reporting[88](index=88&type=chunk)[100](index=100&type=chunk) - As of December 31, 2022, **86.5%** of the company's assets were qualifying assets under the 1940 Act, meeting the BDC requirement of at least 70%[91](index=91&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=39&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company accounts for most financial instruments at fair value using Level 3 inputs, recognizes interest and dividend income on an accrual basis, and capitalizes PIK interest. Recent accounting standards related to reference rate reform and fair value measurement of equity securities are being evaluated for potential impact - Substantially all financial instruments are accounted for at fair value in accordance with ASC 820, primarily using **Level 3 unobservable inputs** due to the private nature of investments[95](index=95&type=chunk)[136](index=136&type=chunk) - Interest and dividend income is recorded on an accrual basis, with investments placed on non-accrual status when collectability is not expected. As of December 31, 2022, **0.3%** of the portfolio's fair value was on non-accrual status[102](index=102&type=chunk) - Payment-in-Kind (PIK) interest is added to the principal balance and recorded as interest income, representing **4.6%** and **4.4%** of total investment income for the three and nine months ended December 31, 2022, respectively[104](index=104&type=chunk)[105](index=105&type=chunk) - The company is evaluating ASU 2020-04 (Reference Rate Reform) and ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions) but does not anticipate a material impact on its financial statements[125](index=125&type=chunk)[126](index=126&type=chunk) [3. INVESTMENTS](index=44&type=section&id=3.%20INVESTMENTS) The investment portfolio significantly grew from March 31, 2022, to December 31, 2022, with a continued concentration in first lien loans and a diversified exposure across various industries and U.S. geographic regions Investment Portfolio Composition by Type (Fair Value, in thousands) | Investment Type | Dec 31, 2022 | % of Total | Mar 31, 2022 | % of Total | | :------------------------ | :----------- | :--------- | :----------- | :--------- | | First lien loans | $954,000 | 83.0% | $739,872 | 79.0% | | Second lien loans | $35,446 | 3.1% | $52,645 | 5.6% | | Subordinated debt | $852 | 0.1% | $1,317 | 0.1% | | Preferred equity | $61,283 | 5.3% | $44,663 | 4.8% | | Common equity & warrants | $50,840 | 4.4% | $40,514 | 4.3% | | I-45 SLF LLC | $47,625 | 4.1% | $57,603 | 6.2% | | **Total Investments** | **$1,150,046** | **100.0%** | **$936,614** | **100.0%** | Top 5 Industries by Fair Value (in thousands) | Industry | Dec 31, 2022 | % of Total | Mar 31, 2022 | % of Total | | :-------------------------- | :----------- | :--------- | :----------- | :--------- | | Media & Marketing | $142,382 | 12.4% | $43,463 | 4.6% | | Business Services | $127,741 | 11.1% | $123,697 | 13.2% | | Healthcare Services | $108,710 | 9.5% | $88,131 | 9.4% | | Consumer Services | $90,019 | 7.8% | $71,730 | 7.7% | | Consumer Products & Retail | $86,771 | 7.5% | $90,457 | 9.7% | Investment Portfolio by Geographic Region (Fair Value, in thousands) | Region | Dec 31, 2022 | % of Total | Mar 31, 2022 | % of Total | | :------------- | :----------- | :--------- | :----------- | :--------- | | Southeast | $239,539 | 20.8% | $136,588 | 14.6% | | Northeast | $230,643 | 20.1% | $225,578 | 24.1% | | West | $228,254 | 19.8% | $163,924 | 17.5% | | Southwest | $222,872 | 19.4% | $206,057 | 22.0% | | Midwest | $155,675 | 13.6% | $132,308 | 14.1% | | I-45 SLF LLC | $47,625 | 4.1% | $57,603 | 6.1% | | International | $25,438 | 2.2% | $14,556 | 1.6% | - Total investment portfolio increased from **$936.6 million** at March 31, 2022, to **$1,150.0 million** at December 31, 2022[128](index=128&type=chunk) - First lien loans constitute the largest portion of the portfolio, increasing from **79.0% to 83.0%** of total fair value[128](index=128&type=chunk) [4. FAIR VALUE MEASUREMENTS](index=48&type=section&id=4.%20FAIR%20VALUE%20MEASUREMENTS) The company's investment valuation process relies heavily on Level 3 unobservable inputs for its privately held debt and equity instruments, utilizing various valuation techniques such as the Income Approach and Enterprise Value Waterfall Approach, with no transfers between fair value levels during the reported periods - **100%** of the investment portfolio consisted of privately held debt and equity instruments valued using **Level 3 inputs** as of December 31, 2022, and March 31, 2022[136](index=136&type=chunk) - Valuation techniques include the Market Approach, Income Approach (using Required Market Yield), Enterprise Value Waterfall Approach (using EBITDA multiples and discount rates), and NAV Valuation Method[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[144](index=144&type=chunk)[147](index=147&type=chunk) Significant Level 3 Inputs (Weighted Average) for Debt and Equity Securities (Dec 31, 2022) | Type | Valuation Technique | Significant Unobservable Inputs | Weighted Average | | :---------------- | :------------------------ | :------------------------------ | :--------------- | | First lien loans | Income Approach | Discount Rate | 13.2% | | | Market Approach | Cost | 98.2 | | Second lien loans | Income Approach | Discount Rate | 21.9% | | Preferred equity | Enterprise Value Waterfall Approach | EBITDA Multiple | 10.1x | | | | Discount Rate | 18.6% | | Common equity & warrants | Enterprise Value Waterfall Approach | EBITDA Multiple | 9.3x | | | | Discount Rate | 16.8% | - No transfers between fair value levels occurred during the three and nine months ended December 31, 2022 and 2021[153](index=153&type=chunk) [5. BORROWINGS](index=55&type=section&id=5.%20BORROWINGS) The company's borrowings increased significantly from March 31, 2022, to December 31, 2022, primarily through the Credit Facility and SBA Debentures, while maintaining a strong asset coverage ratio of 229% and complying with all financial covenants - As of December 31, 2022, the company's asset coverage ratio was **229%**, exceeding the 150% regulatory requirement[157](index=157&type=chunk) Outstanding Borrowings (in thousands) | Borrowing Type | Dec 31, 2022 Outstanding Balance | Mar 31, 2022 Outstanding Balance | | :--------------- | :------------------------------- | :------------------------------- | | SBA Debentures | $104,000 | $40,000 | | Credit Facility | $225,000 | $205,000 | | January 2026 Notes | $140,000 | $140,000 | | October 2026 Notes | $150,000 | $150,000 | | **Total** | **$619,000** | **$535,000** | - The Credit Facility's total commitments increased to **$400 million** as of November 16, 2022, with **$225 million** outstanding at December 31, 2022, and a weighted average interest rate of **6.02%** for the three months ended December 31, 2022[164](index=164&type=chunk)[168](index=168&type=chunk) - SBA Debentures increased to **$104.0 million** outstanding at December 31, 2022, with a weighted average interest rate of **3.70%** for the three months ended December 31, 2022[185](index=185&type=chunk)[186](index=186&type=chunk) [6. INCOME TAXES](index=59&type=section&id=6.%20INCOME%20TAXES) The company maintains its RIC tax treatment by distributing at least 90% of its taxable income, utilizes a Taxable Subsidiary to manage certain portfolio investments, and recorded a net income tax benefit for the three and nine months ended December 31, 2022 - CSWC qualifies for RIC tax treatment by distributing at least **90%** of its investment company taxable income annually[188](index=188&type=chunk)[189](index=189&type=chunk) - The Taxable Subsidiary, a wholly-owned subsidiary, helps CSWC satisfy RIC requirements by holding certain pass-through entity interests and is taxed at corporate rates[196](index=196&type=chunk)[198](index=198&type=chunk) Tax Character of Distributions Paid (in thousands) | Category | Twelve Months Ended Dec 31, 2022 | Twelve Months Ended Dec 31, 2021 | | :--------------- | :------------------------------- | :------------------------------- | | Ordinary income | $60,960 | $56,633 | | Capital gains | $0 | $0 | Total Net Deferred Tax (Liabilities) Assets (in thousands) | Category | Dec 31, 2022 | Mar 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Total net deferred tax (liabilities) assets | $(11,427) | $(5,747) | - The company recognized a net income tax benefit of **$0.7 million** for the three months and **$20.6 thousand** for the nine months ended December 31, 2022[202](index=202&type=chunk) [7. SHAREHOLDERS' EQUITY](index=63&type=section&id=7.%20SHAREHOLDERS%27%20EQUITY) The company raised significant capital through a public equity offering and its expanded Equity ATM Program, while also conducting share repurchases related to restricted stock vesting - A public equity offering on November 17, 2022, raised **$44.1 million** in net proceeds from 2,534,436 shares[206](index=206&type=chunk) - The Equity ATM Program's maximum offering price was increased to **$650 million** on August 2, 2022[207](index=207&type=chunk)[355](index=355&type=chunk) Equity ATM Program Sales (in thousands, except shares) | Metric | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2022 | | :------------------------ | :------------------------------ | :----------------------------- | | Number of shares sold | 3,264,878 | 6,909,446 | | Net proceeds received | $57,449 | $130,010 | | Weighted average price per share | $17.86 | $19.10 | - Cumulative to date, **$310.3 million** in net proceeds have been raised through the Equity ATM Program, with **$334.5 million** remaining available[208](index=208&type=chunk)[357](index=357&type=chunk) - Share repurchases were conducted in connection with restricted stock vesting, with **19,917 shares** repurchased for **$380 thousand** in the three months ended December 31, 2022[211](index=211&type=chunk) [8. STOCK BASED COMPENSATION PLANS](index=64&type=section&id=8.%20STOCK%20BASED%20COMPENSATION%20PLANS) The company operates restricted stock award plans for employees and non-employee directors, with awards vesting over four-year and one-year periods, respectively, and recognized $1.0 million in share-based compensation expense for the three months ended December 31, 2022 - The 2021 Employee Plan and Non-Employee Director Plan grant restricted stock awards with full voting and dividend rights, subject to forfeiture if employment/service terminates early[212](index=212&type=chunk)[215](index=215&type=chunk) - Employee awards generally vest in equal annual installments over four years, while non-employee director awards vest one year from the grant date[212](index=212&type=chunk)[215](index=215&type=chunk) - Total share-based compensation expense recognized was **$1.0 million** for the three months and **$2.9 million** for the nine months ended December 31, 2022[217](index=217&type=chunk) - As of December 31, 2022, **$8.0 million** in unrecognized compensation expense remains, to be amortized over a weighted-average vesting period of approximately **2.6 years**[219](index=219&type=chunk) [9. OTHER EMPLOYEE COMPENSATION](index=66&type=section&id=9.%20OTHER%20EMPLOYEE%20COMPENSATION) The company maintains a 401(k) plan for its full-time employees, making matching contributions that are immediately fully vested - The company made matching contributions to its 401(k) plan of approximately **$28.6 thousand** for the three months and **$158.1 thousand** for the nine months ended December 31, 2022[220](index=220&type=chunk) - All matching contributions to the 401(k) plan are fully vested immediately[220](index=220&type=chunk) [10. COMMITMENTS AND CONTINGENCIES](index=67&type=section&id=10.%20COMMITMENTS%20AND%20CONTINGENCIES) The company has significant unused commitments to extend financing to portfolio companies, including revolving and delayed draw term loans, and has operating lease obligations for its office space, while reporting no material legal proceedings - Total unused commitments to extend financing were **$159.7 million** as of December 31, 2022, up from $134.3 million at March 31, 2022[225](index=225&type=chunk)[365](index=365&type=chunk) - As of December 31, 2022, **$0.9 million** in letters of credit were issued and outstanding on behalf of portfolio companies[225](index=225&type=chunk)[365](index=365&type=chunk) - The company has an operating lease for new office space expiring September 30, 2032, with a ROU asset of **$1.9 million** and a lease liability of **$2.9 million** as of December 31, 2022[226](index=226&type=chunk)[228](index=228&type=chunk) Future Minimum Operating Lease Payments (in thousands) | Year ending March 31, | Rent Commitment | | :---------------------- | :-------------- | | 2023 | $92 | | 2024 | $406 | | 2025 | $416 | | 2026 | $426 | | 2027 | $436 | | Thereafter | $2,578 | | **Total** | **$4,354** | - There are no currently pending material legal proceedings to which the company is a party[231](index=231&type=chunk)[382](index=382&type=chunk) [11. RELATED PARTY TRANSACTIONS](index=70&type=section&id=11.%20RELATED%20PARTY%20TRANSACTIONS) The company provides significant managerial assistance to its portfolio companies and engages in financial transactions with its joint venture, I-45 SLF LLC, including receiving dividends and administrative fees - The company provides significant managerial assistance to its portfolio companies as required by the 1940 Act[232](index=232&type=chunk) - As of December 31, 2022, the company had **$1.9 million** in dividends receivable from I-45 SLF LLC[233](index=233&type=chunk) - Administrative fee income from I-45 SLF LLC was **$25.0 thousand** for the three months and **$75.0 thousand** for the nine months ended December 31, 2022[233](index=233&type=chunk) [12. SUMMARY OF PER SHARE INFORMATION](index=71&type=section&id=12.%20SUMMARY%20OF%20PER%20SHARE%20INFORMATION) Per share data shows an increase in net investment income per share for both the three and nine months ended December 31, 2022, compared to the prior year, despite a decrease in net asset value per share over the nine-month period Per Share Data Summary | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Investment income | $1.04 | $0.95 | $2.90 | $2.73 | | Net investment income | $0.62 | $0.51 | $1.64 | $1.37 | | Net realized (loss) gain, net of tax | $(0.36) | $0.12 | $(0.62) | $0.23 | | Net unrealized appreciation (depreciation), net of tax | $(0.17) | $(0.09) | $(0.49) | $0.19 | | Net asset value, end of period | $16.25 | $16.19 | $16.25 | $16.19 | | Weighted-average basic and diluted shares outstanding | 31,381 | 23,433 | 28,304 | 22,394 | - Net investment income per share increased to **$0.62** (Q3 2022) and **$1.64** (9M 2022) from $0.51 and $1.37 in the respective prior periods[236](index=236&type=chunk) - Net asset value per share decreased from **$16.86** at the beginning of the nine-month period to **$16.25** at December 31, 2022[11](index=11&type=chunk)[236](index=236&type=chunk) - Total investment return was **4.31%** for the three months ended December 31, 2022, but **(20.95)%** for the nine months ended December 31, 2022[236](index=236&type=chunk) [13. SIGNIFICANT SUBSIDIARIES](index=72&type=section&id=13.%20SIGNIFICANT%20SUBSIDIARIES) I-45 SLF LLC, a joint venture with Main Street Capital Corporation, primarily invests in UMM syndicated senior secured loans, with CSWC holding an 80% ownership and 78.25% current profits interest. The subsidiary's financial performance showed a net decrease in members' equity from operations for the nine months ended December 31, 2022 - CSWC owns **80%** of I-45 SLF LLC and has a current profits interest of **78.25%**[240](index=240&type=chunk) - I-45 SLF LLC had total assets of **$166.2 million** and total investments at fair value of **$161.0 million** as of December 31, 2022[241](index=241&type=chunk)[244](index=244&type=chunk) - I-45 SLF LLC had **$104.0 million** drawn under its senior secured credit facility as of December 31, 2022[242](index=242&type=chunk)[244](index=244&type=chunk) I-45 SLF LLC Selected Statement of Operations Information (in thousands) | Metric | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2022 | | :--------------------------------------- | :------------------------------ | :----------------------------- | | Total revenues | $4,648 | $12,217 | | Net investment income | $2,453 | $6,964 | | Net (decrease) increase in members' equity resulting from operations | $(1,607) | $(5,516) | [14. SUBSEQUENT EVENTS](index=80&type=section&id=14.%20SUBSEQUENT%20EVENTS) The Board of Directors declared a total dividend of $0.58 per share for the quarter ending March 31, 2023, comprising a regular dividend of $0.53 and a supplemental dividend of $0.05 - On January 25, 2023, the Board declared a total dividend of **$0.58 per share** for the quarter ending March 31, 2023[256](index=256&type=chunk)[367](index=367&type=chunk) - The dividend consists of a regular dividend of **$0.53** and a supplemental dividend of **$0.05**[256](index=256&type=chunk)[367](index=367&type=chunk) [Consolidated Schedule of Investments in and Advances to Affiliates](index=81&type=section&id=Consolidated%20Schedule%20of%20Investments%20in%20and%20Advances%20to%20Affiliates) This schedule details the company's investments in control and affiliate entities, showing the principal amounts, interest/dividends credited, fair value changes, and realized/unrealized gains or losses for the nine months ended December 31, 2022 Control and Affiliate Investments Summary (in thousands) | Category | Fair Value at Mar 31, 2022 | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Unrealized Gain/(Loss) | Fair Value at Dec 31, 2022 | | :-------------------------- | :------------------------- | :-------------- | :--------------- | :------------------- | :--------------------- | :------------------------- | | Control Investments | $57,603 | $0 | $0 | $0 | $(9,978) | $47,625 | | Affiliate Investments | $131,879 | $83,675 | $(37,784) | $(10,625) | $6,187 | $173,332 | | **Total** | **$189,482** | **$83,675** | **$(37,784)** | **$(10,625)** | **$(3,791)** | **$220,957** | - Fair value of Control Investments (I-45 SLF LLC) decreased by **$9.9 million** due to unrealized depreciation[259](index=259&type=chunk) - Affiliate Investments saw significant gross additions of **$83.7 million** and gross reductions of **$37.8 million**, resulting in a net increase in fair value[263](index=263&type=chunk) - Total Control & Affiliate Investments increased in fair value from **$189.5 million** to **$221.0 million** over the nine months[263](index=263&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=85&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of the company's business as an internally managed BDC focusing on LMM and UMM financing, discusses critical accounting policies for investment valuation and revenue recognition, details the growth and composition of its investment portfolio, and analyzes the financial results for the three and nine months ended December 31, 2022, highlighting increased investment income and net realized/unrealized losses - CSWC is an internally managed BDC specializing in customized debt and equity financing for LMM companies (EBITDA **$3.0M-$20.0M**) and UMM companies (EBITDA **>$20.0M**)[270](index=270&type=chunk)[271](index=271&type=chunk) - The total value of the investment portfolio increased to **$1,150.0 million** as of December 31, 2022, from $936.6 million as of March 31, 2022, across 82 portfolio companies[283](index=283&type=chunk) - Approximately **96.7%** of the debt investment portfolio bore interest at floating rates (**100%** with contractual minimums) as of December 31, 2022[285](index=285&type=chunk) Investment Portfolio Metrics (excluding I-45 SLF LLC) | Metric | Dec 31, 2022 | Mar 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | Number of portfolio companies | 81 | 72 | | Fair value | $1,102,421 | $879,011 | | % of portfolio at fair value - debt | 89.8% | 90.3% | | % of investments at fair value secured by first lien | 86.5% | 84.2% | | Weighted average annual effective yield on debt investments | 12.0% | 9.3% | | Weighted average leverage through CSWC security | 3.6x | 4.0x | - The company's internal investment rating system shows **83.2%** of debt investments rated 2 (performing as expected) and **4.8%** rated 3 (performing below expectations) as of December 31, 2022[292](index=292&type=chunk) - Net investment income increased by **63.2%** to **$19.4 million** for the three months and **51.0%** to **$46.3 million** for the nine months ended December 31, 2022, compared to the prior year periods[307](index=307&type=chunk)[316](index=316&type=chunk) - Net realized and unrealized losses totaled **$16.5 million** for the three months and **$31.4 million** for the nine months ended December 31, 2022, primarily from debt and I-45 SLF LLC investments[308](index=308&type=chunk)[317](index=317&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=104&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risk, particularly interest rate risk, due to its portfolio of floating-rate investments and borrowings. Rising interest rates could increase the cost of funds, potentially reducing net investment income, although a hypothetical 100 basis point increase is estimated to increase net investment income by $8.2 million annually - The company is subject to market risk, including interest rate risk, which affects net interest income and investment portfolio value[369](index=369&type=chunk)[370](index=370&type=chunk) - Approximately **96.7%** of the debt investment portfolio (at fair value) bore interest at floating rates as of December 31, 2022, with **100%** subject to contractual minimum interest rates[373](index=373&type=chunk) - A hypothetical **100 basis point increase** in interest rates could increase net investment income by a maximum of **$8.2 million**, or **$0.22 per share**, on an annual basis[373](index=373&type=chunk) - The company was not a party to any hedging arrangements as of December 31, 2022[372](index=372&type=chunk) [Item 4. Controls and Procedures](index=106&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, and reported no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2022[378](index=378&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended December 31, 2022[379](index=379&type=chunk) [PART II. OTHER INFORMATION](index=107&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=107&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any pending material legal proceedings - The company has no currently pending material legal proceedings[382](index=382&type=chunk) [Item 1A. Risk Factors](index=107&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022 - No material changes to risk factors since the Annual Report on Form 10-K filed on May 24, 2022[383](index=383&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=107&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and no repurchases under its share repurchase program during the three months ended December 31, 2022 - No unregistered sales of equity securities occurred during the period[384](index=384&type=chunk) - No shares were repurchased under the $20 million share repurchase program during the three months ended December 31, 2022[385](index=385&type=chunk) [Item 3. Defaults Upon Senior Securities](index=107&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[386](index=386&type=chunk) [Item 4. Mine Safety Disclosures](index=107&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[388](index=388&type=chunk) [Item 5. Other Information](index=107&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this period - No other information to report[389](index=389&type=chunk) [Item 6. Exhibits](index=108&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, debt indentures, and certifications - Exhibits include Articles of Incorporation, Bylaws, Indentures for various notes (4.50% Notes due 2026, 3.375% Notes due 2026), and certifications by the President/CEO and CFO[391](index=391&type=chunk) [Signatures](index=109&type=section&id=Signatures) The report is duly signed by the President and Chief Executive Officer, and the Chief Financial Officer, Secretary and Treasurer, certifying its submission - The report was signed by Bowen S. Diehl, President and Chief Executive Officer, and Michael S. Sarner, Chief Financial Officer, Secretary and Treasurer, on January 31, 2023[395](index=395&type=chunk)

Capital Southwest Corp (NASDAQ:CSWC) Q2 2023 Earnings Conference Call November 1, 2022 11:00 AM ET Company Participants Chris Rehberger - VP, Finance & Treasurer Bowen Diehl - President, CEO & Director Michael Sarner - CFO Conference Call Participants Kevin Fultz - JMP Securities Mickey Schleien - Ladenburg Thalmann & Co. Kyle Joseph - Jefferies Robert Dodd - Raymond James & Associates Operator Thank you for joining today's Capital Southwest Second Quarter Fiscal Year 2023 Earnings Call. Participating on th ...