Fitch Ratings affirms BBB- long-term issuer rating with a stable outlookDALLAS, July 02, 2025 (GLOBE NEWSWIRE) -- Capital Southwest Corporation (“Capital Southwest,” or the “Company”) (Nasdaq: CSWC), an internally managed business development company focused on providing flexible financing solutions to support the acquisition and growth of middle market businesses, today announced that Fitch Ratings (“Fitch”) has affirmed Capital Southwest’s investment grade long-term issuer rating of BBB- with a stable out ...

Core Insights - The article emphasizes the importance of a hybrid investment strategy that combines classic dividend growth stocks with Business Development Companies, REITs, and Closed End Funds to enhance investment income while achieving total returns comparable to traditional index funds [1]. Investment Strategy - The investment approach focuses on high-quality dividend stocks and assets that provide long-term growth potential, which can significantly contribute to income generation [1]. - A balanced portfolio that includes both growth and income-generating assets can lead to a total return that aligns with the performance of the S&P 500 [1].

Group 1 - Capital Southwest Corporation (NASDAQ: CSWC) is an internally managed Business Development Company (BDC) based in Dallas with a long history of paying dividends [1] - The company announced a shift from quarterly to monthly dividends starting in July 2025, which has attracted investor attention [1] Group 2 - The company is characterized by steady growth in revenue, earnings, and free cash flow, making it appealing for income-focused investors [1] - It has excellent growth prospects and favorable valuations, aligning with the interests of investors seeking dividend stocks and share repurchase programs [1]

Core Points - Capital Southwest Corporation is changing its regular dividend payment frequency from quarterly to monthly starting July 2025 [1][3] - The Board of Directors has declared monthly regular dividends of $0.1934 per share for July, August, and September 2025, along with a quarterly supplemental dividend of $0.06 per share payable in September 2025 [2][3] - The total regular dividends per share for the quarter ending September 30, 2025, will amount to $0.58, with an additional supplemental dividend of $0.06, bringing the total dividends per share for that quarter to $0.64 [3] Dividend Details - The declared monthly dividends and their payment schedule are as follows: - $0.1934 per share for July 31, 2025 - $0.1934 per share for August 29, 2025 - $0.1934 per share for September 30, 2025 [3] - The supplemental dividend of $0.06 per share will be payable on September 30, 2025 [3] Company Overview - Capital Southwest Corporation is a Dallas-based business development company with approximately $1.8 billion in investments at fair value as of March 31, 2025 [5] - The company focuses on providing flexible financing solutions to support the acquisition and growth of middle market businesses, making investments ranging from $5 million to $50 million [5] - Capital Southwest has a dividend reinvestment plan (DRIP) that allows registered stockholders to reinvest dividends into additional shares of common stock [4]

Group 1 - The article promotes a portfolio strategy that generates income without the need for selling assets, aimed at simplifying retirement investing [1] - Features of the service include a model portfolio with buy/sell alerts, conservative investment options, community engagement, and regular market updates [1] - The service emphasizes the importance of community and education in investing, suggesting that individuals should not invest alone [1] Group 2 - The article mentions that the contributors to the service include various analysts who monitor positions and provide exclusive buy/sell alerts to members [3] - It is noted that past performance does not guarantee future results, and the article does not provide specific investment recommendations [4]

Debt and Financing - As of March 31, 2025, the total aggregate principal amount of debt outstanding was $235.0 million under the Corporate Credit Facility, $108.0 million under the SPV Credit Facility, $150.0 million in October 2026 Notes, $71.9 million in August 2028 Notes, and $230.0 million in 2029 Convertible Notes[73]. - The company is authorized to borrow up to $175 million in SBA-guaranteed debentures, subject to SBA approval[112]. - The Corporate Credit Facility bears interest at the applicable Adjusted Term SOFR rate plus 2.15%, while the SPV Credit Facility bears interest at a three-month Term SOFR plus 2.50% during the revolving period[376]. - A hypothetical 200 basis point decrease in interest rates could result in a decrease of $25,009,000 in net investment income, equating to a decrease of $0.47 per share[377]. - The company may face limitations on financing terms and control periods for investments in portfolio companies[117]. Asset Coverage and Compliance - The asset coverage for borrowed amounts as of March 31, 2025, was 211%[73]. - The company is required to maintain a minimum asset coverage ratio of 150% for its senior securities, which was approved by the Board of Directors[64]. - The company has received an exemptive order from the SEC allowing it to exclude senior securities issued by SBIC Subsidiaries from the definition of senior securities in the asset coverage requirement[64]. - The company is prohibited from making distributions to shareholders while preferred stock or publicly traded debt securities are outstanding unless asset coverage ratios are met[74]. - The company is required to review its compliance policies and procedures annually to ensure they are adequate and effective[80]. Shareholder Distributions and Taxation - The company intends to distribute substantially all of its income to shareholders to avoid U.S. federal income tax on taxable income and gains[61]. - The company has satisfied the minimum distribution requirements for tax years 2023 and 2022 and intends to meet the requirements for tax year 2024[61]. - To maintain RIC status, the company must distribute at least 90% of its investment company taxable income each taxable year[90]. - The company is subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless it meets specific distribution requirements[92]. - The company has established a Taxable Subsidiary to hold assets that do not generate qualifying income under the 90% Income Test, which will be subject to U.S. federal income tax[97]. Investment Company Structure and Regulations - The company is classified as a closed-end, non-diversified investment company regulated as a Business Development Company (BDC) under the 1940 Act[58]. - The company must provide significant managerial assistance to eligible portfolio companies as part of its BDC obligations[69]. - The company has adopted a code of ethics and a code of conduct to ensure compliance with the 1940 Act, which includes procedures for personal investments and restrictions on certain transactions[78]. - The company has established proxy voting policies to ensure that votes are cast in the best interests of shareholders, reviewing each proposal on a case-by-case basis[79]. - Eligible small businesses for SBIC investments must have a tangible net worth not exceeding $24 million and average annual net income not exceeding $8 million[114]. Risk Management and Market Conditions - The company is subject to market risks including interest rate volatility, which can materially affect net investment income and the ability to acquire loans and securities[373]. - The company’s risk management systems are designed to identify and analyze risks, with ongoing assessments of interest rate exposure[375]. - As of March 31, 2025, the company was not a party to any hedging arrangements to mitigate interest rate exposure[375]. - The company’s net investment income is sensitive to fluctuations in various interest rate indices, including SOFR and Prime rates[374]. - The Federal Reserve held interest rates steady in Q1 2025 after three consecutive rate reductions in Q4 2024, with potential for future rate reductions not guaranteed[375]. Employee Compensation and Stock Plans - The 2021 Employee Restricted Stock Award Plan was approved and became effective on July 28, 2021, replacing the 2010 Plan, allowing the issuance of restricted stock as part of employee compensation[82]. - The company received an exemptive order to allow the issuance of restricted stock and to withhold shares for tax obligations under the 2021 Employee Plan[82]. Compliance with Corporate Governance - The company intends to monitor compliance with corporate governance listing standards to remain in good standing on the Nasdaq[120]. - The company is required to comply with the Sarbanes-Oxley Act, which includes certifying the accuracy of financial statements by the CEO and CFO[121].

Capital Southwest (NASDAQ:CSWC) Q4 2025 Earnings Conference Call May 15, 2025 11:00 AM ET Company Participants Amy Baker - EVP Accounting Michael Sarner - President and CEO Josh Weinstein - Senior MD and Chief Investment Officer Chris Rehberger - CFO, Treasurer and Secretary Conference Call Participants Mickey Schleien - Ladenburg Corey Johnson - UBS Erik Zwick - Lucid Capital Markets Robert Dodd - Raymond James Operator Thank you for joining today's Capital Southwest Fourth Quarter Fiscal Year 2025 Earning ...

Financial Data and Key Metrics Changes - The investment portfolio grew by approximately $300 million or 21% from $1.5 billion to $1.8 billion [4] - Weighted average leverage in the investment portfolio decreased to 3.5 times, with non-accruals at fair value reduced from 2.3% to 1.7% [4] - Pre-tax net investment income was $28.5 million or $0.56 per share, with adjusted pre-tax net investment income at $31.3 million or $0.61 per share [27] - Total investment income increased to $52.4 million from $52 million in the prior quarter [28] - NAV per share increased to $16.70 from $16.59 in the prior quarter [31] Business Line Data and Key Metrics Changes - The equity portfolio saw unrealized appreciation grow from $38.5 million or $0.85 per share to $53.2 million or $1 per share [4] - The credit portfolio ended the quarter at $1.6 billion, representing year-over-year growth of 19% from $1.3 billion [17] - 100% of new portfolio company debt originations were first lien senior secured [17] - The credit portfolio had a weighted average yield of 11.7% and a weighted average leverage of 3.5 times EBITDA [22] Market Data and Key Metrics Changes - The lower middle market remains competitive, with a significant number of private equity firms represented across the investment portfolio [20] - Approximately 93% of the credit portfolio is backed by private equity firms, providing guidance and potential junior capital support [18] - The company identified 7% of the debt portfolio as moderate risk due to tariff exposure, with only 1% having both moderate risk and a loan-to-value above 50% [14] Company Strategy and Development Direction - The company aims to maintain dividend sustainability, strong credit performance, and continued access to capital from multiple sources [8] - The recent approval for a second FDIC license allows for an additional $175 million in debt capital to support the direct lower middle market platform [7] - The company plans to methodically raise secured and unsecured debt capital while maintaining a conservative balance sheet [33] Management Comments on Operating Environment and Future Outlook - Management noted that geopolitical uncertainties and trade policy changes have created short-term impacts on the lower middle market [11] - The company remains vigilant in underwriting standards due to ongoing economic uncertainties [12] - Management expressed confidence in the balance sheet's ability to endure market volatility, with no maturities until October 2026 [15] Other Important Information - The company raised over $300 million in new debt capital commitments during the year [5] - The regular dividend increased from $2.24 per share to $2.31 per share, with supplemental dividends totaling $0.23 per share [8] - The company has a robust liquidity position with approximately $384 million in cash and undrawn leverage commitments [32] Q&A Session Summary Question: How attractive is the current vintage of investments in the lower middle market? - Management indicated that current deals are in sectors of interest, with a focus on service industries, while cyclical deals are being delayed or pulled from the market [37][38] Question: What were the main drivers of the net realized loss and markdown in the credit portfolio? - The realized and unrealized losses were primarily driven by restructurings of two companies on non-accrual [40][41] Question: When will the company start injecting capital into the new SBIC subsidiary? - Capital injection into the new SBIC subsidiary is expected to begin in the next three months [42][43] Question: What is the outlook for the pipeline and potential funding from SBIC? - The pipeline includes 3 to 5 new platform companies with expected capital of $75 to $100 million and around $50 million in add-on activity [61][62] Question: How is the company managing potential spread compression in the current market? - Management does not expect material spread compression but acknowledges that competition for non-tariff impacted industries may lead to tighter spreads [72][75] Question: What is the comfort level regarding the UTI balance and potential special dividends? - The company aims to maintain a UTI balance to support regular and supplemental dividends, with no specific target for maximum balance before considering special dividends [78][80]

Financial Data and Key Metrics Changes - The investment portfolio grew by approximately $300 million or 21% from $1.5 billion to $1.8 billion [4] - Weighted average leverage in the investment portfolio decreased to 3.5 times, with non-accruals at fair value reduced from 2.3% to 1.7% [4][9] - Pre-tax net investment income was $28.5 million or $0.56 per share, with adjusted pre-tax net investment income at $31.3 million or $0.61 per share [27] - Total investment income increased to $52.4 million from $52 million in the prior quarter [28] - NAV per share increased to $16.70 from $16.59 in the prior quarter [31] Business Line Data and Key Metrics Changes - The equity portfolio saw unrealized appreciation grow from $38.5 million or $0.85 per share to $53.2 million or $1 per share [4] - The credit portfolio ended the quarter at $1.6 billion, representing year-over-year growth of 19% from $1.3 billion [17] - 100% of new portfolio company debt originations were first lien senior secured [17] - The credit portfolio had a weighted average yield of 11.7% and a weighted average leverage of 3.5 times EBITDA [22] Market Data and Key Metrics Changes - The lower middle market remains competitive, with a significant number of private equity firms represented across the investment portfolio [20] - Approximately 93% of the credit portfolio is backed by private equity firms, providing guidance and potential junior capital support [18] - The company identified 7% of the debt portfolio as moderate risk due to tariff exposure, with only 1% having both moderate risk and a loan-to-value above 50% [14] Company Strategy and Development Direction - The company aims to maintain dividend sustainability, strong credit performance, and continued access to capital from multiple sources [8] - The recent approval for a second FDIC license allows for an additional $175 million in debt capital to support the direct lower middle market platform [7] - The company plans to methodically raise secured and unsecured debt capital while maintaining a conservative balance sheet [33] Management's Comments on Operating Environment and Future Outlook - Management noted that geopolitical uncertainties and trade policy changes have created short-term impacts on the lower middle market [11] - The company remains vigilant in underwriting standards due to ongoing economic uncertainties [12] - Management expressed confidence in the balance sheet's ability to endure market volatility, with no maturities until October 2026 [15] Other Important Information - The company raised over $300 million in new debt capital commitments during the year [5] - The regular dividend increased from $2.24 per share to $2.31 per share, with supplemental dividends totaling $0.23 per share [8] - The company has a robust liquidity position with approximately $384 million in cash and undrawn leverage commitments [32] Q&A Session Summary Question: How attractive is the current vintage of investments in the lower middle market? - Management indicated that the current deals are in industries of interest, with a focus on service industries, while cyclical deals are being delayed or pulled [37] Question: What were the main drivers of the net realized loss and markdown in the credit portfolio? - The realized and unrealized losses were primarily driven by restructurings of two companies on non-accrual [40] Question: When will the new SBIC subsidiary start injecting capital? - Capital injection is expected to begin in the next three months, with debenture draws anticipated shortly thereafter [43] Question: What is the outlook for spreads in the current market? - Management expects spreads to tighten slightly due to increased competition for non-tariff impacted industries, but does not anticipate material spread compression [72] Question: What is the comfort level regarding the UTI balance? - Management aims to maintain a UTI balance above $0.50 to support regular and supplemental dividends, with a focus on returning capital to shareholders [80]

Financial Data and Key Metrics Changes - The investment portfolio grew by approximately $300 million or 21% from $1.5 billion to $1.8 billion [4] - Weighted average leverage in the investment portfolio decreased to 3.5 times, with non-accruals at fair value reduced from 2.3% to 1.7% [4][27] - Pre-tax net investment income was $28.5 million or $0.56 per share, with adjusted pre-tax net investment income at $31.3 million or $0.61 per share [26] - Total investment income increased to $52.4 million from $52 million in the prior quarter [26] - The company's NAV per share increased from $16.59 to $16.70 [30] Business Line Data and Key Metrics Changes - The credit portfolio ended the quarter at $1.6 billion, representing year-over-year growth of 19% from $1.3 billion [17] - 100% of new portfolio company debt originations were first lien senior secured [17] - The equity co-investment portfolio consisted of 79 investments with a total fair value of $179 million, representing 10% of the total portfolio [19] Market Data and Key Metrics Changes - The lower middle market remains competitive, with a significant number of private equity firms represented across the investment portfolio [20] - Approximately 93% of the credit portfolio is backed by private equity firms, which provide guidance and potential junior capital support [18] Company Strategy and Development Direction - The company aims to maintain dividend sustainability, strong credit performance, and continued access to capital from multiple sources [8] - The recent approval for a second FDIC license allows for an additional $175 million in debt capital to support the lower middle market platform [6] - The company plans to methodically and opportunistically raise secured and unsecured debt capital, as well as equity capital through its ATM program [32] Management's Comments on Operating Environment and Future Outlook - The geopolitical landscape has created uncertainty, impacting the lower middle market and potentially leading to slower M&A activity [11][12] - The company has identified 7% of the debt portfolio as moderate risk due to tariff exposure, but only 1% has significant exposure with a loan-to-value above 50% [13] - Management remains optimistic about the quality of deals being underwritten, focusing on service industries less affected by macroeconomic uncertainties [36] Other Important Information - The company raised over $300 million in new debt capital commitments during the year [5] - The regular dividend increased from $2.24 per share to $2.31 per share, with an additional $0.23 per share in supplemental dividends [7][8] - The company has a robust liquidity position with approximately $384 million in cash and undrawn leverage commitments [31] Q&A Session Summary Question: How attractive is the current vintage of investments in the lower middle market? - Management believes the current deals are of high quality, particularly in service industries, while cyclical deals are being delayed or pulled from the market [36] Question: What were the main drivers of the net realized loss and markdown in the credit portfolio? - The realized and unrealized losses were primarily driven by restructurings of two portfolio companies [39] Question: When will the company start injecting capital into the new SBIC subsidiary? - Capital injection is expected to begin in the next three months, with the first draws anticipated shortly thereafter [41] Question: What is the outlook for the PIK income trend? - PIK income has increased due to a few companies electing it, but it is expected to decrease as companies return to cash payments [52] Question: What does the current pipeline look like? - The pipeline includes 3 to 5 new platform companies with expected capital commitments of $75 to $100 million, along with around $50 million in add-on activity [56]