Capital Southwest(US:CSWC)2025-11-03 21:12Investment Portfolio - As of September 30, 2025, the total fair value of the investment portfolio was $1,877.9 million, an increase from $1,785.3 million as of March 31, 2025[313]. - The company had investments in 126 portfolio companies with an aggregate cost of $1,896.5 million as of September 30, 2025, compared to 121 companies with a cost of $1,779.4 million as of March 31, 2025[313]. - Debt investments at fair value bearing a floating rate were $1,648.4 million, representing 96.6% of total debt investments as of September 30, 2025[313]. - The percentage of portfolio at fair value secured by first lien was 89.9% as of September 30, 2025, up from 88.9% as of March 31, 2025[313]. - Investments on non-accrual status represented approximately 1.0% of the total investment portfolio's fair value and 2.6% of its cost as of September 30, 2025[310]. - Investments on non-accrual status represented approximately 1.0% of the total investment portfolio's fair value as of September 30, 2025, down from 1.7% as of March 31, 2025[320]. Financial Performance - Total investment income for the three months ended September 30, 2025 was approximately $56.9 million, a 16.9% increase compared to $48.7 million for the same period in 2024[326]. - Interest income for the three months ended September 30, 2025 totaled $46.2 million, up from $42.1 million in 2024, driven by a 22.2% increase in the average monthly cost basis of debt investments[327]. - Net investment income for the three months ended September 30, 2025 was $32.0 million, a slight increase of 2.6% from $31.2 million in 2024[325]. - Total investment income for the six months ended September 30, 2025, was approximately $112.9 million, a $12.8 million increase, or 12.8%, compared to the same period in 2024[337]. - Net investment income for the six months ended September 30, 2025, increased by $3.8 million, or 6.4%, to $63.9 million, due to a $12.8 million rise in total investment income[342]. - Total net realized gain on investments for the six months ended September 30, 2025, was $10.8 million, compared to a net loss of $9.6 million in the same period of 2024, reflecting a significant turnaround[343][344]. Debt and Interest Expenses - For the three months ended September 30, 2025, total interest expense increased by $3.4 million to $16.0 million, attributed to a $239.3 million increase in average borrowings, despite a decrease in the weighted average interest rate from 5.61% to 5.49%[330]. - For the six months ended September 30, 2025, interest expense increased by $6.3 million to $31.3 million, primarily due to a $217.2 million rise in average borrowings, despite a decrease in the weighted average interest rate from 5.60% to 5.47%[340]. - The weighted average yield on debt investments decreased from 12.9% to 11.5% year-over-year[327]. - Approximately 96.6% of the company's debt investment portfolio bore interest at floating rates as of September 30, 2025[372]. Operational Efficiency - The company’s internally managed structure resulted in a last twelve months (LTM) operating expense ratio of 1.64% as of September 30, 2025, down from 1.74% as of September 30, 2024[305]. - Employee compensation expense for the three months ended September 30, 2025, rose by $0.4 million, or 10.6%, totaling $4.2 million, driven by increased accrued bonuses[331]. - Total general and administrative expenses for the six months ended September 30, 2025, increased by $0.4 million, or 6.6%, totaling $5.9 million, driven by higher legal fees and additional office space costs[341]. Cash and Liquidity - The company experienced a net increase in cash and cash equivalents of $44.2 million for the six months ended September 30, 2025, compared to $15.0 million for the same period in 2024[348][349]. - As of September 30, 2025, the company had $87.4 million in unrestricted cash and cash equivalents and $632.2 million of unused capacity under its Credit Facilities[350]. - The company's asset coverage ratio was 208% as of September 30, 2025, exceeding the required minimum of 150%[347]. - The company raised $82.0 million in gross proceeds from the Equity ATM Program for the six months ended September 30, 2025, compared to $58.9 million for the same period in 2024[361]. - The company had $208.0 million available under the Equity ATM Program as of September 30, 2025[361]. Market and Economic Conditions - The company is closely monitoring the impact of geopolitical instability and economic conditions on its portfolio companies and investment activities[316]. - The company is subject to market risks including interest rate volatility, which could materially affect net investment income[369]. - The company’s interest expenses are affected by changes in the published SOFR rate in connection with its Credit Facilities[370]. - A hypothetical 200 basis point decrease in interest rates could result in a decrease of $31.9 million in net investment income[373]. - The Federal Reserve decreased interest rates by 0.25% in September and October 2025, lowering the benchmark lending rate to a range between 3.75% and 4.00%[371]. Investment Commitments and Obligations - As of September 30, 2025, the company had approximately $334.1 million in currently unfunded commitments, up from $197.4 million as of March 31, 2025[364]. - The company had total contractual obligations of $1,298.2 million, with $271.9 million due in less than one year and $732.8 million due in 3-5 years[366]. - On October 13, 2025, the company redeemed $150.0 million in October 2026 Notes and $71.9 million in August 2028 Notes, recognizing a realized loss of approximately $2.2 million[368].