Capital Southwest CorporationQ4 2016 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com June 8, 2016
This presentation contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 relating to, among other things the business, financial condition and results of operations of Capital Southwest, the anticipated investment strategies and investments of Capital Southwest, and future market demand. Any statements preceded or followed by or that include the words "believe," "expect," "intend," "plan," "should" or similar words, phrases or expressions or the negative thereof, or any other statements that are not historical statements are forward-looking statements. These statements are made on the basis of the current beliefs, expectations and assumptions of the management of Capital Southwest. There are a number of risks and uncertainties that could cause Capital Southwest’s actual results to differ materially from the forward-looking statements included in this presentation. In light of these risks, uncertainties, assumptions, and other factors inherent in forward-looking statements, actual results may differ materially from those discussed in this presentation. Other unknown or unpredictable factors could also have a material adverse effect on Capital Southwest’s actual future results, performance, or achievements. For a further discussion of these and other risks and uncertainties applicable to Capital Southwest and its business, see Capital Southwest’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015 and its subsequent filings with the Securities and Exchange Commission. As a result of the foregoing, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Capital Southwest does not assume any obligation revise or to update these forward-looking statements to reflect any new information, subsequent events or circumstances, or otherwise, except as may be required by law. Forward-Looking Statements
Bowen S. DiehlPresident and Chief Executive OfficerMichael S. SarnerChief Financial OfficerChris RehbergerVP Finance / Treasurer Conference Call Participants
CSWC has refocused its investment strategy to become a lender to middle-market companies across the capital structureCSWC was formed in 1961, and became a BDC in 1988Publicly-traded on Nasdaq under CSWC tickerInternally-managed BDC with RIC status for tax purposesManagement transition over the last two years has resulted in a new Chairman, CEO, CFO, and credit teamIn December 2014, announced split into two separate companies with spin-off of industrial growth company (“CSW Industrials”; Nasdaq: CSWI) which was completed September 30th, 2015Over the past 18 months, CSWC has made significant strides towards rotating its investment portfolio from equity to credit CSWC Company Overview
Portfolio Rotation Focused on Credit 6/30/2014 (excl. CSWI Companies) 3/31/2016 Investable Assets Since June 2014, CSWC has made significant strides towards rotating its investment assets from equity to creditExited 21 legacy portfolio companies for $222 MM in proceedsInvested $91 MM in 17 middle-market credit investmentsInvested $100 MM in 24 credits within I-45 Senior Loan Fund (“I-45”), a joint venture with Main Street CapitalBelow is a depiction of the asset rotation of the CSWC portfolio, excluding the businesses that were spun-off as CSW Industrials 1% of Total Assets Generating Recurring Income 59% of Total Assets Generating Recurring Income
Q4 2016 Portfolio Originations In Thousands
Portfolio Mix as of 3/31/16 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) For the quarter ended 3/31/16, increased Investment Portfolio to $178 MM from $135 MM; On Balance Sheet Loan Portfolio increased to $93 MM from $61 MM
I-45 Senior Loan Fund Portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Invested $8 MM additional equity to fund I-45 loan portfolio growth to $100 MM
Financial HighlightsGrew investment portfolio to $178 MM from $135 MM Q4 2016 Pre-Tax Net Investment Income of $708 K or $0.04 per weighted average diluted sharePaid quarterly dividend of $0.04 per shareNo non-accruals or watch list companies within debt investment portfolio$96 MM in cash available for investment activityKey UpdatesDeclared $0.06 dividend per share for Q1 2017Continue to ramp I-45 Senior Loan Fund I-45 distributed $1.1 MM dividend to CSWC during the quarter Increased Deutsche Bank Credit Facility to $100 MM from $75 MMExited Freedom Truck Finance loan, generating a 14.3% IRR Q4 2016 Highlights
Key Highlights 1 CSWC utilizes an internal 1 - 4 investment rating system in which 1 represents material outperformance and 4 represents material underperformance. All new investments are initially set to 2.2 Excludes CSWC equity investment in I-45 Senior Loan Fund Quarter Ended 9/30/2015 Quarter Ended 12/31/2015 Quarter Ended 3/31/2016 Financial Highlights Pre-Tax Net Investment Income / (Loss) Per Wtd. Avg. Diluted Share ($0.59) ($0.04) $0.04 Dividends Per Share $0.00 $0.00 $0.04 NAV Per Share $17.68 $17.22 $17.34 Cash & Cash Equivalents $184,111 $143,680 $95,969 Debt to Equity 0.0x 0.0x 0.0x Shares Outstanding 15,583 15,725 15,726 Weighted Average Shares Outstanding (Diluted) 15,680 15,751 15,795 Portfolio Statistics Fair Value of Debt Investments $45,115 $60,929 $92,832 Average Debt Investment Hold Size $5,013 $5,077 $5,157 Fair Value of Debt Investments as a % of Cost 100% 100% 99% % of Debt Portfolio on Non-Accrual (at Fair Value) 0.3% 0.0% 0.0% Weighted Average Investment Rating1 N/A 2.0 2.0 Weighted Average Yield on Debt Investments 10.11% 10.31% 10.67% Total Fair Value of Portfolio Investments $93,339 $134,935 $178,436 Weighted Average Yield on all Portfolio Investments 4.37% 10.82% 9.46% Investment Mix (Debt vs. Equity)2 47% / 53% 57% / 43% 65% / 35% Investment Mix (Yielding vs. Non-Yielding) 80% / 20% 89% / 11% 90% / 10%
Balance Sheet Highlights (In Thousands, except per share amounts) Quarter Ended 9/30/2015 Quarter Ended 12/31/2015 Quarter Ended 3/31/2016 Assets Portfolio Investments $93,339 $134,935 $178,436 Cash & Cash Equivalents $184,111 $143,680 $95,969 Deferred Tax Asset $1,649 $1,544 $2,342 Other Assets $6,551 $6,421 $7,746 Total Assets $285,650 $286,580 $284,493 Liabilities Payable for Unsettled Transaction $0 $4,850 $3,940 Income Tax Payable $0 $2,948 $0 Other Liabilities $10,059 $7,997 $7,918 Total Liabilities $10,059 $15,795 $11,858 Shareholders Equity Net Asset Value $275,591 $270,785 $272,635 Shares Outstanding at Period End 15,583 15,725 15,726 NAV per Share $17.68 $17.22 $17.34 Debt to Equity 0.0x 0.0x 0.0x
Income Statement Highlights (In Thousands, except per share amounts) Quarter Ended 9/30/15 Quarter Ended 12/31/15 Quarter Ended 3/31/16 Investment Income Interest Income $945 $1,415 $2,110 Dividend Income $0 $1,612 $1,578 Fees and Other Income $133 $280 $123 Total Investment Income $1,078 $3,307 $3,811 Expenses Cash Compensation $3,411 $1,675 $1,403 Share Based Compensation $370 $195 $257 General & Administrative $1,070 $1,354 $1,192 Spin-off Related Expenses $5,474 $710 $251 Total Expenses $10,325 $3,934 $3,103 Pre-Tax Net Investment Income / (Loss) ($9,247) ($627) $708 Taxes and Gain / (Loss) Income Tax Benefit (Expense) ($88) $607 $788 Net realized gain (loss) on investments ($3,396) ($8,170) $12 Net increase (decrease) in unrealized appreciation of investments $3,783 $7,060 $1,001 Net increase (decrease) in net assets resulting from operations ($8,948) ($1,130) $2,509 Weighted Average Shares Outstanding 15,680 15,751 15,795 Pre-Tax Net Investment Income Per Weighted Average Share ($0.59) ($0.04) $0.04 Dividends Per Share $0.00 $0.00 $0.04
Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 9/30/2015 Quarter Ended 12/31/2015 Quarter Ended 3/31/2016 Investment Income Breakdown Cash Interest $930 $1,392 $2,063 Cash Dividends $0 $1,612 $1,578 Management Fees $133 $275 $115 Amortization of purchase discounts and fees $15 $23 $47 Other Income (non-recurring) $0 $5 $8 Total Investment Income $1,078 $3,307 $3,811 Key Metrics Cash Income as a % of Investment Income 98.6% 99.3% 98.8% % of Total Investment Income that is Recurring 100.0% 99.8% 99.8%
Interest Rate Sensitivity Debt Portfolio Composition Impact of Base Rate Changes on Net Investment Income Note: Illustrative change in NII is based on a projection of our existing debt investments as of 3/31/16, adjusted only for changes in Base Rates. The results of this analysis include the I-45 Senior Loan Fund, which is comprised of 100% floating rate assets and liabilities. Change in Base Interest Rates Illustrative NII Change ($'s) Illustrative NII Change (Per Share) 50 bps $43,267 $0.00 100bps $598,027 $0.04 150bps $1,185,873 $0.08 200bps $1,773,720 $0.11
Corporate Information Board of Directors Senior Management Fiscal Year End Inside Directors March 31 Joseph B. Armes Bowen S. Diehl Bowen S. Diehl President & Chief Executive Officer Independent Auditor Grant Thornton Dallas, TX Independent Directors Michael S. Sarner John H. Wilson Chief Financial Officer, Secretary & Treasurer William R. Thomas T. Duane Morgan Corporate Counsel David R. Brooks Investor Relations Thompson & Knight / Jones Day Dallas, TX Jack D. Furst Michael S. Sarner Capital Southwest Corporate Offices & Website 214-884-3829 5400 LBJ Freeway msarner@capitalsouthwest.com Transfer Agent 13th Floor American Stock Transfer & Trust Company, LLC Dallas, TX 75240 Securities Listing 800-937-5449 http://www.capitalsouthwest.com NASDAQ: CSWC www.amstock.com