CSWC - Earnings call transcript Q3 2022 | Capital Southwest Corporation

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Operator

Thank you for joining today's Capital Southwest Third Quarter Fiscal Year 2022 Earnings Call. Participating on the call today are Bowen Diehl, CEO; and Michael Sarner, CFO; and Chris Rehberger, VP Finance. I will now turn the call over to Chris Rehberger.

Chris Rehberger

Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. on and currently beliefs. based management's information are assumptions expectations, statements current available conditions, and These that results They and statements. numerous assumptions are not subject cause are guarantees to risks, of uncertainties from differ materially to future results could such actual and

or information circumstances obligation uncertainties, this as Capital to whether by revise hand changing forward-looking available risks future Officer, update Southwest's reason company does as and SEC. statements, of of law. with our or other now Bowen events, the date to Executive the The any press after these will new and off release, required a not Chief the concerning publicly For Diehl. see President filings undertake information, except call result any any I

Bowen Diehl

thank fiscal to our XXXX. ends XX, XXXX, joining us and for quarter quarter Chris, third year, XXXX the for you of ended for the everyone our which which December call earnings XX, Thanks, March is

quarter. be our refer some of morning and our found pleased the on investment our presentation, Throughout portfolio to our are our you your will and We'll company, where of have summarized slides the X presentation, on we performance prepared you the executing in update stewards giving to the our of various key to can strategy Slide we highlights be progress our website on which earnings an on We begin www.capitalsouthwest.com. at the capital. forward of look with for as remarks, this earnings performance

a the share, of our quarter dividend dividends share, of per generated regular investment were per share. the and which earned Total supplemental $X.XX than of a $X.XX quarter $X.XX we of $X.XX net per quarter, the per $X.XX dividend consisted pretax of During dividend share. regular which paid for for more income

recurring December earnings XX, improvements has regular $X.XX XXXX, dividend operating growth quarter. the quarter our reflects increase performance and per to portfolio March our the also declared that per ended of in for X.X% cost the increased capital share of Board our are dividend from We to in share pleased from our $X.XX an the the credit of an announce increase in portfolio, our and our in This in our continued the and increase reductions of leverage. regular power resulting paid

the middle market very strong, During in origination lower in Capital financing resulting record and quarter, acquisition Southwest. the activity for new was

at This equity prepayments XX which, the during quarter. was X $XXX IRR Notably, gain prepayment million. by we was portfolio to activity As net portfolio commitments from XX record Portfolio outcome it XX.X%. million portfolio. XX the $XXX close. basis, new was $XXX and $XXX offset companies, of able across generated On as proceeds million expected, a debt a during X.X% were to a the million growth we to portfolio an in in and of exit existing companies equity of $X.X investment and our also a was million by funded quarter saw successful by our grow realized exit very driven

periodically As stated, dividends previously realized we these distribute our to over to intention gains through have our is time shareholders. special

notes. growth average On raised $XX add-on capital credit since in we our of portfolio the of and strategy. pipeline, company's the on lockstep and an access million dividend aggregate capitalization of the launch of coverage has net consistent track deal believe our and creating completed Furthermore, sustained price Maintenance shareholders. strategies. producing demonstrated our November shareholder X strong management solid to illustrate capitalization value principal prevailing record October long-term long-term steady and objective dividend $XX remain We NAV we our and of core our average of for of an representing of investment per of asset investment the the creation On per the share of continued dividends at of X.XXX% program ATM tenets front, an our and X to both growth, our value with performance XXX% per markets 'XX our million our XXXX, Slide share. as value equity $XX.XX in share, of strength we our through

Turning X. to Slide

As a in its has investment refresher, of strategy since our remained XXXX. January launch consistent

attractive for first lower combination in the co-investments NAV as opportunistically strategy, and many granular focus lending also the portfolio lien invest share to credit alongside and the to loans. middle security in continue capital, per these originate market while We mitigation exist. Building on with made the in from majority driving it vast equity while over the ability businesses. in secured BDC loans many well-performing we middle for directly invested lower In that out senior our our lead is equity NAV We of believe also equity consisting smaller losses strong this to middle primarily our when time. providing investments maintaining of aiding market risk-adjusted provides is while of returns a growing upper important growth market, upside any co-investments of powerful core opportunities of of

of or As fair consisted quarter, embedded per $XX.X in which approximately million of our appreciation included $X.XX the unrealized share. co-investment of of total investments equity value XX with $XX.X the end portfolio million, a

benefits value component example lower co-investments represented which quarter, The from strategy. of businesses. middle of $X.X upside our approximately a of market at our successful portfolio produced of quarter, lower of one this is realized growing gain of exit market which of provide as this the equity shareholders X% million, an of to of continues portfolio, fair attractive our middle end total the our equity the Our

the to on-balance credit to end excluding quarter. of fund the of sheet portfolio as end the of million grew As illustrated quarter, XX, prior I-XX $XXX on loan of $XXX our compared senior as Slide our million the as X%

debt of for quarter quarter, the secured. all originations company debt were our of the secured, the For originations XX% senior lien senior first and portfolio new were

the committed quarter, portfolio to XX Finally, companies as Slides lien of the senior XX% of was $XXX during capital invested first in portfolio first lien our Capital portfolio we On lien of lay alongside secured. $XXX XX, we which to in million the XX of committed the secured senior this and quarter. also out X in debt committed $X.X invested end companies, and second quarter million lien including debt. new first credit the included million in

alongside invested we equity million Additionally, in $X.X portfolio companies. new of X our

committed X $XX.X in quarter, portfolio to lien Finally, senior debt during secured million the we existing companies. also first

XX. Turning to Slide

the XX.X% realizing We million gains continue and over generating generated $X.X exits, investment total debt total, In track with exit million successful in of of proceeds, exits exits our equity X XX during quarter. these XX.X%. record years IRR and XX representing $XXX of a ago, of launch have cumulative average strategy million weighted generated credit average the $XXX approximately our in IRR exits, Since of over weighted we proceeds. portfolio on X a

very resulting As and market the refinancing capital in was heavy previously activity. robust quarter, during refinancing for acquisition both volume in and origination the mentioned,

Our by lower and investment the pipeline, equity has especially deals firms together. pleased that middle has XXXX multiple transactions as debt team previous have market encouraged partner. premier cultivated a position especially and equity I'm we market and capital quality our very we robust both established private deal that so. I'm as have been otherwise, sources, calls, strong where increasing in number of on the and closed have volume with of earnings been in December the mentioned throughout quarter was the

that references are as relationships. finding for are us for willing we We firms new these to prospect be

us. also Additionally, it that deal relevant exciting new new of to in to is are number coming deals see sources the very from

and contended this always quarter, we on-balance illustrate have portfolio of portfolio as building sourcing the in broadening of a in we excluding As is deal investment from sheet network of of some stats end market. a Slide a competitive maintaining fund. quality funnel senior critical our loan key On I-XX the again, component our our XX,

portfolio of first co-investments. XX.X% As total investments, quarter, lien to of X.X% equity investments investments, end to subordinated sheet the fair and was at the X.X% weighted lien the to second value X.X% to on-balance

XX. Turning to Slide

We migration out the laid within rating portfolio. the have

from a X. X X During upgraded a a We quarter. had the to a this to had loans we loans quarter, X and loans X downgraded X upgraded from no

a the with on X-point As lowest an X being the are all investment a reminder, rating being and assigned scale, upon rating origination initially loans highest X rating. of X

end the rated top less of we of had XX.X% quarter, investment loans approximately of loans, in a As and X% than X the loan categories, rated X.X% portfolio, representing the our X a of representing a X XX value X the rated or representing of portfolio a X. X had the of at portfolio X We fair X.

had nonaccrual. on loans the new at $X.X During million loan no fair of we a X and nonaccrual quarter, come of off value placed

us its loan accrual a to successfully completed the discussed we in this As of company December, quarter. allowed the balance back of sheet last which portion original restructuring this on quarter, place

on and an portfolio asset Slide portfolio provides lien heavily capital. the our second with portfolio continues debt. total the X% secured mix to lien XX, remains shareholders' only industries, be senior only in first for weighted that investment secured Portfolio strong our diversified security towards with debt, X% illustrated in of As across well of senior debt subordinated

its solid loan Slide to XX. performance. I-XX fund Turning The senior continues

of X.X% performance in of the portfolio. our over end more to quarter, Xx, is financial was among at hand to EBITDA industries will quarter. million secured currently and The continues and senior call hold the specifics the an the the lien across portfolio Michael size I-XX portfolio now was the Leverage level I-XX Weighted XX% of diversity debt fund I I-XX equity. of to in debt. and companies review average the the the first of for X.XXx of leverage portfolio average have As $XX.X invested respectively. to

Michael Sarner

income for the We XX, Bowen. per pretax we share quarter, regular the out an per in from September Slide Thanks, the increase paid performance $X.XX for of out paid our per $X.XX earned on as quarter. $XX.X Specific share. share quarter, million regular net dividend in December summarized dividends investment the to $X.XX or

the record investment is to Maintaining pretax increased As of meaningfully $X.XX mentioned our dividend, per has dividend a quarter. with track covering Board March consistent the earlier, of for strategy. our a declaring regular share our regular NII important dividend

launch to record in of XX our maintain January the coverage since XXXX. strategy last for credit December the continue ended regular with months track our of dividend XXXX, strong XXX% We XX, cumulative and XXX%

the the net this realized gains bringing and to investment Our in X realized unrealized unrealized portfolio million. $XX.X over perform well, gains quarters past generating continues to net quarter, $XXX,XXX and

special shareholders as As unrealized appreciation intend to mentioned, our we portfolio. going the to the in monetize periodically Bowen forward, distribute we dividends

distribution UTI investments our of this balance of per the of UTI for quarter our one sale year CSWC Post available this As The and from share. we as to XX, distributed $X.X subsidiary the proceeds our of the shareholders. taxable excludes taxable quarter on balance taxable our equity to million end, December company gain held income subsidiary. XXXX, are these was at our end estimated was now $X.XX

nonaccrual Our investment X.X%. quarter of in this average higher portfolio all this a average was $X an produced on income Investment income with of investment million $XX.X increase due million to quarter credit primarily yield investments weighted fees on prepayments. of fair investments the outstanding There were X.X% on with the portfolio as million loans as the an X or of of aggregate well end investment as debt paid of quarter. $XX value

our portfolio yield the Our quarter. X.X% on credit weighted for was average

As seen of XX, we the leverage as LTM on of at end operating the Slide quarter. X.X% maintained

We the coming or approach in are to targeting leverage better operating X% quarters.

NAV share XX, the XX, per $XX.XX to this the from NAV $XX.XX Turning $X.XX shareholders company's decrease was September to share was as as was XX. XXXX. UTI that balance. distributed The supplemental our at per XXXX, Slide share quarter of driver The December compared of dividend per to

we As denoted subsidiary, we have as SBIC forward our you within calls, discussed originate to continue which on will prior see SBIC-X. going assets

also as initial commitment of commitment the received we which reminder, As one of is million, initial leverage, from our the for to a $XX fund $XX leverage. tier equity is an and SBA fund to have million referred

funded $XX rate at of X.XX%. interest of equity of $XX our the drawn in have capital average and We a capital the commitment fund initial weighted million debt million initial have to million $XX

the and hopeful will We balance quarter. fund cash for have be are report approved tier in which as $XX strong approximately coming with pleased continues that second to leverage are be in end to a days. the leverage, of liquidity Overall, we of of million commitments undrawn applied sheet the $XXX we our million

of maturity structure January XX, debt earliest XXXX, approximately liabilities unsecured, our As XX% and XXXX. were capital our is in of December

debt-to-equity call Our Slide ratio regulatory Bowen the seen at X.XX:X. back will now the leverage, a some I ended to for on final XX, as quarter comments. hand of

Bowen Diehl

to our perform and consistent shareholders with our vision original Southwest we this Michael, today. journey. thank Thanks, for joining and strategy you, everyone, us communicated continues began Capital when well and to we

our shareholders' continues that as all creating to are strategy done that origination forward. about at capability is for a ready the provides our acumen well the and up health senior our lines concludes continuing and investment performance has to cycle. asset going prepared our This sustainable company a debt very open merits environments portfolio, capital investment to continue Operator, good an the Southwest for remarks. of We building of deal excited by demonstrate our at we execute performance the Everyone good us feel for the and stewards capital being throughout team base, us as and to our to team Capital -- dedicated totally deliver Our economic strong stakeholders. outstanding we to value that here long-term Southwest are believe secured Q&A. flexible our of first Capital strategy. job, of our structure lien robust prepares all We

Operator

first Thalmann. [Operator from Mickey Ladenburg with comes Instructions] Scheien question Our

Mickey Schleien

this more to debt passed cost borrowings like borrowers to in Bowen, the we floating meaningfully cost probably year, inputs floors. get their see are also probably we of climb ahead, but inflation going they're going through looking once last see rate year, their saw

your at how cash how to and And you their look test it, you performing XXXX? their service do in ability are see their when about stress portfolio So debt? concerned you flows

Bowen Diehl

coverage I Yes. pretty And with or fixed pretty the servicing getting perspective. how large kind say Thanks Mickey. our vendor's cushions cushions and stress large -- these we underwriting from perspective. original of portfolio for loans question, of we're from a the starts a -- from there's test charge then the would some it across debt

across increase about hear me, And so you to we're With can -- Mickey? the not concerned that the portfolio. respect

Mickey Schleien

you fine. hear I

Bowen Diehl

Okay, fine.

then portfolio cost from big As cost chain cost inflation say being and companies across inputs, the on management And rising far it. big I common as companies increases labor other is from teams of piece yes, theme -- the the we news, reading that part cadence I of supply the know Commodity folks the hear the is are just themselves, a of pace. it. a X most labor, would being is themes as inputs, mean,

inputs, to trend that And to of we to fortunately, as these are so as the year. customers. far they those vast But are majority cost this the far, labor costs able inputs, so and nicely, pass and continue on their growing going businesses think cost is

of they started from service guess portfolio, again, from I a I interest have to across say rate cushion lot loans. happen be rising versus think actually the -- think cash it before it. on how a portfolio, from our of we floating the what across cost rising there's there borrowings originally would how of underwrote leverage just we kind -- the flow There's can't debt. so to -- I'd their the level

Mickey Schleien

driving market the follow-up that, question an hear. upper being appreciate loan My lenders into to capital middle market injected even about potentially as into these syndicated the that good middle That's in impacting trickling How continue that's obviously, market. regards over disintermediate of private feel market amount the -- to the market lower the enormous down There's I that Bowen. market. into spreads the spreads. business? debt and middle in time trend you and And economics do down

Bowen Diehl

Yes.

We bit. being middle lot syndicated middle see to a see the definitely we in a droves. mean market. that's it and I in that continue down little into don't see it It's some, do certainly happening of raised happen. moving funds -- big the the capital But dynamic could we a we So see market

day, end interest net And so margin. look, off the earnings we generate our the of at

difference our and asset asset and operating yield between costs. and financing our our yield And so that's obviously

wanting also market providers leverage the capital middle we capital advantage middle of and so in of market lower being And quantum take -- invest on our side. to the the through

what earnings And at can -- ultimately net our the that, day. margin so that we end good and feel drives our model long that keep the we as about that's very business of as which interest maintained, really

Operator

question comes JMP next Securities. Kevin with Our from Fultz

Kevin Fultz

activity, Clearly, the far activity portfolio last quarter tracking you strong led for a QX quarter to sense are give us as very how well as repayment this growth. so quarter repayment solid was and originations activity? origination which both a Can relative

Bowen Diehl

Yes.

mean, deals. I probably then and that a M&A doing the obviously, M&A if portfolio activity -- have robust So financing leverage that have I out. -- go comment, package versus across we acquisition, an which lower many fund be for this earnings cases, to the yield mean a refinanced our drove or industry then we and/or the many an more have to chance activity. a opportunity -- with, stay and And leverage company primarily the is you'll to large general that quarter comfortable a risk-adjusted leveraged And across if cases we transaction in a clearly it debt-funded a chose that's acquisition, we're it from repayments, we provides perspective. have we come was in very return hear just as -- we the both from -- let just market than December and perspective, from let in

of the big that was a -- in So December flurry quarter. activity

March now -- flurry still December in you flow June it in fourth tell very be year. activity would was is from expect we pace where origination perspective, down and down December I in quarter. deal but it's from still the in our a But would quarter to quarter, from strong, activity is the right long-term So the the that average last a

Michael Sarner

Yes.

is perspective, run I Bowen's point right. think I think from a rate

originate of I million $XX we per in assume quarter going investments. we're $XX to somewhere the think new to million

that or the in repayment and being $X activity funded quarter. those DDTLs our maybe million to delayed of in uptick we each somewhere is to an off loans each $XX seen million our million draw DDTLs $XX million quarter, see have so also $XX We term

So a per run to to as $XX rate. in million net, growth we look general the $XX net see million somewhere quarter of

Bowen Diehl

Yes.

activity repayment down is as our So well.

So right. comments -- and so I are Michael's think

Kevin Fultz

That's floating rate you rate average investments really relating Could And a weighted and floors? what Okay. provide interest helpful. contain the rate percent to sensitivity. for then rate investments interest LIBOR floor floating also question of

Michael Sarner

Yes.

would X% is floor close is between a have points of The X.X% to X%. them. almost on in would be range them floor say I basis XX again, basis. weighted and weighted the point. towards a XXX%, And So all about But at this it's

is bogey. X.X% really So the

Operator

question Hovde Rowe next of Group. comes Bryce Our from

Bryce Rowe

just Maybe, maybe to the up the follow decision ability about to of refinancings on some just Bowen, not to some the wanted or you in you opportunities? of choosing of what's driving the made participate I speak in kind to and not comments having that. deals Can do to participate in

Bowen Diehl

Yes.

or do admittedly invest we in. leverage willing to point, -- XXX -- plus of just Let's LIBOR -- we hypothetical EBITDA. original a year is decide -- well. That's plus-minus, a throw a X.X large acquisition. lend later, business grown at a lend large on risk-adjusted later to more a example, our company let's and So that at the I'll Year to at is different that company, so has an a right? that's whether we're they XXX. points return LIBOR lend bunch acquisition, say, EBITDA And and XXX, better They're years Xx have like willing we a LIBOR, do and because out to Xx example. performed market it's we we LIBOR over at basis later, just do a plus a going diverse Xx reasons, XXX can And them

fine. play a we we've not and XXX, of and company, leverage, is not that bad And risks LIBOR that it the participate. just but in that got it's Xx to At lived out Xx opt leverage that's sometimes, kind seen company

-- the the -- is is So leverage in higher larger that most with -- acquisition, the than company. they're of example higher situation. doing for a and would facility, of we market that an an risk better the lower admittedly is pricing credit time be But would leverage where after appropriate and think again, of the the on and a happening that's going

would So in be just situations, "You have would say, that we in Candidly, of most we know what? situation a where too. these investment, equity

go forward. like we're So

time And On find time. we the equity, credit the to have we in we can somewhere so middle credit returns lower think risk-adjusted love to it. the else." book our market we make on decision that's risk, a But from

Michael Sarner

looking And road, we're also the Bryce. down

about Bowen monitor net I really talked earlier. think tracking we margin, mentioned to XX.X%. that we're Just NII We an make towards of interest certain ROE

looking see terms we're we're at we're when it turnover. also what looking So is of in -- investments, portfolio individual to

we our XX/XX, portfolio XX% of quarter, turnover. saw This

assets, yield. were some we and some so higher-yielding those slightly originated And of lower

leverage portfolio our X.X% to went So from X.X%. down

to yield basis some able over But that to credits. our see when we're So extent, growing an concern into forward. that monitoring certain we looking a were to strategy produce safer fits it dividend on are a make -- going time, these to we're asset-by-asset

Bowen's it. fall beneath And so some from we'll will of the to sense, these risk reward move point, on credits, the if make doesn't threshold. And

Bryce Rowe

equity Understood. to be the of investments just it is to going that And kind and stand-alone that plays then of Or of of business out? in exit opportunistic terms relationship to kind Any kind how a sponsor now? follow-up topic. that rush

Bowen Diehl

Yes.

mean, own firm equity liquidity. that's alongside majority those institutional equity keep private managing I mean vast the -- an investments their I we're in are So mind, of

they the so it buy a company. And they sell company, they and grow

with we so And dynamic. sidesaddle that ride

-- firms PE the companies. those they so payments don't those And get until their obviously, sell carry

them. so they grow to to need And need exit and they

the equity So will, pretty next if of about good firms. small liquidity number you years portfolio over we that that feel alongside private monetizing of curve, those

Bryce Rowe

then kind line. the question Michael, on for comp And of Okay. you a

here in us, around Just thoughts but can the you a helpful? of I give any any accrual of function it a kind getting would that obviously, performance quarter, went for be December assume help up. baked that's

Michael Sarner

Sure. Sure.

above run for it onetime this rate. we tell the So looking holistically, about that million in quarter $X.X our had you, $X was would revenue essentially was for about this quarter, normal at bonus nature. our accrual million quarter in I And

income $XXX,XXX of net onetime $X.XX. income about there's or or essentially, So

tracking our above far the when date we staff. a for target where the the performance for so performance accrue our XXXX, year to we at we're I and bonus the fiscal with So of year did full look think commensurate

Operator

Our next comes B. Securities. Sarkis question with Riley from Sherbetchyan

Sarkis Sherbetchyan

wanted the in opportunities. changed January, of or Just regime. question a the so with in If the field given shift to off opportunities acceleration the in the regarding month potential it's interest start of far the first rate

you can please? If comment on that,

Bowen Diehl

I -- question, your you yes, me, don't know that -- by hear can Sarkis?

Sarkis Sherbetchyan

can you me? hear. Can I hear guys

Bowen Diehl

Yes, we can.

at, that -- the So which as opportunity I question. far the it would know your think as as I deals I don't we're scheme, set, relates looking interest say with rate they've changed the is to

-- drivers the themes opportunities similar I the of and in December market really honestly, of think sales I the mean, seeing kind were very as we're are quarter. in the business that they investment

quarter, the than Just the themes of the December is same. the but quantum activity lower are

question? And interest so I the our activity. seen Fed deal -- don't answered I hope change affecting we your narrative I the haven't rate regime from

Sarkis Sherbetchyan

very cost you we I can SBIC of it. filling touch on Any capital the of And the attractive any to Obviously, on the that capacity glide a helpful. side if or SBA that side? ideas help you. guess of kind the on have business. Got path That's for proposition

Michael Sarner

and expect X/X the get the Yes, facility. a ahead, funded looking deals you, we other revolving ING probably SBIC ING to through tell X/X of see being and maybe credit sure. would would the equity. I through

following week. somewhere probably to million where place probably debt. of have, would this million $XX our going it. I’d receive we for next $XX We're XX of XX $XXX the today, in And we the application likely to drawn leverage think in expect So the we to have as $XX I drawn million to million is XX/XX, months, had

Sarkis Sherbetchyan

the me. to Clearly, reflect and business like final one seems one earnings just that. dividend, raising march higher, the starting you're the And power Great. is of for

pace to I of commentary to reasonable think net the power at forward same and of continuing, of on kind provided as you based demonstrated? that at the think going originations dividend kind we continue look is higher the for you walk kind earnings you've the it

Michael Sarner

X next the is do say to the the rate dividend answer be So also we in that dividend. Fed still should hikes, will. the grow. increasing will level increases to price NII the I and We question some as anticipate is or X announcing with the hikes LIBOR/SOFR would of compression year,

once next we see get the XX you'll points hikes, -- I basis expansion. significant those then think beyond of

we're stone, So maybe X here, in -- potentially saying but increases that Though the dividend be much not as that hope. would that from year. setting for the maybe as

Bowen Diehl

say rate would do the well as improved to a leverage of operating the layering of as the I are Yes. SBIC. but increases in headwind, effect with capital had tailwinds cost

So you gives and some takes. have

some So all as got We've tailwinds it's negative. not well.

managing So those the we're between kind of balance dynamics. X

Michael Sarner

Right. -- – grow We fixed, currently, we liabilities have gets that will and think are we FDIC drawn. XX% our the as

And comment Bowen's correct. so absolutely, is

Operator

Robert from question James. comes with next Our Dodd Raymond

Robert Dodd

Congratulations capital and on the quarter, both earnings capital -- net deployed.

million. But really First, nonaccruals a question in good on is last $XX credit, quarter, I'm not credit at -- your shape.

This it's same the $XX number. quarter, million, that

$X million restructuring. came the off You said of because

came was Can assets. anything That the than the nonaccrual $X there of the nonaccruals. less one write-downs on else X only leaves that I with the I $X other million which a course, that? other in We with you've million from think category in is. know another your that Or affiliate care? going was investment fully and health got investment, on handful is which assume

Michael Sarner

Yes. companies a in It the was reduction nonaccrual. on that are of one

been what on X coming -- depreciation of nonaccrual on the the other of nonaccrual. and companies you off So mentioned the had the core significant

Robert Dodd

Yes. Got it.

I'm -- some costs transportation I pricing lot probably labor environment, mean, segments in a think concentration, worried and where sectors given within of your power up. wrong? your like, up I transportation be the Going where versus constraints sector they back of mean, in I of the to lot like the kind a It's and there maybe I in more the in logistics, but but portfolio. portfolio, up, this this others logistics less exercise of the lot you things clearly and power portfolio -- sectors pricing don't rates are have industry incrementally power question that. power worried, Are have of environment, commodities the guess, X% any I'd pricing placing whether a in and but got you're any -- about of can

Bowen Diehl

interesting That's Yes. an question.

all say a the are a your the -- certain those have to competitors company sector, different I pricing would is industries. I do the to pass range if competitors that happening it's inputs on news when slight there's costs in good sense power your your think reserves of all also easier in the of these to same across to customers, good thing. I news of guess

certainly guess, defending So I I Health Consumer day. think have deterioration of these companies the might major, against or certainly, benefit different portfolio it, a a margin one. transportation, a would dynamic. logistics so call benefit the end care products, that's inflation your be been But retail at right? obviously it's sector, But -- another across take easier industry of right? you varying dynamic, think sectors, when then any customer, it's when the to is the levels. to that pass I costs have those again, And on across entire in

Robert Dodd

I more, Yes. And Understood. more, if can. one

kind what's do using working give at the you draws et DDPL you -- the tell term being borrowers cetera, have much they to us identify or add-on support color accessed rate. a versus that whatever Can have got on you data? or Obviously, maybe, if companies for are qualitatively for are that of can any driving or I growth you are loans before Can acquisitions? to you of mentioned they how them think, have capital? greater delayed But can and that. Michael, draw got milestones, that hit

Bowen Diehl

companies acquisition strategies, of maybe strong lower and negotiated -- minority really payments, slightly performance. the of founders DDTLs our them being and on price the purchase majority -- the paid -- earn-out upside Robert, the with risk significant the take that are sponsors but a Yes. for bought minority increased to like for founder for where get

and million $X obviously, million right? be so $X fund, have We them those to leverage doing to is hit contribution et on And whatever, falters won't right? cetera, draw earn-out restrictions economy that equity by owners. that vast paid, earn-out want So business the If of going the fund. in on do equity those very the the to million means paid. is well. earn-outs want from definition, be how majority cases we levels, earn-outs, or might $XX specific Because delayed those we

the have basis. And vast But company-by-company -- a -- strategy. those we I also majority of the is mean, So the restrictions strong acquisition on time

Michael Sarner

an monitor capital -- $XX -- of during uptick And guess, the of we we facilities. also our it all are we've we would revolvers maybe are on We monitor these wave back March we've where COVID, and those only get down. and saw -- of And first revolver, closely And draw of which been April the and from about revolvers balance, have XX% million side, the seen pay net draws DDTL DDTLs just, that X. then in have, then the these drawn. XXXX. dates have historically, of XXXX revolvers. utilization their seen million our expiration The seen portfolio think, revolvers X/X that of side, like the was historical, XXXX I in time I $XXX from -- we've we -- We've done and

And of -- level for certain planning for we that assume in and so our to draws we're we this that planning capital our make monitor are portfolio.

Robert Dodd

fact many of be appreciation, trigger doing to LIBOR, given which the be to so you've are -- historic et clarify plenty earn-outs. which one, got et cetera, cetera, equity quite the planning, capital the assets of amount The worried last Just So will that. right? I'm about seem DDTLs not seeing with can more well, average and in that the assuming capital, currently we're sorry drawn over you

For to than DDTLs proportion throughput? example, give that going are you of average greater assuming are

Michael Sarner

half get earn-outs LIBOR. that assuming of drawn then and less acquisitions Bowen noted, for growth, more and these as for and We're DDTLs

Operator

back Q&A Bowen to conference to comments. closing portion. like I'd for hand the over the Diehl concludes This

Bowen Diehl

Appreciate Thanks, Thanks, as call. good and joining for everybody, always. give continuing to to And great rest move operator. quarterly look have a the the the week. forward updates questions of we as forward you we

Operator

you thank concludes gentlemen, participation. and This conference Ladies for the your call.

have day. wonderful You may now disconnect. a Everyone,

Capital Southwest (CSWC) 1 Feb 222022 Q3 Earnings call transcript