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Capital Southwest (CSWC)

Capital Southwest Corporation is a Dallas, Texas-based, internally managed Business Development Company, with approximately $313 million in net assets as of December 31, 2020. Capital Southwest is a middle-market lending firm focused on supporting the acquisition and growth of middle market businesses and makes investments ranging from $5 to $20 million in securities across the capital structure, including first lien, unitranche, second lien, subordinated debt, and non-control equity co-investments. As a public company with a permanent capital base, Capital Southwest has the flexibility to be creative in its financing solutions and to invest to support the growth of its portfolio companies over long periods of time.

Company profile

Ticker
CSWC
Exchange
CEO
Bowen Diehl
Employees
Incorporated
Location
Fiscal year end
SEC CIK
Subsidiaries
I-45 SLF LLC • Capital Southwest Equity Investments, Inc. • Capital Southwest SBIC I, LP • Capital Southwest SBIC I GP, LLC ...
IRS number
751072796

CSWC stock data

Analyst ratings and price targets

Last 3 months

Calendar

2 Aug 22
12 Aug 22
31 Mar 23
Quarter (USD) Jun 22 Mar 22 Dec 21 Sep 21
Revenue
Cost of revenue
Operating income
Operating margin
Net income
Net profit margin
Cash on hand
Change in cash
Diluted EPS
Annual (USD) Mar 22 Mar 21 Mar 20 Mar 19
Revenue
Cost of revenue
Operating income
Operating margin
Net income
Net profit margin
Cash on hand
Change in cash
Diluted EPS
Date Owner Security Transaction Code Indirect 10b5-1 $Price #Shares $Value #Remaining
22 Jun 22 Ramona Lynn Rogers-Windsor Common Stock Buy Acquire P No No 18.5699 850 15.78K 4,129.651
10 Jun 22 Joshua S. Weinstein Common Stock Payment of exercise Dispose F No No 21.62 4,335 93.72K 177,703
10 Jun 22 Joshua S. Weinstein Common Stock Grant Acquire A No No 0 37,473 0 182,038
10 Jun 22 Michael Scott Sarner Common Stock Payment of exercise Dispose F No No 21.62 7,945 171.77K 313,362.704
10 Jun 22 Michael Scott Sarner Common Stock Grant Acquire A No No 0 43,990 0 321,307.704
10 Jun 22 Diehl Bowen S Common Stock Payment of exercise Dispose F No No 21.62 11,046 238.81K 190,258
10 Jun 22 Diehl Bowen S Common Stock Grant Acquire A No No 0 63,397 0 201,304
30 Mar 22 Ramona Lynn Rogers-Windsor Common Stock Buy Acquire P No No 23.8147 750 17.86K 3,229.966
22.7% owned by funds/institutions
13F holders Current Prev Q Change
Total holders 89 92 -3.3%
Opened positions 12 19 -36.8%
Closed positions 15 12 +25.0%
Increased positions 29 24 +20.8%
Reduced positions 25 26 -3.8%
13F shares Current Prev Q Change
Total value 148.6M 236.71M -37.2%
Total shares 6.26M 5.87M +6.7%
Total puts 41.8K 53.7K -22.2%
Total calls 70.5K 62.6K +12.6%
Total put/call ratio 0.6 0.9 -30.9%
Largest owners Shares Value Change
Sanders Morris Harris 737.66K $17.51M -0.5%
Zuckerman Investment 602.12K $14.29M -0.9%
Van Eck Associates 592.97K $14.07M +56.4%
Punch & Associates Investment Management 516.62K $12.26M +2.9%
First Manhattan 436.47K $10.36M +0.0%
Sound Income Strategies 373.8K $8.87M -0.3%
Advisors Asset Management 196.42K $4.66M +5.7%
Two Sigma Advisers 179.3K $4.26M -0.1%
Two Sigma Investments 169.32K $4.02M -7.1%
Millennium Management 145.18K $3.45M NEW
Largest transactions Shares Bought/sold Change
Van Eck Associates 592.97K +213.94K +56.4%
Millennium Management 145.18K +145.18K NEW
Healthcare Of Ontario Pension Plan Trust Fund 132.9K +132.9K NEW
MKFCF Mackenzie Financial 0 -65.3K EXIT
ARES Ares Management 0 -63.1K EXIT
Quadrature Capital 31.55K -57K -64.4%
First Republic Investment Management 45.99K +45.99K NEW
D. E. Shaw & Co. 50.65K +41.51K +453.9%
BAC Bank Of America 6.42K -40.69K -86.4%
Marshall Wace 85.56K +33.25K +63.6%

Financial report summary

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Risks
  • Item 1A. Risk Factors
  • RISKS RELATED TO OUR BUSINESS AND STRUCTURE
  • Our financial condition and results of operations will depend on our ability to effectively allocate and manage capital.
  • Any unrealized losses we experience may be an indication of future realized losses, which could reduce our income available to make distributions.
  • Our business model depends to a significant extent upon strong referral relationships. Our inability to develop or maintain these relationships, as well as the potential failure of these relationships to generate investment opportunities, could adversely affect our business.
  • All of our assets are subject to security interests under our secured Credit Facility and if we default on our obligations under the Credit Facility, we may suffer adverse consequences, including foreclosure on our assets.
  • In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, that, if not complied with, could accelerate our repayment obligations under the Credit Facility—thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.
  • Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.
  • If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy.
  • A failure on our part to maintain our status as a BDC would significantly reduce our operating flexibility.
  • Even if the Company qualifies as a regulated investment company, it may face tax liabilities that reduce its cash flow.
  • Our portfolio investments generally are not publicly traded. As a result, the fair value of these investments may not be readily determinable and will be recorded at fair value as determined in good faith and under the direction of our Board of Directors. As a result, there may be uncertainty as to the value of our portfolio investments.
  • We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and results of operations.
  • Events outside of our control, such as the COVID-19 pandemic, could negatively affect our portfolio companies and our results of our operations and financial condition.
  • Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies, which may, in turn, impact the valuation of such portfolio companies.
  • Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.
  • The effect of global climate change may impact the operations of our portfolio companies, which may, in turn, impact the valuation of such portfolio companies.
  • Environmental, social and governance factors may adversely affect our business or cause us to alter our business strategy.
  • Downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition, and results of operations.
  • Changes in the laws or regulations governing our business or the operations of our portfolio companies, changes in the interpretations thereof or of newly enacted laws or regulations, and any failure by us to comply with these laws or regulations could require changes to certain business practices of us or our portfolio companies, negatively affect the
  • profitability of the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.
  • Our success depends on attracting and retaining qualified personnel in a competitive environment.
  • Effective April 25, 2019, our asset coverage requirement was reduced from 200% to 150%, which could increase the risk of investing in the Company.
  • We expend significant financial and other resources to comply with the requirements of being a public company.
  • Our ability to enter into transactions with our affiliates is restricted.
  • Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.
  • SBIC I has an SBIC license and is subject to SBA regulations, and any failure to comply with SBA regulations could have an adverse effect on our operations.
  • Shareholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or issue securities to convert to shares of our common stock.
  • Legislative or other actions relating to taxes could have a negative effect on us.
  • We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our shareholders.
  • Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm our business, operating results and financial condition.
  • Our business and operations may be negatively affected if we become subject to securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of our investment strategy and impact our stock price.
  • RISKS RELATED TO OUR INVESTMENTS
  • Our investments in portfolio companies involve a number of significant risks.
  • The lack of liquidity in our investments may adversely affect our business.
  • Defaults by our portfolio companies could harm our operating results.
  • Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
  • Changes in interest rates may affect our cost of capital, the value of investments and net investment income.
  • There may be circumstances in which our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
  • As a RIC, we may have certain regulatory restrictions that could preclude us from making additional investments in our portfolio companies.
  • The interest rates of our loans to our portfolio companies, any LIBOR-linked securities, and other financial obligations that extend beyond 2021 might be subject to change based on recent regulatory changes, including the decommissioning of LIBOR.
  • We generally will not control our portfolio companies.
  • Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. Further, in cases where we invest in unsecured subordinated debt, we would not have any lien on the collateral. In each of these cases, if there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
  • Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in those companies.
  • Changes in healthcare laws and other regulations, or the enforcement or interpretation of such laws or regulations, applicable to some of our portfolio companies’ businesses may constrain their ability to offer their products and services.
  • RISKS RELATED TO OUR SECURITIES
  • Investing in shares of our common stock may involve an above average degree of risk.
  • Shares of closed-end investment companies, including BDCs, may trade at a discount to their net asset value.
  • The January 2026 Notes and the October 2026 Notes are unsecured and therefore are effectively subordinated to any existing and future secured indebtedness, including indebtedness under our Credit Facility.
  • The indenture under which the January 2026 Notes and the October 2026 Notes were issued contain limited protection for holders of the January 2026 Notes and the October 2026 Notes.
  • We may not be able to repurchase the January 2026 Notes and the October 2026 Notes upon a Change of Control Repurchase Event.
  • If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the January 2026 Notes and the October 2026 Notes.
  • We currently intend to pay quarterly dividends. However, in the future we may not pay any dividends depending on a variety of factors.
  • Terms relating to redemption may materially adversely affect the return on our debt securities.
  • We currently pay dividends in cash. However, in the future we may choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive.
  • We may not be able to invest a significant portion of the net proceeds from future capital raises on acceptable terms, which could harm our financial condition and operating results.
  • Provisions of the Texas law and our charter could deter takeover attempts and have an adverse impact on the price of our common stock.
Management Discussion
  • Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
  • The information contained herein may contain “forward-looking statements” based on our current expectations, assumptions and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “may,” “predict,” “will,” “continue,” “likely,” “would,” “could,” “should,” “expect,” “anticipate,” “potential,” “estimate,” “indicate,” “seek,” “believe,” “target,” “intend,” “plan,” or “project” and other similar expressions identify forward-looking statements. These risks include risks related to changes in the markets in which the Company invests; changes in the financial and lending markets; interest rate volatility, including the decommissioning of LIBOR and rising interest rates; the impact of supply chain constraints and labor difficulties on our portfolio companies and the global economy; the elevated level of inflation, and its impact on our portfolio companies and on the industries in which we invest; regulatory changes; tax treatment and general economic and business conditions; our ability to operate our wholly owned subsidiary, Capital Southwest SBIC I, LP, as a small business investment company; and uncertainties associated with the continued impact from the COVID-19 pandemic and new variants of COVID-19, including its impact on the global and U.S. capital markets and the global and U.S. economy, the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak; the effect of the COVID-19 pandemic on our business prospects and the operational and financial performance of our portfolio companies, including our ability and their ability to achieve their respective objectives, and the effects of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results could differ materially from those we express in the forward-looking statements as a result of several factors more fully described in “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 and in this Quarterly Report on Form 10-Q. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. You should read the following discussion in conjunction with the consolidated financial statements and related footnotes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022. We undertake no obligation to update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as required by law.
  • We are an internally managed closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. We specialize in providing customized debt and equity financing to LMM companies and debt capital to UMM companies in a broad range of investment segments located primarily in the United States. Our investment objective is to produce attractive risk-adjusted returns by generating current income from our debt investments and capital appreciation from our equity and equity related investments. Our investment strategy is to partner with business owners, management teams and financial sponsors to provide flexible financing solutions to fund growth, changes of control, or other corporate events. We invest primarily in senior debt securities, secured by security interests in portfolio company assets. We also invest in equity interests in our portfolio companies alongside our debt securities.

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