CSWC Capital Southwest Corp

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 maintain or develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business.
• In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, which, if not complied with, could accelerate our repayment obligations under the Credit Facility or the December 2022 Notes, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.
• 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.
• 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 investment portfolio is and will continue to be recorded at fair value. Our Board of Directors has final responsibility for overseeing, reviewing and approving, in good faith, our fair value determination. As a result of recording our investments at fair value, there is and will continue to be subjectivity as to the value of our portfolio investments.
• The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States, which may have a negative impact on our business and operations.
• U.S. and worldwide economic, political, regulatory and financial conditions may adversely affect our business, results of operations and financial condition , including our revenue growth and profitability.
• Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could negatively affect the profitability of our operations.
• Adverse market and economic conditions could cause harm to our operating results.
• 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.
• Efforts to comply with the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affect us.
• 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.
• 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.
• We cannot predict how tax reform legislation will affect us, our investments, or our shareholders, and any such legislation could adversely affect our business.
• 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
• 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.
• Changes relating to LIBOR may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio.
• 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.
• 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.
• We currently intend to pay quarterly dividends. However, in the future we may not pay any dividends depending on a variety of factors.
• 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.
• Terms relating to redemption may materially adversely affect the return on the December 2022 Notes.
• Provisions of the Texas law and our charter could deter takeover attempts and have an adverse impact on the price of our common stock.