Capital Southwest Corporation (“Capital Southwest,” “CSWC” or the
“Company”) (Nasdaq: CSWC), an internally managed business
development company focused on providing flexible financing
solutions to support the acquisition and growth of middle market
businesses, today announced its financial results for the first
fiscal quarter ended June 30, 2020.
First Quarter Fiscal Year 2021 Financial
Highlights
• Total Investment Portfolio: $587.2
million
- Credit Portfolio of $487.2 million:• 90% 1st Lien Senior
Secured Debt• $28.8 million in new committed credit
investments• Weighted Average Yield on Debt Investments:
10.1%• No new credit investments placed on non-accrual during
the quarter - Three Upper Middle Market 1st Lien Senior
Secured Debt investments currently on non-accrual with a fair value
of $11.3 million, representing 1.9% of the total investment
portfolio
- Equity Portfolio of $43.2 million, excluding investment in I-45
Senior Loan Fund ("I-45 SLF")• $1.3 million in new committed
equity co-investments
- CSWC Investment in I-45 SLF of $56.8 million at fair
value• I-45 SLF portfolio of $172.6 million - Portfolio
consists of 42 issuers: 96% 1st Lien Debt and 4% 2nd Lien
Debt• $107 million of debt outstanding at I-45 SLF as of June
30, 2020 - I-45 SLF fund leverage of 1.51x debt to equity at
fair value at quarter end
- I-45 SLF paid a $1.8 million quarterly dividend to CSWC, an
annualized yield of 12.5%
• Pre-Tax Net Investment Income: $7.2
million, or $0.40 per weighted average diluted share
• Dividends: Paid $0.41 per share Regular
Dividend, $0.10 per share Supplemental Dividend
- 102% LTM Pre-Tax NII Regular Dividend Coverage
- Total Dividends for the quarter ended June 30, 2020 of $0.51
per share
• Net Realized and Unrealized Portfolio
Appreciation: $2.1 million
- $4.7 million of net appreciation related to the upper middle
market portfolio, including I-45 SLF
- $2.6 million of net depreciation related to the lower middle
market portfolio
• Balance Sheet:
- Cash and Cash Equivalents: $15.0
million
- Total Net Assets: $277.9
million
- Net Asset Value (“NAV”) per Share:
$14.95
In commenting on the Company's results, Bowen
Diehl, President and Chief Executive Officer, stated, “This quarter
we started to see some stabilization in both the Upper and Lower
Middle Market portfolios. We saw very few draws on revolver
commitments to our portfolio companies, several repayments of
previous revolver draws associated with the shelter in place
directives, limited amendments and waivers in the portfolio and
recorded net appreciation of $2.1 million this quarter. From an
investment rating perspective, our portfolio experienced two
upgrades and zero downgrades, as well as no new non-accruing loans
recorded during the quarter. We recently announced a $0.51 per
share dividend for the quarter ended September 30, 2020, which was
flat from the prior quarter. We continued to be active in the
capital markets, having raised $5.7 million in equity capital under
our existing at-the-market program in June. We were also able to
significantly broaden our sources of capital and strengthen our
balance sheet over the long term, having received a 'green light'
letter from the U.S. Small Business Administration. We are
hopeful to have our formal license application reviewed and
approved by the end of this calendar year, which will allow us to
access $175 million in cost effective debt capital to deploy in our
lower middle market strategy. This is clearly a major
milestone for Capital Southwest and one that we are very proud to
have been able to accomplish.”
First Quarter Fiscal Year Investment
Activities
During the quarter ended June 30, 2020, the
Company originated investments in two new portfolio companies and
five follow-on investments in existing portfolio companies, all
totaling $30.0 million in capital commitments. New portfolio
company investment transactions that occurred during the quarter
ended June 30, 2020 are summarized as follows:
Central Medical Supply LLC, $7.5 million
1st Lien Senior Secured Debt, $1.5 million Revolving Loan, $1.5
million Delayed Draw Capex Term Loan, $0.9 million Preferred
Equity: Central Medical Supply Group is a provider of
outsourced equipment management services for the hospice market and
other healthcare providers.
Coastal Television Broadcasting Holdings
LLC, $8.9 million 1st Lien Senior Secured Debt, $0.5 million
Revolving Loan: Coastal Television Broadcasting Company is
a television broadcasting company that engages in the operating of
broadcasting stations in duopoly or triopoly small- to mid-size
markets, primarily in Alaska and Wyoming.
First Fiscal Quarter 2021 Operating
Results
For the quarter ended June 30, 2020, Capital
Southwest reported total investment income of $15.2 million,
compared to $15.0 million in the prior quarter. The increase in
investment income was primarily attributable to amendment fees
received from portfolio companies, partially offset by a decrease
in dividend income from I-45 SLF.
For the quarter ended June 30, 2020, total
operating expenses (excluding interest expense) were $3.7 million,
compared to $3.5 million in the prior quarter. The increase in
expenses was primarily due to an increase in the cash compensation
accrual in the current quarter.
For the quarter ended June 30, 2020, interest
expense was $4.3 million as compared to $4.2 million in the prior
quarter. The increase was due to an increase in the average debt
outstanding on the Credit Facility (as defined below) offset by a
drop in LIBOR.
For the quarter ended June 30, 2020, total
pre-tax net investment income was $7.2 million, compared to $7.4
million in the prior quarter.
For the quarter ended June 30, 2020, tax expense
remained flat at $0.4 million.
During the quarter ended June 30, 2020, Capital
Southwest recorded total net realized and unrealized gains on
investments of $2.1 million, compared to total net realized and
unrealized losses on investments of $31.9 million in the prior
quarter. For the quarter ended June 30, 2020, this included total
net realized losses on investments of $5.5 million and net
unrealized appreciation on investments of $7.6 million, of which
$5.4 million was the reversal of net unrealized depreciation
recognized in prior periods due to realized losses noted
above. The net increase in net assets resulting from
operations was $8.9 million for the quarter, compared to a net
decrease of $25.0 million in the prior quarter.
The Company’s NAV at June 30, 2020 was $14.95
per share, as compared to $15.13 at March 31, 2020. The
decrease in NAV per share from the prior quarter is due to the
issuance of restricted stock awards.
Liquidity and Capital
Resources
At June 30, 2020, Capital Southwest had
approximately $15.0 million in unrestricted cash and money market
balances, $182.0 million of total debt outstanding on the Credit
Facility, $75.9 million, net of unamortized debt issuance costs, of
the December 2022 Notes outstanding, and $73.6 million, net of
unamortized debt issuance costs, of the October 2024 Notes
outstanding. As of June 30, 2020, Capital Southwest had $139.6
million in available borrowings under the Credit Facility. The debt
to equity ratio at the end of the quarter was 1.19 to 1.
In September 2019, the Company issued $65.0
million in aggregate principal amount of 5.375% Notes due 2024 (the
“Existing October 2024 Notes”). On October 8, 2019, the Company
issued an additional $10.0 million in aggregate principal amount of
the October 2024 Notes (the "Additional October 2024 Notes"
together with the Existing October 2024 Notes, the "October 2024
Notes"). The total net proceeds from the offering of the
October 2024 Notes was $73.5 million, before offering expenses
payable by us. The October 2024 Notes mature on October 1, 2024 and
may be redeemed in whole or in part at any time prior to July 1,
2024, at par plus a “make-whole” premium, and thereafter at par.
The October 2024 Notes bear interest at a rate of 5.375% per year,
payable semi-annually on April 1 and October 1 of each year,
beginning on April 1, 2020.
In December 2018, the Company entered into the
Amended and Restated Senior Secured Revolving Credit Agreement (the
"Amended and Restated Agreement"), and a related Amended and
Restated Guarantee, Pledge and Security Agreement, to amend and
restate its Senior Secured Revolving Credit Facility (the "Credit
Facility"). On May 23, 2019, the Company entered into an
Incremental Assumption Agreement, which increased the total
commitments under the Credit Facility by $25 million. The
increase was executed under the accordion feature of the Credit
Facility and increased total commitments from $270 million to
$295 million. On March 19, 2020, CSWC entered into an Incremental
Assumption Agreement, which increased the total commitments under
the accordion feature of the Credit Facility by $30 million,
increasing total commitments from $295 million to $325 million.
On March 4, 2019, the Company entered into
separate equity distribution agreements with certain sales agents
through which it may offer and sell, from time to time, shares of
its common stock having an aggregate offering price of up
to $50,000,000 (the "Equity ATM Program"). On February 4,
2020, the Company (i) increased the maximum amount of shares of its
common stock to be sold through the Equity ATM Program to
$100,000,000 from $50,000,000 and (ii) added two additional sales
agents to the Equity ATM Program. During the quarter ended June 30,
2020, the Company sold 373,177 shares of its common stock under the
Equity ATM Program at a weighted-average price of $15.38 per share,
raising $5.7 million of gross proceeds. Net proceeds were $5.6
million after commissions to the sales agents on shares sold.
Cumulative to date, the Company has sold 1,868,265 shares of its
common stock under the Equity ATM Program at a weighted-average
price of $20.41, raising $38.1 million of gross proceeds. Net
proceeds were $37.4 million after commissions to the sales agents
on shares sold. As of June 30, 2020, the Company has $61.9 million
available under the Equity ATM Program.
Additionally, I-45 SLF has total commitments
outstanding of $150 million from a group of four bank lenders in
its Deutsche Bank led credit facility, which is scheduled to mature
in July 2022. As of June 30, 2020, I-45 SLF had $107 million in
borrowings outstanding under its credit facility.
Share Repurchase Program
On January 25, 2016, Capital Southwest announced
that its Board of Directors authorized the repurchase of up to
$10.0 million of its common stock at prices below the Company’s net
asset value per share as reported in its most recent financial
statements. The Board authorized the share repurchase program
because it believes that the Company’s common stock may be
undervalued from time to time due to market volatility.
On March 26, 2020, the aggregate amount of the
Company’s common stock purchased (inclusive of commission fees)
pursuant to the share repurchase agreement met the threshold set
forth in the share repurchase agreement and, as a result, the
Company ceased purchasing common stock under the share repurchase
program on such date. Cumulative to date, the Company has
repurchased a total of 840,543 shares at an average price of $11.85
per share, including commissions paid. Accordingly, during the
quarter ended June 30, 2020, the Company did not repurchase any
shares of the Company's common stock under the share repurchase
program.
Declared Dividend of $0.51 Per Share for
Quarter Ended September 30, 2020
On May 28, 2020, the Board declared total
dividends of $0.51 per share for the quarter ended September 30,
2020, comprised of a Regular Dividend of $0.41 per share and a
Supplemental Dividend of $0.10 per share.
The Company's dividend will be payable as follows:
September 30, 2020 Dividend |
|
|
|
Amount Per Share:Ex-Dividend Date:Record Date:Payment Date: |
|
$0.51September 14, 2020September 15, 2020September 30, 2020 |
|
|
|
When declaring dividends, the Board reviews estimates of taxable
income available for distribution, which may differ from net
investment income under generally accepted accounting principles.
The final determination of taxable income for each year, as well as
the tax attributes for dividends in such year, will be made after
the close of the tax year.
Capital Southwest maintains a dividend
reinvestment plan ("DRIP") that provides for the reinvestment of
dividends on behalf of its registered stockholders who hold their
shares with Capital Southwest’s transfer agent and
registrar, American Stock Transfer and Trust Company.
Under the DRIP, if the Company declares a dividend, registered
stockholders who have opted into the DRIP by the dividend record
date will have their dividend automatically reinvested into
additional shares of Capital Southwest common
stock.
First Quarter 2021 Earnings Results Conference Call and
Webcast
Capital Southwest has scheduled a conference
call on Tuesday, August 4, 2020, at 11:00 a.m. Eastern Time to
discuss the first quarter 2021 financial results. You may
access the call by dialing (866) 502-8274 and using the Conference
ID 3599199 at least 10 minutes before the call. The call can
also be accessed using the Investor Relations section of Capital
Southwest's website at www.capitalsouthwest.com, or by using
http://edge.media-server.com/mmc/p/irm7dmom.
A telephonic replay will be available through
August 11, 2020 by dialing (855) 859-2056 and using the Conference
ID 3599199. An audio archive of the conference call will also
be available on the Investor Relations section of Capital
Southwest’s website.
For a more detailed discussion of the financial
and other information included in this press release, please refer
to the Capital Southwest Form 10-Q for the period ended June 30,
2020 to be filed with the Securities and Exchange Commission and
Capital Southwest’s First Fiscal Quarter 2021 Earnings Presentation
to be posted on the Investor Relations section of Capital
Southwest’s website at www.capitalsouthwest.com.
About Capital Southwest
Capital Southwest Corporation (Nasdaq: CSWC) is
a Dallas, Texas-based, internally managed business development
company with approximately $278 million in net assets as of June
30, 2020. Capital Southwest is a middle market lending firm focused
on supporting the acquisition and growth of middle market
businesses with $5 million to $25 million investments
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.
Forward-Looking Statements
This press release contains historical
information and forward-looking statements with respect to the
business and investments of Capital Southwest. Forward-looking
statements are statements that are not historical statements and
can often be identified by words such as "will," "believe,"
"expect" and similar expressions and variations or negatives of
these words. These statements are based on management's current
expectations, assumptions and beliefs. They are not guarantees of
future results and are subject to numerous risks, uncertainties and
assumptions that could cause actual results to differ materially
from those expressed in any forward-looking statement. These risks
include risks related to: whether the SBA ultimately issues the
SBIC license and the timing thereof; changes in the markets in
which Capital Southwest invests; changes in the financial, capital,
and lending markets; regulatory changes; tax treatment and general
economic and business conditions; and uncertainties associated with
the impact from the COVID-19 pandemic, 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.
Readers should not place undue reliance on any
forward-looking statements and are encouraged to review Capital
Southwest's Annual Report on Form 10-K for the year ended March 31,
2020 and subsequent filings, including the "Risk Factors" sections
therein, with the Securities and Exchange Commission for a more
complete discussion of the risks and other factors that could
affect any forward-looking statements. Except as required by the
federal securities laws, Capital Southwest does not undertake any
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events,
changing circumstances or any other reason after the date of this
press release.
Investor Relations Contact:
Michael S. Sarner, Chief Financial Officer214-884-3829
CAPITAL SOUTHWEST CORPORATION AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES |
(In thousands, except shares and per share
data) |
|
|
|
|
|
June 30, |
|
March 31, |
|
2020 |
|
2020 |
|
(Unaudited) |
|
|
Assets |
|
|
|
Investments at fair
value: |
|
|
|
Non-control/Non-affiliate investments (Cost: $434,664 and $436,463,
respectively) |
$ |
426,386 |
|
|
$ |
421,280 |
|
Affiliate investments (Cost: $109,701 and $94,724,
respectively) |
104,041 |
|
|
92,032 |
|
Control investments (Cost: $80,800 and $68,000, respectively) |
56,751 |
|
|
39,760 |
|
Total investments (Cost: $625,165 and $599,187, respectively) |
587,178 |
|
|
553,072 |
|
Cash and cash equivalents |
14,986 |
|
|
13,744 |
|
Receivables: |
|
|
|
Dividends and interest |
9,927 |
|
|
10,389 |
|
Escrow |
1,150 |
|
|
1,643 |
|
Other |
203 |
|
|
51 |
|
Income tax receivable |
347 |
|
|
147 |
|
Deferred tax asset |
1,298 |
|
|
1,402 |
|
Debt issuance costs (net of
accumulated amortization of $2,932 and $2,720, respectively) |
2,768 |
|
|
2,980 |
|
Other assets |
1,239 |
|
|
1,531 |
|
Total assets |
$ |
619,096 |
|
|
$ |
584,959 |
|
|
|
|
|
Liabilities |
|
|
|
December 2022 Notes (Par
value: $77,136 and $77,136, respectively) |
$ |
75,936 |
|
|
$ |
75,812 |
|
October 2024 Notes (Par value:
$75,000 and $75,000, respectively) |
73,575 |
|
|
73,484 |
|
Credit facility |
182,000 |
|
|
154,000 |
|
Other liabilities |
4,688 |
|
|
4,883 |
|
Accrued restoration plan
liability |
3,047 |
|
|
3,082 |
|
Income tax payable |
467 |
|
|
513 |
|
Deferred tax liability |
1,524 |
|
|
963 |
|
Total liabilities |
341,237 |
|
|
312,737 |
|
|
|
|
|
Commitments and
contingencies (Note 10) |
|
|
|
|
|
|
|
Net
Assets |
|
|
|
Common stock, $0.25 par value:
authorized, 40,000,000 shares; issued, 20,927,652 shares at June
30, 2020 and 20,337,610 shares at March 31, 2020 |
5,232 |
|
|
5,085 |
|
Additional paid-in
capital |
316,939 |
|
|
310,846 |
|
Total distributable
earnings |
(20,375 |
) |
|
(19,772 |
) |
Treasury stock - at cost,
2,339,512 shares |
(23,937 |
) |
|
(23,937 |
) |
Total net assets |
277,859 |
|
|
272,222 |
|
Total liabilities and net
assets |
$ |
619,096 |
|
|
$ |
584,959 |
|
Net asset value per share
(18,588,140 shares outstanding at June 30, 2020 and 17,998,098
shares outstanding at March 31, 2020) |
$ |
14.95 |
|
|
$ |
15.13 |
|
|
|
|
|
|
|
|
|
CAPITAL SOUTHWEST CORPORATION AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited) |
(In thousands, except shares and per share data) |
|
|
|
|
|
Three Months Ended |
|
June 30, |
|
2020 |
|
2019 |
Investment
income: |
|
|
|
Interest income: |
|
|
|
Non-control/Non-affiliate investments |
$ |
10,069 |
|
|
$ |
9,031 |
|
Affiliate investments |
2,576 |
|
|
2,050 |
|
Control investments |
— |
|
|
265 |
|
Dividend income: |
|
|
|
Non-control/Non-affiliate investments |
183 |
|
|
87 |
|
Affiliate investments |
— |
|
|
19 |
|
Control investments |
1,774 |
|
|
3,913 |
|
Interest income from cash and
cash equivalents |
3 |
|
|
16 |
|
Fees and other income |
559 |
|
|
418 |
|
Total investment income |
15,164 |
|
|
15,799 |
|
Operating expenses: |
|
|
|
Compensation |
1,720 |
|
|
2,021 |
|
Share-based compensation |
612 |
|
|
837 |
|
Interest |
4,328 |
|
|
3,806 |
|
Professional fees |
570 |
|
|
626 |
|
Net pension expense |
33 |
|
|
36 |
|
General and administrative |
732 |
|
|
789 |
|
Total operating expenses |
7,995 |
|
|
8,115 |
|
Income before taxes |
7,169 |
|
|
7,684 |
|
Income tax expense |
350 |
|
|
324 |
|
Net investment
income |
$ |
6,819 |
|
|
$ |
7,360 |
|
|
|
|
|
Realized (loss)
gain |
|
|
|
Non-control/Non-affiliate
investments |
$ |
(5,547 |
) |
|
$ |
1,049 |
|
Affiliate investments |
— |
|
|
1 |
|
Control investments |
— |
|
|
167 |
|
Total net realized
(loss) gain on investments, net of tax |
(5,547 |
) |
|
1,217 |
|
|
|
|
|
Net unrealized
appreciation (depreciation) on investments |
|
|
|
Non-control/Non-affiliate investments |
6,905 |
|
|
(2,972 |
) |
Affiliate investments |
(2,967 |
) |
|
1,206 |
|
Control investments |
4,191 |
|
|
85 |
|
Income tax (provision) benefit |
(524 |
) |
|
(183 |
) |
Total net unrealized
appreciation (depreciation) on investments, net of
tax |
7,605 |
|
|
(1,864 |
) |
|
|
|
|
Net realized and
unrealized gains (losses) on investments |
$ |
2,058 |
|
|
$ |
(647 |
) |
|
|
|
|
Net increase in net
assets from operations |
$ |
8,877 |
|
|
$ |
6,713 |
|
|
|
|
|
Pre-tax net investment
income per share - basic and diluted |
$ |
0.40 |
|
|
$ |
0.44 |
|
Net investment income
per share – basic and diluted |
$ |
0.38 |
|
|
$ |
0.42 |
|
Net increase in net
assets from operations – basic and diluted |
$ |
0.49 |
|
|
$ |
0.38 |
|
Weighted average
shares outstanding – basic |
18,147,888 |
|
|
17,535,924 |
|
Weighted average
shares outstanding – diluted |
18,147,888 |
|
|
17,535,924 |
|
|
|
|
|
|
|
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