10-Q 1 cswc6301910q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ……………..to ……………..

Commission File Number: 814-00061

CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)

Texas
 
75-1072796
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer
Identification No.)


5400 Lyndon B Johnson Freeway, Suite 1300, Dallas, Texas
 
75240
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (214) 238-5700

Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.25 par value per share
CSWC
The Nasdaq Global Select Market
5.95% Notes due 2022
CSWCL
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X No       

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes        No       

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨
Smaller reporting company
¨
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes        No X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

17,697,057 shares of Common Stock, $0.25 value per share, as of August 2, 2019.



TABLE OF CONTENTS

 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I – FINANCIAL INFORMATION


Item 1.
Consolidated Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(In thousands, except shares and per share data)
 
 
 
 
 
June 30,
 
March 31,
 
2019
 
2019
 
(Unaudited)
 
 
Assets
 
 
 
Investments at fair value:
 
 
 
Non-control/Non-affiliate investments (Cost: $334,669 and $305,596, respectively)
$
331,045

 
$
304,663

Affiliate investments (Cost: $80,790 and $79,277, respectively)
83,625

 
80,905

Control investments (Cost: $73,415 and $93,182, respectively)
118,821

 
138,503

Total investments (Cost: $488,874 and $478,055, respectively)
533,491

 
524,071

Cash and cash equivalents
11,969

 
9,924

Receivables:
 
 
 
Dividends and interest
10,105

 
9,252

Escrow
418

 
370

Other
1,099

 
1,244

Income tax receivable
143

 
183

Deferred tax asset
1,672

 
1,807

Debt issuance costs (net of accumulated amortization of $1,998 and $1,814, respectively)
3,401

 
3,364

Other assets
1,878

 
1,628

Total assets
$
564,176

 
$
551,843

 
 
 
 
Liabilities
 
 
 
Notes (Par value: $77,136 and $77,136, respectively)
$
75,440

 
$
75,099

Credit facility
151,000

 
141,000

Other liabilities
5,688

 
6,708

Accrued restoration plan liability
3,048

 
3,073

Deferred tax liability
186

 

Total liabilities
235,362

 
225,880

 
 
 
 
Commitments and contingencies (Note 10)
 
 
 
 
 
 
 
Net Assets
 
 
 
Common stock, $0.25 par value: authorized, 25,000,000 shares; issued, 20,036,569 shares at June 30, 2019 and 19,842,528 shares at March 31, 2019
5,009

 
4,961

Additional paid-in capital
285,925

 
281,205

Total distributable earnings
61,817

 
63,734

Treasury stock - at cost, 2,339,512 shares
(23,937
)
 
(23,937
)
Total net assets
328,814

 
325,963

Total liabilities and net assets
$
564,176

 
$
551,843

Net asset value per share (17,697,057 shares outstanding at June 30, 2019 and 17,503,016 shares outstanding at March 31, 2019)
$
18.58

 
$
18.62



The accompanying Notes are an integral part of these Consolidated Financial Statements.

3


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except shares and per share data)
 
 
 
 
 
Three Months Ended
 
June 30,
 
2019
 
2018
Investment income:
 
 
 
Interest income:
 
 
 
Non-control/Non-affiliate investments
$
9,031

 
$
6,032

Affiliate investments
2,050

 
1,452

Control investments
265

 
159

Dividend income:
 
 
 
Non-control/Non-affiliate investments
87

 
23

Affiliate investments
19

 
38

Control investments
3,913

 
3,014

Interest income from cash and cash equivalents
16

 
4

Fees and other income
418

 
385

Total investment income
15,799

 
11,107

Operating expenses:
 
 
 
Compensation
2,021

 
1,910

Share-based compensation
837

 
475

Interest
3,806

 
2,373

Professional fees
626

 
488

Net pension expense
36

 
40

General and administrative
789

 
825

Total operating expenses
8,115

 
6,111

Income before taxes
7,684

 
4,996

Income tax expense
324

 
379

Net investment income
$
7,360

 
$
4,617

 
 
 
 
Realized gain
 
 
 
Non-control/Non-affiliate investments
$
1,049

 
$
200

Affiliate investments
1

 

Control investments
167

 
18,619

Total net realized gain on investments before income tax
1,217

 
18,819

 
 
 
 
Net unrealized (depreciation) appreciation on investments
 
 
 
Non-control/Non-affiliate investments
(2,972
)
 
4,532

Affiliate investments
1,206

 
(671
)
Control investments
85

 
(15,963
)
Income tax (provision) benefit
(183
)
 
319

Total net unrealized (depreciation) appreciation on investments, net of tax
(1,864
)
 
(11,783
)
 
 
 
 
Net realized and unrealized (losses) gains on investments
$
(647
)
 
$
7,036

 
 
 
 
Net increase in net assets from operations
$
6,713

 
$
11,653

 
 
 
 
Pre-tax net investment income per share - basic and diluted
$
0.44

 
$
0.31

Net investment income per share – basic and diluted
$
0.42

 
$
0.29

Net increase in net assets from operations – basic and diluted
$
0.38

 
$
0.72

Weighted average shares outstanding – basic
17,535,924

 
16,180,291

Weighted average shares outstanding – diluted
17,535,924

 
16,201,443

The accompanying Notes are an integral part of these Consolidated Financial Statements.

4


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
(In thousands)
 
 
 
 
 
2019
 
2018
 
 
 
 
Net assets, March 31
$
325,963

 
$
308,288

Operations:
 
 
 
Net investment income
7,360

 
4,617

Net realized gain on investments
1,217

 
18,819

Net unrealized depreciation on investments, net of tax
(1,864
)
 
(11,783
)
Net increase in net assets from operations
6,713

 
11,653

Dividends to shareholders ($0.49 and $0.89 per share, respectively)
(8,629
)
 
(14,503
)
Capital share transactions:
 
 
 
Change in restoration plan liability
7

 
11

Issuance of common stock
3,972

 

Exercise of employee stock options

 
1,457

Share-based compensation expense
837

 
475

Common stock withheld for payroll taxes upon vesting of restricted stock
(49
)
 

Increase (decrease) in net assets
2,851

 
(907
)
Net assets, June 30
$
328,814

 
$
307,381


The accompanying Notes are an integral part of these Consolidated Financial Statements.

5


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
 
 
 
Three Months Ended
 
June 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net increase in net assets from operations
$
6,713

 
$
11,653

Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
 
 
 
Purchases and originations of investments
(35,170
)
 
(77,864
)
Proceeds from sales and repayments of debt investments in portfolio companies
19,669

 
41,757

Proceeds from sales and return of capital of equity investments in portfolio companies
6,539

 
24,885

Payment of accreted original issue discounts
288

 
212

Depreciation and amortization
500

 
344

Net pension benefit
(17
)
 
(12
)
Realized gain on investments before income tax
(1,217
)
 
(18,819
)
Net unrealized depreciation (appreciation) on investments
1,399

 
12,102

Accretion of discounts on investments
(472
)
 
(312
)
Payment-in-kind interest and dividends
(696
)
 
(79
)
Stock option and restricted awards expense
837

 
475

Deferred income taxes
321

 
50

Changes in other assets and liabilities:
 
 
 
Increase in dividend and interest receivable
(555
)
 
(452
)
Increase in escrow receivables
(48
)
 
(203
)
Decrease in tax receivable
40

 

Decrease (increase) in other receivables
144

 
(112
)
Increase in other assets
(275
)
 
(9,785
)
Increase in taxes payable
186

 

Decrease in other liabilities
(226
)
 
(2,067
)
Decrease in payable for unsettled transaction
(1,040
)
 

Net cash used in operating activities
(3,080
)
 
(18,227
)
Cash flows from financing activities
 
 
 
Proceeds from common stock offering
4,129

 

Equity offering costs paid
(105
)
 

Borrowings under credit facility
30,000

 
55,000

Repayments of credit facility
(20,000
)
 
(30,000
)
Debt issuance costs paid
(221
)
 
(459
)
Proceeds from notes

 
1,379

Dividends to shareholders
(8,629
)
 
(4,525
)
Proceeds from exercise of employee stock options

 
1,422

Common stock withheld for payroll taxes upon vesting of restricted stock
(49
)
 
35

Net cash provided by financing activities
5,125

 
22,852

Net increase in cash and cash equivalents
2,045

 
4,625

Cash and cash equivalents at beginning of period
9,924

 
7,907

Cash and cash equivalents at end of period
$
11,969

 
$
12,532

Supplemental cash flow disclosures:
 
 
 
Cash paid for income taxes
$

 
$
11

Cash paid for interest
2,721

 
1,990

Supplemental disclosure of noncash financing activities:
 
 
 
Dividend declared, not yet paid
$

 
$
14,503


The accompanying Notes are an integral part of these Consolidated Financial Statements.


6


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
Non-control/Non-affiliate Investments5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAC HOLDINGS, INC.
 
First Lien
 
Healthcare services
 
L+6.75% (Floor 1.00%)/Q, 4.00% PIK, Current Coupon 13.33%
 
6/30/2023
 
$
9,079

 
$
8,916

 
$
8,171

 
 
First Lien
 
Healthcare services
 
L+11.00% (Floor 1.00%)/Q, Current Coupon 13.59%
 
3/31/2020
 
1,170

 
1,161

 
1,182

 
 
 
 
 
 
 
 
 
 
 
 
10,077

 
9,353

ACE GATHERING, INC.
 
Second Lien15
 
Energy services (midstream)
 
L+8.50% (Floor 2.00%)/Q, Current Coupon 10.82%
 
12/13/2023
 
9,875

 
9,693

 
9,747

ADAMS PUBLISHING GROUP, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.08%
 
7/2/2023
 
12,427

 
12,207

 
12,209

 
 
Delayed Draw Term Loan10
 
 
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 9.85%
 
7/2/2023
 
392

 
365

 
385

 
 
 
 
 
 
 
 
 
 
 
 
12,572

 
12,594

AG KINGS HOLDINGS INC.8,16
 
First Lien
 
Food, agriculture & beverage
 
L+10.02% (Floor 1.00%)/M, Current Coupon 12.69%
 
8/8/2021
 
9,308

 
9,194

 
7,874

ALLIANCE SPORTS GROUP, L.P.
 
Senior subordinated debt
 
Consumer products & retail
 
11.00%
 
2/1/2023
 
10,100

 
9,954

 
9,807

 
 
3.88% preferred membership interest
 
 
 
 
 

 
2,500

 
2,500

 
 
 
 
 
 
 
 
 
 
 
 
12,454

 
12,307

AMERICAN NUTS OPERATIONS LLC13
 
First Lien - Term Loan
 
Food, agriculture and beverage
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.09%
 
4/10/2023
 
17,325

 
17,046

 
15,991

 
 
First Lien - Term Loan C10
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.09%
 
4/10/2023
 
1,804

 
1,778

 
1,665

 
 
3,000,000 units of Class A common stock9
 
 
 
 
 

 
3,000

 
733

 
 
 
 
 
 
 
 
 
 
 
 
21,824

 
18,389


7


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
AMERICAN TELECONFERENCING SERVICES, LTD.
 
First Lien
 
Telecommunications
 
L+6.50% (Floor 1.00%)/Q, Current Coupon 9.06%
 
12/8/2021
 
5,934

 
5,844

 
3,486

 
 
Second Lien
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.08%
 
6/6/2022
 
2,006

 
1,957

 
1,103

 
 
 
 
 
 
 
 
 
 
 
 
7,801

 
4,589

AMWARE FULFILLMENT LLC
 
First Lien
 
Distribution
 
L+9.00% (Floor 1.00%)/M, Current Coupon 11.32%
 
12/31/2020
 
12,571

 
12,496

 
12,571

ASC ORTHO MANAGEMENT COMPANY, LLC13
 
Revolving Loan10
 
Healthcare services
 
L+7.50% (Floor 1.00%)
 
8/31/2023
 

 
(25
)
 

 
 
First Lien
 
 
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.09%
 
8/31/2023
 
9,203

 
9,044

 
9,044

 
 
Second Lien
 
 
 
13.25% PIK
 
12/1/2023
 
3,356

 
3,287

 
3,287

 
 
2,042 Common Units9
 
 
 
 
 

 
750

 
750

 
 
 
 
 
 
 
 
 
 
 
 
13,056

 
13,081

BINSWANGER HOLDING CORP.
 
First Lien
 
Distribution
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.32%
 
3/9/2022
 
11,853

 
11,710

 
11,521

 
 
900,000 shares of common stock
 
 
 
 
 

 
900

 
786

 
 
 
 
 
 
 
 
 
 
 
 
12,610

 
12,307

BLASCHAK COAL CORP.
 
Second Lien15
 
Commodities & mining
 
L+10.00%/Q, 1.00% PIK, Current Coupon 13.60%
 
7/30/2023
 
8,558

 
8,411

 
8,498

CALIFORNIA PIZZA KITCHEN, INC.
 
First Lien
 
Restaurants
 
L+6.00% (Floor 1.00%)/M, Current Coupon 8.53%
 
8/23/2022
 
4,863

 
4,834

 
4,765

CAPITAL PAWN HOLDINGS, LLC
 
First Lien
 
Consumer products & retail
 
L+9.50%/Q, Current Coupon 12.09%
 
7/8/2020
 
11,448

 
11,340

 
11,340


8


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
CLICKBOOTH.COM, LLC
 
Revolving Loan10
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%)
 
12/5/2022
 

 
(14
)
 

 
 
First Lien
 
 
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 11.10%
 
12/5/2022
 
15,752

 
15,515

 
16,067

 
 
 
 
 
 
 
 
 
 
 
 
15,501

 
16,067

DANFORTH ADVISORS, LLC13
 
Revolving Loan10
 
Business services
 
L+7.25% (Floor 2.00%)
 
9/28/2023
 

 
(17
)
 

 
 
First Lien
 
 
 
L+7.25% (Floor 2.00%)/Q, Current Coupon 9.84%
 
9/28/2023
 
7,250

 
7,122

 
7,250

 
 
875 Class A equity units9
 
 
 
 
 

 
875

 
1,058

 
 
 
 
 
 
 
 
 
 
 
 
7,980

 
8,308

DELPHI INTERMEDIATE HEALTHCO, LLC
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%)/Q, 0.50% PIK, Current Coupon 10.69%
 
10/3/2022
 
10,592

 
10,514

 
10,105

DIGITAL RIVER, INC.
 
First Lien
 
Software & IT services
 
L+6.00% (Floor 1.00%)/Q, Current Coupon 8.43%
 
2/12/2021
 
6,273

 
6,265

 
6,273

DRIVEN, INC.
 
First Lien
 
Business services
 
L+8.00% (Floor 2.00%)/Q, Current Coupon 10.31%
 
6/28/2024
 
12,000

 
11,760

 
11,760

DUNN PAPER, INC.
 
Second Lien
 
Paper & forest products
 
L+8.75% (Floor 1.00%)/M, Current Coupon 11.15%
 
8/25/2023
 
3,000

 
2,959

 
2,931

TINUITI INC.8
 
First Lien
 
Media, marketing & entertainment
 
L+8.35% (Floor 1.00%)/M, Current Coupon 10.67%
 
2/1/2022
 
14,000

 
13,740

 
14,000

 
 
1,443 Investment Units (Preferred)
 
 
 
12.00% PIK
 
 

 
2,129

 
4,635

 
 
 
 
 
 
 
 
 
 
 
 
15,869

 
18,635

ENVIRONMENTAL PEST SERVICE MANAGEMENT COMPANY, LLC
 
First Lien
 
Consumer services
 
L+7.00%/Q, Current Coupon 9.60%
 
6/22/2023
 
16,128

 
15,892

 
16,128

 
 
Delayed Draw Term Loan10
 
 
 
L+7.00%/Q, Current Coupon 9.60%
 
6/22/2023
 
6,445

 
6,340

 
6,445

 
 
 
 
 
 
 
 
 
 
 
 
22,232

 
22,573


9


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
FAST SANDWICH, LLC
 
Revolving Loan10
 
Restaurants
 
L+9.00% (Floor 1.00%)
 
 

 
(54
)
 

 
 
First Lien
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.59%
 
5/23/2023
 
3,218

 
3,173

 
3,173

 
 
 
 
 
 
 
 
 
 
 
 
3,119

 
3,173

IENERGIZER LIMITED9
 
First Lien
 
Business services
 
L+6.00% (Floor 1.00%)/M, Current Coupon 8.40%
 
4/17/2024
 
14,250

 
14,111

 
14,111

JVMC HOLDINGS CORP.
 
First Lien
 
Financial services
 
L+6.50% (Floor 1.00%)/M, Current Coupon 8.90%
 
2/28/2024
 
8,755

 
8,672

 
8,755

 
 
Delayed Draw Term Loan10
 
 
 
L+6.50% (Floor 1.00%)
 
2/28/2024
 

 
(3
)
 

 
 
 
 
 
 
 
 
 
 
 
 
8,669

 
8,755

LGM PHARMA, LLC13
 
First Lien
 
Healthcare products
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.94%
 
11/15/2022
 
11,630

 
11,456

 
11,456

 
 
110,000 units of Class A common stock9
 
 
 
 
 

 
1,100

 
821

 
 
 
 
 
 
 
 
 
 
 
 
12,556

 
12,277

LIGHTING RETROFIT INTERNATIONAL, LLC
 
First Lien
 
Environmental services
 
L+10.25% (Floor 1.00%)/Q, Current Coupon 12.58%
 
6/30/2022
 
13,271

 
13,174

 
12,262

 
 
25,603 shares of Series C preferred stock
 
 
 
 
 

 
26

 
29

 
 
396,825 shares of Series B preferred stock
 
 
 
 
 

 
500

 
306

 
 
 
 
 
 
 
 
 
 
 
 
13,700

 
12,597

RESEARCH NOW GROUP, INC.
 
Second Lien
 
Business services
 
L+9.50% (Floor 1.00%)/M, Current Coupon 12.08%
 
12/20/2025
 
10,500

 
9,853

 
10,343

SCRIP INC.8
 
First Lien
 
Healthcare products
 
L+9.99% (Floor 2.00%)/M, Current Coupon 12.38%
 
3/21/2024
 
16,750

 
16,269

 
16,415

 
 
100 shares of common stock
 
 
 
 
 

 
1,000

 
1,000

 
 
 
 
 
 
 
 
 
 
 
 
17,269

 
17,415


10


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
TAX ADVISORS GROUP, LLC13
 
143.3 Class A units9
 
Financial services
 
 
 

 
541

 
645

VISTAR MEDIA INC.
 
First Lien
 
Media, marketing & entertainment
 
L+10.00% (Floor 1.00%)/M, Current Coupon 12.32%
 
4/3/2023
 
14,090

 
12,915

 
14,090

 
 
171,617 shares of Series A preferred stock
 
 
 
 
 

 
1,874

 
2,808

 
 
Warrants (Expiration - April 3, 2029)
 
 
 
 
 

 
620

 
764

 
 
 
 
 
 
 
 
 
 
 
 
15,409

 
17,662

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non-control/Non-affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
334,669

 
$
331,045

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHANDLER SIGNS, LLC13
 
Senior subordinated debt
 
Business services
 
12.00% / 1.00% PIK
 
7/4/2021
 
$
4,569

 
$
4,528

 
$
4,528

 
 
1,500,000 units of Class A-1 common stock9
 
 
 
 
 

 
1,500

 
2,136

 
 
 
 
 
 
 
 
 
 
 
 
6,028

 
6,664

DYNAMIC COMMUNITIES, LLC13
 
Revolving Loan10
 
Business services
 
L+7.50% (Floor 1.00%)
 
7/17/2023
 

 
(4
)
 

 
 
First Lien
 
 
 
L+7.50% (Floor 1.00%)/M, Current Coupon 9.90%
 
7/17/2023
 
10,990

 
10,804

 
10,902

 
 
2,000,000 Preferred Units9
 
 
 
 
 

 
2,000

 
2,849

 
 
 
 
 
 
 
 
 
 
 
 
12,800

 
13,751

ITA HOLDINGS GROUP, LLC13
 
Revolving Loan10
 
Transportation & logistics
 
L+9.00% (Floor 1.00%)/Q, 1.00% PIK, Current Coupon 12.18%
 
2/14/2023
 
2,700

 
2,662

 
2,705

 
 
First Lien - Term Loan
 
 
 
L+8.00% (Floor 1.00%)/Q, 1.00% PIK, Current Coupon 11.60%
 
2/14/2023
 
7,659

 
7,539

 
7,491

 
 
First Lien - Term B Loan
 
 
 
L+11.00% (Floor 1.00%)/Q, 1.00% PIK, Current Coupon 14.60%
 
2/14/2023
 
3,830

 
3,766

 
3,948


11


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
 
 
First Lien - PIK Note A
 
 
 
10.00% PIK
 
2/14/2023
 
2,250

 
1,710

 
1,978

 
 
First Lien - PIK Note B
 
 
 
10.00% PIK
 
2/14/2023
 
89

 
89

 
78

 
 
Warrants (Expiration - March 29, 2029)9
 
 
 
 
 

 
538

 
2,291

 
 
9.25% Class A Membership Interest9
 
 
 
 
 

 
1,500

 
1,425

 
 
 
 
 
 
 
 
 
 
 
 
17,804

 
19,916

ROSELAND MANAGEMENT, LLC
 
Revolving Loan10
 
Healthcare services
 
L+7.00% (Floor 2.00%)
 
11/9/2023
 

 
(31
)
 

 
 
First Lien
 
 
 
L+7.00% (Floor 2.00%)/Q, Current Coupon 9.59%
 
11/9/2023
 
10,448

 
10,283

 
10,448

 
 
10,000 Class A Units
 
 
 
 
 

 
1,000

 
1,487

 
 
 
 
 
 
 
 
 
 
 
 
11,252

 
11,935

SIMR, LLC
 
First Lien
 
Healthcare services
 
L+9.00% (Floor 2.00%)/M, Current Coupon 11.50%
 
9/7/2023
 
11,353

 
11,154

 
11,154

 
 
5,724,000 Class B Common Units
 
 
 
 
 

 
5,724

 
5,397

 
 
 
 
 
 
 
 
 
 
 
 
16,878

 
16,551

ZENFOLIO INC.
 
Revolving Loan10
 
Business services
 
L+9.00% (Floor 1.00%)
 
7/17/2022
 

 
(12
)
 

 
 
First Lien
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.60%
 
7/17/2022
 
14,406

 
14,140

 
14,262

 
 
190 shares of common stock
 
 
 
 
 

 
1,900

 
546

 
 
 
 
 
 
 
 
 
 
 
 
16,028

 
14,808

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
80,790

 
$
83,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
I-45 SLF LLC9,11
 
80% LLC equity interest
 
Multi-sector holdings
 
 
 

 
$
68,000

 
$
64,813


12


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
MEDIA RECOVERY, INC.11
 
800,000 shares of Series A convertible preferred stock
 
Industrial products
 
 
 

 
800

 
7,979

 
 
4,000,002 shares of common stock
 
 
 
 
 

 
4,615

 
46,029

 
 
 
 
 
 
 
 
 
 
 
 
5,415

 
54,008

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Control Investments
 
 
 
 
 
 
 
 
 
 
 
$
73,415

 
$
118,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS12
 
 
 
 
 
 
 
 
 
 
 
$
488,874

 
$
533,491

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1 
All debt investments are income-producing, unless otherwise noted. Equity investments are non-income producing, unless otherwise noted.
2 
All of the Company’s investments, unless otherwise noted, are pledged as collateral for the Company’s senior secured credit facility.
3 
The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily (D), monthly (M), quarterly (Q), or semiannually (S). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at June 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.
4 
The Company's investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board of Directors, using significant unobservable Level 3 inputs. Refer to Note 4 for further discussion.
5 
Non-Control/Non-Affiliate investments are generally defined by the Investment Company Act of 1940 (the “1940 Act”) as investments that are neither control investments nor affiliate investments. At June 30, 2019, approximately 62.1% of the Company’s investment assets were non-control/non-affiliate investments. The fair value of these investments as a percent of net assets is 100.7%.
6 
Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as control investments. At June 30, 2019, approximately 15.7% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 25.4%.
7 
Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned. At June 30, 2019, approximately 22.3% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 36.1%.
8 
The investment is structured as a first lien last out term loan.

13


9 
Indicates assets that are considered "non-qualifying assets" under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. As of June 30, 2019, approximately 16.3% of the Company's assets are non-qualifying assets.
10 
The investment has an unfunded commitment as of June 30, 2019. Refer to Note 10 - Commitments and Contingencies for further discussion.
11 
Income producing through dividends or distributions.
12 
As of June 30, 2019, the cumulative gross unrealized appreciation for U.S. federal income tax purposes is approximately $59.1 million; cumulative gross unrealized depreciation for federal income tax purposes is $15.5 million. Cumulative net unrealized appreciation is $43.6 million, based on a tax cost of $487.6 million.
13 
ASC Ortho Management Company, LLC common units, Danforth Advisors, LLC common units, American Nuts Operations LLC Class A common stock, LGM Pharma, LLC Class A common stock, Tax Advisors Group, LLC Class A units, Chandler Signs, LP Class A-1 common stock, Dynamic Communities, LLC Preferred units, and ITA Holdings Group, LLC membership interest are held through a wholly-owned taxable subsidiary.
14 
The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act.
15 
The investment is structured as a split lien term loan, which provides the Company with a first lien priority on certain assets of the obligor and a second lien priority on different assets of the obligor.
16 
Investment is on non-accrual status as of June 30, 2019, meaning the Company has ceased to recognize interest income on the investment.



The accompanying Notes are an integral part of these Consolidated Financial Statements.





14


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
Non-control/Non-affiliate Investments5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAC HOLDINGS, INC.
 
First Lien
 
Healthcare services
 
L+6.75% (Floor 1.00%)/Q, 4.00% PIK, Current Coupon 13.49%
 
6/30/2023
 
$
9,084

 
$
8,912

 
$
8,403

 
 
First Lien
 
Healthcare services
 
L+11.00% (Floor 1.00%)/M
 
3/31/2020
 
1,170

 
1,158

 
1,182

 
 
 
 
 
 
 
 
 
 
 
 
10,070

 
9,585

ACE GATHERING, INC.
 
Second Lien15
 
Energy services (midstream)
 
L+8.50% (Floor 2.00%)/Q, Current Coupon 11.09%
 
12/13/2023
 
9,938

 
9,747

 
9,783

ADAMS PUBLISHING GROUP, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.30%
 
7/2/2023
 
13,566

 
13,320

 
13,308

 
 
Delayed Draw Term Loan10
 
 
 
L+7.50% (Floor 1.00%)
 
7/2/2023
 

 
(29
)
 

 
 
 
 
 
 
 
 
 
 
 
 
13,291

 
13,308

AG KINGS HOLDINGS INC.8,16
 
First Lien
 
Food, agriculture & beverage
 
L+10.02% (Floor 1.00%)/M, Current Coupon 12.69%
 
8/8/2021
 
9,308

 
9,194

 
8,330

ALLIANCE SPORTS GROUP, L.P.
 
Senior subordinated debt
 
Consumer products & retail
 
11.00%
 
2/1/2023
 
10,100

 
9,946

 
9,807

 
 
3.88% preferred membership interest
 
 
 
 
 

 
2,500

 
2,500

 
 
 
 
 
 
 
 
 
 
 
 
12,446

 
12,307

AMERICAN NUTS OPERATIONS LLC13
 
First Lien - Term Loan
 
Food, agriculture and beverage
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.30%
 
4/10/2023
 
17,369

 
17,075

 
16,822

 
 
First Lien - Term Loan C10
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.30%
 
4/10/2023
 
1,750

 
1,723

 
1,695

 
 
3,000,000 units of Class A common stock9
 
 
 
 
 

 
3,000

 
1,505

 
 
 
 
 
 
 
 
 
 
 
 
21,798

 
20,022

AMERICAN TELECONFERENCING SERVICES, LTD.
 
First Lien
 
Telecommunications
 
L+6.50% (Floor 1.00%)/Q, Current Coupon 9.24%
 
12/8/2021
 
6,023

 
5,922

 
3,953

 
 
Second Lien
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.30%
 
6/6/2022
 
2,006

 
1,954

 
1,103

 
 
 
 
 
 
 
 
 
 
 
 
7,876

 
5,056


15


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
AMWARE FULFILLMENT LLC
 
First Lien
 
Distribution
 
L+9.50% (Floor 1.00%)/M, Current Coupon 12.10%
 
12/31/2020
 
12,753

 
12,666

 
12,651

ASC ORTHO MANAGEMENT COMPANY, LLC13
 
Revolving Loan10
 
Healthcare services
 
L+7.50% (Floor 1.00%)
 
8/31/2023
 

 
(27
)
 

 
 
First Lien
 
 
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.30%
 
8/31/2023
 
9,261

 
9,094

 
9,095

 
 
Second Lien
 
 
 
13.25% PIK
 
12/1/2023
 
3,250

 
3,178

 
3,178

 
 
2,042 Common Units9
 
 
 
 
 

 
750

 
750

 
 
 
 
 
 
 
 
 
 
 
 
12,995

 
13,023

BINSWANGER HOLDING CORP.
 
First Lien
 
Distribution
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.60%
 
3/9/2022
 
12,150

 
11,992

 
12,016

 
 
900,000 shares of common stock
 
 
 
 
 

 
900

 
1,013

 
 
 
 
 
 
 
 
 
 
 
 
12,892

 
13,029

BLASCHAK COAL CORP.
 
Second Lien15
 
Commodities & mining
 
L+10.00%/Q, 1.00% PIK, Current Coupon 13.81%
 
7/30/2023
 
8,537

 
8,383

 
8,511

CALIFORNIA PIZZA KITCHEN, INC.
 
First Lien
 
Restaurants
 
L+6.00% (Floor 1.00%)/M, Current Coupon 8.50%
 
8/23/2022
 
4,875

 
4,844

 
4,723

CAPITAL PAWN HOLDINGS, LLC
 
First Lien
 
Consumer products & retail
 
L+9.50%/Q, Current Coupon 12.30%
 
7/8/2020
 
11,448

 
11,315

 
11,310

CLICKBOOTH.COM, LLC
 
Revolving Loan10
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%)
 
12/5/2022
 

 
(15
)
 

 
 
First Lien
 
 
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 11.31%
 
12/5/2022
 
16,953

 
16,684

 
17,292

 
 
 
 
 
 
 
 
 
 
 
 
16,669

 
17,292

DANFORTH ADVISORS, LLC13
 
Revolving Loan10
 
Business services
 
L+7.25% (Floor 2.00%)
 
9/28/2023
 

 
(18
)
 

 
 
First Lien
 
 
 
L+7.25% (Floor 2.00%)/Q, Current Coupon 10.05%
 
9/28/2023
 
7,250

 
7,117

 
7,145

 
 
875 Class A equity units9
 
 
 
 
 

 
875

 
875

 
 
 
 
 
 
 
 
 
 
 
 
7,974

 
8,020


16


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
DELPHI INTERMEDIATE HEALTHCO, LLC
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.23%
 
10/3/2022
 
11,400

 
11,310

 
11,023

DIGITAL RIVER, INC.
 
First Lien
 
Software & IT services
 
L+6.00% (Floor 1.00%)/Q, Current Coupon 8.60%
 
2/12/2021
 
6,285

 
6,277

 
6,128

DUNN PAPER, INC.
 
Second Lien
 
Paper & forest products
 
L+8.75% (Floor 1.00%)/M, Current Coupon 11.25%
 
8/25/2023
 
3,000

 
2,957

 
2,883

ELITE SEM, INC.8
 
First Lien
 
Media, marketing & entertainment
 
L+8.40% (Floor 1.00%)/M, Current Coupon 11.00%
 
2/1/2022
 
14,000

 
13,717

 
14,000

 
 
1,443 Investment Units (Preferred)
 
 
 
12.00% PIK
 
 

 
2,068

 
4,457