Capital Southwest Corp (CSWC) Q2 2026 Earnings Call Highlights: Strong Investment Income a
November 4, 2025
This article first appeared on GuruFocus.
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Pretax Net Investment Income: $0.61 per share.
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Undistributed Taxable Income (UTI): Increased to $1.13 per share from $1 per share in the prior quarter.
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Realized Gains from Equity Exits: $44.8 million over the last 12 months.
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Total Dividends Declared: $0.64 per share for the December quarter, including a $0.06 supplemental dividend.
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New Capital Raised: $350 million in 5.95% notes due 2030.
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Gross Equity Proceeds: Approximately $40 million raised through the equity ATM program.
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Total New Commitments: $245 million to seven new and ten existing portfolio companies.
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Weighted Average Spread on New Commitments: Approximately 6.5%.
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New Committed Capital Deployed: $166 million, including $162 million in first lien senior secured debt.
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Credit Portfolio Growth: 24% year-over-year to $1.7 billion.
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Equity Co-Investment Portfolio: 83 investments with a total fair value of $172 million.
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Weighted Average Yield of Credit Portfolio: 11.5%.
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Cash Flow Coverage of Debt Service: 3.6 times.
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Total Investment Income: Increased to $56.9 million from $55.9 million in the prior quarter.
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Loans on Nonaccrual: Represented 1% of the investment portfolio at fair value.
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NAV per Share: Increased to $16.62 from $16.59 in the prior quarter.
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Balance Sheet Liquidity: Approximately $719 million in cash and undrawn leverage commitments.
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Regulatory Leverage: Debt-to-equity ratio of 0.91:1, with pro forma regulatory leverage of 0.82 times.
Release Date: November 04, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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Capital Southwest Corp (NASDAQ:CSWC) reported a pretax net investment income of $0.61 per share for the second fiscal quarter.
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The company increased its undistributed taxable income balance to $1.13 per share from $1 per share in the previous quarter.
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CSWC declared a total of $0.64 per share in dividends for the December quarter, including a supplemental dividend.
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The company successfully raised $350 million in aggregate principal of 5.95% notes due 2030, enhancing its balance sheet strength.
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Deal flow in the lower middle market was robust, with $245 million in total new commitments to new and existing portfolio companies.
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The weighted average yield of the credit portfolio decreased by 30 basis points during the quarter.
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Approximately 9% of the debt portfolio is performing below expectations, indicating some credit quality concerns.
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The competitive environment in the lower middle market has led to tight spread conditions.
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The company faces challenges in certain industries, such as healthcare, due to regulatory uncertainties.
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There is a risk of prepayment in the portfolio, which could impact yields despite the granular nature of the investments.
Q: What does the pipeline look like heading into year-end, and how does it compare to previous quarters? A: Michael Sarner, CEO, noted a significant uptick in the pipeline size, with expectations for similar volumes in the upcoming quarter as seen in the previous one. The company anticipates continuing to originate $150 million to $200 million per quarter, up from the previous $100 million to $125 million.
Q: What are your top priorities for the firm heading into calendar 2026? A: Michael Sarner, CEO, emphasized monetizing the investment platform to enhance competitive positioning and potentially bring in additional economics. The company is also focused on building for growth by adding originators and expanding the portfolio operations group to support scalability.
Q: Can you discuss the credit quality and outlook for the portfolio companies? A: Chris Rehberger, CFO, reported a 10% annual growth in EBITDA and revenue for portfolio companies, with no significant issues in any particular industry. The company maintains a diversified and granular portfolio, with conservative loan-to-value and leverage levels.
Q: How do you view the prepayment risk given the portfolio’s performance above expectations? A: Michael Sarner, CEO, explained that the portfolio’s granularity mitigates prepayment risk, with no single credit having a material impact. Historically, prepayments have been around 10% to 12% per year, despite 15% to 20% of the portfolio performing above expectations.
Q: Are there any industries or segments you are cautious about when evaluating new opportunities? A: Joshua Weinstein, CIO, mentioned healthcare as an area requiring a deeper dive due to uncertainties in Medicare and Medicaid reimbursements. Government-funded companies are also approached with caution, but the company partners with private equity groups with expertise in dynamic industries.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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