Capital Southwest Announces New $150 MM Secured Credit Facility

Rhea-AI Summary

Capital Southwest announced its subsidiary, Capital Southwest SPV , entered a $150 million senior secured revolving credit facility with Deutsche Bank AG, New York Branch, expandable to $400 million. The facility bears interest at three-month Term SOFR plus 2.50% until March 20, 2027, with maturity on March 20, 2029.

Insights

Financial Analyst

The announcement of Capital Southwest's new senior secured revolving credit facility is a notable development for the company. A revolving credit facility, such as the one established with Deutsche Bank, is a flexible financing tool that allows the borrower to draw down, repay and re-borrow funds as needed within the credit limit. The initial commitment of $150 million, with the potential to increase to $200 million and further to $400 million through an accordion feature, indicates a strong confidence from lenders in Capital Southwest's financial health and growth prospects.

From a financial perspective, the interest rate being tied to the three-month Term SOFR with an additional margin of 2.50% is competitive and reflects current market conditions. This rate structure is beneficial for Capital Southwest as it provides an element of predictability in their financing costs during the revolving period, which is important for financial planning and forecasting. The non-recourse nature of the facility to Capital Southwest, securing the SPV's obligations with the SPV's assets, is a risk mitigation measure that protects the parent company's balance sheet.

The facility's maturity date in 2029 gives Capital Southwest a long runway to utilize the funds for growth initiatives. This could potentially include acquisitions or expansion of their middle market business portfolio. The availability of such a credit line could be a signal to investors that the company is poised for strategic moves that could enhance shareholder value over time.

Market Research Analyst

Capital Southwest's establishment of a new SPV Facility with Deutsche Bank is reflective of a broader industry trend where business development companies (BDCs) are seeking to diversify their funding sources. For a BDC, having access to a sizable credit facility with an accordion feature provides not just capital for growth, but also a competitive edge in the market to act on investment opportunities swiftly.

Given that BDCs like Capital Southwest are often judged by their ability to effectively manage and deploy capital, this credit facility could enhance the company's reputation among middle market businesses seeking financial partners. It could also influence the perception of Capital Southwest's operational capabilities and risk management among investors, potentially impacting the stock's attractiveness.

Moreover, the timing of the credit facility, with its long-term horizon, aligns with the current economic cycle where businesses are looking to recover and grow post-pandemic. The flexibility and size of the facility may enable Capital Southwest to capitalize on market conditions and invest in companies that could thrive in the economic upturn, which could ultimately drive returns for Capital Southwest investors.

DALLAS, March 20, 2024 (GLOBE NEWSWIRE) -- Capital Southwest Corporation (“Capital Southwest” or “we”") (Nasdaq: CSWC), an internally managed business development company focused on providing flexible financing solutions to support the acquisition and growth of middle market businesses, announced today that its wholly owned subsidiary, Capital Southwest SPV LLC (the “SPV”), entered into a senior secured revolving credit facility (the “SPV Facility”) with Deutsche Bank AG, New York Branch. The SPV Facility provides for $150 million of initial commitments with (i) an increase to $200 million of total commitments on the earlier of (a) June 20, 2024 or (b) the date requested by the Company, in its sole discretion, and (ii) an accordion feature that allows increases up to $400 million of total commitments from new and existing lenders on the same terms and conditions as the existing commitments. Advances under the SPV Facility bear interest at three-month Term SOFR plus an applicable margin of 2.50% during the revolving period ending on March 20, 2027. The SPV’s obligations to the lenders are secured by a first lien interest in all of the SPV’s assets but are non-recourse to Capital Southwest. The SPV Facility matures on March 20, 2029.

Michael Sarner, Chief Financial Officer, commented, “We are pleased to continue our long-standing relationship with Deutsche Bank through the creation of a new SPV Facility. The SPV Facility further diversifies our sources of capital and provides significant funding flexibility as we continue to grow our balance sheet. We expect to continue to grow total commitments under this Credit Facility in lockstep with our asset growth.”

About Capital Southwest

Capital Southwest Corporation (Nasdaq: CSWC) is a Dallas, Texas-based, internally managed business development company with approximately $1.4 billion in investments at fair value as of December 31, 2023. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 million to $35 million investments across the capital structure, including first lien, second lien 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, including, but not limited to, the statements about Capital Southwest’s ability to grow total commitments under the SPV and to grow Capital Southwest’s assets in the future. 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: changes in the markets in which Capital Southwest invests; changes in the financial, capital, and lending markets; changes in the interest rate environment and its impact on Capital Southwest’s business and its portfolio companies; regulatory changes; tax treatment; Capital Southwest’s ability to operate its wholly owned subsidiary, Capital Southwest SBIC I, LP, as a small business investment company; an economic downturn and its impact on the ability of Capital Southwest’s portfolio companies to operate and the investment opportunities available to Capital Southwest; the impact of supply chain constraints and labor shortages on Capital Southwest’s portfolio companies; and the elevated levels of inflation and its impact on Capital Southwest’s portfolio companies and the industries in which Capital Southwest invests.

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, 2023 and any 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 Officer
214-884-3829

FAQ

What is the name of the business development company mentioned in the press release?

The business development company mentioned is Capital Southwest

What is the ticker symbol for Capital Southwest ?

The ticker symbol for Capital Southwest is CSWC.

Who did Capital Southwest SPV enter into a senior secured revolving credit facility with?

Capital Southwest SPV entered into the facility with Deutsche Bank AG, New York Branch.

What is the initial commitment amount under the SPV Facility?

The initial commitment amount under the SPV Facility is $150 million.

What is the maximum total commitment under the SPV Facility?

The total commitment can be increased up to $400 million.