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Total investment portfolio: Credit portfolio grew to $1.2 billion and reached $1.4 billion.
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Pre-tax net investment income: Reported $29.8 million, weighted average price of $0.72 per share.
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Net asset value (NAV):$16.77 per share, up from $16.46 in the previous quarter.
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dividend: Ordinary dividends of $0.57 per share and additional dividends of $0.06 per share were paid.
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New initiatives: We generated $116.3 million in new business during the quarter.
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Liquidity and capital resources: We have unrestricted cash and money market balances of $23.6 million and available borrowings under our credit facilities of $264.4 million.
On January 29, 2024, Capital Southwest Corp. (NASDAQ:CSWC) released its 8-K filing, announcing its financial results for the third fiscal quarter ended December 31, 2023. CSWC is a Dallas-based investment firm that specializes in providing customized financing for its clients. Mid-market companies. The Company’s investment objective is to generate attractive risk-adjusted returns through current income from fixed income investments and capital growth from equity and equity-related investments.
CSWC’s total investment portfolio is $1.4 billion, with 97% of its credit portfolio consisting of first lien senior secured debt. The firm reported a weighted average yield of 13.5% on fixed income investments, and he earned $110.2 million in new commitment credit investments. The equity portfolio, excluding investments in the I-45 Senior Loan Fund (I-45 SLF), was $129.1 million and new equity co-investments were $6.1 million.
During the quarter, CSWC reported pre-tax net investment income of $29.8 million, or a weighted average of $0.72 per share outstanding. The company paid an ordinary dividend of $0.57 per share and an additional dividend of $0.06 per share, within the LTM pre-tax NII ordinary dividend coverage of 123%. Net realized and unrealized depreciation expense was $5.4 million or 0.4% of the total fair value investment.
Financial performance and challenges
CSWC’s NAV per share increased from $16.46 to $16.77, representing an increase of 1.9% compared to the prior quarter. This growth in NAV is important because it reflects the company’s ability to generate income and effectively manage its investment portfolio. However, the company faced challenges including realized and unrealized losses on investments totaling $5.4 million. Such losses can affect a company’s earnings and NAV and pose a potential risk to its future performance.
Income statement and balance sheet highlights
The company’s total investment income for the quarter was $48.6 million, up from $42.8 million in the prior quarter. This was primarily due to an increase in average fixed income investment balances and an increase in dividend income. Total operating expenses, excluding interest expense, were $7.3 million, up from his $5.9 million in the previous quarter. This was mainly due to an increase in accrued bonuses. Interest expense also increased to $11.5 million from $10.5 million in the prior quarter due to increases in average debt balances and weighted average interest rates on total debt.
On its balance sheet, CSWC had cash and cash equivalents of $23.6 million and total net assets of $721 million. The company’s liquidity position was strengthened with $264.4 million in available borrowings under its credit facility and a regulatory debt-to-equity ratio of 0.77:1.
“The December quarter was another strong quarter for Capital Southwest, with $116 million in originations across four new portfolio companies and 12 existing portfolio companies. “Pre-tax net investment income for the quarter was $0.72, which exceeded revenue. The quarter included an ordinary dividend of $0.57 per share and an additional dividend of $0.06 per share.” said Bowen Deal, Chief Executive Officer.
For more information on the financial and other information contained in this press release, please refer to Capital Southwest’s third fiscal quarter filings with the Securities and Exchange Commission and Capital Southwest for the period ending December 31, 2023. See Form 10-Q. The 2024 earnings presentation will be posted on the Investor Information section of Capital Southwest’s website at www.capitalsouthwest.com.
Capital Southwest’s solid financial performance, including increasing NAV and strong investment activity, positions the company well for future growth. The company’s ability to maintain a strong dividend is particularly attractive to value investors looking for a steady stream of income. As CSWC continues to address market challenges, a strategic approach to investments and capital management will be critical to maintaining financial health and delivering value to shareholders.
For more information, see Capital Southwest Corp’s full 8-K earnings release here.
This article first appeared on GuruFocus.
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