Q4 2026 Capital Southwest Corp Earnings Call

May 14, 2026

Speaker #1: Thanks for joining today's Capital Southwest Q4 2026 earnings call. Participating on today's call are Michael Sarner, Chief Executive Officer; Chris Rehberger, Chief Financial Officer; Joshua Weinstein, Chief Investment Officer; and Amy Baker, Executive Vice President of Accounting.

Operator: Thanks for joining today's Capital Southwest Q4 fiscal year 2026 earnings call. Participating on today's call are Michael Sarner, Chief Executive Officer, Chris Rehberger, Chief Financial Officer, Joshua Weinstein, Chief Investment Officer, and Amy Baker, Executive Vice President, Accounting. I will now turn the call over to Amy Baker.

Speaker #1: I will now turn the call over to Amy Baker.

Speaker #2: Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management's expectations/assumptions and beliefs.

Amy Baker: Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management's 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 such statements. For information concerning these risks and uncertainties, see Capital Southwest publicly available filings with the SEC. The company does not undertake any obligation to 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, except as required by law. I will now hand the call over to our President and Chief Executive Officer, Michael Sarner.

Speaker #2: 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 such statements.

Speaker #2: For information concerning these risks and uncertainties, see CAPITAL SOUTHWEST publicly available filings with the SEC. The company does not undertake any obligation to 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 except as required by law.

Amy Baker: For information concerning these risks and uncertainties, see Capital Southwest publicly available filings with the SEC. The company does not undertake any obligation to 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, except as required by law. I will now hand the call over to our President and Chief Executive Officer, Michael Sarner.

Speaker #2: I will now hand the call over to our President and Chief Executive Officer, Michael Sarner.

Speaker #3: Thanks, Amy. And thank you, everyone, for joining us for our fourth quarter fiscal year 2026 earnings call. We're pleased to be with you today to discuss our fourth fiscal quarter and the 2026 fiscal year.

Michael Sarner: Thanks, Amy. Thank you everyone for joining us for our Q4 fiscal year 2026 earnings call. We're pleased to be with you today to discuss our Q4 fiscal quarter and the 2026 fiscal year. Overall, 2026 was an outstanding year for Capital Southwest by any measure. During the year, we grew our investment portfolio by approximately $300 million, or 17%, from $1.8 billion to $2.1 billion. Deal activity was robust with $762 million in new committed investment originations. Additionally, we grew investment income by $28 million or 14%, from $204 million to $232 million. Despite a backdrop of pronounced volatility, we preserved the value of our portfolio.

Speaker #3: Overall, 2026 was an outstanding year for CAPITAL SOUTHWEST by any measure. During the year, we grew our investment portfolio by approximately $300 million, or 17%, from $1.8 billion to $2.1 billion.

Speaker #3: Deal activity was robust, with $762 million in new committed investment originations, additionally we grew investment income by $28 million, or 14%, from $204 million to $232 million, and despite a backdrop of pronounced volatility, we preserved the value of our portfolio.

Michael Sarner: Additionally, we grew investment income by $28 million or 14%, from $204 million to $232 million. Despite a backdrop of pronounced volatility, we preserved the value of our portfolio.NAV per share closed the year at $16.69, essentially unchanged from $16.70 in the prior year, underscoring the resilience of our platform and the durability of our underwriting.

Speaker #3: NAV per share closed the year at $16.69, essentially unchanged from $16.70 in the prior year. Underscoring the resilience of our platform and the durability of our underwriting, as a result of our consistent investment strategy and strong operating performance, we've delivered an industry-leading 40% return on equity for our shareholders during fiscal year 2026.

Michael Sarner: NAV per share closed the year at $16.69, essentially unchanged from $16.70 in the prior year, underscoring the resilience of our platform and the durability of our underwriting. As a result of our consistent investment strategy and strong operating performance, we've delivered an industry-leading 40% return on equity for our shareholders during fiscal year 2026. Despite relentless market disruptions this year, from Liberation Day to the private credit contagion to the conflict in Iran, we continue to execute with consistency.

Michael Sarner: As a result of our consistent investment strategy and strong operating performance, we've delivered an industry-leading 40% return on equity for our shareholders during fiscal year 2026. Despite relentless market disruptions this year, from Liberation Day to the private credit contagion to the conflict in Iran, we continue to execute with consistency.The market has recognized that stability and our stock performance reflects the value of our approach.

Speaker #3: Despite relentless market disruptions this year, from Liberation Day to the private credit contagion to the conflict in Iran, we continue to execute with consistency.

Speaker #3: The market has recognized that stability and our stock performance reflects the value of our approach. The quality of our debt portfolio remains strong, reflected in a weighted average leverage of 3.6 times, weighted average interest coverage of 3.5 times, and non-accruals of 1.1% at fair value, down from 1.7% in the prior year.

Michael Sarner: The market has recognized that stability and our stock performance reflects the value of our approach. The quality of our debt portfolio remains strong, reflected in a weighted average leverage of 3.6x, weighted average interest coverage of 3.5x, and non-accruals of 1.1% at fair value, down from 1.7% in the prior year. During the quarter, we saw improved performance across our watch list, with 7 companies demonstrating meaningful progress and 2 removed from the watch list following a return to plan. We attribute much of this improvement to our portfolio operations group, which works closely with our deal teams on credits that require additional support. This team is driving tangible value at the portfolio level, which in turn contributes to stronger overall performance and enhanced long-term shareholder value.

Michael Sarner: The quality of our debt portfolio remains strong, reflected in a weighted average leverage of 3.6x, weighted average interest coverage of 3.5x, and non-accruals of 1.1% at fair value, down from 1.7% in the prior year. During the quarter, we saw improved performance across our watch list, with 7 companies demonstrating meaningful progress and 2 removed from the watch list following a return to plan.

Speaker #3: During the quarter, we saw improved performance across our watchlist, with seven companies demonstrating meaningful progress and two removed from the watchlist following a return to plan.

Speaker #3: We attribute much of this improvement to our portfolio operations group, which works closely with our deal teams on credits that require additional support. This team is driving tangible value at the portfolio level, which in turn contributes to stronger overall performance and enhanced long-term shareholder value.

Michael Sarner: We attribute much of this improvement to our portfolio operations group, which works closely with our deal teams on credits that require additional support. This team is driving tangible value at the portfolio level, which in turn contributes to stronger overall performance and enhanced long-term shareholder value.Additionally, our equity portfolio continues to perform well with net unrealized appreciation of $37.8 million or $0.62 per share as of the end of fiscal year 2026.

Speaker #3: Additionally, our equity portfolio continues to perform well, with net unrealized appreciation of $37.8 million or 62 cents per share. As of the end of fiscal year 2026, we anticipate that a portion of this appreciation will be harvested as realized gains in fiscal year 2027, and thus will be available in our UTI bucket to support future dividend distributions.

Michael Sarner: Additionally, our equity portfolio continues to perform well with net unrealized appreciation of $37.8 million or $0.62 per share as of the end of fiscal year 2026. We anticipate that a portion of this appreciation will be harvested as realized gains in fiscal year 2027 and thus will be available in our UTI bucket to support future dividend distributions. With $1.07 per share of undistributed taxable income, we are entering the year from a position of strength. Over the last 12 months, we have harvested $36.9 million in realized gains from equity exits, driving UTI growth from $0.79 per share in March 2025 to today's level.

Michael Sarner: We anticipate that a portion of this appreciation will be harvested as realized gains in fiscal year 2027 and thus will be available in our UTI bucket to support future dividend distributions. With $1.07 per share of undistributed taxable income, we are entering the year from a position of strength. Over the last 12 months, we have harvested $36.9 million in realized gains from equity exits, driving UTI growth from $0.79 per share in March 2025 to today's level.

Speaker #3: With $1.07 per share of undistributed taxable income, we are entering the year from a position of strength. Over the last 12 months, we have harvested $36.9 million in realized gains from equity exits, driving UTI growth from $0.79 per share in March 2025 to today's level.

Speaker #3: Our UTI balance highlights both the reliability of our realization engine and our conservative approach to dividend distributions when base rates were elevated, resulting in a meaningful balance of taxable income, which we intend to distribute to our shareholders over time.

Michael Sarner: Our UTI balance highlights both the reliability of our realization engine and our conservative approach to dividend distributions when base rates were elevated, resulting in a meaningful balance of taxable income which we intend to distribute to our shareholders over time. Looking ahead, we are confident in our ability to continue generating realized gains that will support and expand our UTI balance. That confidence is grounded in the strength of our investment strategy in the lower middle market. At origination, we typically see three distinct avenues for equity value creation. First, new investments often present low-hanging fruit opportunities, operational or strategic adjustments the sponsor can implement immediately to drive meaningful EBITDA uplift. Second, following a change of control, the sponsor and management team activate a set of targeted growth initiatives designed to accelerate both revenue expansion and margin improvement.

Speaker #3: Looking ahead, we are confident in our ability to continue generating realized gains that will support and expand our UTI balance. That confidence is grounded in the strength of our investment strategy in the lower middle market.

Speaker #3: At Origination, we typically see three distinct avenues for equity value present low-hanging fruit opportunities, operational or strategic adjustments the sponsor can implement immediately to drive meaningful EBITDA uplift.

Michael Sarner: At origination, we typically see three distinct avenues for equity value creation. First, new investments often present low-hanging fruit opportunities, operational or strategic adjustments the sponsor can implement immediately to drive meaningful EBITDA uplift. Second, following a change of control, the sponsor and management team activate a set of targeted growth initiatives designed to accelerate both revenue expansion and margin improvement.

Speaker #3: Second, following a change of control, the sponsor and management team activate a set of targeted growth initiatives designed to accelerate both revenue expansion and margin improvement.

Speaker #3: Third, in many cases, the team has already identified actionable M&A opportunities that can further scale the platform, broaden its capabilities, and diversify the business.

Michael Sarner: Third, in many cases, the team has already identified actionable M&A opportunities that can further scale the platform, broaden its capabilities, and diversify the business. As EBITDA grows and the business becomes more resilient and diversified, we expect these initiatives to enhance enterprise value and ultimately result in realized gains on our equity investments. We were also extremely active during the year in diversifying our sources of capital. We raised over $465 million in new debt capital commitments in the form of $350 million, 5.9% fund issuance, $90 million in approved leverage commitments for our second SBIC fund, and an additional $25 million in new secured debt commitments on our corporate credit facility.

Speaker #3: As EBITDA grows and the business becomes more resilient and diversified, we expect these initiatives to enhance enterprise value and ultimately result in realized gains on our equity investments.

Speaker #3: We were also extremely active during the year in diversifying our sources of capital. We raised over $465 million in new debt capital commitments in the form of $350 million, $5.9% bond issuance, $90 million in approved leverage commitments for our second SBIC fund, and an additional $25 million in new secured debt commitments on our corporate credit facility.

Michael Sarner: We raised over $465 million in new debt capital commitments in the form of $350 million, 5.9% fund issuance, $90 million in approved leverage commitments for our second SBIC fund, and an additional $25 million in new secured debt commitments on our corporate credit facility.Additionally, we raised over $160 million in gross equity proceeds on our ATM program during the year at a weighted average price of 1.3x the prevailing NAV per share.

Speaker #3: Additionally, we raised over $160 million in gross equity proceeds on our ATM program during the year at a weighted average price of $1.3 times the prevailing NAV per share.

Michael Sarner: Additionally, we raised over $160 million in gross equity proceeds on our ATM program during the year at a weighted average price of 1.3x the prevailing NAV per share. Having continual access to the public equity market through the ATM program is a tremendous tool which we can use in all market environments. We have also made meaningful progress on CapTren Partners, our joint venture with Trinity Capital. The JV now holds approximately $85 million in assets, and we expect to continue originating low-leverage, high-quality investments within this structure. Subsequent to quarter end, we closed a $150 million revolving credit facility, further expanding the JV's capacity and competitiveness. This facility provides the liquidity to meaningfully increase the scale of our joint venture over time and advance rates that should produce a 13% to 14% return once fully ramped.

Speaker #3: Having continual access to the public equity market through the ATM program is a tremendous tool, which we can use in all market environments. We have also made meaningful progress on CAPTRIN partners, our joint venture with Trinity Capital.

Michael Sarner: Having continual access to the public equity market through the ATM program is a tremendous tool which we can use in all market environments. We have also made meaningful progress on CapTren Partners, our joint venture with Trinity Capital. The JV now holds approximately $85 million in assets, and we expect to continue originating low-leverage, high-quality investments within this structure.

Speaker #3: The JV now holds approximately $85 million in assets, and we expect to continue originating low-leverage, high-quality investments within this structure. Subsequent to quarter-end, we closed at $150 million revolving credit facility, further expanding the JV's capacity and competitiveness.

Michael Sarner: Subsequent to quarter end, we closed a $150 million revolving credit facility, further expanding the JV's capacity and competitiveness. This facility provides the liquidity to meaningfully increase the scale of our joint venture over time and advance rates that should produce a 13% to 14% return once fully ramped.From a relationship standpoint, we could not be more impressed with Kyle and the entire Trinity team, and we look forward to exploring additional avenues where we can create value for both organizations.

Speaker #3: This facility provides the liquidity to meaningfully increase the scale of our joint venture over time, and advance rates that should produce a 13 to 14 percent return once fully ramped.

Speaker #3: From a relationship standpoint, we could not be more impressed with Kyle and the entire Trinity teams, and we look forward to exploring additional avenues where we can create value for both organizations.

Michael Sarner: From a relationship standpoint, we could not be more impressed with Kyle and the entire Trinity team, and we look forward to exploring additional avenues where we can create value for both organizations. Finally, this year we continued our long track record of producing steady dividend distributions, consistent dividend coverage, and solid value creation. Despite a year in which SOFR shrunk by approximately 60 basis points, we increased our total dividends paid from $2.54 per share in fiscal year 2025 to $2.56 per share in fiscal year 2026. Dividend sustainability, strong credit performance, and continued access to capital from multiple capital sources are all core to our overall business strategy. Our track record in all these areas demonstrates consistent performance as well as the absolute alignment of all our decisions with the interests of our fellow shareholders.

Speaker #3: Finally, this year we continued our long track record of producing steady dividend distributions consistent dividend coverage and solid value creation. Despite a year in which SOFR shrunk by approximately 60 basis points, we increased our total dividends paid from $2.54 per share in fiscal year 2025 to $2.56 per share in fiscal year 2026.

Michael Sarner: Finally, this year we continued our long track record of producing steady dividend distributions, consistent dividend coverage, and solid value creation. Despite a year in which SOFR shrunk by approximately 60 basis points, we increased our total dividends paid from $2.54 per share in fiscal year 2025 to $2.56 per share in fiscal year 2026. Dividend sustainability, strong credit performance, and continued access to capital from multiple capital sources are all core to our overall business strategy.

Speaker #3: Dividends sustainability, strong credit performance, and continued access to capital from multiple capital sources are all core to our overall business strategy. Our track record in all these areas demonstrates consistent performance as well as the absolute alignment of all our decisions with the interests of our fellow shareholders.

Michael Sarner: Our track record in all these areas demonstrates consistent performance as well as the absolute alignment of all our decisions with the interests of our fellow shareholders.Although broader middle market M&A headlines have highlighted a slowdown tied to technology uncertainty, AI-related risks, and inflation concerns stemming from the conflict in Iran, our vantage point in the lower middle market tells a very different story. Activity in this segment has historically been, and continues to be, remarkably steady.

Speaker #3: Although broader middle market M&A headlines have highlighted a slowdown tied to technology uncertainty, AI-related risks, and inflation concerns stemming from the conflict in Iran, our vantage point in the lower middle market tells a very different story.

Michael Sarner: Although broader middle market M&A headlines have highlighted a slowdown tied to technology uncertainty, AI-related risks, and inflation concerns stemming from the conflict in Iran, our vantage point in the lower middle market tells a very different story. Activity in this segment has historically been, and continues to be, remarkably steady. Founder-driven catalysts such as retirement, succession planning, estate considerations, and the desire to de-risk after years of value creation do not fluctuate with macro sentiment or quarterly volatility. As a result, the lower middle market consistently offers a more resilient and predictable transaction environment, a characteristic that remains significantly underappreciated. From a Capital Southwest perspective, we've seen a meaningful increase in new deals reviewed, advanced, and ultimately closed. However, our close rate, which has historically averaged roughly 2%, has moderated to 1.5%.

Speaker #3: Activity in this segment has historically been and continues to be remarkably steady. Founder-driven catalysts such as retirement, succession planning, estate considerations, and the desire to de-risk after years of value creation do not fluctuate with macro sentiment or quarterly volatility.

Michael Sarner: Founder-driven catalysts such as retirement, succession planning, estate considerations, and the desire to de-risk after years of value creation do not fluctuate with macro sentiment or quarterly volatility. As a result, the lower middle market consistently offers a more resilient and predictable transaction environment, a characteristic that remains significantly underappreciated. From a Capital Southwest perspective, we've seen a meaningful increase in new deals reviewed, advanced, and ultimately closed.

Speaker #3: As a result, the lower middle market consistently offers a more resilient and predictable transaction environment, a characteristic that remains significantly underappreciated. From a capital perspective, Southwest perspective, we've seen a meaningful increase in new deals reviewed advanced and ultimately closed.

Michael Sarner: However, our close rate, which has historically averaged roughly 2%, has moderated to 1.5%.This decline reflects our continued discipline in pricing and structuring transactions based on the risk we underwrite, not simply the terms required to win a deal. We attribute the increase in deal flow to the continued development of our deal leads, the addition of two managing directors and the joint venture, which has enhanced our competitiveness on higher quality opportunities.

Speaker #3: However, our close rate, which has historically averaged roughly 2%, has moderated to 1.5%. This decline reflects our continued discipline in pricing and structuring transactions based on the risk we underwrite, not simply the terms required to win a deal.

Michael Sarner: This decline reflects our continued discipline in pricing and structuring transactions based on the risk we underwrite, not simply the terms required to win a deal. We attribute the increase in deal flow to the continued development of our deal leads, the addition of two managing directors and the joint venture, which has enhanced our competitiveness on higher quality opportunities. Despite this increase in deal flow, we've also seen tightening in leverage levels and loan-to-value ratios, underscoring the importance of maintaining our disciplined approach as the market continues to reprice risk. In summary, we are extremely proud of our performance throughout fiscal year 2026, and we remain confident in the long-term prospects for our company and the opportunities ahead. I'll now hand the call over to Josh to review some more specifics of our investment activity.

Speaker #3: We attribute the increase in deal flow to the continued development of our deal leads, the addition of two managing directors, and the joint venture, which has enhanced our competitiveness on higher-quality opportunities.

Speaker #3: Despite this increase in deal flow, we've also seen tightening in leverage levels and loan-to-value ratios, underscoring the importance of maintaining our disciplined approach as the market continues to reprice risk.

Michael Sarner: Despite this increase in deal flow, we've also seen tightening in leverage levels and loan-to-value ratios, underscoring the importance of maintaining our disciplined approach as the market continues to reprice risk. In summary, we are extremely proud of our performance throughout fiscal year 2026, and we remain confident in the long-term prospects for our company and the opportunities ahead. I'll now hand the call over to Josh to review some more specifics of our investment activity.

Speaker #3: In summary, we are extremely proud of our performance throughout fiscal year 2026, and we remain confident in the long-term prospects for our company and the opportunities ahead.

Speaker #3: I'll now hand the call over to Josh to review some more specifics of our investment activity.

Speaker #5: Thanks, Michael. This quarter, we deployed a total of $158 million of new committed capital, consisting of $112 million in first-lien senior secured debt and $2 million of equity across five new portfolio companies.

Joshua Weinstein: Thanks, Michael. This quarter, we deployed a total of $158 million of new committed capital, consisting of $112 million in first-lien senior secured debt and $2 million of equity across 5 new portfolio companies. We also completed add-on financings for 12 existing portfolio companies, totaling $43 million in first-lien senior secured debt and $650 thousand in equity. Add-on financing continued to be an important source of originations for us as over the last 12 months, add-ons as a percent of total new commitments have been 31%. These opportunities allow us to deploy capital into businesses we know well with proven management teams and sponsors. The weighted average spread on our new commitments this quarter was approximately 6.6%, which we view as extremely attractive given today's competitive spread environment.

Speaker #5: We also completed add-on financings for 12 existing portfolio companies, totaling $43 million in first-lean senior secured debt and $650,000 in equity. Add-on financing continued to be an important source of origination for us.

Speaker #5: As over the last 12 months, add-ons as a percent of total new commitments have been 31%. These opportunities allow us to deploy capital into businesses we know well, with proven management teams and sponsors.

Speaker #5: The weighted average spread on our new commitments this quarter was approximately 6.6%, which we view as extremely attractive given today's competitive spread environment. Our on-balance sheet credit portfolio ended the quarter at $1.9 billion, representing 19% year-over-year growth from $1.6 billion as of March 2025.

Joshua Weinstein: Our on-balance sheet credit portfolio ended the quarter at $1.9 billion, representing 19% year-over-year growth from $1.6 billion as of March 2025. Importantly, 100% of our new portfolio company debt originations were first-lien senior secured. As of quarter end, 99% of the credit portfolio remained first-lien senior secured with a weighted average exposure per company of only 0.9%. This level of portfolio granularity reflects our disciplined approach to risk management as we continue to scale the balance sheet. The vast majority of our deal activity continues to be in first-lien senior secured loans to private equity-backed companies. Approximately 93% of our credit portfolio is sponsor-backed, which provides strong governance, operational support, and when needed, the potential for junior capital.

Speaker #5: Importantly, 100% of our new portfolio company debt originations were first-lean senior secured, and as of quarter-end, 99% of the credit portfolio remained first-lean senior secured, with a weighted average exposure per company of only 0.9%.

Speaker #5: This level of portfolio granularity reflects our disciplined approach to risk management as we continue to scale the balance sheet. The vast majority of our deal activity continues to be in first-lean senior secured loans to private equity-backed companies, approximately 93% of our credit portfolio is sponsor-backed, which provides strong governance, operational support, and, when needed, the potential for junior capital.

Joshua Weinstein: The vast majority of our deal activity continues to be in first-lien senior secured loans to private equity-backed companies. Approximately 93% of our credit portfolio is sponsor-backed, which provides strong governance, operational support, and when needed, the potential for junior capital.In the lower middle market, we frequently have the opportunity to invest on a minority basis in the equity of our portfolio companies, pari passu with the private equity firm when we believe the equity thesis is compelling.

Speaker #5: In the lower middle market, we frequently have the opportunity to invest on a minority basis in the equity of our portfolio companies, Perry Pursue with the private equity firm when we believe the equity thesis is compelling.

Joshua Weinstein: In the lower middle market, we frequently have the opportunity to invest on a minority basis in the equity of our portfolio companies, pari passu with the private equity firm when we believe the equity thesis is compelling. As of quarter end, our equity co-investment portfolio consisted of 87 investments with a total fair value of $181 million, representing 9% of our total portfolio at fair value. This portfolio was marked at 126% of our cost, representing $37.8 million of embedded unrealized appreciation or $0.62 per share. These equity positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses, driven by both operational improvements and strategic add-on acquisitions. The lower middle market remains competitive as this segment of the market continue to attract both bank and non-bank lenders.

Speaker #5: As of quarter-end, our equity co-investment portfolio consisted of 87 investments with a total fair value of $181 million, representing 9% of our total portfolio at fair value.

Joshua Weinstein: As of quarter end, our equity co-investment portfolio consisted of 87 investments with a total fair value of $181 million, representing 9% of our total portfolio at fair value. This portfolio was marked at 126% of our cost, representing $37.8 million of embedded unrealized appreciation or $0.62 per share. These equity positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses, driven by both operational improvements and strategic add-on acquisitions.

Speaker #5: This portfolio was marked at 126% of our cost, representing 37.8 million of embedded unrealized appreciation, or 62 cents per share. These equity positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses, driven by both operational improvements and strategic add-on acquisitions.

Speaker #5: The lower middle market remains competitive as this segment of the market continues to attract both bank and non-bank lenders. Although this environment has produced tighter loan pricing for higher-quality opportunities, the depth and durability of our sponsor relationships our team has built combined with the enhanced deal flow generated by our expanded and more seasoned investment staff continue to position us transactions with compelling risk-return profiles.

Joshua Weinstein: The lower middle market remains competitive as this segment of the market continue to attract both bank and non-bank lenders.Although this environment has produced tighter loan pricing for higher quality opportunities, the depth and durability of our sponsor relationships our team has built, combined with the enhanced deal flow generated by our expanded and more seasoned investment staff, continue to position us to source and win transactions with compelling risk-return profiles.

Joshua Weinstein: Although this environment has produced tighter loan pricing for higher quality opportunities, the depth and durability of our sponsor relationships our team has built, combined with the enhanced deal flow generated by our expanded and more seasoned investment staff, continue to position us to source and win transactions with compelling risk-return profiles. Today, our portfolio includes investments from 88 unique private equity firms, and over the past 12 months, we closed 13 new platform investments with sponsors with which we had not previously partnered. Since launching our credit strategy, we have completed transactions with over 130 private equity firms nationwide, including more than 20% with whom we have completed multiple deals.

Speaker #5: Today, our portfolio includes investments from 88 unique private equity firms and, over the past 12 months, we closed 13 new platform investments with sponsors with which we had not previously partnered.

Joshua Weinstein: Today, our portfolio includes investments from 88 unique private equity firms, and over the past 12 months, we closed 13 new platform investments with sponsors with which we had not previously partnered. Since launching our credit strategy, we have completed transactions with over 130 private equity firms nationwide, including more than 20% with whom we have completed multiple deals.

Speaker #5: Since launching our credit strategy, we have completed transactions with over 130 private equity firms nationwide, including more than 20% with whom we have completed multiple deals.

Speaker #5: Our portfolio now consists of 131 portfolio companies, allocated 90.1% to first-lien senior secured debt, 1.2% to second-lien senior secured debt, and 8.6% to equity co-investments.

Joshua Weinstein: Our portfolio now consists of 131 portfolio companies, allocated 90.1% to first-lien senior secured debt, 1.2% to second-lien senior secured debt, and 8.6% to equity co-investments. The credit portfolio generated a weighted average yield of 10.8% with weighted average leverage through our security of 3.6x EBITDA. We remain pleased with the overall performance of the portfolio. At origination, all loans are initially assigned an investment rating of 2 on a 5-point scale, with 1 being the highest rating and 5 being the lowest rating. As of quarter end, 88% of the portfolio at fair value was rated in the top 2 categories. Cash flow coverage remains strong at 3.5x, reflecting an improvement from the 2.9x low observed during the peak of base rates.

Speaker #5: The credit portfolio generated a weighted average yield of 10.8% with weighted average leverage through our security of 3.6 times EBITDA. We remain pleased with the overall performance of the portfolio.

Speaker #5: At origination, all loans are initially assigned an investment rating of 2 on a five-point scale, with 1 being the highest rating and 5 being the lowest rating.

Joshua Weinstein: At origination, all loans are initially assigned an investment rating of 2 on a 5-point scale, with 1 being the highest rating and 5 being the lowest rating. As of quarter end, 88% of the portfolio at fair value was rated in the top 2 categories. Cash flow coverage remains strong at 3.5x, reflecting an improvement from the 2.9x low observed during the peak of base rates.This strength is further supported by the fact that our loans represent, on average, only 43% of portfolio company enterprise value.

Speaker #5: As of quarter-end, 88% of the portfolio at fair value was rated in the top two categories: cash flow coverage remains strong at 3.5 times, reflecting an improvement from the 2.9 times low observed during the peak of base rates.

Speaker #5: This strength is further supported by the fact that our loans represent, on average, only 43% of portfolio company enterprise value. Our portfolio remains broadly diversified across industries, and our average exposure per company of less than 1% continues to provide meaningful protection against idiosyncratic risk.

Joshua Weinstein: This strength is further supported by the fact that our loans represent, on average, only 43% of portfolio company enterprise value. Our portfolio remains broadly diversified across industries, and our average exposure per company of less than 1% continues to provide meaningful protection against idiosyncratic risk. For new platform deals closed during Q1, weighted average senior leverage was 2.7x debt to EBITDA and weighted average loan-to-value was 33%, providing a substantial equity cushion beneath our debt. Over the past 12 months, new platform originations have averaged 3.1x senior leverage and 35% loan-to-value.

Joshua Weinstein: Our portfolio remains broadly diversified across industries, and our average exposure per company of less than 1% continues to provide meaningful protection against idiosyncratic risk. For new platform deals closed during Q1, weighted average senior leverage was 2.7x debt to EBITDA and weighted average loan-to-value was 33%, providing a substantial equity cushion beneath our debt.

Speaker #5: For new platform deals closed during the March quarter, weighted average senior leverage was 2.7 times debt-to-EBITDA, and weighted average loan-to-value was 33%, providing a substantial equity cushion beneath our debt.

Speaker #5: Over the past 12 months, new platform originations have averaged 3.1 times senior leverage and 35% loan-to-value, underscoring our consistent commitment to conservative underwriting. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter.

Joshua Weinstein: Over the past 12 months, new platform originations have averaged 3.1x senior leverage and 35% loan-to-value.Underscoring our consistent commitment to conservative underwriting. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter.

Michael Sarner: Underscoring our consistent commitment to conservative underwriting. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter.

Speaker #6: Thanks, Josh. Specific to our performance for the quarter, pre-tax net investment income was $35.2 million, or 59 cents per share. For the quarter, total investment income decreased to $57.8 million, from $61.4 million in the prior quarter.

Chris Rehberger: Thanks, Josh. Specific to our performance for the quarter, pre-tax net investment income was $35.2 million, or $0.59 per share. For the quarter, total investment income decreased to $57.8 million from $61.4 million in the prior quarter. The decrease was primarily driven by a $2.2 million decrease in interest and dividend income and a decrease of $0.8 million in PIK income. The decrease in interest income was predominantly driven by a 35 basis point decrease in SOFR compared to the prior quarter. As of the end of the quarter, our loans on non-accrual represented 1.1% of our investment portfolio at fair value, a decrease from 1.5% as of the end of the prior quarter.

Speaker #6: The decrease was primarily driven by a $2.2 million decrease in interest and dividend income and a decrease of $0.8 million in PIC income. The decrease in interest income was predominantly driven by a 35 basis point decrease in SOFR compared to the prior quarter.

Speaker #6: As of the end of the quarter, our loans on non-accrual represented 1.1% of our investment portfolio at fair value, a decrease from 1.5% as of the end of the prior quarter.

Chris Rehberger: As of the end of the quarter, our loans on non-accrual represented 1.1% of our investment portfolio at fair value, a decrease from 1.5% as of the end of the prior quarter.During the quarter, we paid a $0.58 per share regular dividend paid monthly and a $0.06 per share supplemental quarterly dividend.

Speaker #6: During the quarter, we paid a $58 cent per share regular dividend, paid monthly, and a 6 cent per share supplemental quarterly dividend. For the June 2026 quarter, our board has again declared a total of $58 cents per share, in regular quarterly dividends, payable monthly, in each of April, May, and June 2026, and maintains the 6 cent supplemental quarterly dividend, also payable in June, bringing total dividends declared to $64 cents per share.

Chris Rehberger: During the quarter, we paid a $0.58 per share regular dividend paid monthly and a $0.06 per share supplemental quarterly dividend. For Q2 2026, our board has again declared a total of $0.58 per share in regular quarterly dividends payable monthly in each of April, May, and June 2026, and maintains the $0.06 supplemental quarterly dividend, also payable in June, bringing total dividends declared to $0.64 per share. We continue to demonstrate strong dividend coverage with 109% cumulative coverage since launching our credit strategy. With a UTI balance of $1.07 per share and a sizable unrealized appreciation balance in our equity portfolio, we remain confident in our ability to continue distributing quarterly supplemental dividends over time.

Chris Rehberger: For Q2 2026, our board has again declared a total of $0.58 per share in regular quarterly dividends payable monthly in each of April, May, and June 2026, and maintains the $0.06 supplemental quarterly dividend, also payable in June, bringing total dividends declared to $0.64 per share. We continue to demonstrate strong dividend coverage with 109% cumulative coverage since launching our credit strategy.

Speaker #6: We continue to demonstrate strong dividend coverage, with 109% cumulative coverage since launching our credit strategy. With the UTI balance of $1.07 per share and a sizable unrealized appreciation balance in our equity portfolio, we remain confident in our ability to continue distributing quarterly supplemental dividends over time.

Chris Rehberger: With a UTI balance of $1.07 per share and a sizable unrealized appreciation balance in our equity portfolio, we remain confident in our ability to continue distributing quarterly supplemental dividends over time.LTM operating leverage ended the quarter at 1.4%, a meaningful improvement from 1.7% in the prior quarter. Notably, this reduction occurred despite the addition of 6 new employees. Going forward, we expect to continue to add resources to our team while maintaining operating leverage in the 1.4% to 1.5% range.

Speaker #6: LCM operating leverage ended the quarter at 1.4%, a meaningful improvement from 1.7% in the prior quarter. Notably, this reduction occurred despite the addition of six new employees.

Chris Rehberger: LTM operating leverage ended the quarter at 1.4%, a meaningful improvement from 1.7% in the prior quarter. Notably, this reduction occurred despite the addition of 6 new employees. Going forward, we expect to continue to add resources to our team while maintaining operating leverage in the 1.4% to 1.5% range. Our operating leverage remains significantly better than the BDC industry median of approximately 2.7%, underscoring the inherent efficiency of the internally managed BDC model. This structure has consistently delivered meaningful fixed cost leverage to shareholders while still enabling us to invest in talent and infrastructure as we continue to scale a best-in-class BDC plan. NAV per share decreased to $16.69 per share, down from $16.75 per share in the prior quarter.

Speaker #6: Going forward, we expect to continue to add resources to our team while maintaining operating leverage in the 1.4% to 1.5% range. Our operating leverage remains significantly better than the BDC industry median of approximately 2.7%.

Chris Rehberger: Our operating leverage remains significantly better than the BDC industry median of approximately 2.7%, underscoring the inherent efficiency of the internally managed BDC model. This structure has consistently delivered meaningful fixed cost leverage to shareholders while still enabling us to invest in talent and infrastructure as we continue to scale a best-in-class BDC plan. NAV per share decreased to $16.69 per share, down from $16.75 per share in the prior quarter.

Speaker #6: Underscoring the inherent efficiency of the internally managed BDC model. This structure has consistently delivered meaningful fixed-cost leverage to shareholders, while still enabling us to invest in talent and infrastructure as we continue to scale a best-in-class BDC platform.

Speaker #6: NAV per share decreased to $16.69 per share, down from $16.75 per share in the prior quarter. The primary drivers of the NAV per share decline for the quarter were net realized and unrealized appreciation on our investment portfolio, offset by accretion from our equity ATM program.

Chris Rehberger: The primary drivers of the NAV per share decline for the quarter were net realized and unrealized appreciation on our investment portfolio, offset by accretion from our equity ATM program. We raised approximately $25 million in gross equity proceeds during the quarter through our equity ATM program at a weighted average share price of $23.13 per share, or 138% of the prevailing NAV per share, reinforcing our ability to raise capital efficiently and accretively. Our liquidity position remains robust, with approximately $394 million in cash and undrawn leverage commitments across our two credit facilities, plus $42 million available on SBA debentures. In total, this represents more than 1.3 times coverage of the $329 million in unfunded commitments across the portfolio. Regulatory leverage ended the quarter at 0.9 to 1 debt to equity.

Speaker #6: We raised approximately $25 million in gross equity proceeds during the quarter through our equity ATM program at a weighted average share price of $23.13 per share, or 138% of the prevailing NAV per share.

Speaker #6: Reinforcing our ability to raise capital efficiently and accretively. Our liquidity position remains robust, with approximately $394 million in cash and undrawn leverage commitments across our two credit facilities, plus $42 million available on SBA debentures.

Chris Rehberger: Our liquidity position remains robust, with approximately $394 million in cash and undrawn leverage commitments across our two credit facilities, plus $42 million available on SBA debentures. In total, this represents more than 1.3 times coverage of the $329 million in unfunded commitments across the portfolio. Regulatory leverage ended the quarter at 0.9 to 1 debt to equity.

Speaker #6: In total, this represents more than $1.3 times coverage of the $329 million in unfunded commitments across the portfolio. Regulatory leverage ended the quarter at 0.9 to 1 debt-to-equity, while our target leverage remains in the 0.85 to 0.95 times range; we continue to factor in the current macroeconomic backdrop and intend to maintain a prudent leverage cushion to help mitigate capital markets volatility.

Chris Rehberger: While our target leverage remains in the 0.85x to 0.95x range, we continue to factor in the current macroeconomic backdrop and intend to maintain a prudent leverage cushion to help mitigate capital markets volatility. We will continue to raise secured and unsecured debt capital as well as equity through our ATM program in a methodical and opportunistic manner to ensure we maintain significant liquidity and a conservatively constructed balance sheet with adequate covenant cushions. I will now hand the call back to Michael Sarner for some final comments.

Speaker #6: We will continue to raise secured and unsecured debt capital, as well as equity through our ATM program. In a methodical and opportunistic manner to ensure we maintain significant liquidity and a conservatively constructed balance sheet with adequate covenant cushions.

Speaker #6: I will now hand the call back to Michael for some final comments.

Speaker #1: Thank you, Chris, Josh, and Amy, and all the employees who helped us tell this story on a quarterly basis. And thank you, everyone, for joining us today.

Michael Sarner: Thank you, Chris, Josh, and Amy, and all the employees who help us tell this story on a quarterly basis. Thank you everyone for joining us today. This concludes our prepared remarks. Operator, we are ready to open the lines up for Q&A.

Speaker #1: This concludes our prepared remarks, Operator. We are ready to open the lines up for Q&A.

Operator: Certainly. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. Our first question comes from the line of Eric Zwick from Lucid Capital Markets. Your question, please.

Speaker #3: Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. Our first question comes from the line of Eric Zwick from Lucid Capital Markets.

Speaker #3: Your question, please.

Eric Zwick: Thank you. Good morning. If I could start, I'm just curious with regard to the unrealized depreciation in the credit portfolio in the quarter, was that primarily related to, you know, changes kind of market multiples or anything kind of more credit specific? Wondering if you could just expand on that a little bit.

Erik Zwick: Thank you. Good morning. If I could start, I'm just curious with regard to the unrealized depreciation in the credit portfolio in the quarter, was that primarily related to, you know, changes kind of market multiples or anything kind of more credit specific? Wondering if you could just expand on that a little bit.

Speaker #6: Thank you. Good morning. If I could start, I'm just curious—with regard to the unrealized depreciation in the credit portfolio in the quarter, was that primarily related to changes in market multiples, or was there anything more credit-specific?

Speaker #6: Wondering if you could just expand on that a little bit.

Speaker #1: Yeah. I think we had one portfolio company that was added to our watchlist that had a write-down, which we have confidence in the company, but it had a fairly large write-down.

Michael Sarner: Yeah, I think we had 1 portfolio company that was added to our watch list that had a write-down, which we have confidence in the company, but it would have a fairly large write-down. The rest, I do think multiples were down quite a bit this quarter, which is sort of an overhang. You know, when we went through our portfolio review, we, you know, we pretty much identified, you know, about 95% of the portfolio was doing exceptionally well. Yet some of those didn't have write-ups because of those multiples. By and large, it was just 1 company, and then the overall market multiple.

Speaker #1: And then the rest, I do think multiples were down quite a bit this quarter, which is sort of an overhang. When we went through our portfolio review, we pretty much identified about 95% of the portfolio was doing exceptionally well.

Michael Sarner: You know, when we went through our portfolio review, we, you know, we pretty much identified, you know, about 95% of the portfolio was doing exceptionally well. Yet some of those didn't have write-ups because of those multiples. By and large, it was just 1 company, and then the overall market multiple.

Speaker #1: And yet some of those didn't have write-ups because of those multiples. But by and large, it was just one company. And then the overall market multiple.

Eric Zwick: Thank you. I appreciate that. Just looking at the trajectory of the dividend income that you received in the most recent year, it was up, you know, markedly from the prior year, from four and a half million to $12.7 million. Curious, you know, how much of that increase is sustainable or how much of that might have been kind of, you know, one-time dividends? Just any outlook, any thoughts on outlook you might have there would be helpful.

Erik Zwick: Thank you. I appreciate that. Just looking at the trajectory of the dividend income that you received in the most recent year, it was up, you know, markedly from the prior year, from four and a half million to $12.7 million. Curious, you know, how much of that increase is sustainable or how much of that might have been kind of, you know, one-time dividends? Just any outlook, any thoughts on outlook you might have there would be helpful.

Speaker #6: Thank you. I appreciate that. And just looking at the trajectory of the dividend income that you received in the most recent year, it was up markedly from the prior year, from $4.5 million to $1.2 million.

Speaker #6: So curious, how much of that increase is sustainable, or how much of that might have been kind of one-time dividends, just any outlook, any thoughts on outlook you might have there would be helpful.

Michael Sarner: Sure. Yeah, we've had a few companies that have done exceptionally well and have been making large distributions. I think that when H1 of this, our fiscal year, we'll continue to see strong distributions from these companies. One or both could be in the market for sale at some point. Maybe that doesn't, you know, bleed into 50 or 28. For the next few quarters, we should expect to continue to see those dividends.

Speaker #1: Sure. Yeah. We've had a few companies that had done exceptionally well and had been making large distributions. I think that when the first half of our fiscal year will continue to see strong distributions from these companies, one or both could be in the market for sale at some point.

Speaker #1: And so maybe that doesn't bleed into fiscal year '28, but for the next few quarters, we should expect to continue to see those dividends.

Eric Zwick: Thanks. Last one for me. You know, as I look at the, you know, space of publicly traded BDCs, Capital Southwest has one of the lowest concentrations of software in the portfolio, which I guess puts you in a more, you know, favorable eye relative to many peers given the current market sentiment. Just curious, you know, why over time have you decided, you know, not to have that much exposure to software? In the instances where you have made some investments, what attracted you to those particular companies?

Erik Zwick: Thanks. Last one for me. You know, as I look at the, you know, space of publicly traded BDCs, Capital Southwest has one of the lowest concentrations of software in the portfolio, which I guess puts you in a more, you know, favorable eye relative to many peers given the current market sentiment. Just curious, you know, why over time have you decided, you know, not to have that much exposure to software? In the instances where you have made some investments, what attracted you to those particular companies?

Speaker #6: Thanks. And last one for me. I look at the space of publicly traded BDCs, capital Southwest has one of the lowest concentrations of software in the portfolio, which I guess puts you in a more favorable eye relative to many peers, given the current market sentiment.

Speaker #6: Just curious, why over time have you decided not to have that much exposure to software and then the instances where you have made some investments?

Speaker #6: What attracted you to those particular companies?

Speaker #1: I think a lot of the software companies, honestly, are generally larger and more venture. So those two together generally wouldn't fit our lens. Same could be said to a lot of these companies also have ARR.

Michael Sarner: I think a lot of the software companies, honestly, are generally larger and more venture. Those two together generally wouldn't fit our lens. The same could be said, a lot of these companies also have ARR, which are, you know, we generally are lending cash flow lenders. We believe that, you know, lending off a multiple of EBITDA is a more conservative and prudent way to underwrite. I think that's generally been the reasons why. It's not that we haven't seen the opportunities, we've just never gotten truly comfortable with them. I don't know, Josh.

Speaker #1: We generally are lending cash flow lenders and we believe that lending off of multiple of EBITDA is a more conservative and prudent way to underwrite.

Speaker #1: So I think that's generally been the reasons why it's not that we haven't seen the opportunities, we just never gotten truly comfortable with them.

Speaker #1: I don't know, Josh, do you have anything?

Joshua Weinstein: Yeah, to Michael's point, we've seen them over the years. We reviewed them. It's just not something any of us really have had a lot of experience with, so we just couldn't really get comfortable or as comfortable with, you know, doing a lot of ARR deals and stuck to our knitting of cash flow lending for the most part.

Speaker #2: Yeah. To Michael's point, we've seen them over the years. We reviewed them. It's just not something any of us really have had a lot of experience with.

Speaker #2: And so we just couldn't really get comfortable or as comfortable with doing a lot of ARR deals. And stuck to our knitting of cash flow lending for the most part.

Eric Zwick: I appreciate that. Just, you know, looking at back across your historical results, you've certainly done very well without it, so it's not like you've needed it. Thanks. I appreciate the insight there.

Erik Zwick: I appreciate that. Just, you know, looking at back across your historical results, you've certainly done very well without it, so it's not like you've needed it. Thanks. I appreciate the insight there.

Speaker #6: I appreciate that. And just looking back across your historical results, you've certainly done very well without it. So it's not like you've needed it.

Speaker #6: So thanks. I appreciate the insight there.

Michael Sarner: Appreciate it.

Speaker #1: I appreciate it.

Speaker #3: Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone.

Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. Our next question comes from the line of Robert Dodd from Raymond James. Your question, please.

Speaker #3: Our next question comes from the line of Robert Dodd from Raymond James. Your question, please.

Robert Dodd: Hi, guys. On the operating efficiency, to your point, you know, the 1.4 to 1.5, the advantage of being internally managed. In this quarter, obviously some expenses seemed pretty low. Another advantage, right? That gets adjusted by the board as you go. Can you give us any color about what was the driver there? Was it not hitting targets on deployment? Was it the fact that NAV was down, which may be temporary, but, you know, can you give us any idea, like what got factored into why that was low in Q4? Just trying to get a feel for what didn't meet your expectations exactly.

Speaker #4: Hi, guys. On the operating efficiencies, your point, the 1.4 to 1.5 and the advantage of being internally managed, in this quarter, obviously, some expenses seemed pretty low.

Speaker #4: Another advantage, right? That gets adjusted by the board as you go. But can you give us any color about what was the driver there?

Speaker #4: Was it not hitting targets on deployment? Was it the fact that NAV was down, which maybe temporary, but can you give us any idea of what got factored into why that was low in the fourth quarter?

Robert Dodd: Was it the fact that NAV was down, which may be temporary, but, you know, can you give us any idea, like what got factored into why that was low in Q4? Just trying to get a feel for what didn't meet your expectations exactly.

Speaker #4: Just trying to get a feel for what didn't meet your expectations exactly.

Michael Sarner: Sure. You know what, I wouldn't frame it that way at all. I think the board and management felt that this was one of our strongest years for a variety of reasons. We had some large fees came in over the year. We had some over accruals into the bonus pool. At the end of the year, you know, the board gets together to basically determine what they think that the final number would look like. We, you know, from where we had accrued through 3 quarters to where the payout was in Q4, we had some that was backed out.

Speaker #1: Sure. And you know what? I wouldn't frame it that way at all. I think we felt that this was one of our strongest years, for a variety of reasons.

Speaker #1: But we had accrued essentially, we had some large fees that came in over the year. We had some over-accruals into the bonus. Pool. And then at the end of the year, the board gets together to basically determine whether they think that the final number would look like.

Michael Sarner: At the end of the year, you know, the board gets together to basically determine what they think that the final number would look like. We, you know, from where we had accrued through 3 quarters to where the payout was in Q4, we had some that was backed out.We paid over 100% in all cases for our employees, and again, would frame this quarter, this year as a very successful one.

Speaker #1: And so we from where we had accrued through three quarters to where the payout was in the fourth quarter, we had some that was backed out.

Speaker #1: But we paid over 100% in all cases for our employees. And again, I would frame this year as a very successful one.

Michael Sarner: We paid over 100% in all cases for our employees, and again, would frame this quarter, this year as a very successful one.

Speaker #2: Yeah, Robert, I'll just jump in and, sort of, going forward—because it was kind of low in the last quarter—total compensation expense is sort of in the $5.5 million per quarter range.

Joshua Weinstein: Yeah, Robert, I'll just jump in. Sort of going forward, because it was kind of low in Q4. You know, total compensation expense is sort of in the $5.5 million per quarter range. You know, that'll vacillate a little bit based on the discussion we just had, but that's sort of what you can expect going forward.

Speaker #2: That'll vacillate a little bit based on the discussion we just had. But that's sort of what you can expect going forward.

Speaker #4: Got it. Thank you. Then, on the other one—I mean, to your point—you've got a lot of unrealized appreciation in the equity portfolio.

Robert Dodd: Got it. Thank you. On the other one, I mean, to your point, I mean, you've got a lot of unrealized appreciation in the equity portfolio. Obviously, I don't have the March portfolio, the K's not out yet. If I look at the Q4, I mean, the net number is there's a lot of net unrealized appreciation. As well, I mean, if you look just at the successes, you know, you've got $100 million in appreciation on assets, and then that's offset by some that are down. Just listening to your comments, it sounds like you're very confident some of that is gonna monetize this year.

Speaker #4: Obviously, I don't have the March portfolio, the case not out yet. But if I look at the fourth quarter, I mean, the net number is there's a lot of net unrealized appreciation, but as well.

Speaker #4: I mean, if you look just at the successes, you've got $100 million in appreciation on assets, and then that's offset by some that are down.

Speaker #4: Just listening to your comment, it sounds like you're very confident some of that is going to monetize this year. Now, it might result in lower dividend income.

Robert Dodd: It might result in lower dividend income, but you know. Are there significant processes already underway to sell assets this not, you know, by the sponsor, obviously, to sell assets this year that gives you that level of confidence? I mean, there's some, like ICA Group. I mean, there's a lot of appreciation in that asset, for example, right? Could you give us any incremental, and I know it's a touchy kind of topic, but any incremental info on where the level of confidence comes from? Is it gonna be some of your biggest appreciated assets that are likely to crystallize this year?

Speaker #4: But at the yeah, what are those processes, other significant processes already underway to sell assets? Not by the sponsor, obviously, to sell assets this year that gives you that level of confidence?

Speaker #4: I mean, there's some like ITA Group. I mean, that's there's a lot of appreciation in that asset. For example, right? So can you give us any incremental and I know it's a touchy kind of topic, but any incremental info on where And is it going to be some of your biggest appreciated assets that are likely to crystallize this year?

Robert Dodd: Could you give us any incremental, and I know it's a touchy kind of topic, but any incremental info on where the level of confidence comes from? Is it gonna be some of your biggest appreciated assets that are likely to crystallize this year?

Michael Sarner: Yeah. I think that there's 2 primary sales. I won't get into details, but one has actually been announced publicly that there's an IPO process which would result in us, we have shares in a company. We sold into a company that went public. We'd have the ability to sell those shares, and we have actually floors on what the equity value would look like. That is something we'd expect to see happen in the next 3 months, 4 months. We have another company that's in the market now. It's still in the nascent stages. It is a fairly large position. We feel pretty confident based on where we are that there should be a sale there.

Speaker #1: Yeah. I think that there's two primary sales. I won't get into details, but I mean, one is actually been announced publicly that there's an IPO process, which would result in us we have shares in a company.

Speaker #1: We sold into a company that went public. We'd have the ability to sell those shares, and we have actually floors on what the equity value would look like.

Speaker #1: So that is something that we'd expect to see happen in the next three months or months. And then we have another company that's in the market.

Speaker #1: Now, it's still in the nascent stages. It is a fairly large position, but we feel pretty confident based on where we are that there should be a sale there.

Michael Sarner: It is a fairly large position. We feel pretty confident based on where we are that there should be a sale there.

Michael Sarner: If you look at the cost basis relative to the fair value, obviously there's gonna be a large gains associated that'll go into our UTI bucket. It'll also allow us to reduce our cost of capital because obviously this is appreciation that's realized now becomes the ability to pay down our credit facility and/or raise less shares. All of that gives us confidence both in these exits, in the ability to grow UTI, and the ability to continue to support our dividend going forward.

Speaker #1: If you look at the cost basis relative to the fair value, obviously, there's going to be a large gains associated that'll go into our UTI bucket.

Speaker #1: It'll also allow us to reduce our cost of capital because obviously, this is appreciation. There's realized it's now becomes the ability to pay down our credit facility and/or raise less shares.

Speaker #1: So all of that gives us confidence both in these exits and the ability to grow UTI and the ability to continue to support our dividend going forward.

Robert Dodd: Understood. Understood. Thank you. If I get one more quick one. On the JV, I think you said, expected or the target, kind of return on capital to you from that vehicle is 13% to 14% when fully ramped, obviously. I mean, is the full ramp 18 months? Or, you know, or yeah, I mean, I'm just, you know, kind of what's the kind of timeframe to get to that kind of return in that vehicle with the partner you have?

Speaker #4: Understood. Understood. Thank you. If I got one more quick one. On the JV, I think you said expected or rather target kind of return on capital to you from that vehicle is 13 to 14 percent when fully wrapped, obviously.

Speaker #4: I mean, is that like is the full ramp 18 months? Or yeah, I mean, I'm just kind of what's the kind of time frame to get to that kind of in that vehicle with the partner you have?

Speaker #1: Sure. So I think the notion would be it's going to take at least I'm looking at Chris, 18 to 24 months before we see the full ramp.

Michael Sarner: Sure. I think the notion would be it's gonna take at least, I'm looking at Chris Rehberger, 18 to 24 months before we see the full ramp. I think we're targeting, you know, 2x leverage plus. I think it's gonna take a little bit of time. I would say that we have the capital in-house, the $150 million credit facility, in order to achieve that leverage and achieve that returns. I do think, you know, we're looking at originating $30 to 40 million a quarter in the fund. I think it's gonna take at least a year and a half to two.

Speaker #1: I think we're targeting two times leverage plus and so I think it's going to take a little bit of time. I would say that we have the capital in-house, the 150 million credit facility.

Speaker #1: In order to achieve that leverage and achieve those returns, I do think we're looking at originating $30 to $40 million a quarter in the fund.

Speaker #1: And so I think it's going to take at least a year and a

Chris Rehberger: Yeah. Robert, we're gonna be sort of efficient with the leverage there and try to, you know, being mindful of asset diversity and borrowing base. We'll probably try to ramp the leverage fairly in the fairly short term here. As we look ahead, agree with Michael's comments, it's gonna take kinda 18 months to full ramp. In the next 6 months, this should start producing double-digit returns for Capital Southwest. Call it, you know, 6 months, we're kind of at in the 11% range, we go from there.

Speaker #2: Yeah. So Robert, we're going to be sort of efficient with the leverage there and try to being mindful of asset diversity and borrowing base.

Speaker #2: We'll probably try to ramp the leverage fairly in the short term here. So as we look ahead, agree with Michael's comments, it's going to take kind of 18 months to full ramp.

Speaker #2: But in the next six months, this should start producing double-digit returns for capital Southwest. So call it six months. We're kind of in the 11% range, and then we go from there.

Robert Dodd: Got it. Thank you.

Speaker #4: Got it. Thank you.

Speaker #1: Yep. And Robert, I'd also like to add that the JV in itself, so certainly there's going to be an uplift of a penny or two from this fund by itself.

Michael Sarner: Yeah. Robert, I'd also like to add that the JV in itself, certainly there's gonna be an uplift of a penny or two from this fund by itself. Having this joint venture has been really important to the business in the way of us being able to be more competitive on deals that are priced, you know, somewhere in the, you know, SOFR plus 5 to 5.75, which historically we weren't bidding or winning on.

Speaker #1: But having this joint venture has been really important to the business in the way of us being able to be more competitive on deals that are priced somewhere in the so for plus 5 to 5.75, which historically we weren't bidding or winning on.

Speaker #1: And so today we have the ability to both bid and win on these deals, maintain tight structures, and as well as earning the same type of spreads the 6 to 7 percent spreads that we're used to through the last out positions on these credits.

Michael Sarner: Today we have the ability to both bid and win on these deals, maintain tight structures, and as well as, you know, earning the same type of spreads, the 6% to 7% spreads that we're used to, through the last out positions on these credits.

Speaker #4: Got it. Thank you.

Robert Dodd: Got it. Thank you.

Operator: Thank you. As a reminder, ladies and gentlemen, if you have a question at this time, please press star one one on your telephone. Our next question comes from the line of Sean-Paul Adams from B. Riley Securities. Your question please.

Speaker #5: Thank you. And as a reminder, ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. Our next question comes to the line of Sean Paul Adams from B Riley Securities.

Speaker #5: Your question, please.

Speaker #6: Hey guys, good morning. It looks like you guys have kind of ramped up in terms of employee count and perhaps the deal team.

Sean-Paul Adams: Hey, guys. Good morning. It looks like you guys have kind of ramped up on terms of the employee count and perhaps the deal team. Any color on how, you know, just these changes in, you know, the amount of employees and perhaps the amount of deals passing your desk are gonna, you know, look forward for, you know, next fiscal year's origination activity? Thanks.

Speaker #6: Any color on how just these changes in the amount of employees and perhaps the amount of deals passing your desk are going to look forward for next fiscal year's origination activity?

Speaker #6: Thanks.

Speaker #1: Sure. Sure. Look, when we look back around, what, 15, 18 months ago, we had 27 employees. Today, we have as of the quarter end, we had 36, and we're actually have another 7 coming on.

Michael Sarner: Sure. Sure. Look, when we look back around, what, 15, 18 months ago, we had 27 employees. Today, we have, you know, as of the quarter end, we had 36, and we actually have another 7 coming on. We're gonna actually be up to 43 employees. We built out our operations team over the last 18 months. We've added a new MD, a new Vice President, a new Principal, certainly added more support staff on the back office. The notion here is that, you know, with the new MD we have, with the sort of maturation of the deal leads in place and the ability to continue to win new share and new sponsor relationships, we're just seeing enhanced deal flow.

Speaker #1: So we're actually going to be up to 43 employees. We've built out our operations team over the last 18 months. We've added a new MD.

Speaker #1: A new vice president. A new principal. Certainly added more support staff on the back office. And the notion here is that with the new MD we have, with the maturation of the deal leads in place and the ability to continue to win new share and new sponsor relationships, we're just seeing enhanced deal flow.

Michael Sarner: The notion here is that, you know, with the new MD we have, with the sort of maturation of the deal leads in place and the ability to continue to win new share and new sponsor relationships, we're just seeing enhanced deal flow.2 years ago, I think we saw 800 deals that we looked at. In 1 year, the run right now is around 1,400 deals a year.

Michael Sarner: 2 years ago, I think we saw 800 deals that we looked at. In 1 year, the run right now is around 1,400 deals a year. We are adding staff to support the growth that we're seeing, and to strengthen, you know, the organization to continue to make great decisions, based on having the right people in the right place, you know, having time, and experience to review these opportunities.

Speaker #1: Two years ago, I think we saw 800 deals that we looked at in one year. The run rate now is around 1,400 deals a year.

Speaker #1: So we are adding staff to support the growth that we're seeing. And to strengthen the organization to continue to make great decisions based on having the right people in the right place having time and experience to review these opportunities.

Michael Sarner: We are adding staff to support the growth that we're seeing, and to strengthen, you know, the organization to continue to make great decisions, based on having the right people in the right place, you know, having time, and experience to review these opportunities.

Sean-Paul Adams: Perfect. Thank you for the color.

Speaker #6: Perfect. Thank you for the color.

Operator: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Michael Sarner for any further remarks.

Speaker #5: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Michael Sarner for any further remarks.

Speaker #1: Thank you, operator. And thank you, everyone, for joining us today. Please feel free to call us anytime with questions or get an update on the business.

Michael Sarner: Thank you, operator. Thank you everyone for joining us today. Please feel free to call us anytime with questions or get an update on the business. We look forward to catching up with you next quarter. Goodbye.

Speaker #1: We look forward to catching up with you next quarter. Goodbye.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.