CSWC 10-Q Quarterly Report Dec. 31, 2021 | Alphaminr
CAPITAL SOUTHWEST CORP
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CSWC 10-Q Quarter ended Dec. 31, 2021

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10-Q 1 cswc12312110q.htm 10-Q Document

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

(Mark One)

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

For the quarterly period ended December 31, 2021

OR

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

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

Commission File Number: 814-00061

CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1072796
(State or other jurisdiction of incorporation
or organization) 		(I.R.S. Employer
Identification No.)

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

Registrant's telephone number, including area code: ( 214) 238-5700
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, $0.25 par value per share CSWC The Nasdaq Global Select Market

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

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

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

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

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

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

23,925,703 shares of Common Stock, $0.25 value per share, as of January 28, 2022.


TABLE OF CONTENTS
Page



PART I – FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(In thousands, except shares and per share data)
December 31, March 31,
2021 2021
(Unaudited)
Assets
Investments at fair value:
Non-control/Non-affiliate investments (Cost: $673,871 and $540,556, respectively) $ 691,229 $ 546,028
Affiliate investments (Cost: $136,929 and $90,201, respectively) 127,947 85,246
Control investments (Cost: $76,000 and $72,800, respectively) 57,589 57,158
Total investments (Cost: $886,800 and $703,557, respectively) 876,765 688,432
Cash and cash equivalents 18,668 31,613
Receivables:
Dividends and interest 8,966 10,533
Escrow 1,344 1,150
Other 274 171
Income tax receivable 33 155
Debt issuance costs (net of accumulated amortization of $4,340 and $3,582, respectively) 4,271 2,246
Other assets 2,234 1,284
Total assets $ 912,555 $ 735,584
Liabilities
SBA Debentures (Par value: $29,000 and $0, respectively) $ 27,965 $ —
October 2024 Notes (Par value: $0 and $125,000, respectively) — 122,879
January 2026 Notes (Par value: $140,000 and $140,000, respectively) 138,630 138,425
October 2026 Notes (Par value: $150,000 and $0, respectively) 146,357 —
Credit facility 190,000 120,000
Other liabilities 13,392 11,655
Accrued restoration plan liability 2,853 2,979
Income tax payable 1,527 50
Deferred tax liability 4,494 3,345
Total liabilities 525,218 399,333
Commitments and contingencies (Note 10)
Net Assets
Common stock, $0.25 par value: authorized, 40,000,000 shares; issued, 26,265,215 shares at December 31, 2021 and 23,344,836 shares at March 31, 2021 6,566 5,836
Additional paid-in capital 424,250 356,447
Total distributable (loss) earnings (19,542) (2,095)
Treasury stock - at cost, 2,339,512 shares (23,937) (23,937)
Total net assets 387,337 336,251
Total liabilities and net assets $ 912,555 $ 735,584
Net asset value per share (23,925,703 shares outstanding at December 31, 2021 and 21,005,324 shares outstanding at March 31, 2021) $ 16.19 $ 16.01

The accompanying Notes are an integral part of these Consolidated Financial Statements.
3
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except shares and per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
2021 2020 2021 2020
Investment income:
Interest income:
Non-control/Non-affiliate investments $ 14,805 $ 11,306 $ 42,873 $ 31,010
Affiliate investments 2,116 1,774 4,774 5,715
Control investments — — — —
Payment-in-kind interest income:
Non-control/Non-affiliate investments 614 980 1,717 3,224
Affiliate investments 200 627 951 1,265
Control investments — — — —
Dividend income:
Non-control/Non-affiliate investments — 1,235 1,570 1,589
Affiliate investments 9 — 9 —
Control investments 1,705 1,681 4,862 5,144
Fee income:
Non-control/Non-affiliate investments 2,591 1,394 4,005 2,817
Affiliate investments 267 40 413 107
Control investments — — — —
Other income 4 3 12 18
Total investment income 22,311 19,040 61,186 50,889
Operating expenses:
Compensation 3,353 2,444 7,083 6,125
Share-based compensation 849 771 2,848 2,236
Interest 4,655 4,528 15,015 13,253
Professional fees 607 538 1,956 1,691
General and administrative 1,010 787 2,968 2,339
Total operating expenses 10,474 9,068 29,870 25,644
Income before taxes 11,837 9,972 31,316 25,245
Federal income, excise and other taxes 68 195 283 587
Deferred taxes (130) 1,260 365 1,003
Total income tax provision (benefit) (62) 1,455 648 1,590
Net investment income $ 11,899 $ 8,517 $ 30,668 $ 23,655
Realized gain (loss)
Non-control/Non-affiliate investments $ 4,017 $ (127) $ 6,561 $ (5,325)
Affiliate investments 140 — 140 (1,628)
Control investments — — — —
Income tax provision (1,442) — (1,442) —
Total net realized gain (loss) on investments, net of tax 2,715 (127) 5,259 (6,953)
Net unrealized (depreciation) appreciation on investments
Non-control/Non-affiliate investments 3,165 5,593 12,558 16,417
Affiliate investments (3,849) 245 (4,700) (1,012)
Control investments (2,049) 2,152 (2,769) 11,075
Income tax benefit (provision) 679 (719) (783) (1,968)
Total net unrealized (depreciation) appreciation on investments, net of tax (2,054) 7,271 4,306 24,512
Net realized and unrealized gains on investments 661 7,144 9,565 17,559
Realized loss on extinguishment of debt — (262) (17,087) (548)
Net increase (decrease) in net assets from operations $ 12,560 $ 15,399 $ 23,146 $ 40,666
Pre-tax net investment income per share - basic and diluted $ 0.51 $ 0.52 $ 1.40 $ 1.36
Net investment income per share – basic and diluted $ 0.51 $ 0.45 $ 1.37 $ 1.27
Net increase (decrease) in net assets from operations – basic and diluted $ 0.54 $ 0.80 $ 1.03 $ 2.18
Weighted average shares outstanding – basic and diluted 23,432,522 19,134,824 22,393,935 18,629,463
The accompanying Notes are an integral part of these Consolidated Financial Statements.
4
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
(In thousands)
2021 2020
Net assets, March 31 $ 336,251 $ 272,222
Operations:
Net investment income 9,043 6,819
Net realized (loss) gain on investments (952) (5,547)
Net unrealized appreciation (depreciation) on investments, net of tax 7,051 7,605
Net increase in net assets from operations 15,142 8,877
Dividends to shareholders ($0.53 and $0.51 per share, respectively) (11,528) (9,480)
Capital share transactions:
Change in restoration plan liability 9 9
Issuance of common stock 27,686 5,622
Share-based compensation expense 1,076 612
Common stock withheld for payroll taxes upon vesting of restricted stock (541) (3)
Increase in net assets 31,844 5,637
Net assets, June 30 $ 368,095 $ 277,859
Operations:
Net investment income 9,726 8,319
Net realized gain (loss) on investments, net of tax 3,496 (1,279)
Net unrealized appreciation (depreciation) on investments, net of tax (691) 9,636
Realized loss on extinguishment of debt (17,087) (286)
Net (decrease) increase in net assets from operations (4,556) 16,390
Dividends to shareholders ($0.54 and $0.51 per share, respectively) (12,401) (9,498)
Capital share transactions:
Change in pension plan funded status 9 9
Issuance of common stock 29,880 516
Share-based compensation expense 923 853
Common stock withheld for payroll taxes upon vesting of restricted stock (5) —
Increase in net assets 13,850 8,270
Net assets, September 30 $ 381,945 $ 286,129
Operations:
Net investment income 11,899 8,517
Net realized gain (loss) on investments, net of tax 2,715 (127)
Net unrealized (depreciation) appreciation on investments, net of tax (2,054) 7,271
Realized losses on extinguishment of debt — (262)
Net increase in net assets from operations 12,560 15,399
Dividends to shareholders ($0.97 and $0.51 per share, respectively) (22,917) (10,044)
Capital share transactions:
Change in pension plan funded status 9 8
Issuance of common stock 15,754 20,623
Share-based compensation expense 849 771
Common stock withheld for payroll taxes upon vesting of restricted stock (863) (236)
Increase in net assets 5,392 26,521
Net assets, December 31 $ 387,337 $ 312,650

The accompanying Notes are an integral part of these Consolidated Financial Statements.
5
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
December 31,
2021 2020
Cash flows from operating activities
Net increase in net assets from operations $ 23,146 $ 40,666
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases and originations of investments (410,066) (150,323)
Proceeds from sales and repayments of debt investments in portfolio companies 221,462 70,280
Proceeds from sales and return of capital of equity investments in portfolio companies 11,881 9,782
Payment of accreted original issue discounts 3,133 1,010
Payment of accrued payment-in-kind interest 2,064 —
Depreciation and amortization 1,628 1,478
Net pension benefit (99) (81)
Realized loss on extinguishment of debt 17,103 548
Realized (gain) loss on investments before income tax (6,058) 6,967
Net unrealized appreciation on investments before income tax (5,089) (26,480)
Accretion of discounts on investments (2,177) (1,730)
Payment-in-kind interest (3,550) (5,207)
Share-based compensation expense 2,848 2,236
Deferred income taxes 1,149 3,146
Changes in other assets and liabilities:
Decrease (increase) in dividend and interest receivable 1,601 (357)
(Increase) decrease in escrow receivables (159) 493
Decrease (increase) in tax receivable 121 (439)
(Increase) decrease in other receivables (104) 9
Decrease in other assets (1,152) 66
Increase in taxes payable 1,477 332
Increase in other liabilities 1,738 1,900
Net cash used in operating activities (139,103) (45,704)
Cash flows from financing activities
Proceeds from common stock offering 73,346 26,770
Borrowings under credit facility 295,000 147,000
Repayments of credit facility (225,000) (151,000)
Debt issuance costs paid (3,445) (325)
Proceeds from issuance of SBA Debentures 28,294 —
Proceeds from issuance of October 2024 Notes — 49,000
Proceeds from issuance of October 2026 Notes 146,414 —
Partial redemption of December 2022 Notes — (40,000)
Redemption of October 2024 Notes (125,000) —
Payment for debt extinguishment costs (15,196) —
Dividends to shareholders (46,847) (29,022)
Common stock withheld for payroll taxes upon vesting of restricted stock (1,408) (239)
Net cash provided by financing activities 126,158 75,684
Net (decrease) increase in cash and cash equivalents (12,945) 29,980
Cash and cash equivalents at beginning of period 31,613 13,744
Cash and cash equivalents at end of period $ 18,668 $ 43,724
Supplemental cash flow disclosures:
Cash paid for income taxes $ 150 $ 619
Cash paid for interest 13,744 10,149



The accompanying Notes are an integral part of these Consolidated Financial Statements.
6
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
Non-control/Non-affiliate Investments 5
AAC NEW HOLDCO INC. First Lien Healthcare services 10.00%, 8.00% PIK 12/11/2020 6/25/2025 $ 8,482 $ 8,482 $ 8,143
374,543 shares common stock — 12/11/2020 — — 1,785 1,785
Warrants (Expiration - December 11, 2025) — 12/11/2020 — — 2,198 2,198
12,465 12,126
ACCELERATION PARTNERS, LLC 8,13
First Lien Media, marketing & entertainment L+8.18% (Floor 1.00%)/Q, Current Coupon 9.18% 12/1/2020 12/1/2025 11,875 11,586 11,875
1,000 Preferred Units 9
— 12/1/2020 — — 1,000 1,153
1,000 Class A Common Units 9
— 12/1/2020 — — — —
12,586 13,028
ACE GATHERING, INC.
Second Lien 15
Energy services (midstream) L+8.50% (Floor 2.00%)/Q, Current Coupon 10.50% 12/13/2018 12/13/2023 8,010 7,934 7,890
ALLIANCE SPORTS GROUP, L.P. Senior subordinated debt Consumer products & retail 11.00% 8/1/2017 2/1/2023 11,521 11,463 11,521
Unsecured convertible note 6.00% PIK 7/15/2020 9/30/2024 173 173 232
3.88% membership preferred interest — 8/1/2017 — — 2,500 3,053
14,136 14,806
ALLOVER MEDIA, LLC
Revolving Loan 10
Media, marketing & entertainment L+7.00% (Floor 1.00%) 3/10/2021 3/10/2026 — (33) —
First Lien L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 3/10/2021 3/10/2026 12,133 11,922 12,376
11,889 12,376
AMERICAN NUTS OPERATIONS LLC 13
First Lien - Term Loan Food, agriculture and beverage L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 4/10/2018 4/10/2025 16,888 16,770 16,888
First Lien - Term Loan C 10
L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 12/21/2018 4/10/2025 1,804 1,784 1,804
3,000,000 units of Class A common stock 9
— 4/10/2018 — — 3,000 2,752
21,554 21,444
7
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
AMERICAN TELECONFERENCING SERVICES, LTD. (DBA PREMIERE GLOBAL SERVICES, INC.)
Revolving Loan 10,16
Telecommunications P+5.50%/Q, Current Coupon 8.75% 9/17/2021 12/7/2021 903 894 27
First Lien 16
P+5.50%/Q, Current Coupon 8.75% 9/21/2016 6/8/2023 4,899 4,858 147
5,752 174
AMWARE FULFILLMENT LLC First Lien Distribution L+9.00% (Floor 1.00%)/M, Current Coupon 10.00% 7/29/2016 1/31/2022 16,634 16,624 16,634
ARBORWORKS, LLC
Revolving Loan 10
Environmental services L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 11/17/2021 11/9/2026 940 881 881
First Lien L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 11/17/2021 11/9/2026 13,000 12,746 12,746
100 Class A Units — 11/17/2021 — — 100 100
13,727 13,727
ASC ORTHO MANAGEMENT COMPANY, LLC 13
2,042 Common Units 9
Healthcare services — 8/31/2018 — — 750 514
BINSWANGER HOLDING CORP. First Lien Distribution L+8.50% (Floor 1.00%)/M, Current Coupon 9.50% 3/9/2017 3/10/2023 10,286 10,266 10,286
900,000 shares of common stock — 3/9/2017 — — 900 924
11,166 11,210
BLASCHAK ANTHRACITE CORPORATION (FKA BLASCHAK COAL CORP.)
Second Lien- Term Loan 15
Commodities & mining L+11.00% (Floor 1.00%)/Q, 3.00% PIK, Current Coupon 15.00% 7/30/2018 7/30/2023 8,994 8,925 8,499
Second Lien- Term Loan B 15
L+5.50% (Floor 1.00%)/Q, 12.50% PIK, Current Coupon 19.00% 3/30/2020 7/30/2023 2,081 2,059 1,966
10,984 10,465
BROAD SKY NETWORKS LLC 13
1,131,579 Series A Preferred units 9
Telecommunications — 12/11/2020 — — 1,131 1,131
CALIFORNIA PIZZA KITCHEN, INC. 48,423 shares of common stock Restaurants — 11/23/2020 — — 1,317 2,276
CAMIN CARGO CONTROL, INC. First Lien Energy services (midstream) L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% 6/2/2021 6/4/2026 5,970 5,916 5,916
8
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
CITYVET, INC. 13
Delayed Draw Term Loan 10
Healthcare services L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 3/5/2021 3/5/2026 10,500 10,135 10,500
271,739 Class A units 9
— 3/5/2021 — — 500 1,026
10,635 11,526
CRAFTY APES, LLC 8
First Lien Media, marketing & entertainment L+6.44% (Floor 1.00%)/Q, Current Coupon 7.44% 6/9/2021 11/1/2024 10,000 9,915 10,000
DUNN PAPER, INC. Second Lien Paper & forest products L+9.25% (Floor 1.00%)/M, Current Coupon 10.25% 9/28/2016 8/26/2023 3,000 2,981 2,500
EVEREST TRANSPORTATION SYSTEMS, LLC First Lien Transportation & logistics L+8.00% (Floor 1.00%)/M, Current Coupon 9.00% 11/9/2021 8/26/2026 9,052 8,963 8,963
FAST SANDWICH, LLC
Revolving Loan 10
Restaurants L+9.00% (Floor 1.00%) 5/24/2018 5/23/2023 — (24) —
First Lien L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 5/24/2018 5/23/2023 3,297 3,279 3,297
3,255 3,297
FLIP ELECTRONICS, LLC 8,13
First Lien Technology products & components L+7.94% (Floor 1.00%)/M, Current Coupon 8.94% 1/4/2021 1/2/2026 15,500 15,219 15,500
2,000,000 Common Units 9,11
— 1/4/2021 — — 2,000 4,540
17,219 20,040
FOOD PHARMA SUBSIDIARY HOLDINGS, LLC 13
First Lien Food, agriculture & beverage L+6.50% (Floor 1.00%)/M, Current Coupon 7.50% 6/1/2021 6/1/2026 5,000 4,910 5,000
Delayed Draw Term Loan 10
L+6.50% (Floor 1.00%)/M, Current Coupon 7.50% 6/1/2021 6/1/2026 2,030 1,968 2,030
75,000 Class A Units 9
— 6/1/2021 — — 750 750
7,628 7,780
GS OPERATING, LLC First Lien Distribution L+6.50% (Floor 1.50%)/M, Current Coupon 8.00% 3/6/2020 2/24/2025 7,742 7,633 7,742
HYBRID APPAREL, LLC
Second Lien 15
Consumer products & retail L+8.25% (Floor 1.00%)/Q, Current Coupon 9.25% 6/30/2021 6/30/2026 15,750 15,460 15,419
9
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
INFOLINKS MEDIA BUYCO, LLC First Lien Media, marketing & entertainment L+6.00% (Floor 1.00%)/M, Current Coupon 7.00% 11/1/2021 10/30/2026 7,750 7,599 7,599
Delayed Draw Term Loan 10
L+6.00% (Floor 1.00%) 11/1/2021 10/30/2026 — (21) —
1.68% LP interest 10
— 10/29/2021 — — 588 588
8,166 8,187
ISI ENTERPRISES, LLC
Revolving Loan 10
Software & IT services L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 10/1/2021 10/1/2026 800 762 762
First Lien L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 10/1/2021 10/1/2026 5,000 4,904 4,904
1,000,000 Series A Preferred units — 10/1/2021 — — 1,000 1,000
6,666 6,666
JVMC HOLDINGS CORP. First Lien Financial services L+6.75% (Floor 1.00%)/M, Current Coupon 7.75% 2/28/2019 2/28/2024 6,704 6,669 6,704
KLEIN HERSH, LLC
Revolving Loan 10
Business services L+7.00% (Floor 0.75%)/S 11/13/2020 11/13/2025 — (14) —
First Lien L+7.00% (Floor 0.75%)/S, Current Coupon 7.75% 11/13/2020 11/13/2025 24,125 23,692 24,608
23,678 24,608
KMS, INC.
First Lien 15
Distribution L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% 10/4/2021 10/2/2026 15,960 15,806 15,960
Delayed Draw Term Loan 10
L+7.25% (Floor 1.00%) 10/4/2021 10/2/2026 — (43) —
15,763 15,960
LASH OPCO, LLC
Revolving Loan 10
Consumer products & retail L+7.00% (Floor 1.00%) 12/29/2021 9/18/2025 — (11) —
First Lien L+7.00% (Floor 1.00%)/M, Current Coupon 8.00% 12/29/2021 3/18/2026 6,500 6,354 6,354
Delayed Draw Term Loan 10
L+7.00% (Floor 1.00%) 12/29/2021 3/18/2026 — (79) —
6,264 6,354
10
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
LGM PHARMA, LLC 13
First Lien Healthcare products L+8.50% (Floor 1.00%), 2.00% PIK/M, Current Coupon 11.50% 11/15/2017 11/15/2023 11,393 11,308 10,630
Delayed Draw Term Loan L+10.00% (Floor 1.00%), 2.00% PIK/Q, Current Coupon 13.00% 7/24/2020 11/15/2023 2,481 2,453 2,337
Unsecured convertible note 9
25.00% PIK 12/21/2021 12/31/2024 88 88 82
142,278.89 units of Class A common stock 9
— 11/15/2017 — — 1,600 376
15,449 13,425
LLFLEX, LLC
First Lien 15
Containers & packaging L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 8/16/2021 8/14/2026 10,973 10,740 10,698
MAKO STEEL LP
Revolving Loan 10
Business services L+7.25% (Floor 0.75%)/Q, Current Coupon 8.00% 3/15/2021 3/13/2026 1,038 1,006 1,017
First Lien L+7.25% (Floor 0.75%)/Q, Current Coupon 8.00% 3/15/2021 3/13/2026 8,052 7,913 7,891
8,919 8,908
MERCURY ACQUISITION 2021, LLC (DBA TELE-TOWN HALL) 13
First Lien Telecommunications L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 12/6/2021 12/7/2026 12,500 12,253 12,253
Second Lien L+11.00% (Floor 1.00%)/Q, Current Coupon 12.00% 12/6/2021 12/7/2026 3,300 3,235 3,235
2,089,599 Series A units 9
— 12/6/2021 — — — 1,384
15,488 16,872
MUENSTER MILLING COMPANY, LLC
Revolving Loan 10
Food, agriculture & beverage L+7.25% (Floor 1.00%) 8/10/2021 8/10/2026 — (92) —
First Lien L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% 8/10/2021 8/10/2026 12,000 11,775 12,000
Delayed Draw Term Loan 10
L+7.25% (Floor 1.00%)/Q 8/10/2021 8/10/2026 — (55) —
11,628 12,000
NATIONAL CREDIT CARE, LLC First Lien - Term Loan A Consumer services L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% 12/23/2021 12/23/2026 11,250 11,026 11,026
First Lien - Term Loan B L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 12/23/2021 12/23/2026 11,250 11,026 11,026
22,052 22,052
11
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
NEUROPSYCHIATRIC HOSPITALS, LLC
Revolving Loan 10
Healthcare services L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 5/14/2021 5/14/2026 4,400 4,313 4,299
First Lien L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 5/14/2021 5/14/2026 14,925 14,656 14,582
Delayed Draw Term Loan 10
L+8.00% (Floor 1.00%) 5/14/2021 5/14/2026 — (87) —
18,882 18,881
NINJATRADER, INC. 13
Revolving Loan 10
Financial services L+6.25% (Floor 1.00%) 12/18/2019 12/18/2024 — (4) —
First Lien L+6.25% (Floor 1.00%)/Q, Current Coupon 7.25% 12/18/2019 12/18/2024 23,150 22,686 23,150
Delayed Draw Term Loan 10
L+6.25% (Floor 1.00%)/Q 12/31/2020 12/18/2024 — (49) —
2,000,000 Preferred Units 9,11
— 12/18/2019 — — 2,000 9,566
24,633 32,716
NWN PARENT HOLDINGS, LLC
Revolving Loan 10
Software & IT services L+6.50% (Floor 1.00%) 5/7/2021 5/7/2026 420 389 415
First Lien L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% 5/7/2021 5/7/2026 13,100 12,866 12,942
13,255 13,357
RESEARCH NOW GROUP, INC. Second Lien Business services L+9.50% (Floor 1.00%)/M, Current Coupon 10.50% 12/8/2017 12/20/2025 10,500 10,044 10,416
ROOF OPCO, LLC
Revolving Loan 10
Consumer services L+6.00% (Floor 1.00%) 8/27/2021 8/27/2026 — (57) —
First Lien L+6.00% (Floor 1.00%)/Q, Current Coupon 7.00% 8/27/2021 8/27/2026 11,000 10,793 10,780
Delayed Draw Term Loan 10
L+6.00% (Floor 1.00%) 8/27/2021 8/27/2026 — (114) —
10,622 10,780
RTIC SUBSIDIARY HOLDINGS, LLC
Revolving Loan 10
Consumer products & retail L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% 9/1/2020 9/1/2025 274 264 274
First Lien L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% 9/1/2020 9/1/2025 7,003 6,935 7,003
7,199 7,277
12
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
SCRIP INC. 8
First Lien Healthcare products L+9.49% (Floor 2.00%)/M, Current Coupon 11.49% 3/21/2019 3/21/2024 16,750 16,496 16,750
100 shares of common stock — 3/21/2019 — — 1,000 1,264
17,496 18,014
SHEARWATER RESEARCH, INC. 9
Revolving Loan 10
Consumer products & retail L+6.25% (Floor 1.00%) 4/30/2021 4/30/2026 — (42) —
First Lien L+6.25% (Floor 1.00%)/Q, Current Coupon 7.25% 4/30/2021 4/30/2026 13,828 13,583 13,565
Delayed Draw Term Loan 10
L+6.25% (Floor 1.00%) 4/30/2021 4/30/2026 — (28) —
1,200,000 Class A Preferred Units — 4/30/2021 — — 978 978
40,000 Class A Common Units — 4/30/2021 — — 33 33
14,524 14,576
SIB HOLDINGS, LLC 13
Revolving Loan 10
Business services L+6.00% (Floor 1.00%)/M, Current Coupon 7.00% 10/29/2021 10/29/2026 47 36 37
First Lien L+6.00% (Floor 1.00%)/M, Current Coupon 7.00% 10/29/2021 10/29/2026 7,427 7,319 7,319
Delayed Draw Term Loan 10
L+6.00% (Floor 1.00%) 10/29/2021 10/29/2026 — (9) —
238,095.24 Common Units 9
— 10/29/2021 — — 500 500
7,846 7,856
SOUTH COAST TERMINALS, LLC
Revolving Loan 10
Specialty chemicals L+6.25% (Floor 1.00%) 12/13/2021 12/11/2026 — (38) —
First Lien L+6.25% (Floor 1.00%)/M, Current Coupon 7.25% 12/13/2021 12/11/2026 18,065 17,706 17,706
17,668 17,706
SPOTLIGHT AR, LLC 13
Revolving Loan 10
Business services L+7.00% (Floor 1.00%) 12/8/2021 6/8/2026 — (39) —
First Lien L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 12/8/2021 6/8/2026 7,500 7,351 7,352
750 Common Units 9
— 12/8/2021 — — 750 750
8,062 8,102
13
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
STUDENT RESOURCE CENTER, LLC 13
Revolving Loan 10
Education L+8.00% (Floor 1.00%) 6/25/2021 6/25/2026 — (24) —
First Lien L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 6/25/2021 6/25/2026 19,500 19,139 19,500
2,000 Preferred Units 9
— 6/25/2021 — — 2,000 2,304
21,115 21,804
SYSTEC CORPORATION (DBA INSPIRE AUTOMATION)
Revolving Loan 10
Business services L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 8/13/2021 8/13/2025 650 614 637
First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 8/13/2021 8/13/2025 9,000 8,834 8,820
Delayed Draw Term Loan 10
L+7.50% (Floor 1.00%) 8/13/2021 8/13/2025 — (27) —
9,421 9,457
THE PRODUCTO GROUP, LLC 13
First Lien Industrial products L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 12/31/2021 12/31/2026 13,770 13,495 13,495
1,500,000 Class A units 9
— 12/31/2021 — — 1,500 1,500
14,995 14,995
TRAFERA, LLC (FKA TRINITY 3, LLC) 13
First Lien 15
Technology products & components L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 9/30/2020 9/30/2025 9,900 9,783 9,860
896.43 Class A units 9,11
— 11/15/2019 — — 1,205 2,724
10,988 12,584
USA DEBUSK, LLC First Lien Industrial services L+5.75% (Floor 1.00%)/M, Current Coupon 6.75% 2/25/2020 9/8/2026 11,643 11,472 11,539
VISTAR MEDIA INC. 171,617 shares of Series A preferred stock Media, marketing & entertainment — 4/3/2019 — — 1,874 6,520
VTX HOLDINGS, INC. (DBA VERTEX ONE) 1,597,707 Series A Preferred units Software & IT services — 7/23/2019 — — 1,598 2,082
WALL STREET PREP, INC.
Revolving Loan 10
Education L+7.00% (Floor 1.00%) 7/19/2021 7/20/2026 — (18) —
First Lien L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 7/19/2021 7/20/2026 10,931 10,729 10,724
1,000,000 Class A-1 Preferred Shares — 7/19/2021 — — 1,000 1,000
11,711 11,724
14
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
WELL-FOAM, INC.
Revolving Loan 10
Energy services (upstream) L+8.50 (Floor 1.00%)/Q, Current Coupon 9.50% 9/9/2021 9/9/2026 1,000 913 1,000
First Lien L+8.50 (Floor 1.00%)/Q, Current Coupon 9.50% 9/9/2021 9/9/2026 17,955 17,613 17,955
18,526 18,955
WINTER SERVICES OPERATIONS, LLC
Revolving Loan 10
Business services L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 11/19/2021 11/19/2026 556 469 469
First Lien L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 11/19/2021 11/19/2026 20,000 19,607 19,608
Delayed Draw Term Loan 10
L+7.00% (Floor 1.00%) 11/19/2021 11/19/2026 — (43) —
20,033 20,077
ZENFOLIO INC.
Revolving Loan 10
Business services L+9.00% (Floor 1.00%) 7/17/2017 7/17/2023 — (5) —
First Lien L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 7/17/2017 7/17/2023 18,962 18,810 18,393
18,805 18,393
Total Non-control/Non-affiliate Investments (178.5% of net assets at fair value) $ 673,871 $ 691,229
Affiliate Investments 6
AIR CONDITIONING SPECIALIST, INC. 13
Revolving Loan 10
Consumer services L+7.25% (Floor 1.00%) 11/9/2021 11/9/2026 $ — $ (19) $ —
First Lien L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% 11/9/2021 11/9/2026 9,000 8,824 8,824
500,000 Preferred Units 9
— 11/9/2021 — — 500 500
9,305 9,324
CATBIRD NYC, LLC
Revolving Loan 10
Consumer products & retail L+7.25% (Floor 1.00%) 10/15/2021 10/15/2026 — (77) —
First Lien L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% 10/15/2021 10/15/2026 16,000 15,692 15,692
1,000,000 Class A units — 10/15/2021 — — 1,000 1,000
500,000 Class B units 10
— 10/15/2021 — — 500 500
17,115 17,192
15
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
CENTRAL MEDICAL SUPPLY LLC 13
Revolving Loan 10
Healthcare services L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 300 280 278
First Lien L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 7,500 7,391 6,953
Delayed Draw Capex Term Loan 10
L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 100 80 93
1,380,500 Preferred Units 9
— 5/22/2020 — — 976 408
8,727 7,732
CHANDLER SIGNS, LLC 13
1,500,000 units of Class A-1 common stock 9
Business services — 1/4/2016 — — 1,500 924
DELPHI BEHAVIORAL HEALTH GROUP, LLC First Lien Healthcare services L+9.50% (Floor 1.00%)/S, Current Coupon 10.50% 4/8/2020 4/7/2023 1,501 1,501 1,366
First Lien L+9.00% (Floor 1.00%)/S, Current Coupon 10.00% 4/8/2020 4/7/2023 1,690 1,690 1,437
Protective Advance L+11.50% PIK (Floor 1.00%)/Q, Current Coupon 12.50% 8/31/2021 4/7/2023 73 73 62
1,681.04 Common Units — 4/8/2020 — — 3,615 2,460
6,879 5,325
DYNAMIC COMMUNITIES, LLC 13
Revolving Loan 10
Business services L+8.50% (Floor 1.00%) 7/17/2018 7/17/2023 — (1) —
First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% 7/17/2018 7/17/2023 11,361 11,275 10,236
Senior subordinated debt 25% PIK 12/4/2020 1/16/2024 611 611 611
2,000,000 Preferred Units 9
— 7/17/2018 — — 2,000 1,274
13,885 12,121
GRAMMATECH, INC.
Revolving Loan 10
Software & IT services L+9.50% (Floor 2.00%) 11/1/2019 11/1/2024 — (25) —
First Lien L+9.50% (Floor 2.00%)/Q, Current Coupon 11.50% 11/1/2019 11/1/2024 11,500 11,375 9,775
1,000 Class A units — 11/1/2019 — — 1,000 712
12,350 10,487
16
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
ITA HOLDINGS GROUP, LLC 13
Revolving Loan 10
Transportation & logistics L+8.50% (Floor 1.00%) 2/14/2018 2/14/2023 — (18) —
First Lien - Term Loan L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 2/14/2018 2/14/2023 10,071 10,027 10,041
First Lien - Term B Loan L+10.50% (Floor 1.00%)/Q, Current Coupon 11.50% 6/5/2018 2/14/2023 5,036 5,003 5,061
First Lien - PIK Note A 10.00% PIK 3/29/2019 2/14/2023 2,884 2,597 2,884
First Lien - PIK Note B 10.00% PIK 3/29/2019 2/14/2023 114 114 114
Warrants (Expiration - March 29, 2029) 9
— 3/29/2019 — — 538 3,604
9.25% Class A Membership Interest 9
— 2/14/2018 — — 1,500 3,476
19,761 25,180
LIGHTING RETROFIT INTERNATIONAL, LLC (DBA ENVOCORE) 13
Revolving Loan 10
Environmental services 7.50% 12/31/2021 12/31/2025 456 456 456
First Lien 7.50% 12/31/2021 12/31/2025 5,208 5,208 5,208
Second Lien 16
10.00% PIK 12/31/2021 12/31/2026 5,208 5,208 3,125
208,333.3333 Series A Preferred units 9
— 12/31/2021 — — — —
203,124.9999 Common units 9
— 12/31/2021 — — — —
10,872 8,789
ROSELAND MANAGEMENT, LLC
Revolving Loan 10
Healthcare services L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 1,175 1,162 1,175
First Lien L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 14,161 14,043 14,161
16,084 Class A Units — 11/9/2018 — — 1,517 1,905
16,722 17,241
SIMR, LLC
First Lien 16
Healthcare services L+17.00% (Floor 2.00%) PIK/M, Current Coupon 19.00% 9/7/2018 9/7/2023 13,340 13,206 10,672
9,374,510.2 Class B Common Units — 9/7/2018 — — 6,107 —
1,357,354.96 Class W Units — 2/4/2021 — — — —
19,313 10,672
17
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2021
Portfolio Company 1,18
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 12,17
Fair Value 4
SONOBI, INC. 13
500,000 Class A Common Units 9
Media, marketing, & entertainment — 9/17/2020 — — 500 2,960
Total Affiliate Investments (33.0% of net assets at fair value) $ 136,929 $ 127,947
Control Investments 7
I-45 SLF LLC 9, 10, 11
80% LLC equity interest Multi-sector holdings — 10/20/2015 — — $ 76,000 $ 57,589
Total Control Investments (14.9% of net assets at fair value) $ 76,000 $ 57,589
TOTAL INVESTMENTS (226.4% of net assets at fair value) $ 886,800 $ 876,765


1 All debt investments are income-producing, unless otherwise noted. Equity investments are non-income producing, unless otherwise noted.
2 All of the Company’s investments and the investments of SBIC I (as defined below), unless otherwise noted, are pledged as collateral for the Company’s senior secured credit facility or in support of the SBA-guaranteed debentures to be issued by Capital Southwest SBIC I, LP, our wholly-owned subsidiary that operates as a small business investment company ("SBIC I"), respectively.
3 The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily (D), monthly (M), quarterly (Q), or semiannually (S). For each investment, the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2021. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.
4 The Company's investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not readily available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board of Directors, using significant unobservable Level 3 inputs. Refer to Note 4 for further discussion.
5 Non-Control/Non-Affiliate investments are generally defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments that are neither control investments nor affiliate investments. At December 31, 2021, approximately 78.8% of the Company’s investment assets were non-control/non-affiliate investments. The fair value of these investments as a percent of net assets is 178.5%.
6 Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as control investments. At December 31, 2021, approximately 14.6% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 33.0%.
7 Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned. At December 31, 2021, approximately 6.6% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 14.9%.
8 The investment is structured as a first lien last out term loan.
18
9 Indicates assets that are not considered "qualifying assets" under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. As of December 31, 2021, approximately 12.4% of the Company's assets are non-qualifying assets.
10 The investment has an unfunded commitment as of December 31, 2021. Refer to Note 10 - Commitments and Contingencies for further discussion.
11 Income producing through dividends or distributions.
12 As of December 31, 2021, the cumulative gross unrealized appreciation for U.S. federal income tax purposes is approximately $52.7 million; cumulative gross unrealized depreciation for federal income tax purposes is $50.5 million. Cumulative net unrealized appreciation is $2.2 million, based on a tax cost of $806.3 million.
13 Investment is held through a wholly-owned taxable subsidiary.
14 The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments, which as of December 31, 2021 represented 226.4% of the Company's net assets or 96.1% of the Company's total assets, are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act.
15 The investment is structured as a split lien term loan, which provides the Company with a first lien priority on certain assets of the obligor and a second lien priority on different assets of the obligor.
16 Investment is on non-accrual status as of December 31, 2021, meaning the Company has ceased to recognize interest income on the investment.
17 Negative cost in this column represents the original issue discount of certain undrawn revolvers and delayed draw term loans.
18 Equity ownership may be held in shares or units of a company that is either wholly owned by the portfolio company or under common control by the same parent company to the portfolio company.
A brief description of the portfolio company in which we made an investment that represents greater than 5% of our total assets as of December 31, 2021 is included in Note 13. Significant Subsidiaries.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
19
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
Non-control/Non-affiliate Investments 5
AAC NEW HOLDCO INC. First Lien Healthcare services 10.00%, 8.00% PIK 12/11/2020 6/25/2025 $ 7,981 $ 7,981 $ 7,941
374,543 shares common stock — 12/11/2020 — — 1,785 1,785
Warrants (Expiration - December 11, 2025) — 12/11/2020 — — 2,198 2,198
11,964 11,924
ACCELERATION PARTNERS, LLC 8,13
First Lien Media, marketing & entertainment L+8.21% (Floor 1.00%)/Q, Current Coupon 9.21% 12/1/2020 12/1/2025 8,750 8,500 8,750
Delayed Draw Term Loan 10
L+8.21% (Floor 1.00%)/Q, Current Coupon 9.21% 12/1/2020 12/1/2025 2,965 2,889 2,965
1,000 Preferred Units 9
— 12/1/2020 — — 1,000 1,000
1,000 Class A Common Units 9
— 12/1/2020 — — — —
12,389 12,715
ACE GATHERING, INC.
Second Lien 15
Energy services (midstream) L+10.50% (Floor 2.00%)/Q, Current Coupon 12.50% 12/13/2018 12/13/2023 9,438 9,319 8,975
ADAMS PUBLISHING GROUP, LLC First Lien Media, marketing & entertainment L+7.00% (Floor 1.75%)/Q, Current Coupon 8.75% 7/2/2018 7/2/2023 9,920 9,795 9,920
ALLIANCE SPORTS GROUP, L.P. Senior subordinated debt Consumer products & retail 14.00% PIK 8/1/2017 2/1/2023 11,134 11,043 10,989
Unsecured convertible note 6.00% PIK 7/15/2020 9/30/2024 173 173 173
3.88% preferred membership interest — 8/1/2017 — — 2,500 2,500
13,716 13,662
ALLOVER MEDIA, LLC
Revolving Loan 10
Media, marketing & entertainment L+8.50% (Floor 1.00%) 3/10/2021 3/10/2026 — (39) —
First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% 3/10/2021 3/10/2026 13,000 12,742 12,742
12,703 12,742
AMERICAN NUTS OPERATIONS LLC 13
First Lien - Term Loan Food, agriculture and beverage L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 4/10/2018 4/10/2023 17,019 16,856 17,019
First Lien - Term Loan C 10
L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 12/21/2018 4/10/2023 1,804 1,785 1,804
3,000,000 units of Class A common stock 9
— 4/10/2018 — — 3,000 2,752
21,641 21,575
20
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
AMERICAN TELECONFERENCING SERVICES, LTD. (DBA PREMIERE GLOBAL SERVICES, INC.) First Lien Telecommunications L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% 9/21/2016 6/8/2023 5,915 5,865 3,141
Second Lien 0.5%, L+9.00% PIK (Floor 1.00%)/Q, Current Coupon 10.50% 11/3/2016 6/6/2024 2,341 2,317 55
8,182 3,196
AMWARE FULFILLMENT LLC First Lien Distribution L+9.00% (Floor 1.00%)/M, Current Coupon 10.00% 7/29/2016 12/31/2021 17,407 17,315 17,407
ASC ORTHO MANAGEMENT COMPANY, LLC 13
Revolving Loan Healthcare services L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 8/31/2018 8/31/2023 1,500 1,485 1,410
First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 8/31/2018 8/31/2023 8,854 8,756 8,322
Second Lien 13.25% PIK 8/31/2018 12/1/2023 4,237 4,191 3,822
2,042 Common Units 9
— 8/31/2018 — — 750 356
15,182 13,910
BINSWANGER HOLDING CORP. First Lien Distribution L+8.50% (Floor 1.00%)/M, Current Coupon 9.50% 3/9/2017 3/9/2022 10,942 10,890 10,942
900,000 shares of common stock — 3/9/2017 — — 900 924
11,790 11,866
BLASCHAK COAL CORP.
Second Lien Term Loan 15
Commodities & mining L+13.00%, 1.00% PIK (Floor 1.00%)/Q, Current Coupon 15.00% 7/30/2018 7/30/2023 8,712 8,617 8,233
Second Lien- Term Loan B 15
L+13.00%, 1.00% PIK (Floor 1.00%)/Q, Current Coupon 15.00% 3/30/2020 7/30/2023 2,016 1,986 1,905
10,603 10,138
BROAD SKY NETWORKS LLC 13
Revolving Loan 10
Telecommunications L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 12/11/2020 12/11/2025 500 453 496
First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 12/11/2020 12/11/2025 15,000 14,715 14,880
1,000,000 Series A Preferred units 9
— 12/11/2020 — — 1,000 1,000
16,168 16,376
21
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
CALIFORNIA PIZZA KITCHEN, INC. First Lien Restaurants L+10.00% (Floor 1.50%)/Q, Current Coupon 11.50% 11/23/2020 11/23/2024 669 652 668
First Lien Rolled Up 1.00%, L+11.00% PIK (Floor 1.50%)/Q, Current Coupon 13.50% 11/23/2020 11/23/2024 741 739 737
Second Lien 1.00%, L+12.50% PIK (Floor 1.50%)/Q, Current Coupon 15.00% 11/23/2020 5/23/2025 814 814 796
48,423 shares of common stock — 11/23/2020 — — 1,317 1,317
3,522 3,518
CAPITAL PAWN HOLDINGS, LLC First Lien Consumer products & retail L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% 12/21/2017 7/8/2023 8,854 8,840 8,854
CHEMISTRY RX HOLDINGS, LLC First Lien Specialty chemicals L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 3/15/2021 3/13/2026 8,000 7,841 7,841
CITYVET, INC. 13
Delayed Draw Term Loan 10
Healthcare services L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 3/5/2021 3/5/2026 3,250 3,053 3,053
271,739 Class A units 9
— 3/5/2021 — — 500 500
3,553 3,553
CLICKBOOTH.COM, LLC
Revolving Loan 10
Media, marketing & entertainment L+8.50% (Floor 1.00%) 12/5/2017 1/31/2025 — (5) —
First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% 12/5/2017 1/31/2025 18,525 18,308 18,525
18,303 18,525
DANFORTH ADVISORS, LLC 13
875 Class A equity units 9
Business services — 9/28/2018 — — 875 2,855
DRIVEN, INC. First Lien Business services L+8.00% (Floor 2.00%)/Q, Current Coupon 10.00% 6/28/2019 6/28/2024 5,820 5,737 5,878
DUNN PAPER, INC. Second Lien Paper & forest products L+8.75% (Floor 1.00%)/M, Current Coupon 9.75% 9/28/2016 8/26/2023 3,000 2,974 3,000
ELECTRONIC TRANSACTION CONSULTANTS LLC 13
Revolving Loan 10
Software & IT services L+7.50% (Floor 1.00%) 7/24/2020 7/24/2025 — (56) —
First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 7/24/2020 7/24/2025 10,000 9,845 9,840
1,000 Class A units 9
— 7/24/2020 — — 1,000 1,000
10,789 10,840
22
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
ESCP DTFS, INC. First Lien - Term Loan A Industrial services L+6.50% (Floor 1.75%)/Q, Current Coupon 8.25% 1/31/2020 1/31/2025 5,350 5,269 4,986
First Lien - Term Loan B L+8.50% (Floor 1.75%)/Q, Current Coupon 10.25% 1/31/2020 1/31/2025 5,350 5,270 4,986
Delayed Draw Term Loan B1 L+6.50% (Floor 1.75%)/Q, Current Coupon 8.25% 1/31/2020 1/31/2025 500 491 466
Delayed Draw Term Loan B2 L+8.50% (Floor 1.75%)/Q, Current Coupon 10.25% 1/31/2020 1/31/2025 500 491 466
11,521 10,904
FAST SANDWICH, LLC
Revolving Loan 10
Restaurants L+9.00% (Floor 1.00%) 5/24/2018 5/23/2023 — (32) —
First Lien L+9.00% (Floor 1.00%)/Q,Current Coupon 10.00% 5/24/2018 5/23/2023 3,359 3,332 3,023
3,300 3,023
FLIP ELECTRONICS, LLC 8,13
First Lien Technology products & components L+8.05% (Floor 1.00%)/M, Current Coupon 9.05% 1/4/2021 1/2/2026 15,500 15,177 15,252
2,000,000 Common Units 9
— 1/4/2021 — — 2,000 2,285
17,177 17,537
GS OPERATING, LLC First Lien Distribution L+6.50%(Floor 1.50%)/M, Current Coupon 8.00% 3/6/2020 2/24/2025 7,920 7,791 7,920
IAN, EVAN, & ALEXANDER CORPORATION (DBA EVERWATCH)
Revolving Loan 10
Aerospace & defense L+8.50% (Floor 1.00%) 7/31/2020 7/31/2025 — (34) —
First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% 7/31/2020 7/31/2025 9,668 9,493 9,668
9,459 9,668
ICS DISTRIBUTION, LLC 8
First Lien Industrial services L+8.48% (Floor 2.00%)/Q, Current Coupon 10.48% 10/31/2019 10/31/2024 20,500 20,121 20,275
JVMC HOLDINGS CORP. First Lien Financial services L+7.75% (Floor 1.00%)/M, Current Coupon 8.75% 2/28/2019 2/28/2024 7,047 7,000 6,850
KLEIN HERSH, LLC
Revolving Loan 10
Business services L+8.00% (Floor 0.75%) 11/13/2020 11/13/2025 — (17) —
First Lien L+8.00% (Floor 0.75%)/S, Current Coupon 8.75% 11/13/2020 11/13/2025 14,813 14,534 14,813
14,517 14,813
23
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
KMS, LLC 17
First Lien 15
Distribution L+6.00% (Floor 1.00%)/Q, Current Coupon 7.00% 1/5/2021 11/23/2025 16,000 15,923 15,968
LANDPOINT HOLDCO, INC. First Lien Business services L+11.00%(Floor 1.00%)/Q, Current Coupon 12.00% 12/30/2019 12/30/2024 18,840 18,540 17,239
LGM PHARMA, LLC 13
First Lien Healthcare products L+8.50% (Floor 1.00%)/M, Current Coupon 9.50% 11/15/2017 11/15/2023 11,424 11,315 11,424
Delayed Draw Term Loan L+10.00% (Floor 1.00%)/Q, Current Coupon 11.00% 7/24/2020 11/15/2023 2,488 2,448 2,487
142,278.89 units of Class A common stock 9
— 11/15/2017 — — 1,600 2,309
15,363 16,220
LIGHTING RETROFIT INTERNATIONAL, LLC (DBA ENVOCORE) First Lien Environmental services 7.50%, L+1.50% PIK (Floor 2.00%)/Q, Current Coupon 11.00% 6/30/2017 6/30/2022 14,027 13,984 12,021
25,603 shares of Series C preferred stock 8/13/2018 — — 25 —
396,825 shares of Series B preferred stock — 6/30/2017 — — 500 —
14,509 12,021
MAKO STEEL LP
Revolving Loan 10
Business services L+7.25% (Floor (0.75%)/Q, Current Coupon 8.00% 03/15/2021 03/13/2026 660 623 647
First Lien L+7.25% (Floor (0.75%)/Q, Current Coupon 8.00% 03/15/2021 03/13/2026 8,113 7,952 7,952
8,575 8,599
NINJATRADER, INC. 13
Revolving Loan 10
Financial services L+6.75% (Floor 1.50%) 12/18/2019 12/18/2024 — (6) —
First Lien L+6.75% (Floor 1.50%)/Q, Current Coupon 8.25% 12/18/2019 12/18/2024 19,250 18,784 19,250
Delayed Draw Term Loan 10
L+6.75% (Floor 1.50%)/Q 12/31/2020 12/18/2024 — (36) —
2,000,000 Preferred Units 9
— 12/18/2019 — — 2,000 6,223
20,742 25,473
RESEARCH NOW GROUP, INC. Second Lien Business services L+9.50% (Floor 1.00%)/M, Current Coupon 10.50% 12/8/2017 12/20/2025 10,500 9,980 10,132
24
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
ROSELAND MANAGEMENT, LLC
Revolving Loan 10
Healthcare services L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 500 482 500
First Lien L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 14,270 14,108 14,270
13,811 Class A Units — 11/9/2018 — — 1,381 1,720
15,971 16,490
RTIC SUBSIDIARY HOLDINGS, LLC
Revolving Loan 10
Consumer products & retail L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% 9/1/2020 9/1/2025 329 317 329
First Lien L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% 9/1/2020 9/1/2025 7,135 7,054 7,135
7,371 7,464
SCRIP, INC. 8
First Lien Healthcare products L+9.68% (Floor 2.00%)/M, Current Coupon 11.68% 3/21/2019 3/21/2024 16,750 16,422 16,750
100 shares of common stock — 3/21/2019 — — 1,000 967
17,422 17,717
TAX ADVISORS GROUP, LLC 13
143.3 Class A units 9
Financial services — 6/23/2017 — — 541 1,539
TRAFERA, LLC (FKA TRINITY 3, LLC) 13
First Lien 15
Technology products & components L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 9/30/2020 9/30/2025 9,975 9,838 9,975
896.43 Class A units 9
— 11/15/2019 — — 1,205 3,204
11,043 13,179
USA DEBUSK, LLC First Lien Industrial services L+5.75% (Floor 1.00%)/M, Current Coupon 6.75% 2/25/2020 10/22/2024 7,900 7,782 7,892
VISTAR MEDIA INC. First Lien Media, marketing & entertainment L+7.50%, 2.50% PIK (Floor 2.00%)/M, Current Coupon 12.00% 2/17/2017 4/3/2023 11,481 10,920 11,481
171,617 shares of Series A preferred stock — 4/3/2019 — — 1,874 3,904
Warrants (Expiration - April 3, 2029) — 4/3/2019 — — 620 1,853
13,414 17,238
VTX HOLDINGS, INC. 8
First Lien Software & IT services L+9.00% (Floor 2.00%)/Q, Current Coupon 11.00% 7/23/2019 7/23/2024 21,575 21,181 21,575
1,397,707 Series A Preferred units — 7/23/2019 — — 1,398 1,654
22,579 23,229
25
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
ZENFOLIO INC. Revolving Loan Business services L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 7/17/2017 7/17/2023 2,000 1,992 1,820
First Lien L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 7/17/2017 7/17/2023 14,888 14,722 13,548
16,714 15,368
Total Non-control/Non-affiliate Investments $ 540,556 $ 546,028
Affiliate Investments 6
CENTRAL MEDICAL SUPPLY LLC 13
Revolving Loan 10
Healthcare services L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 $ 300 $ 275 $ 276
First Lien L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 7,500 7,371 6,908
Delayed Draw Capex Term Loan 10
L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 100 75 92
875,000 Preferred Units 9
— 5/22/2020 — — 875 641
8,596 7,917
CHANDLER SIGNS, LLC 13
1,500,000 units of Class A-1 common stock 9
Business services — 1/4/2016 — — 1,500 1,343
DELPHI BEHAVIORAL HEALTH GROUP, LLC First Lien Healthcare services L+9.50% (Floor 1.00%)/M, Current Coupon 10.50% 4/8/2020 4/7/2023 1,414 1,414 1,398
First Lien L+7.50% (Floor 1.00%)/M, Current Coupon 8.50% 4/8/2020 4/7/2023 1,580 1,580 1,500
1,681.04 Common Units — 4/8/2020 — — 3,615 3,615
6,609 6,513
DYNAMIC COMMUNITIES, LLC 13
Revolving Loan 10
Business services L+3.75%, 7.75% PIK (Floor 1.00%) 7/17/2018 7/17/2023 — (2) —
First Lien L+3.75%, 7.75% PIK (Floor 1.00%)/Q, Current Coupon 12.50% 7/17/2018 7/17/2023 11,061 10,950 9,966
Senior subordinated debt 25% PIK 12/4/2020 1/16/2024 372 372 372
2,000,000 Preferred Units 9
— 7/17/2018 — — 2,000 1,274
13,320 11,612
26
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
GRAMMATECH, INC.
Revolving Loan 10
Software & IT services L+7.50% (Floor 2.00%) 11/1/2019 11/1/2024 — (31) —
First Lien L+7.50% (Floor 2.00%)/Q, Current Coupon 9.50% 11/1/2019 11/1/2024 11,500 11,346 11,420
1,000 Class A units — 11/1/2019 — — 1,000 1,208
12,315 12,628
ITA HOLDINGS GROUP, LLC 13
Revolving Loan 10
Transportation & logistics L+9.00% (Floor 1.00%) 2/14/2018 2/14/2023 — (23) —
First Lien - Term Loan L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 2/14/2018 2/14/2023 10,071 9,996 10,061
First Lien - Term B Loan L+10.00% (Floor 1.00%)/Q, Current Coupon 11.00% 6/5/2018 2/14/2023 5,036 4,984 5,101
First Lien - PIK Note A 10.00% PIK 3/29/2019 2/14/2023 2,678 2,282 2,630
First Lien - PIK Note B 10.00% PIK 3/29/2019 2/14/2023 106 106 103
Warrants (Expiration - March 29, 2029) 9
— 3/29/2019 — — 538 2,968
9.25% Class A Membership Interest 9
— 2/14/2018 — — 1,500 2,532
19,383 23,395
SIMR, LLC First Lien Healthcare services L+17.00% PIK (Floor 2.00%)/M, Current Coupon 19.00% 9/7/2018 9/7/2023 13,661 13,527 12,103
9,374,510.2 Class B Common Units — 9/7/2018 — — 6,107 —
19,634 12,103
SONOBI, INC. 13
First Lien Media, marketing, & entertainment L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 9/17/2020 9/16/2025 8,500 8,344 8,500
500,000 Class A Common Units 9
— 9/17/2020 — — 500 1,235
8,844 9,735
Total Affiliate Investments $ 90,201 $ 85,246
27
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2021
Portfolio Company 1
Type of Investment 2
Industry
Current Interest Rate 3
Acquisition Date 14
Maturity Principal
Cost 16
Fair Value 4
Control Investments 7
I-45 SLF LLC 9,11
80% LLC equity interest Multi-sector holdings — 10/20/2015 — — $ 72,800 $ 57,158
Total Control Investments $ 72,800 $ 57,158
TOTAL INVESTMENTS 12
$ 703,557 $ 688,432

1 All debt investments are income-producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.
2 All of the Company’s investments, unless otherwise noted, are pledged as collateral for the Company’s senior secured credit facility.
3 The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily (D), monthly (M), quarterly (Q), or semiannually (S). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31, 2021. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.
4 The Company's investment portfolio is comprised entirely of privately held debt and equity securities for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board of Directors, using significant unobservable Level 3 inputs. Refer to Note 4 for further discussion.
5 Non-Control/Non-Affiliate investments are generally defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments that are neither control investments nor affiliate investments. At March 31, 2021, approximately 79.3% of the Company’s investment assets were non-control/non-affiliate investments. The fair value of these investments as a percent of net assets is 162.4%.
6 Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as control investments. At March 31, 2021, approximately 12.4% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 25.3%.
7 Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned. At March 31, 2021, approximately 8.3% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 17.0%.
8 The investment is structured as a first lien last out term loan.
9 Indicates assets that are considered "non-qualifying assets” under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. As of March 31, 2021, approximately 12.6% of the Company's assets are non-qualifying assets.
10 The investment has an unfunded commitment as of March 31, 2021. Refer to Note 11 - Commitments and Contingencies for further discussion.
11 Income producing through dividends or distributions.
28
12 As of March 31, 2021, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $40.2 million; cumulative gross unrealized depreciation for federal income tax purposes is $27.3 million. Cumulative net unrealized appreciation is $12.9 million, based on a tax cost of $700.9 million.
13 Our investments in Acceleration Partners preferred and common units, American Nuts Operations LLC Class A common stock, ASC Ortho Management Company, LLC common units, Broad Sky Networks LLC Series A Preferred units, CityVet, Inc. Class A units, Danforth Advisors, LLC common units, Electronic Transaction Consultants LLC Class A units, Flip Electronics, LLC common units, LGM Pharma, LLC Class A common stock, NinjaTrader, LLC preferred units, Tax Advisors Group, LLC Class A units, Trafera, LLC Class A units, Central Medical Supply LLC Preferred units, Chandler Signs, LP Class A-1 common stock, Dynamic Communities, LLC Preferred units, ITA Holdings Group, LLC membership interest and Sonobi, Inc. Class A common units are held through a wholly-owned taxable subsidiary of the Company.
14 The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments, which as of March 31, 2021 represented 204.7% of the Company's net assets or 93.6% of the Company's total assets, are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act.
15 The investment is structured as a split lien term loan, which provides the Company with a first lien priority on certain assets of the obligor and a second lien priority on different assets of the obligor.
16 Represents amortized cost. Negative cost in this column represents the original issue discount of certain undrawn revolvers and delayed draw term loans.
17 The investment is structured as a first lien first out term loan.
A brief description of the portfolio company in which we made an investment that represents greater than 5% of our total assets as of March 31, 2021 is included in Note 13. Significant Subsidiaries.

The accompanying Notes are an integral part of these Consolidated Financial Statements.
29
Notes to Consolidated Financial Statements

1.    ORGANIZATION AND BASIS OF PRESENTATION

References in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” “CSWC,” or the “Company” refer to Capital Southwest Corporation, unless the context requires otherwise.

Organization

Capital Southwest Corporation is an internally managed investment company that specializes in providing customized financing to middle market companies in a broad range of investment segments located primarily in the United States. Our common stock currently trades on The Nasdaq Global Select Market under the ticker symbol “CSWC.”

CSWC was organized as a Texas corporation on April 19, 1961. On March 30, 1988, CSWC elected to be regulated as a business development company (“BDC”) under the 1940 Act. In order to comply with the 1940 Act requirements for a BDC, we must, among other things, generally invest at least 70% of our assets in eligible portfolio companies and limit the amount of leverage we incur.

We have elected, and intend to qualify annually, to be treated as a regulated investment company (“RIC”) under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). As such, we generally will not have to pay corporate-level U.S. federal income tax on any ordinary income or capital gains that we distribute to our shareholders as dividends. To continue to maintain our RIC treatment, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income.

CSWC has a direct wholly-owned subsidiary that has been elected to be a taxable entity (the “Taxable Subsidiary”). The primary purpose of the Taxable Subsidiary is to permit CSWC to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms of pass-through entities), and still allow us to satisfy the RIC tax requirement that at least 90% of our gross income for U.S. federal income tax purposes must consist of qualifying investment income. The Taxable Subsidiary is taxed at normal corporate tax rates based on its taxable income.

We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline. Our core business is to target senior debt investments and equity investments in lower middle market (“LMM”) companies. We also opportunistically target first and second lien loans in upper middle market (“UMM”) companies. Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) generally between $3.0 million and $20.0 million, and our LMM investments generally range in size from $5.0 million to $30.0 million. Our UMM investments generally include first and second lien loans in companies with EBITDA generally greater than $20.0 million and typically range in size from $5.0 million to $15.0 million. We make available significant managerial assistance to the companies in which we invest as we believe that providing managerial assistance to an investee company is critical to its business development activities.

On April 20, 2021, our wholly owned subsidiary, Capital Southwest SBIC I, LP (“SBIC I”) received a license from the U.S. Small Business Administration (the “SBA”) to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended. SBIC I will have the same investment strategy as ours and make similar types of investments in accordance with SBA regulations. SBIC I and its general partner are consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements.

Capital Southwest Management Corporation (“CSMC”), a wholly-owned subsidiary of CSWC, was the management company for CSWC. Effective December 31, 2020, CSMC merged with and into CSWC, with CSWC continuing as the surviving entity in the merger. Prior to December 31, 2020, CSMC generally incurred all normal operating and administrative expenses, including, but not limited to, salaries and related benefits, rent, equipment and
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other administrative costs required for its day-to-day operations (the “Administrative Expenses”). After December 31, 2020, the Administrative Expenses will be directly incurred by CSWC. The Company continues to be internally managed and the merger has no impact on the day-to-day operations of the business.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). We meet the definition of an investment company and follow the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 – Financial Services – Investment Companies (“ASC 946”) . Under rules and regulations applicable to investment companies, we are generally precluded from consolidating any entity other than another investment company, subject to certain exceptions. One of the exceptions to this general principle occurs if the investment company has an investment in an operating company that provides services to the investment company. Accordingly, the consolidated financial statements include the Taxable Subsidiary. Prior to the merger of CSMC into CSWC that became effective December 31, 2020, we consolidated the results of CSWC's wholly owned management company.

The consolidated financial statements are presented in conformity with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of our management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of consolidated financial statements for the interim periods included herein. The results of operations for the three and nine months ended December 31, 2021 are not necessarily indicative of the operating results to be expected for the full fiscal year. Also, the unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal years ended March 31, 2021 and 2020. Consolidated financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

Portfolio Investment Classification

We classify our investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are generally defined as investments in which we own more than 25% of the voting securities; “Affiliate Investments” are generally defined as investments in which we own between 5% and 25% of the voting securities, and the investments are not classified as “Control Investments”; and “Non-Control/Non-Affiliate Investments” are generally defined as investments that are neither “Control Investments” nor “Affiliate Investments.”

Under the 1940 Act, a BDC must meet certain requirements, including investing at least 70% of our total assets in qualifying assets. As of December 31, 2021, the Company has 87.6% of our assets in qualifying assets. The principal categories of qualifying assets relevant to our business are:

(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the Securities and Exchange Commission ("SEC").
(2) Securities of any eligible portfolio company that we control.
(3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.
(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no readily available market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
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(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.
(6) Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.
Additionally, in order to qualify for RIC tax treatment for U.S. federal income tax purposes, we must, among other things meet the following requirements:
(1) Continue to maintain our election as a BDC under the 1940 Act at all times during each taxable year.
(2) Derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains from the sale of stock or other securities, net income from certain "qualified publicly traded partnerships," or other income derived with respect to our business of investing in such stock or securities.
(3) Diversify our holdings in accordance with two Diversification Requirements: (a) Diversify our holdings such that at the end of each quarter of the taxable year at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and such other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and (b) Diversify our holdings such that no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of certain "qualified publicly traded partnerships" (collectively, the "Diversification Requirements").
The two Diversification Requirements must be satisfied quarterly. If a RIC satisfies the Diversification Requirements for one quarter, and then, due solely to fluctuations in market value, fails to meet one of the Diversification Requirements in the next quarter, it retains RIC tax treatment. A RIC that fails to meet the Diversification Requirements as a result of a nonqualified acquisition may be subject to excess taxes unless the nonqualified acquisition is disposed of and the Diversification Requirements are satisfied within 30 days of the close of the quarter in which the Diversification Requirements are failed.

For the quarter ended December 31, 2021, we satisfied all RIC requirements and have 7.3% in nonqualified assets according to measurement criteria established in Section 851(d) of the Code.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements of CSWC.

Fair Value Measurements We account for substantially all of our financial instruments at fair value in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. ASC 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. We believe that the carrying amounts of our financial instruments such as cash, receivables and payables approximate the fair value of these items due to the short maturity of these instruments. This is considered a Level 1 valuation technique. The carrying value of our credit facility approximates fair value (Level 3 input). See Note 4 below for further discussion regarding the fair value measurements and hierarchy.

Investments Investments are stated at fair value and are reviewed and approved by our Board of Directors as described in the Notes to the Consolidated Schedule of Investments and Notes 3 and 4 below. Investments are recorded on a trade date basis.

Net Realized Gains or Losses and Net Unrealized Appreciation or Depreciation Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period net of recoveries and realized
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gains or losses from in-kind redemptions. Net unrealized appreciation or depreciation reflects the net change in the fair value of the investment portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.

Cash and Cash Equivalents Cash and cash equivalents, which consist of cash and highly liquid investments with an original maturity of three months or less at the date of purchase, are carried at cost, which approximates fair value. Cash may be held in a money market fund from time to time, which is a Level 1 security. Cash and cash equivalents includes deposits at financial institutions. We deposit our cash balances in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. At December 31, 2021 and March 31, 2021, cash balances totaling $17.4 million and $30.4 million, respectively, exceeded FDIC insurance limits, subjecting us to risk related to the uninsured balance. All of our cash deposits are held at large established high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances is remote.

Segment Information We operate and manage our business in a singular segment. As an investment company, we invest in portfolio companies in various industries and geographic areas as discussed in Note 3.

Consolidation As permitted under Regulation S-X and ASC 946, we generally do not consolidate our investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to CSWC. Accordingly, we consolidate the results of CSWC’s wholly-owned Taxable Subsidiary and SBIC I. Prior to the merger of CSMC into CSWC, we consolidated the results of CSWC’s wholly-owned management company, CSMC. All intercompany balances have been eliminated upon consolidation.

Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We have identified investment valuation and revenue recognition as our most critical accounting estimates.

Interest and Dividend Income Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. Dividend income is recognized on the date dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. Discounts/premiums received to par on loans purchased are capitalized and accreted or amortized into income over the life of the loan using the effective interest method. In accordance with our valuation policy, accrued interest and dividend income is evaluated quarterly for collectability. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding its ability to service debt or other obligations, it will be restored to accrual basis. As of December 31, 2021, we had three investments on non-accrual status, which represent approximately 1.6% of our total investment portfolio's fair value and approximately 2.7% of its cost. As of March 31, 2021, we did not have any investments on non-accrual status.

To maintain RIC tax treatment, non-cash sources of income such as accretion of interest income may need to be paid out to shareholders in the form of distributions, even though CSWC may not have collected the interest income. For the three and nine months ended December 31, 2021, approximately 3.4% and 3.6%, respectively, of CSWC's total investment income was attributable to non-cash interest income for the accretion of discounts associated with debt investments, net of any premium reduction. For the three and nine months ended December 31, 2020, approximately 3.5% and 3.4%, respectively, of CSWC's total investment income was attributable to non-cash interest income for the accretion of discounts associated with debt investments, net of any premium reduction.

Payment-in-Kind Interest The Company currently holds, and expects to hold in the future, some investments in its portfolio that contain payment-in-kind (“PIK”) interest provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan, rather than being paid to the Company in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment. PIK interest, which is a non-cash source of income, is included in the Company’s taxable income and therefore affects the amount the Company is required to distribute to shareholders to maintain its qualification as a RIC for U.S. federal income tax purposes, even though the Company has not yet collected the cash. Generally, when
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current cash interest and/or principal payments on a loan become past due, or if the Company otherwise does not expect the borrower to be able to service its debt and other obligations, the Company will place the investment on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. The Company writes off any accrued and uncollected PIK interest when it is determined that the PIK interest is no longer collectible. As of December 31, 2021 and March 31, 2021, we have not written off any accrued and uncollected PIK interest from prior periods. For the three and nine months ended December 31, 2021, we had two investments for which we stopped accruing PIK interest. For the three months ended December 31, 2020, we had one investment for which we stopped accruing PIK interest. For the nine months ended December 31, 2020, we had two investments for which we stopped accruing PIK interest. For the three and nine months ended December 31, 2021, approximately 3.6% and 4.4%, respectively, of CSWC’s total investment income was attributable to non-cash PIK interest income. For the three and nine months ended December 31, 2020, approximately 8.4% and 8.8%, respectively, of CSWC’s total investment income was attributable to non-cash PIK interest income.

Fee Income Fee income, generally collected in advance, includes fees for administration and valuation services rendered by the Company. These fees are typically charged annually and are amortized into income over the year. The Company recognizes nonrecurring fees, including prepayment penalties, waiver fees and amendment fees, as fee income when earned. In addition, the Company may also be entitled to an exit fee that is amortized into income over the life of the loan. Loan exit fees to be paid at the termination of the loan are accreted into fee income over the contractual life of the loan.

Warrants In connection with the Company's debt investments, the Company will sometimes receive warrants or other equity-related securities from the borrower. The Company determines the cost basis of warrants based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and warrants received. Any resulting difference between the face amount of the debt and its recorded fair value resulting from the assignment of value to the warrants is treated as original issue discount (“OID”), and accreted into interest income using the effective interest method over the term of the debt investment.

Debt Issuance Costs Debt issuance costs include commitment fees and other costs related to CSWC’s senior secured credit facility, its unsecured notes (as discussed further in Note 5) and the debentures guaranteed by the SBA (the "SBA Debentures"). The costs in connection with the credit facility have been capitalized and are amortized into interest expense over the term of the credit facility. The costs in connection with the unsecured notes and the SBA Debentures are a direct deduction from the related debt liability and amortized into interest expense over the term of the December 2022 Notes (as defined below), the October 2024 Notes (as defined below), the January 2026 Notes (as defined below), the October 2026 Notes (as defined below) and the SBA Debentures.

Deferred Offering Costs Deferred offering costs include registration expenses related to a shelf registration statement and expenses related to the "at-the-market" ("ATM") program through which we can sell, from time to time, shares of our common stock (the "Equity ATM Program"). These expenses consist primarily of SEC registration fees, legal fees and accounting fees incurred related thereto. These expenses are included in other assets on the Consolidated Statements of Assets and Liabilities. Upon the completion of an equity offering or a debt offering, the deferred expenses are charged to additional paid-in capital or debt issuance costs, respectively. If there are any deferred offering costs remaining at the expiration of the shelf registration statement, these deferred costs are charged to expense.

Realized Loss on Extinguishment of Debt Upon the repayment of debt obligations that are deemed to be extinguishments, the difference between the principal amount due at maturity adjusted for any unamortized debt issuance costs is recognized as a loss (i.e., the unamortized debt issuance costs and any "make-whole" premium payment (as discussed in Note 5)) are recognized as a loss upon extinguishment of the underlying debt obligation).

Leases The Company is obligated under an operating lease pursuant to which it is leasing an office facility from a third party with a remaining term of less than one year. The operating lease is included as an operating lease right-of-use ("ROU") asset and operating lease liability in the accompanying Consolidated Statements of Assets and Liabilities. The Company does not have any financing leases.

The ROU asset represents the Company’s right to use an underlying asset for the lease term and the operating lease liability represents the Company’s obligation to make lease payments arising from such lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over
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the remaining lease term. The Company’s leases do not provide an implicit discount rate, and as such the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of the remaining lease payments. Lease expense is recognized on a straight-line basis over the remaining lease term.

Federal Income Taxes CSWC has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subsection M of the Code. By meeting these requirements, we will not be subject to corporate federal income taxes on ordinary income or capital gains timely distributed to shareholders. CSWC's taxable income includes the taxable income generated by CSWC and certain of its subsidiaries. In order to qualify as a RIC, the Company is required to timely distribute to its shareholders at least 90% of investment company taxable income, as defined by the Code, each year. Investment company taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. Investment company taxable income generally excludes net unrealized appreciation or depreciation, as investment gains and losses are not included in investment company taxable income until they are realized.

Depending on the level of taxable income or capital gains earned in a tax year, we may choose to carry forward taxable income or capital gains in excess of current year distributions into the next year and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income or capital gains must be distributed through a dividend declared on or prior to the later of (1) the filing of the U.S. federal income tax return for the applicable fiscal year and (2) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated.

In lieu of distributing our net capital gains for a year, we may decide to retain some or all of our net capital gains. We will be required to pay a 21% corporate-level federal income tax on any such retained net capital gains. We may elect to treat such retained capital gain as a deemed distribution to shareholders. Under such circumstances, shareholders will be required to include their share of such retained capital gain in income, but will receive a credit for the amount of corporate-level U.S. federal income tax paid with respect to their shares. As an investment company that qualifies as a RIC, federal income taxes payable on security gains that we elect to retain are accrued only on the last day of our tax year, December 31. Any net capital gains actually distributed to shareholders and properly reported by us as capital gain dividends are generally taxable to the shareholders as long-term capital gains. See Note 6 for further discussion.

CSMC, a former wholly-owned subsidiary of CSWC, was not a RIC and was required to pay taxes at the corporate rate of 21%. Effective December 31, 2020, CSMC merged with and into CSWC and, as a result, the calendar year ended December 31, 2020 was the last year in which the Company incurred a tax provision or benefit related to CSMC. For tax purposes, CSMC had elected to be treated as a taxable entity, and therefore CSMC was not consolidated for tax purposes and was taxed at normal corporate tax rates based on taxable income and, as a result of its activities, may generate an income tax provision or benefit. The taxable income, or loss, of CSMC may differ from its book income, or loss, due to temporary book and tax timing differences and permanent differences. This income tax provision, or benefit, if any, and the related tax assets and liabilities, are reflected in our consolidated financial statements.

The Taxable Subsidiary, a wholly-owned subsidiary of CSWC, is not a RIC and is required to pay taxes at the corporate rate of 21%. For tax purposes, the Taxable Subsidiary has elected to be treated as a taxable entity, and therefore is not consolidated for tax purposes and is taxed at normal corporate tax rates based on taxable income and, as a result of its activities, may generate income tax provision or benefit. The taxable income, or loss, of the Taxable Subsidiary may differ from its book income, or loss, due to temporary book and tax timing differences and permanent differences. This income tax provision, or benefit, if any, and the related tax assets and liabilities, are reflected in our consolidated financial statements.

Management evaluates tax positions taken or expected to be taken in the course of preparing the Company’s consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the CSWC level not deemed to meet the “more-likely-than-not” threshold would be recorded as an expense in the current year. Management’s conclusions regarding tax positions will be subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. The Company has concluded that it does not have any uncertain tax positions that meet the recognition of measurement criteria of ASC 740, Income Taxes , ("ASC 740") for the current period. Also, we account for interest and, if applicable, penalties for any uncertain tax positions as a
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component of income tax provision. No interest or penalties expense was recorded during the three and nine months ended December 31, 2021 and 2020.

Deferred Taxes Deferred tax assets and liabilities are recorded for losses or income at our taxable subsidiaries using statutory tax rates. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. ASC 740 requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation was enacted. See Note 6 for further discussion.

Share-Based Compensation We account for our share-based compensation using the fair value method, as prescribed by ASC Topic 718, Compensation – Stock Compensation. Accordingly, we recognize share-based compensation cost on a straight-line basis for all share-based payments awards granted to employees. For restricted stock awards, we measure the grant date fair value based upon the market price of our common stock on the date of the grant. For restricted stock awards, we amortize this fair value to share-based compensation expense over the vesting term. We recognize forfeitures as they occur. The unvested shares of restricted stock awarded pursuant to CSWC’s equity compensation plans are participating securities and are included in the basic and diluted earnings per share calculation.

The right to grant restricted stock awards under the 2010 Plan terminated on July 18, 2021, ten years after the date that the 2010 Restricted Stock Award Plan (the “2010 Plan”) was approved by the Company’s shareholders pursuant to its terms. In connection with the termination of the 2010 Plan, the Company’s Board of Directors and shareholders approved the Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (the "2021 Employee Plan") as part of the compensation packages for its employees, the terms of which are, in all material respects, identical to the 2010 Plan. In connection therewith, on July 19, 2021, we received an exemptive order that supersedes the prior exemptive order relating to the 2010 Plan (the “Order”) to permit the Company to (i) issue restricted stock as part of the compensation package for its employees in the 2021 Employee Plan, and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the participants to satisfy tax withholding obligations relating to the vesting of restricted stock pursuant to the 2021 Employee Plan. In addition, on March 29, 2021, we filed an application with the SEC seeking the same relief in the Order (the "Superseding Order") to cover both the Company's employees and non-employee directors of the Board of Directors. There can be no assurance if and when the Company will receive the Superseding Order. The terms of the Superseding Order, if received, are expected to be substantially similar to the Order. The Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Plan will also be subject to shareholder approval upon receipt of the Superseding Order.

Shareholder Distributions Distributions to common shareholders are recorded on the ex-dividend date. The amount of distributions, if any, is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such capital gains for investment.

Presentation Presentation of certain amounts in the Consolidated Financial Statements for the prior year comparative consolidated financial statements is updated to conform to the current period presentation.

Recently Issued or Adopted Accounting Standards In March 2020, the FASB issued ASU 2020-04, "Reference rate reform (Topic 848)—Facilitation of the effects of reference rate reform on financial reporting." The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and under our Credit Facility (as described in Note 5) and the I-45 SLF LLC credit facility (as described in Note 13). Many of these agreements (including the credit agreements relating to the Credit Facility and the I-45 credit facility) include an alternative successor rate or language for choosing an alternative successor rate when LIBOR reference is no longer considered to be appropriate. With respect to other agreements, the Company intends to work with its portfolio companies to modify agreements to choose an alternative successor rate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The standard is effective as of March 12, 2020 through December 31, 2022 and the Company plans to apply the amendments in this update to account for contract modifications due to changes in reference rates. The Company does not believe that it will have a material impact on its consolidated financial statements or its disclosures.
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In November 2020, the SEC issued a final rule that modernized and simplifies Management's Discussion and Analysis and certain financial disclosure requirements in Regulation S-K (the “Amendments”). Specifically, the Amendments: (i) eliminate Item 301 of Regulation S-K (Selected Financial Data); (ii) simplify Item 302 of Regulation S-K (Supplementary Financial Information); and (iii) amend certain aspects of Item 303 of Regulation S-K (Management's Discussion and Analysis of Financial Condition and Results of Operations). The Amendments became effective on February 10, 2021 and compliance will be required for the registrants' fiscal year ending on or after August 9, 2021. Early adoption of the Amendments is permitted on an item-by-item basis after the effective date; however, a registrant must fully comply with each adopted item in its entirety. The Company does not believe that the Amendments will have a material impact on its consolidated financial statements or its disclosures.
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3.    INVESTMENTS

The following table shows the composition of the investment portfolio, at fair value and cost (with corresponding percentage of total portfolio investments) as of December 31, 2021 and March 31, 2021:
Fair Value Percentage of Total Portfolio
at Fair Value 		Percentage of Net Assets
at Fair Value 		Cost Percentage of Total Portfolio
at Cost
(dollars in thousands)
December 31, 2021:
First lien loans 1,2
$ 679,184 77.5 % 175.3 % $ 685,807 77.3 %
Second lien loans 2
53,051 6.0 13.7 55,847 6.3
Subordinated debt 3
12,446 1.4 3.2 12,335 1.4
Preferred equity 37,390 4.3 9.7 22,363 2.5
Common equity & warrants 37,105 4.2 9.6 34,448 3.9
I-45 SLF LLC 4
57,589 6.6 14.9 76,000 8.6
$ 876,765 100.0 % 226.4 % $ 886,800 100.0 %
March 31, 2021:
First lien loans 1,2
$ 524,161 76.1 % 155.9 % $ 530,366 75.4 %
Second lien loans 2
36,919 5.4 11.0 40,198 5.7
Subordinated debt 3
11,534 1.7 3.4 11,588 1.6
Preferred equity 22,608 3.3 6.7 15,378 2.2
Common equity & warrants 36,052 5.2 10.7 33,227 4.7
I-45 SLF LLC 4
57,158 8.3 17.0 72,800 10.4
$ 688,432 100.0 % 204.7 % $ 703,557 100.0 %

1 Included in first lien loans are loans structured as first lien last out loans. These loans may, in certain cases, be subordinated in payment priority to other senior secured lenders. As of December 31, 2021 and March 31, 2021, the fair value of the first lien last out loans are $54.1 million and $85.6 million, respectively.
2 Included in first lien loans and second lien loans are loans structured as split lien term loans. These loans provide the Company with a first lien priority on certain assets of the obligor and a second lien priority on different assets of the obligor. As of December 31, 2021 and March 31, 2021, the fair value of the split lien term loans included in first lien loans is $36.5 million and $25.9 million, respectively. As of December 31, 2021 and March 31, 2021, the fair value of the split lien term loans included in second lien loans is $33.8 million and $19.1 million, respectively.
3 Included in subordinated debt are unsecured convertible notes with a fair value of $0.3 million and $0.2 million as of December 31, 2021 and March 31, 2021, respectively.
4 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital Corporation. This entity primarily invests in syndicated senior secured loans to the UMM. The portfolio companies held by I-45 SLF LLC represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 13 for further discussion.

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The following tables show the composition of the investment portfolio by industry, at fair value and cost (with corresponding percentage of total portfolio investments) as of December 31, 2021 and March 31, 2021:
Fair Value Percentage of Total Portfolio
at Fair Value 		Percentage of Net Assets
at Fair Value 		Cost Percentage of Total Portfolio
at Cost
(dollars in thousands)
December 31, 2021:
Business Services $ 120,862 13.8 % 31.2 % $ 122,194 13.8 %
Healthcare Services 84,016 9.6 21.7 94,372 10.6
Consumer Products & Retail 75,625 8.6 19.5 74,699 8.4
I-45 SLF LLC 1
57,589 6.6 14.9 76,000 8.6
Media, Marketing & Entertainment 53,071 6.1 13.7 44,930 5.1
Distribution 51,546 5.9 13.3 51,186 5.8
Consumer Services 42,156 4.8 10.9 41,979 4.7
Food, Agriculture & Beverage 41,224 4.7 10.6 40,809 4.6
Financial Services 39,420 4.5 10.2 31,301 3.5
Transportation & Logistics 34,142 3.9 8.8 28,724 3.2
Education 33,527 3.8 8.7 32,826 3.7
Technology Products & Components 32,624 3.7 8.4 28,207 3.2
Healthcare Products 31,439 3.6 8.1 32,945 3.7
Software & IT Services 25,926 3.0 6.7 27,202 3.1
Environmental Services 22,516 2.6 5.8 24,600 2.8
Energy Services (Upstream) 18,955 2.1 4.9 18,526 2.1
Telecommunications 18,178 2.0 4.7 22,371 2.5
Specialty Chemicals 17,706 2.0 4.6 17,668 2.0
Industrial Products 14,995 1.7 3.9 14,995 1.7
Energy Services (Midstream) 13,806 1.6 3.6 13,850 1.6
Industrial Services 11,539 1.3 3.0 11,472 1.3
Containers & Packaging 10,698 1.2 2.8 10,740 1.2
Commodities & Mining 10,466 1.2 2.7 10,985 1.2
Aerospace & Defense 6,666 0.8 1.7 6,666 0.8
Restaurants 5,573 0.6 1.4 4,571 0.5
Paper & Forest Products 2,500 0.3 0.6 2,982 0.3
$ 876,765 100.0 % 226.4 % $ 886,800 100.0 %
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Fair Value Percentage of Total Portfolio
at Fair Value 		Percentage of Net Assets
at Fair Value 		Cost Percentage of Total Portfolio
at Cost
(dollars in thousands)
March 31, 2021:
Business Services $ 87,839 12.8 % 26.1 % $ 89,758 12.8 %
Media, Marketing, & Entertainment 80,876 11.7 24.1 75,447 10.7
Healthcare Services 72,411 10.5 21.5 81,509 11.6
I-45 SLF LLC 1
57,158 8.3 17.0 72,800 10.3
Distribution 53,160 7.7 15.8 52,819 7.5
Software & IT Services 46,696 6.8 13.9 45,683 6.5
Industrial Services 39,071 5.7 11.6 39,424 5.6
Healthcare Products 33,937 4.9 10.1 32,785 4.7
Financial Services 33,861 4.9 10.1 28,283 4.0
Technology Products & Components 30,716 4.5 9.1 28,220 4.0
Consumer Products & Retail 29,980 4.4 8.9 29,927 4.2
Transportation & Logistics 23,395 3.4 7.0 19,383 2.8
Food, Agriculture & Beverage 21,575 3.1 6.4 21,641 3.1
Telecommunications 19,572 2.8 5.8 24,350 3.5
Environmental Services 12,021 1.7 3.6 14,510 2.1
Commodities & Mining 10,138 1.5 3.0 10,603 1.5
Aerospace & Defense 9,668 1.4 2.9 9,459 1.3
Energy Services (Midstream) 8,975 1.3 2.7 9,319 1.3
Specialty Chemicals 7,841 1.1 2.3 7,841 1.1
Restaurants 6,542 1.1 1.9 6,822 1.0
Paper & Forest Products 3,000 0.4 0.9 2,974 0.4
$ 688,432 100.0 % 204.7 % $ 703,557 100.0 %

1 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital Corporation. This entity primarily invests in syndicated senior secured loans to the UMM. The portfolio companies in I-45 SLF LLC represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 13 for further discussion.
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The following tables summarize the composition of the investment portfolio by geographic region of the United States, at fair value and cost (with corresponding percentage of total portfolio investments), as of December 31, 2021 and March 31, 2021:
Fair Value Percentage of Total Portfolio
at Fair Value 		Percentage of Net Assets
at Fair Value 		Cost Percentage of Total Portfolio
at Cost
(dollars in thousands)
December 31, 2021:
Northeast $ 217,063 24.8 % 56.0 % $ 216,521 24.4 %
Southwest 199,005 22.7 51.4 198,571 22.4
West 153,847 17.5 39.7 145,140 16.4
Midwest 142,269 16.2 36.7 139,267 15.7
Southeast 92,415 10.5 23.9 96,777 10.9
I-45 SLF LLC 1
57,589 6.6 14.9 76,000 8.6
International 14,577 1.7 3.8 14,524 1.6
$ 876,765 100.0 % 226.4 % $ 886,800 100.0 %
March 31, 2021:
Southwest $ 196,956 28.6 % 58.6 % $ 200,091 28.4 %
Northeast 153,761 22.3 45.7 150,595 21.4
Southeast 120,168 17.5 35.7 125,317 17.8
West 90,910 13.2 27.0 87,363 12.5
Midwest 69,479 10.1 20.7 67,391 9.6
I-45 SLF LLC 1
57,158 8.3 17.0 72,800 10.3
$ 688,432 100.0 % 204.7 % $ 703,557 100.0 %


1 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital Corporation. This entity primarily invests in syndicated senior secured loans to the UMM. The portfolio companies held by I-45 SLF LLC represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 13 for further discussion.

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4.    FAIR VALUE MEASUREMENTS

Investment Valuation Process

The valuation process is led by the finance department in conjunction with the investment team. The process includes a quarterly review of each investment by our executive officers and investment team. Valuations of each portfolio security are prepared quarterly by the finance department using updated financial and other operational information collected by the investment team. Each investment valuation is then subject to review by the executive officers and investment team. In conjunction with the internal valuation process, we have also engaged multiple independent consulting firms specializing in financial due diligence, valuation, and business advisory services to provide third-party valuation reviews of certain investments. The third-party valuation firms provide a range of values for selected investments, which is presented to CSWC’s executive officers and then subsequently to the Board of Directors.

CSWC also uses a standard internal investment rating system in connection with its investment oversight, portfolio management, and investment valuation procedures for its debt portfolio. This system takes into account both quantitative and qualitative factors of the portfolio company and the investments held therein.

There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. While management believes our valuation methodologies are appropriate and consistent with market participants, the recorded fair values of our investments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. The Board of Directors has the ultimate responsibility for reviewing and approving, in good faith, the fair value of CSWC’s investments in accordance with the 1940 Act.

Fair Value Hierarchy

CSWC has established and documented processes for determining the fair values of portfolio company investments on a recurring basis in accordance with the 1940 Act and ASC 820. As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). CSWC conducts reviews of fair value hierarchy classifications on a quarterly basis. We also use judgment and consider factors specific to the investment in determining the significance of an input to a fair value measurement.

The three levels of valuation inputs established by ASC 820 are as follows:

• Level 1: Investments whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2: Investments whose values are based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• Level 3: Investments whose values are based on unobservable inputs that are significant to the overall fair value measurement.
As of December 31, 2021 and March 31, 2021, 100% of the CSWC investment portfolio consisted of privately held debt and equity instruments for which inputs falling within the categories of Level 1 and Level 2 are generally not readily available. Therefore, CSWC determines the fair value of its investments (excluding investments for which fair value is measured at net asset value ("NAV") in good faith using Level 3 inputs, pursuant to a valuation policy and process that is established by the management of CSWC, with assistance from multiple third-party valuation advisors, which is subsequently approved by our Board of Directors.

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Investment Valuation Inputs

ASC 820 defines fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date excluding transaction costs. Under ASC 820, the fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market is the market in which the reporting entity would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset or liability under ASC 820, it is assumed that the reporting entity has access to the market as of the measurement date.

The Level 3 inputs to CSWC’s valuation process reflect our best estimate of the assumptions that would be used by market participants in pricing the investment in a transaction in the principal or most advantageous market for the asset.

The fair value determination of each portfolio investment categorized as Level 3 required one or more of the following unobservable inputs:

• Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;
• Current and projected financial condition of the portfolio company;
• Current and projected ability of the portfolio company to service its debt obligations;
• Type and amount of collateral, if any, underlying the investment;
• Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio and net debt/EBITDA ratio) applicable to the investment;
• Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);
• Indicative dealer quotations from brokers, banks, and other market participants;
• Market yields on other securities of similar risk;
• Pending debt or capital restructuring of the portfolio company;
• Projected operating results of the portfolio company;
• Current information regarding any offers to purchase the investment;
• Current ability of the portfolio company to raise any additional financing as needed;
• Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
• Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;
• Qualitative assessment of key management;
• Contractual rights, obligations or restrictions associated with the investment; and
• Other factors deemed relevant.

CSWC uses several different valuation approaches depending on the security type including the Market Approach, the Income Approach, the Enterprise Value Waterfall Approach, and the NAV Valuation Method.

Market Approach

Market Approach is a qualitative and quantitative analysis of the aforementioned unobservable inputs. It is a combination of the Enterprise Value Waterfall Approach and Income Approach as described in detail below. For investments recently originated (within a quarterly reporting period) or where the value has not departed significantly from its cost, we generally rely on our cost basis or recent transaction price to determine the fair value, unless a material event has occurred since origination.

Income Approach

In valuing debt securities, CSWC typically uses an Income Approach model, which considers some or all of the factors listed above. Under the Income Approach, CSWC develops an expectation of the yield that a hypothetical market participant would require when purchasing each debt investment (the “Required Market Yield”). The Required Market Yield is calculated in a two-step process. First, using quarterly market data we estimate the current market yield of similar debt securities. Next,
43
based on the factors described above, we modify the current market yield for each security to produce a unique Required Market Yield for each of our investments. The resulting Required Market Yield is the significant Level 3 input to the Income Approach model. If, with respect to an investment, the unobservable inputs have not fluctuated significantly from the date the investment was made or have not fluctuated significantly from CSWC’s expectations on the date the investment was made, and there have been no significant fluctuations in the market pricing for such investments, we may conclude that the Required Market Yield for that investment is equal to the stated rate on the investment. In instances where CSWC determines that the Required Market Yield is different from the stated rate on the investment, we discount the contractual cash flows on the debt instrument using the Required Market Yield in order to estimate the fair value of the debt security.

In addition, under the Income Approach, CSWC also determines the appropriateness of the use of third-party broker quotes, if any, as a significant Level 3 input in determining fair value. In determining the appropriateness of the use of third-party broker quotes, CSWC evaluates the level of actual transactions used by the broker to develop the quote, whether the quote was an indicative price or binding offer, the depth and consistency of broker quotes, the source of the broker quotes, and the correlation of changes in broker quotes with underlying performance of the portfolio company and other market indices. To the extent sufficient observable inputs are available to determine fair value, CSWC may use third-party broker quotes or other independent pricing to determine the fair value of certain debt investments.

Fair value measurements using the Income Approach model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in the Required Market Yield for a particular debt security may result in a lower (higher) fair value for that security. A significant increase (decrease) in a third-party broker quote for a particular debt security may result in a higher (lower) value for that security.

Enterprise Value Waterfall Approach

In valuing equity securities (including warrants), CSWC estimates fair value using an Enterprise Value Waterfall valuation model. CSWC estimates the enterprise value of a portfolio company and then allocates the enterprise value to the portfolio company’s securities in order of their relative liquidation preference. In addition, CSWC assumes that any outstanding debt or other securities that are senior to CSWC’s equity securities are required to be repaid at par. Additionally, we may estimate the fair value of non-performing debt securities using the Enterprise Value Waterfall approach as needed.

To estimate the enterprise value of the portfolio company, CSWC uses a weighted valuation model based on public comparable companies, observable transactions and discounted cash flow analyses. A main input into the valuation model is a measure of the portfolio company’s financial performance, which generally is either earnings before interest, taxes, depreciation and amortization, as adjusted (“Adjusted EBITDA”) or revenues. In addition, we consider other factors, including but not limited to (1) offers from third parties to purchase the portfolio company and (2) the implied value of recent investments in the equity securities of the portfolio company. For certain non-performing assets, we may utilize the liquidation or collateral value of the portfolio company's assets in our estimation of its enterprise value.

The significant Level 3 inputs to the Enterprise Value Waterfall model are (1) an appropriate multiple derived from the comparable public companies and transactions, (2) discount rate assumptions used in the discounted cash flow model and (3) a measure of the portfolio company’s financial performance, which generally is either Adjusted EBITDA or revenues. Inputs can be based on historical operating results, projections of future operating results or a combination thereof. The operating results of a portfolio company may be unaudited, projected or pro forma financial information and may require adjustments for certain non-recurring items. CSWC also may consult with the portfolio company’s senior management to obtain updates on the portfolio company’s performance, including information such as industry trends, new product development, loss of customers and other operational issues. Fair value measurements using the Enterprise Value Waterfall model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in either the multiple, Adjusted EBITDA or revenues for a particular equity security would result in a higher (lower) fair value for that security.

NAV Valuation Method

Under the NAV valuation method, for an investment in an investment fund that does not have a readily determinable fair value, CSWC measures the fair value of the investment predominately based on the NAV of the investment fund as of the measurement date. However, in determining the fair value of the investment, we may consider whether adjustments to the NAV are necessary in certain circumstances, based on the analysis of any restrictions on redemption of our investment as of the measurement date, recent actual sales or redemptions of interests in the investment fund, expected future cash flows available to equity holders, or other uncertainties surrounding CSWC’s ability to realize the full NAV of its interests in the investment fund.
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The following fair value hierarchy tables set forth our investment portfolio by level as of December 31, 2021 and March 31, 2021 (in thousands):
Fair Value Measurements
at December 31, 2021 Using
Asset Category Total Quoted Prices in Active Markets for Identical Assets
(Level 1) 		Significant Other Observable Inputs
(Level 2) 		Significant Unobservable Inputs
(Level 3)
First lien loans $ 679,184 $ — $ — $ 679,184
Second lien loans 53,051 — — 53,051
Subordinated debt 12,446 — — 12,446
Preferred equity 37,390 — — 37,390
Common equity & warrants 37,105 — — 37,105
Investments measured at net asset value 1
57,589 — — —
Total Investments $ 876,765 $ — $ — $ 819,176
Fair Value Measurements
at March 31, 2021 Using
Asset Category
Total Quoted Prices in Active Markets for Identical Assets
(Level 1) 		Significant Other Observable Inputs
(Level 2) 		Significant Unobservable Inputs
(Level 3)
First lien loans $ 524,161 $ — $ — $ 524,161
Second lien loans 36,919 — — 36,919
Subordinated debt 11,534 — — 11,534
Preferred equity 22,608 — — 22,608
Common equity & warrants 36,052 — — 36,052
Investments measured at net asset value 1
57,158 — — —
Total Investments $ 688,432 $ — $ — $ 631,274

1 Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in Consolidated Statements of Assets and Liabilities. For the investment valued at net asset value per share at December 31, 2021 and March 31, 2021, the redemption restrictions dictate that we cannot withdraw our membership interest without unanimous approval. We are permitted to sell or transfer our membership interest and must deliver written notice of such transfer to the other member no later than 60 business days prior to the sale or transfer.

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The tables below present the Valuation Techniques and Significant Level 3 Inputs (ranges and weighted averages) used in the valuation of CSWC’s debt and equity securities at December 31, 2021 and March 31, 2021. Significant Level 3 Inputs were weighted by the relative fair value of the investments. The tables are not intended to be all inclusive, but instead capture the significant unobservable inputs relevant to our determination of fair value.
Fair Value at Significant
Valuation December 31, 2021 Unobservable Weighted
Type Technique (in thousands) Inputs Range Average
First lien loans Income Approach $ 471,888 Discount Rate 6.5% - 40.4% 10.7%
Third Party Broker Quote 3.0 - 96.0 94.1
Market Approach 207,296 Cost 78.3 - 99.0 98.0
Exit Value 100.0 - 102.0 101.8
Second lien loans Income Approach 49,816 Discount Rate 10.8% - 27.8% 15.1%
Third Party Broker Quote 83.3 - 99.2 96.1
Market Approach 3,235 Cost 98.0 - 98.0 98.0
Subordinated debt Income Approach 12,214 Discount Rate 11.0% - 26.5% 11.8%
Enterprise Value Waterfall Approach 232 EBITDA Multiple 8.5x - 8.5x 8.5x
Discount Rate 20.1% - 20.1% 20.1%
Preferred equity Enterprise Value Waterfall Approach 34,290 EBITDA Multiple 6.7x - 14.3x 10.7x
Discount Rate 12.5% - 30.1% 18.1%
Market Approach 3,100 Cost 100.0 - 100.0 100.0
Common equity & warrants Enterprise Value Waterfall Approach 31,491 EBITDA Multiple 6.3x - 13.1x 9.0x
Discount Rate 12.4% - 31.8% 18%
Market Approach 3,338 Cost 100.0 - 100.0 100.0
Income Approach 2,276 Third Party Broker Quote 47.0 - 47.0 47.0
Total Level 3 Investments $ 819,176

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Fair Value at Significant
Valuation March 31, 2021 Unobservable Weighted
Type Technique (in thousands) Inputs Range Average
First lien loans Income Approach $ 465,712 Discount Rate 6.3% - 28.8% 10.9%
Third Party Broker Quote 53.1 - 99.9 87.9
Market Approach 58,449 Cost 93.9 - 98.0 97.6
Exit Value 100.0 - 101.0 100.2
Second lien loans Income Approach 36,864 Discount Rate 9.9% - 17.6% 14.4%
Third Party Broker Quote 96.5 - 97.8 96.6
Market Approach 55 Exit Value 2.4 2.4
Subordinated debt Income Approach 11,534 Discount Rate 6.2% - 29.3% 13.4%
Preferred equity Enterprise Value Waterfall Approach 22,608 EBITDA Multiple 6.9x - 10.8x 8.9x
Discount Rate 12.7% - 22.4% 19.3%
Common equity & warrants Enterprise Value Waterfall Approach 34,013 EBITDA Multiple 5.6x - 11.5x 8.1x
Discount Rate 12.9% - 29.8% 20%
Market Approach 2,039 Cost 100.0 100.0
Exit Value 284.4 284.4
Total Level 3 Investments $ 631,274

Changes in Fair Value Levels
We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model based valuation techniques may require the transfer of financial instruments from one fair value level to another. During the three and nine months ended December 31, 2021 and 2020, we had no transfers between levels.

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The following tables provide a summary of changes in the fair value of investments measured using Level 3 inputs during the nine months ended December 31, 2021 and 2020 (in thousands):
Fair Value March 31, 2021 Realized & Unrealized Gains (Losses)
Purchases of Investments 1
Repayments PIK Interest Capitalized Divestitures Conversion/Reclassification of Security Fair Value December 31, 2021 YTD Unrealized Appreciation (Depreciation) on Investments held at period end
First lien loans $ 524,161 $ (998) $ 378,164 $ (219,454) $ 1,994 $ — $ (4,683) $ 679,184 $ (2,515)
Second lien loans 36,919 (1,791) 18,841 (7,152) 1,079 (53) 5,208 53,051 (2,165)
Subordinated debt 11,534 165 270 — 477 — — 12,446 165
Preferred equity 22,608 7,796 7,511 — — — (525) 37,390 7,271
Common equity & warrants 36,052 8,677 4,257 — — (11,881) — 37,105 4,042
Total Investments $ 631,274 $ 13,849 $ 409,043 $ (226,606) $ 3,550 $ (11,934) $ — $ 819,176 $ 6,798
Fair Value March 31, 2020 Realized & Unrealized Gains (Losses)
Purchases of Investments 1
Repayments PIK Interest Capitalized Divestitures Conversion/Reclassification of Security Fair Value December 31, 2020 YTD Unrealized Appreciation (Depreciation) on Investments held at period end
First lien loans $ 427,447 $ (572) $ 132,279 $ (71,102) $ 3,880 $ — $ (9,692) $ 482,240 $ (987)
Second lien loans 37,139 (758) 143 (188) 642 — 778 37,756 (758)
Subordinated debt 9,747 141 534 — 685 — — 11,107 141
Preferred equity 16,624 7,485 3,915 — — (7,614) — 20,410 2,971
Common equity & warrants 22,355 2,143 2,381 — — (2,168) 8,914 33,625 1,731
Total Investments $ 513,312 $ 8,439 $ 139,252 $ (71,290) $ 5,207 $ (9,782) $ — $ 585,138 $ 3,098

1 Includes purchases of new investments, as well as discount accretion on existing investments.


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5.    BORROWINGS

In accordance with the 1940 Act, with certain limitations, effective April 25, 2019, the Company is only allowed to borrow amounts such that its asset coverage (i.e., the ratio of assets less liabilities not represented by senior securities to senior securities such as borrowings), calculated pursuant to the 1940 Act, is at least 150% after such borrowing. The Board of Directors also approved a resolution which limits the Company’s issuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, which became effective April 25, 2019. On August 11, 2021, we received an exemptive order from SEC to permit us to exclude the senior securities issued by SBIC I or any future SBIC subsidiary of the Company from the definition of senior securities in the asset coverage requirement applicable to the Company under the 1940 Act. As of December 31, 2021, the Company’s asset coverage was 187%.

The Company had the following borrowings outstanding as of December 31, 2021 and March 31, 2021 (amounts in thousands):
December 31, 2021 Outstanding Balance Unamortized Debt Issuance Costs and Debt Discount/Premium Recorded Value
SBA Debentures $ 29,000 $ (1,035) $ 27,965
Credit Facility 190,000 — 190,000
January 2026 Notes 140,000 (1,370) 138,630
October 2026 Notes 150,000 (3,643) 146,357
$ 509,000 $ (6,048) $ 502,952
March 31, 2021
Credit Facility $ 120,000 $ — $ 120,000
October 2024 Notes 125,000 (2,121) 122,879
January 2026 Notes 140,000 (1,575) 138,425
$ 385,000 $ (3,696) $ 381,304

Credit Facility

In August 2016, CSWC entered into a senior secured credit facility (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Facility”) to provide additional liquidity to support its investment and operational activities. The Credit Facility contains an accordion feature that allows CSWC to increase the total commitments under the Credit Facility up to $400 million from new and existing lenders on the same terms and conditions as the existing commitments.

On August 9, 2021, CSWC entered into the Second Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement"). Prior to the Credit Agreement, (1) borrowings under the Credit Facility accrued interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 2.50% with no LIBOR floor, and (2) the total borrowing capacity was $340 million with commitments from a diversified group of eleven lenders. The Credit Agreement (1) decreased the total borrowing capacity under the Credit Facility to $335 million with commitments from a diversified group of ten lenders, (2) reduced the interest rate on borrowings to LIBOR plus 2.15% with no LIBOR floor and removed conditions related thereto as previously set forth in the Amended and Restated Senior Secured Revolving Credit Agreement, and (3) extended the end of the Credit Facility's revolver period from December 21, 2022 to August 9, 2025 and extended the final maturity from December 21, 2023 to August 9, 2026. The Credit Agreement also modified certain covenants in the Credit Facility, including, among other things, to increase the minimum obligors’ net worth test from $180 million to $200 million.

CSWC pays unused commitment fees of 0.50% to 1.00% per annum, based on utilization, on the unused lender commitments under the Credit Facility. The Credit Facility contains certain affirmative and negative covenants, including but not limited to: (1) certain reporting requirements, (2) maintaining RIC and BDC status, (3) maintaining a minimum senior coverage ratio of 2 to 1, (4) maintaining a minimum shareholders’ equity, (5) maintaining a minimum consolidated net worth, (6) maintaining a regulatory asset coverage of not less than 150%, (7) maintaining an interest
49
coverage ratio of at least 2.25 to 1.0, and (8) at any time the outstanding advances exceed 90% of the borrowing base, maintaining a minimum liquidity of not less than 10% of the covered debt amount.

The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, bankruptcy, and change of control, with customary cure and notice provisions. If the Company defaults on its obligations under the Credit Facility, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests.

The Credit Facility is secured by (1) substantially all of the present and future property and assets of the Company and the guarantors and (2) 100% of the equity interests in the Company’s wholly-owned subsidiary. As of December 31, 2021, substantially all of the Company’s assets were pledged as collateral for the Credit Facility, except for assets held in SBIC I.

At December 31, 2021, CSWC had $190.0 million in borrowings outstanding under the Credit Facility. CSWC recognized interest expense related to the Credit Facility, including unused commitment fees and amortization of deferred loan costs, of $1.6 million and $4.5 million for the three and nine months ended December 31, 2021, respectively. For the three and nine months ended December 31, 2020, CSWC recognized interest expense of $1.8 million and $5.3 million, respectively. The weighted average interest rate on the Credit Facility was 2.37% and 2.52%, respectively, for the three and nine months ended December 31, 2021. For the three and nine months ended December 31, 2020, the weighted average interest rate on the Credit Facility was 2.91% and 3.13%, respectively. Average borrowings for the three and nine months ended December 31, 2021 were $200.2 million and $165.8 million, respectively. For the three and nine months ended December 31, 2020, average borrowings were $184.1 million and $129.5 million, respectively. As of December 31, 2021, CSWC was in compliance with all financial covenants under the Credit Facility.

December 2022 Notes

In December 2017, the Company issued $57.5 million in aggregate principal amount, including the underwriters’ full exercise of their option to purchase additional principal amounts to cover over-allotments, of 5.95% Notes due 2022 (the “December 2022 Notes”). The December 2022 Notes bore interest at a rate of 5.95% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 2018.

On June 11, 2018, the Company entered into an ATM debt distribution agreement, pursuant to which it may offer for sale, from time to time, up to $50 million in aggregate principal amount of December 2022 Notes through B. Riley FBR, Inc., acting as its sales agent. The Company issued an additional $19.6 million in aggregate principal amount of the December 2022 Notes under this agreement. All issuances of December 2022 Notes ranked equally in right of payment and form a single series of notes.

On September 29, 2020, the Company redeemed $20,000,000 in aggregate principal of the $77,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes. On December 10, 2020, the Company redeemed $20,000,000 in aggregate principal of the $57,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes. On January 21, 2021, the Company redeemed the remaining $37,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes. The December 2022 Notes were redeemed at 100% of their principal amount, plus the accrued and unpaid interest thereon, through, but excluding each of the redemption dates. Accordingly, the Company recognized a realized loss on extinguishment of debt, equal to the write-off of the related unamortized debt issuance costs, of $1.0 million during the year ended March 31, 2021.

The Company recognized interest expense related to the December 2022 Notes, including amortization of deferred issuance costs of $0.9 million and $3.4 million for the three and nine months ended December 31, 2020, respectively. Average borrowings for the three and nine months ended December 31, 2020 were $52.4 million and $68.7 million, respectively. The December 2022 Notes had a weighted average effective yield of 5.93%.

October 2024 Notes

In September 2019, the Company issued $65.0 million in aggregate principal amount of 5.375% Notes due 2024 (the “Existing October 2024 Notes”). In October 2019, the Company issued an additional $10.0 million in aggregate
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principal amount of the October 2024 Notes (the "Additional October 2024 Notes"). In August 2020, the Company issued an additional $50.0 million in aggregate principal amount of the October 2024 Notes (the "New Notes" together with the Existing October 2024 Notes and the Additional October 2024 Notes, the "October 2024 Notes"). The Additional October 2024 Notes and the New Notes were treated as a single series with the Existing October 2024 Notes under the indenture and had the same terms as the Existing October 2024 Notes. The maturity date of the October 2024 Notes was October 1, 2024 and were redeemable in whole or in part at any time prior to July 1, 2024, at par plus a “make-whole” premium, and thereafter at par. The October 2024 Notes bore interest at a rate of 5.375% per year, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2020.

On September 24, 2021, the Company redeemed $125,000,000 in aggregate principal amount of the issued and outstanding October 2024 Notes. The October 2024 Notes were redeemed at 100% of their principal amount, plus (i) the accrued and unpaid interest thereon, through, but excluding the redemption date, and (ii) a "make-whole" premium. Accordingly, the Company recognized a realized loss on extinguishment of debt, equal to the write-off of the related unamortized debt issuance costs of $1.8 million and the "make-whole" premium of $15.2 million during the three months ended September 30, 2021.

The Company did not recognize any interest expense related to the October 2024 Notes for the three months ended December 31, 2021. The Company recognized interest expense, including amortization of deferred issuance costs, of $3.6 million for the nine months ended December 31, 2021. For the three and nine months ended December 31, 2020, the Company recognized interest expense of $1.8 million and $4.4 million, respectively. From April 1, 2021 through September 24, 2021 (the redemption date of the October 2024 Notes), average borrowings were $125.0 million. For the three and nine months ended December 31, 2020, average borrowings were $125.0 million and $100.8 million, respectively. The October 2024 Notes had a weighted average effective yield of 5.375%.

January 2026 Notes

In December 2020, the Company issued $75.0 million in aggregate principal amount of 4.50% Notes due 2026 (the "Existing January 2026 Notes"). The Existing January 2026 Notes were issued at par. In February 2021, the Company issued an additional $65.0 million in aggregate principal amount of the January 2026 Notes (the "Additional January 2026 Notes" together with the Existing January 2026 Notes, the "January 2026 Notes"). The Additional January 2026 Notes were issued at a price of 102.11% of the aggregate principal amount of the Additional January 2026 Notes, resulting in a yield-to-maturity of approximately 4.0% at issuance. The Additional January 2026 Notes are treated as a single series with the Existing January 2026 Notes under the indenture and had the same terms as the Existing January 2026 Notes. The January 2026 Notes mature on January 31, 2026 and may be redeemed in whole or in part at any time prior to October 31, 2025, at par plus a "make-whole" premium, and thereafter at par. The January 2026 Notes bear interest at a rate of 4.50% per year, payable semi-annually on January 31 and July 31 of each year, beginning on July 31, 2021. The January 2026 Notes are the direct unsecured obligations of the Company and rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility and the SBA Debentures.

As of December 31, 2021, the carrying amount of the January 2026 Notes was $138.6 million on an aggregate principal amount of $140.0 million at a weighted average effective yield of 4.46%. As of December 31, 2021, the fair value of the January 2026 Notes was $137.5 million. This is a Level 3 fair value measurement under ASC 820 based on a valuation model using a discounted cash flow analysis. The Company recognized interest expense related to the January 2026 Notes, including amortization of deferred issuance costs, of $1.6 million and $5.0 million for the three and nine months ended December 31, 2021, respectively. For both the three and nine months ended December 31, 2020, the Company recognized interest expense of $0.1 million. For both the three and nine months ended December 31, 2021, average borrowings were $140.0 million. Since the issuance of the January 2026 Notes on December 29, 2020 through December 31, 2020, average borrowings were $75.0 million.

The indenture governing the January 2026 Notes contains certain covenants, including certain covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not the Company continues to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to the Company by the SEC, to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, after giving effect to any exemptive relief granted to the Company by the SEC and subject to certain other exceptions, and to provide financial information to the holders of the January 2026 Notes and the trustee under the indenture if the Company is no longer subject to the
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reporting requirements under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These covenants are subject to important limitations and exceptions that are described in the indenture and the third supplemental indenture relating to the January 2026 Notes.

In addition, holders of the Notes can require the Company to repurchase some or all of the January 2026 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the third supplemental indenture relating to the January 2026 Notes.

October 2026 Notes

In August 2021, the Company issued $100.0 million in aggregate principal amount of 3.375% Notes due 2026 (the "Existing October 2026 Notes"). The Existing October 2026 Notes were issued at a price of 99.418% of the aggregate principal amount of the Existing October 2026 Notes, resulting in a yield-to-maturity of 3.5%. In November 2021, the Company issued an additional $50.0 million in aggregate principal amount of the October 2026 Notes (the "Additional October 2026 Notes" together with the Existing October 2026 Notes, the "October 2026 Notes"). The Additional October 2026 Notes were issued at a price of 99.993% of the aggregate principal amount, resulting in a yield-to-maturity of approximately 3.375% at issuance. The Additional October 2026 Notes are treated as a single series with the Existing October 2026 Notes under the indenture and had the same terms as the Existing October 2026 Notes. The October 2026 Notes mature on October 1, 2026 and may be redeemed in whole or in part at any time prior to July 1, 2026, at par plus a "make-whole" premium, and thereafter at par. The October 2026 Notes bear interest at a rate of 3.375% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The October 2026 Notes are the direct unsecured obligations of the Company and rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility and the SBA Debentures.

As of December 31, 2021, the carrying amount of the October 2026 Notes was $146.4 million on an aggregate principal amount of $150.0 million at a weighted average effective yield of 3.5%. As of December 31, 2021, the fair value of the October 2026 Notes was $147.2 million. This is a Level 3 fair value measurement under ASC 820 based on a valuation model using a discounted cash flow analysis. The Company recognized interest expense related to the October 2026 Notes, including amortization of deferred issuance costs, of $1.3 million and $1.7 million for the three and nine ended December 31, 2021, respectively. For the three months ended December 31, 2021, average borrowings were $128.8 million. Since the issuance of the October 2026 Notes on August 27, 2021 through December 31, 2021, average borrowings were $120.9 million.

The indenture governing the October 2026 Notes contains certain covenants, including certain covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not the Company continues to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to the Company by the SEC, to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, after giving effect to any exemptive relief granted to the Company by the SEC and subject to certain other exceptions, and to provide financial information to the holders of the October 2026 Notes and the trustee under the indenture if the Company is no longer subject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the indenture and the fourth supplemental indenture relating to the October 2026 Notes.

In addition, holders of the Notes can require the Company to repurchase some or all of the October 2026 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the fourth supplemental indenture relating to the October 2026 Notes.

SBA Debentures

On April 20, 2021, SBIC I received a license from the SBA to operate as an SBIC under Section 301(c) of the SBIC Act. The license allows SBIC I to obtain leverage by issuing SBA Debentures, subject to the issuance of a leverage commitment by the SBA. SBA Debentures are loans issued to an SBIC which have interest payable semi-annually and a ten-year maturity. The interest rate is fixed shortly after issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities. Interest on SBA Debentures is payable semi-annually on March 1 and September 1. Current
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statutes and regulations permit SBIC I to borrow up to $175 million in SBA Debentures with at least $87.5 million in regulatory capital (as defined in the SBA regulations).

On May 25, 2021, SBIC I received a leverage commitment from the SBA in the amount of $40.0 million to be issued on or prior to September 30, 2025. As of December 31, 2021, SBIC I had regulatory capital of $40.0 million and approved and unused SBA Debenture commitments of $11.0 million. The SBA may limit the amount that may be drawn each year under these commitments, and each issuance of leverage is conditioned on the Company’s full compliance, as determined by the SBA, with the terms and conditions set forth in the SBIC Act.

As of December 31, 2021, the carrying amount of SBA Debentures was $28.0 million on an aggregate principal amount of $29.0 million. As of December 31, 2021, the fair value of the SBA Debentures was $28.9 million. The fair value of the SBA Debentures is estimated by discounting the remaining payments using current market rates for similar instruments and considering such factors as the legal maturity date and the ability of market participants to prepay the SBA Debentures, which are Level 3 inputs under ASC Topic 820. The Company recognized interest expense and related fees related to SBA Debentures of $0.1 million and $0.2 million for the three and nine months ended December 31, 2021, respectively. The weighted average interest rate on the SBA Debentures was 1.43% and 1.24%, respectively, for the three and nine months ended December 31, 2021. For the three and nine months ended December 31, 2021, average borrowings were $21.0 million and $10.1 million, respectively.

As of December 31, 2021, the Company's issued and outstanding SBA Debentures mature as follows:

Pooling Date (1) Maturity Date Fixed Interest Rate December 31, 2021
9/22/2021 9/1/2031 1.575% $ 15,000
(2) (2) (2) 14,000
$ 29,000
(1) The SBA has two scheduled pooling dates for SBA Debentures (in March and in September). Certain SBA Debentures funded during the reporting periods may not be pooled until the subsequent pooling date.
(2) The Company issued $14.0 million in SBA Debentures that will pool in March 2022. Until the pooling date, the SBA Debentures bear interest at a fixed rate and an interim interest rate of 0.91%. The Company expects the current interim interest rate will reset to a higher long-term fixed rate on the pooling date.

6.    INCOME TAXES

We have elected, and intend to qualify annually, to be treated as a RIC under Subchapter M of the Code and have a tax year end of December 31. In order to qualify as a RIC, we must annually distribute at least 90% of our investment company taxable income, as defined by the Code, to our shareholders in a timely manner. Investment company income generally includes net short-term capital gains but excludes net long-term capital gains. A RIC is not subject to federal income tax on the portion of its ordinary income and capital gains that is distributed to its shareholders, including “deemed distributions” as discussed below. As part of maintaining RIC tax treatment, undistributed taxable income and capital gain, which is subject to a 4% non-deductible U.S. federal excise tax, pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (1) the filing of the U.S. federal income tax return for the applicable fiscal year and (2) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated. We intend to distribute to our shareholders, after consideration and application of our ability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next tax year, substantially all of our taxable income.

As of December 31, 2021, CSWC qualified for RIC tax treatment. We intend to meet the applicable qualifications to be taxed as a RIC in future periods. However, the Company’s ability to meet certain portfolio diversification requirements of RICs in future years may not be controllable by the Company.

Book and tax basis differences relating to dividends and distributions to our shareholders and other permanent book and tax differences are typically reclassified among the CSWC’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from U.S. GAAP; accordingly, for the nine months ended December 31, 2021 and 2020, CSWC reclassified for book purposes amounts arising from permanent book/tax differences related to the tax treatment of return of capital and/or deemed
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distributions, tax treatment of investments upon disposition, and non-deductible expenses, as follows (amounts in thousands):
Nine Months Ended December 31,
2021 2020
Additional capital $ (6,255) $ (1,341)
Total distributable earnings 6,255 1,341

The determination of the tax attributes for CSWC’s distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Therefore, any determination made on an interim basis is forward-looking based on currently available facts, rules and assumptions and may not be representative of the actual tax attributes of distributions for a full year.

During the quarter ended March 31, 2021, CSWC declared total dividends of $10.9 million, or $0.52 per share ($0.42 per share in regular dividends and $0.10 in supplemental dividends). During the quarter ended June 30, 2021, CSWC declared total dividends of $11.5 million, or $0.53 per share ($0.43 per share in regular dividends and $0.10 in supplemental dividends). During the quarter ended September 30, 2021, CSWC declared total dividends of $12.4 million, or $0.54 per share ($0.44 per share in regular dividends and $0.10 in supplemental dividends). For the quarter ended December 31, 2021, CSWC declared total dividends of $22.9 million, or $0.97 per share ($0.47 per share in regular dividends and $0.50 in supplemental dividends).

Ordinary dividend distributions from a RIC do not qualify for the 20% maximum tax rate on dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income and capital gains, but may also include qualified dividends or return of capital.

The tax character of distributions paid for the years ended December 31, 2021 and 2020 was as follows (amounts in thousands):
Twelve Months Ended December 31,
2021 2020
Ordinary income $ 56,633 $ 37,517
Distributions of long term capital gains — —
Distributions on tax basis $ 56,633 $ 37,517

The following reconciles net increase in net assets resulting from operations to estimated RIC taxable income for the nine months ended December 31, 2021 and 2020:
Nine Months Ended December 31,
Reconciliation of RIC Distributable Income 1
2021 2020
Net increase in net assets from operations $ 23,146 $ 40,666
Net unrealized appreciation on investments (4,306) (24,512)
Income/gain (expense/loss) recognized for tax on pass-through entities 1,558 (8,937)
Loss recognized on dispositions 329 2,206
Capital loss carryover 2
308 14,227
Net operating income - wholly-owned subsidiaries (9,186) 577
Non-deductible tax expense 191 587
Loss on extinguishment of debt 12,950 —
Non-deductible compensation 2,688 —
Compensation related book/tax differences 2,542 —
Other book/tax differences 3,518 (320)
Estimated distributable income before deductions for distributions $ 33,738 $ 24,494
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1 The calculation of taxable income for each period is an estimate and will not be finally determined until the Company files its tax return each year. Final taxable income may be different than this estimate.
2 At December 31, 2021, the Company had long-term capital loss carryforwards of $18.4 million to offset future capital gains. These capital loss carryforwards are not subject to expiration.
A RIC may elect to retain all or a portion of its net capital gains by designating them as a “deemed distribution” to its shareholders and paying a federal tax on the net capital gains for the benefit of its shareholders. Shareholders then report their share of the retained capital gains on their income tax returns as if it had been received and report a tax credit for tax paid on their behalf by the RIC. Shareholders then add the amount of the “deemed distribution” net of such tax to the basis of their shares. For the tax years ended December 31, 2021 and 2020, we distributed all long-term capital gains and therefore had no deemed distributions to our shareholders or federal taxes incurred related to such items.

In addition, the Taxable Subsidiary holds a portion of one or more of our portfolio investments that are listed on the Consolidated Schedule of Investments. The Taxable Subsidiary is consolidated for financial reporting purposes in accordance with U.S. GAAP, so that our consolidated financial statements reflect our investments in the portfolio companies owned by the Taxable Subsidiary. The purpose of the Taxable Subsidiary is to permit us to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross income for U.S. federal income tax purposes must consist of qualifying investment income. Absent the Taxable Subsidiary, a proportionate amount of any gross income of a partnership or LLC (or other pass-through entity) portfolio investment would flow through directly to us. To the extent that our income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and therefore cause us to incur significant amounts of corporate-level U.S. federal income taxes. Where interests in LLCs (or other pass-through entities) are owned by the Taxable Subsidiary, however, the income from those interests is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC tax treatment and resultant tax advantages. The Taxable Subsidiary is not consolidated for U.S. federal income tax purposes and may generate an income tax provision as a result of their ownership of the portfolio companies. The income tax provision, or benefit, and the related tax assets and liabilities, if any, are reflected in our Statement of Operations.

As of December 31, 2021, the cost of investments held at the RIC for U.S. federal income tax purposes was $786.2 million, with such investments having gross unrealized appreciation of $29.8 million and gross unrealized depreciation of $48.4 million, resulting in net unrealized depreciation of $18.6 million. As of December 31, 2021, the cost of investments held at the Taxable Subsidiary for U.S. federal income tax purposes was $20.1 million, with such investments having gross unrealized appreciation of $22.9 million and gross unrealized depreciation of $2.1 million, resulting in net unrealized appreciation of $20.8 million. On a consolidated basis, the total investment portfolio has net unrealized appreciation of $2.2 million for U.S. federal income tax purposes.

CSMC, a former wholly-owned subsidiary of CSWC, was not a RIC, and was required to pay taxes at the current corporate rate. Effective December 31, 2020, CSMC merged with and into CSWC, which is not subject to corporate federal income taxes. For tax purposes, CSMC had elected to be treated as a taxable entity, and therefore was not consolidated for tax purposes and was taxed at normal corporate tax rates based on its taxable income and, as a result of its activities, may generate an income tax provision or benefit. The Taxable Subsidiary is not a RIC and is required to pay taxes at the current corporate rate. For tax purposes, the Taxable Subsidiary has elected to be treated as a taxable entity, and therefore is not consolidated for tax purposes and is taxed at normal corporate tax rates based on its taxable income and, as a result of its activities, may generate an income tax provision or benefit.

The taxable income, or loss, of CSMC and the Taxable Subsidiary may differ from book income, or loss, due to temporary book and tax timing differences and permanent differences. This income tax provision, or benefit, if any, and the related tax assets and liabilities, are reflected in our consolidated financial statements. CSMC recorded deferred taxes related to the changes in the restoration plan and bonus accruals on a quarterly basis. The Taxable Subsidiary records valuation adjustments related to its investments on a quarterly basis. Deferred taxes related to the unrealized gain/loss on investments are also recorded on a quarterly basis. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Establishing a valuation allowance of a deferred tax asset requires management to make estimates related to expectations of future taxable income. As of December 31, 2021 and March 31, 2021, the Taxable Subsidiary had a deferred tax liability of $4.5 million and $3.3 million, respectively.

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Based on our assessment of our unrecognized tax benefits, management believes that all benefits will be realized and they do not contain any uncertain tax positions.

The following table sets forth the significant components of the deferred tax assets and liabilities as of December 31, 2021 and March 31, 2021 (amounts in thousands):
December 31, 2021 March 31, 2021
Deferred tax asset:
Net operating loss carryforwards $ — $ 224
Interest 184 173
Total deferred tax asset 184 397
Deferred tax liabilities:
Net unrealized appreciation on investments (3,714) (2,931)
Net basis differences in portfolio investments (964) (811)
Total deferred tax liabilities (4,678) (3,742)
Total net deferred tax assets (liabilities) $ (4,494) $ (3,345)

The income tax provision, or benefit, and the related tax assets and liabilities, generated by CSWC, CSMC and the Taxable Subsidiary, if any, are reflected in CSWC’s consolidated financial statements. For the three months ended December 31, 2021, we recognized net income tax benefit of $0.1 million, principally consisting of a $0.1 million accrual for U.S. federal excise tax and $0.2 million of tax benefit relating to the Taxable Subsidiary. For the nine months ended December 31, 2021, we recognized a net income tax provision of $0.6 million, principally consisting of a $0.2 million accrual for U.S. federal excise tax and a $0.4 million tax provision relating to the Taxable Subsidiary. For both the three and nine months ended December 31, 2021, we recognized an income tax provision of $1.4 million relating to realized gains on investments held in the Taxable Subsidiary. For the three months ended December 31, 2020, we recognized a net income tax provision of $1.5 million, principally consisting of a deferred expense for U.S. federal income taxes of $1.3 million (all of which is related to the write off of the deferred tax asset at CSMC) and a $0.2 million accrual for U.S. federal excise tax on our estimated undistributed taxable income. For the nine months ended December 31, 2020, we recognized a net income tax provision of $1.6 million, principally consisting of a deferred expense for U.S. federal income taxes of $1.3 million (all of which is related to the write off of the deferred tax asset at CSMC), a $0.6 million accrual for U.S. federal excise tax on our estimated undistributed taxable income and $0.3 million of tax benefit relating to the Taxable Subsidiary.

Although we believe our tax returns are correct, the final determination of tax examinations could be different from what was reported on the returns. In our opinion, we have made adequate tax provisions for years subject to examination. Generally, we are currently open to audit under the statute of limitations by the Internal Revenue Service as well as state taxing authorities for the years ended December 31, 2017 through December 31, 2020.
The following table sets forth the significant components of income tax provision as of December 31, 2021 and 2020 (amounts in thousands):
Nine Months Ended December 31,
Components of Income Tax Provision 2021 2020
162(m) limitation $ — $ 92
Excise tax 191 587
Write-off of deferred tax asset — 1,389
Tax provision (benefit) related to Taxable Subsidiary 1,899 (325)
Compensation benefits — (155)
Other — 2
Total income tax provision $ 2,090 $ 1,590

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7.    SHAREHOLDERS' EQUITY

The right to grant restricted stock awards under the Capital Southwest Corporation Restricted Stock Award Plan ( the "2010 Plan") terminated on July 18, 2021, ten years after the date that the 2010 Plan was approved by the Company’s shareholders pursuant to its terms. In connection with the termination of the 2010 Plan, the Company’s Board of Directors and shareholders approved the Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (the "2021 Employee Plan") as part of the compensation packages for its employees, the terms of which are, in all material respects, identical to the 2010 Plan. In connection therewith, on July 19, 2021, we received an exemptive order that supersedes the prior exemptive order relating to the 2010 Plan (the “Order”) to permit the Company to (i) issue restricted stock as part of the compensation package for its employees in the 2021 Employee Plan, and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the participants to satisfy tax withholding obligations relating to the vesting of restricted stock pursuant to the 2021 Employee Plan.

In addition, on March 29, 2021, we filed an application with the SEC seeking the same relief in the Order (the "Superseding Order") to cover both the Company's employees and non-employee directors of the Board of Directors. There can be no assurance if and when the Company will receive the Superseding Order. The terms of the Superseding Order, if received, are expected to be substantially similar to the Order. The Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Plan will also be subject to shareholder approval upon receipt of the Superseding Order. The following table summarizes certain information relating to shares repurchased in connection with the vesting of restricted stock awards:

Three Months Ended December 31,
2021 2020
Number of shares repurchased 31,492 15,105
Aggregate cost of shares repurchased (in thousands) $ 862 $ 236
Weighted average price per share $ 27.38 $ 15.63
Nine Months Ended December 31,
2021 2020
Number of shares repurchased 52,124 15,309
Aggregate cost of shares repurchased (in thousands) $ 1,408 $ 239
Weighted average price per share $ 27.01 $ 15.62

On March 4, 2019, the Company established an "at-the-market" offering (the "Equity ATM Program"), pursuant to which the Company may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $50,000,000. On February 4, 2020, the Company (i) increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $100,000,000 from $50,000,000 and (ii) added two additional sales agents to the Equity ATM Program. On May 26, 2021, the Company (i) increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $250,000,000 from $100,000,000 and (ii) reduced the commission paid to the sales agents for the Equity ATM Program to 1.5% from 2.0% of the gross sales price of shares of the Company's common stock sold through the sales agents pursuant to the Equity ATM Program on and after May 26, 2021.

During the three months ended December 31, 2021, the Company sold 616,156 shares of its common stock under the Equity ATM Program at a weighted-average price of $25.97 per share, raising $16.0 million of gross proceeds. Net proceeds were $15.8 million after commissions to the sales agents on shares sold. During the nine months ended December 31, 2021, the Company sold 2,834,734 shares of its common stock under the Equity ATM Program at a weighted-average price of $26.27 per share, raising $74.5 million of gross proceeds. Net proceeds were $73.3 million after commissions to the sales agents on shares sold.

During the three months ended December 31, 2020, the Company sold 1,264,776 shares of its common stock under the Equity ATM Program at a weighted-average price of $16.64 per share, raising $21.1 million of gross proceeds. Net proceeds were $20.6 million after commissions to the sales agents on shares sold. During the nine months ended
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December 31, 2020, the Company sold 1,673,065 shares of its common stock under the Equity ATM Program at a weighted-average price of $16.33 per share, raising $27.3 million of gross proceeds. Net proceeds were $26.8 million after commissions to the sales agents on shares sold.

Cumulative to date, the Company has sold 7,140,363 shares of its common stock under the Equity ATM Program at a weighted-average price of $22.17, raising $158.3 million of gross proceeds. Net proceeds were $155.5 million after commissions to the sales agents on shares sold. As of December 31, 2021, the Company has $91.7 million available under the Equity ATM Program.

Share Repurchase Program

In January 2016, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $10 million of its outstanding shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act. On March 1, 2016, the Company entered into a share repurchase agreement, which became effective immediately and terminated on March 26, 2020 upon the Company's purchase of the aggregate gross dollar amount (inclusive of commission fees) of its common stock under the share repurchase program meeting the threshold set forth in the share repurchase agreement.

On July 28, 2021, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $20 million of its outstanding shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act. On August 31, 2021, the Company entered into a share repurchase agreement, which became effective immediately, and the Company shall cease purchasing its common stock under the share repurchase program upon the earlier of, among other things: (1) the date on which the aggregate purchase price for all shares equals $20 million including, without limitation, all applicable fees, costs and expenses; or (2) upon written notice by the Company to the broker that the share repurchase agreement is terminated.

8.    EMPLOYEE STOCK BASED COMPENSATION PLANS

Stock Awards

Under the 2010 Plan and the 2021 Employee Plan, a restricted stock award is an award of shares of our common stock, which have full voting and dividend rights but are restricted with regard to sale or transfer.  Restricted stock awards are independent of stock grants and are generally subject to forfeiture if employment terminates prior to these restrictions lapsing. Unless otherwise specified in the award agreement, these shares vest in equal annual installments over a four-year period from the grant date and are expensed over the vesting period starting on the grant date.

The right to grant restricted stock awards under the 2010 Plan terminated on July 18, 2021, ten years after the date that the 2010 Plan was approved by the Company’s shareholders pursuant to its terms.

In connection with the termination of the 2010 Plan, the Company’s Board of Directors and shareholders approved the 2021 Employee Plan as part of the compensation packages for its employees, the terms of which are, in all material respects, identical to the 2010 Plan. The 2021 Employee Plan makes available for issuance 1,200,000 shares of common stock. As of December 31, 2021, there are 1,200,000 shares of common stock available for issuance under the 2021 Employee Plan.

We expense the cost of the restricted stock awards, which is determined to equal the fair value of the restricted stock award at the date of grant on a straight-line basis over the requisite service period. For these purposes, the fair value of the restricted stock award is determined based upon the closing price of our common stock on the date of the grant.

For both the three months ended December 31, 2021 and 2020, we recognized total share based compensation expense of $0.8 million related to the restricted stock issued to our employees and officers. For the nine months ended December 31, 2021 and 2020, we recognized total share based compensation expense of $2.8 million and $2.3 million, respectively, related to the restricted stock issued to our employees and officers.

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During the three months ended June 30, 2021, the Company modified restricted stock awards to accelerate vesting of the unvested awards as of the separation date for one employee. The Company accounted for this as a modification of awards and recognized incremental compensation cost of $0.6 million. The incremental compensation cost is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms were modified and recognized as compensation cost on the date of modification for vested awards.

As of December 31, 2021, the total remaining unrecognized compensation expense related to non-vested restricted stock awards was $7.3 million, which will be amortized over the weighted-average vesting period of approximately 2.7 years.

The following table summarizes the restricted stock outstanding under the 2010 Plan and the 2021 Employee Plan as of December 31, 2021:
Weighted Average Weighted Average
Fair Value Per Remaining Vesting
Restricted Stock Awards Number of Shares Share at grant date Term (in Years)
Unvested at March 31, 2021 429,776 $ 17.05 2.5
Granted 172,945 27.60 3.4
Vested (167,072) 17.71 —
Forfeited (35,176) 15.42 —
Unvested at December 31, 2021 400,473 $ 21.47 2.7

9.    OTHER EMPLOYEE COMPENSATION

We established a 401(k) plan (“401K Plan”) effective October 1, 2015. All full-time employees are eligible to participate in the 401K Plan. The 401K Plan permits employees to defer a portion of their total annual compensation up to the Internal Revenue Service annual maximum based on age and eligibility. We made contributions to the 401K Plan of up to 4.5% of the Internal Revenue Service’s annual maximum eligible compensation, all of which is fully vested immediately. During the three months ended December 31, 2021 and 2020, we made matching contributions of approximately $25.9 thousand and $19.5 thousand, respectively. During the nine months ended December 31, 2021 and 2020, we made matching contributions of approximately $133.9 thousand and $112.3 thousand, respectively.

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10.    COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk, consisting primarily of unused commitments to extend financing to the Company’s portfolio companies. Because commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Additionally, our commitment to fund delayed draw term loans is generally triggered upon the satisfaction of certain pre-negotiated terms and conditions, such as meeting certain financial performance hurdles or financial covenants, which may limit a borrower's ability to draw on such delayed draw term loans.

The balances of unused commitments to extend financing as of December 31, 2021 and March 31, 2021 were as follows (amounts in thousands):
December 31, March 31,
Portfolio Company 2021 2021
Revolving Loans
Air Conditioning Specialist, Inc. $ 1,000 $ —
AllOver Media, LLC 2,000 2,000
American Teleconferencing Services, Ltd. (DBA Premiere Global Services, Inc.) 113 —
ArborWorks, LLC 2,060 —
Broad Sky Networks LLC — 2,000
Catbird NYC, LLC 4,000 —
Central Medical Supply LLC 1,200 1,200
Clickbooth.com, LLC — 1,086
Dynamic Communities, LLC 500 500
Electronic Transaction Consultants LLC — 3,704
Fast Sandwich, LLC 3,100 3,100
GrammaTech, Inc. 2,500 2,500
Ian, Evan, & Alexander Corporation (DBA EverWatch) — 2,000
ISI Enterprises, LLC 1,200 —
ITA Holdings Group, LLC 2,000 2,000
Klein Hersh, LLC 938 938
Lash OpCo, LLC 481 —
Lighting Retrofit International, LLC (DBA Envocore) 1,627 —
Mako Steel LP 849 1,226
Muenster Milling Company, LLC 5,000 —
NeuroPsychiatric Hospitals, LLC 600 —
NinjaTrader, Inc. 2,500 1,500
NWN Parent Holdings, LLC 1,380 —
Roof OpCo, LLC 3,056 —
Roseland Management, LLC 825 1,500
RTIC Subsidiary Holdings, LLC 822 767
Shearwater Research, Inc. 2,446 —
SIB Holdings, LLC 655 —
South Coast Terminals LLC 1,935 —
Spotlight AR, LLC 2,000 —
Student Resource Center, LLC 1,333 —
Systec Corporation (DBA Inspire Automation) 1,350 —
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December 31, March 31,
Portfolio Company 2021 2021
Wall Street Prep, Inc. 1,000 —
Well-Foam, Inc. 3,500 —
Winter Services Operations, LLC 3,889 —
Zenfolio Inc. 2,000 —
Total Revolving Loans 57,859 26,021
Delayed Draw Term Loans
Acceleration Partners, LLC — 216
Central Medical Supply LLC 1,400 1,400
CityVet Inc. 9,500 6,750
FoodPharma Subsidiary Holdings, LLC 5,470 —
Infolinks Media Buyco, LLC 2,250 —
KMS, LLC 4,571 —
Lash OpCo, LLC 7,000 —
Muenster Milling Company, LLC 6,000 —
NeuroPsychiatric Hospitals, LLC 10,000 —
NinjaTrader, Inc. 4,692 2,655
Roof OpCo, LLC 12,222 —
Shearwater Research, Inc. 3,262 —
SIB Holdings, LLC 1,871 —
Systec Corporation (DBA Inspire Automation) 3,000 —
Winter Services Operations, LLC 4,444 —
Total Delayed Draw Term Loans 75,682 11,021
Other
American Nuts Operations LLC 384 384
Catbird NYC, LLC 125 —
Infolinks Media Buyco, LLC 412 —
I-45 SLF LLC 4,800 8,000
Total Other 5,721 8,384
Total unused commitments to extend financing $ 139,262 $ 45,426

As of December 31, 2021, total revolving and delayed draw loan commitments included commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. As of December 31, 2021, the Company had $3.7 million in letters of credit issued and outstanding under these commitments on behalf of portfolio companies. For all of these letters of credit issued and outstanding, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. Of these letters of credit, $0.2 million expire in April 2022, $3.1 million expire in May 2022 and $0.4 million expire in August 2022. As of December 31, 2021, none of the letters of credit issued and outstanding were recorded as a liability on the Company's balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company.

Effective April 1, 2019, ASC 842 required that a lessee to evaluate its leases to determine whether they should be classified as operating or financing leases. The Company identified one operating lease for its office space. The lease commenced on October 1, 2014 and expires February 28, 2022.

As CSWC classified this lease as an operating lease prior to implementation, ASC 842 indicates that a right-of-use asset and lease liability should be recorded based on the effective date. CSWC adopted ASC 842 effective April 1, 2019 and recorded a right-of-use asset and a lease liability as of that date. After this date, the Company has recorded
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lease expense on a straight-line basis, consistent with the accounting treatment for lease expense prior to the adoption of ASC 842.

Total lease expense incurred for each of the three and nine months ended December 31, 2021 and 2020 was $58.1 thousand and $174.4 thousand, respectively. As of December 31, 2021, the asset related to the operating lease was $19.4 thousand and the lease liability was $22.6 thousand. As of December 31, 2021, the remaining lease term was 0.1 years and the discount rate was 2.71%.

In March 2021, the Company executed an agreement to lease new office space. The lease will commence on February 1, 2022. The office space will be approximately 13,000 square feet. This lease will be classified as an operating lease and has a term of approximately 10 years.

The following table shows future minimum payments under the Company's operating leases as of December 31, 2021 (in thousands):

Year ending March 31, Rent Commitment
2022 $ 45
2023 142
2024 406
2025 416
2026 426
Thereafter 3,014
Total $ 4,449

Contingencies

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. To our knowledge, we have no currently pending material legal proceedings to which we are party or to which any of our assets are subject.

11.    RELATED PARTY TRANSACTIONS

As a BDC, we are obligated under the 1940 Act to make available to our portfolio companies significant managerial assistance. “Making available significant managerial assistance” refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us will vary according to the particular needs of each portfolio company.

During each of the three and nine months ended December 31, 2021 and 2020, we did not receive any management fees from our portfolio companies. Additionally, as of December 31, 2021 and March 31, 2021, we had dividends receivable from I-45 SLF LLC of $1.7 million and $1.5 million, respectively, which were included in dividends and interest receivables on the Consolidated Statements of Assets and Liabilities.

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12.    SUMMARY OF PER SHARE INFORMATION

The following presents a summary of per share data for the three and nine months ended December 31, 2021 and 2020 (share amounts presented in thousands).
Three Months Ended Nine Months Ended
December 31, December 31,
Per Share Data: 2021 2020 2021 2020
Investment income 1
$ 0.95 $ 0.99 $ 2.73 $ 2.73
Operating expenses 1
(0.44) (0.47) (1.33) (1.37)
Income taxes 1
— (0.07) (0.03) (0.09)
Net investment income 1
0.51 0.45 1.37 1.27
Net realized gain (loss), net of tax 1
0.12 (0.01) 0.23 (0.37)
Net unrealized (depreciation) appreciation on investments, net of tax 1
(0.09) 0.37 0.19 1.31
Realized loss on extinguishment of debt 1
— (0.01) (0.76) (0.03)
Total increase from investment operations 0.54 0.80 1.03 2.18
Accretive effect of share issuances and repurchases 0.24 0.04 1.17 —
Dividends to shareholders (0.97) (0.51) (2.04) (1.53)
Issuance of restricted stock 1,2
— — (0.10) (0.17)
Common stock withheld for payroll taxes upon vesting of restricted stock (0.01) — (0.03) —
Share based compensation expense 0.04 0.04 0.12 0.11
Other 3
(0.01) 0.01 0.03 0.02
(Decrease) increase in net asset value (0.17) 0.38 0.18 0.61
Net asset value
Beginning of period 16.36 15.36 16.01 15.13
End of period $ 16.19 $ 15.74 $ 16.19 $ 15.74
Ratios and Supplemental Data
Ratio of operating expenses to average net assets 4
2.71 % 3.05 % 8.09 % 9.00 %
Ratio of net investment income to average net assets 4
3.08 % 2.87 % 8.31 % 8.30 %
Portfolio turnover 19.44 % 6.89 % 30.11 % 13.39 %
Total investment return 4,5
4.25 % 29.96 % 23.51 % 71.42 %
Total return based on change in NAV 4,6
4.89 % 5.79 % 13.87 % 14.14 %
Per share market value at the end of the period $ 25.28 $ 17.75 $ 25.28 $ 17.75
Weighted-average common shares outstanding 23,433 19,135 22,394 18,629
Weighted-average fully diluted shares outstanding 23,433 19,135 22,394 18,629
Common shares outstanding at end of period 23,926 19,868 23,926 19,868

1 Based on weighted average of common shares outstanding for the period.
2 Reflects impact of the different share amounts as a result of issuance or forfeiture of restricted stock during the period.
3 Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted-average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end. The balance increases with the increase in variability of shares outstanding throughout the year due to share issuance and repurchase activity.
4 Not annualized.
5 Total investment return based on purchase of stock at the current market price on the first day and a sale at the current market price on the last day of each period reported on the table and assumes reinvestment of dividends at prices obtained by CSWC’s dividend reinvestment plan during the period. The return does not reflect any sales load that may be paid by an investor.
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6 Total return based on change in NAV was calculated using the sum of ending NAV plus dividends to shareholders and other non-operating changes during the period, as divided by the beginning NAV, and has not been annualized .

13.    SIGNIFICANT SUBSIDIARIES

I-45 SLF LLC

In September 2015, we entered into a limited liability company agreement with Main Street Capital Corporation ("Main Street") to form I-45 SLF LLC (the "Initial I-45 LLC Agreement"). I-45 SLF LLC began investing in UMM syndicated senior secured loans during the quarter ended December 31, 2015. The initial equity capital commitment to I-45 SLF LLC totaled $85.0 million, consisting of $68.0 million from CSWC and $17.0 million from Main Street. On April 30, 2020, pursuant to the terms of the Initial I-45 LLC Agreement, each of CSWC and Main Street made an additional equity capital commitment of $12.8 million and $3.2 million, respectively, which resulted in a total equity capital commitment to I-45 SLF LLC of $80.8 million and $20.2 million, respectively.

On March 11, 2021, the Company and Main Street entered into the Second Amended and Restated Limited Liability Company Operating Agreement (the "Amendment"), which increased the current profits interest that is allocated to the Company on a pro rata basis from (a) 75.6% to (b) an amount equal to: (i) 76.2625% as of the date of the Amendment through the quarter ended March 31, 2021; (ii) 76.925% for quarter ended June 30, 2021; (iii) 77.5875% for the quarter ended September 30, 2021; and (iv) 78.25% for the quarter ended December 31, 2021 and periods thereafter.

On March 25, 2021, I-45 SLF LLC declared a return of capital dividend to its members in the amount of $10.0 million. As of December 31, 2021, total funded equity capital totaled $95.0 million, consisting of $76.0 million from CSWC and $19.0 million from Main Street. CSWC owns 80% of I-45 SLF LLC and has a current profits interest of 78.25%, while Main Street Capital Corporation owns 20% and has a current profits interest of 21.75%.  I-45 SLF LLC's Board of Managers makes all investment and operational decisions for the fund, and consists of equal representation from CSWC and Main Street Capital Corporation.

As of both December 31, 2021 and March 31, 2021, I-45 SLF LLC had total assets of $186.1 million. I-45 SLF LLC had approximately $180.0 million and $164.4 million of total investments at fair value as of December 31, 2021 and March 31, 2021, respectively. The portfolio companies in I-45 SLF LLC are in industries similar to those in which CSWC may invest directly. As of December 31, 2021, $2.0 million of the credit investments were unsettled trades. During the three months ended December 31, 2021, I-45 SLF LLC declared a total dividend of $2.2 million of which $1.7 million was paid to CSWC in January 2022.

Additionally, I-45 SLF LLC closed on a $75.0 million 5-year senior secured credit facility (the “I-45 credit facility”) in November 2015. The I-45 credit facility includes an accordion feature which will allow I-45 SLF LLC to achieve leverage of approximately 2x debt-to-equity. Borrowings under the I-45 credit facility are secured by all of the assets of I-45 SLF LLC and bear interest at a rate equal to LIBOR plus 2.5% per annum. During the year ended March 31, 2017, I-45 SLF LLC increased debt commitments outstanding by an additional $90.0 million by adding three additional lenders to the syndicate, bringing total debt commitments to $165.0 million. In July 2017, the I-45 credit facility was amended to extend the maturity to July 2022. Additionally, the amendment reduced the interest rate on borrowings to LIBOR plus 2.4% per annum. In November 2019, the I-45 credit facility was amended to extend the maturity to November 2024 and to reduce the interest rate on borrowings to LIBOR plus 2.25% per annum. On April 30, 2020, the I-45 credit facility was amended to permanently reduce the I-45 credit facility amount through a prepayment of $15.0 million and to change the minimum utilization requirements. In March 2021, the I-45 credit facility was amended to extend the maturity to March 25, 2026 and to reduce the interest rate on borrowings to LIBOR plus 2.15%. Under the I-45 credit facility, $109.5 million has been drawn as of December 31, 2021.
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Below is certain summarized financial information for I-45 SLF LLC as of December 31, 2021 and March 31, 2021 and for the three and nine months ended December 31, 2021 and 2020 (amounts in thousands):
December 31, 2021 March 31, 2021
Selected Balance Sheet Information:
Investments, at fair value (cost $190,091 and $170,791) $ 180,048 $ 164,351
Cash and cash equivalents 3,439 10,419
Due from broker 152 152
Deferred financing costs and other assets 1,713 2,301
Interest receivable 711 553
Total assets $ 186,063 $ 177,776
Senior credit facility payable $ 109,500 $ 91,000
Payable for unsettled transactions 1,995 13,072
Other liabilities 2,413 2,131
Total liabilities $ 113,908 $ 106,203
Members’ equity 72,155 71,573
Total liabilities and members' equity $ 186,063 $ 177,776

Three Months Ended Nine Months Ended
December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020
Selected Statement of Operations Information:
Total revenues $ 3,114 $ 3,539 $ 9,262 $ 10,858
Total expenses (1,023) (1,049) (3,041) (3,450)
Net investment income 2,091 2,490 6,221 7,408
Net unrealized (depreciation) appreciation (2,405) 14,769 (3,603) 25,876
Net realized (losses) gains 58 (12,315) 231 (12,602)
Net (decrease) increase in members’ equity resulting from operations $ (256) $ 4,944 $ 2,849 $ 20,682


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Below is a summary of I-45 SLF LLC’s portfolio, followed by a listing of the individual loans in I-45 SLF LLC’s portfolio as of December 31, 2021 and March 31, 2021 (in thousands):

I-45 SLF LLC Loan Portfolio as of December 31, 2021
Current
Investment Maturity Interest
Portfolio Company Industry Type Date
Rate 1
Principal Cost
Fair Value 2
AAC New Holdco Inc. Healthcare services First Lien 6/25/2025 10.00%, 8.00% PIK $ 1,862 $ 1,862 $ 1,787
304,075 shares common stock — — — 1,449 1,449
Warrants (Expiration - December 11, 2025) — — — 482 482
ADS Tactical, Inc. Aerospace & defense First Lien 3/19/2026 L+5.75%
(Floor 1.00%) 		6,478 6,361 6,442
American Teleconferencing Services, Ltd. 3
Telecommunications Revolving Loan 12/7/2021 P+5.50% 1,032 921 31
First Lien 6/8/2023 P+5.50% 5,598 5,670 168
ATX Networks (Toronto) Corporation Technology products & components First Lien 9/1/2026 L+7.50%,
(Floor 1.00%) 		2,628 2,620 2,431
Senior Subordinated Debt 9/1/2028 10.00% PIK 1,029 1,029 659
196 Class A units — — — — —
Burning Glass Intermediate Holding Company, Inc.
Software & IT services
Revolving Loan 4
6/10/2028 L+5.00%
(Floor 1.00%) 		370 67 67
First Lien 6/10/2028 L+5.00%
(Floor 1.00%) 		3,197 3,146 3,175
Corel Inc. Software & IT services First Lien 7/2/2026 L+5.00% 6,893 6,730 6,888
Evergreen AcqCo 1 LP
Consumer products & retail First Lien 4/26/2028 L+5.50%
(Floor 0.75%) 		4,190 4,152 4,184
Evergreen North America Acquisitions, LLC Industrial services First Lien 8/13/2026 L+6.75%
(Floor 1.00%) 		6,757 6,633 6,633
Geo Parent Corporation Building & infrastructure products First Lien 12/19/2025 L+5.25% 6,863 6,830 6,828
Go Wireless Holdings, Inc. Consumer products & retail First Lien 12/22/2024 L+6.50%
(Floor 1.00%) 		7,411 7,387 7,428
Infogain Corporation Software & IT services First Lien 7/28/2028 L+5.75%
(Floor 1.00%) 		4,796 4,728 4,728
InfoGroup Inc. Software & IT services First Lien 4/3/2023 L+5.00%
(Floor 1.00%) 		2,858 2,852 2,727
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Current
Investment Maturity Interest
Portfolio Company Industry Type Date
Rate 1
Principal Cost
Fair Value 2
Integro Parent Inc. Business services First Lien 10/28/2022 L+5.75%
(Floor 1.00%) 		3,217 3,204 3,081
Intermedia Holdings, Inc. Software & IT services First Lien 7/21/2025 L+6.00%
(Floor 1.00%) 		5,691 5,672 5,664
Inventus Power, Inc. Technology products & components First Lien 3/29/2024 S+5.00%
(Floor 1.00%) 		6,948 6,896 6,739
INW Manufacturing, LLC Food, agriculture, & beverage First Lien 3/25/2027 L+5.75%
(Floor 0.75%) 		2,944 2,883 2,885
Isagenix International, LLC Consumer products & retail First Lien 6/14/2025 L+5.75%
(Floor 1.00%) 		1,719 1,711 1,288
KORE Wireless Group Inc. Telecommunications First Lien 12/20/2024 L+5.50% 4,670 4,649 4,664
Lab Logistics, LLC Healthcare services First Lien 9/25/2023 L+7.25%
(Floor 1.00%) 		6,258 6,223 6,258
LaserAway Intermediate Holdings II, LLC Healthcare services First Lien 10/14/2027 L+5.75%
(Floor 0.75%) 		1,239 1,215 1,234
Lash OpCo, LLC Consumer products & retail
First Lien
3/18/2026 L+7.00%
(Floor 1.00%) 		5,000 4,888 4,900
Delayed Draw Term Loan 5
3/18/2026 L+7.00%
(Floor 1.00%) 		— (23) —
Lift Brands, Inc. Consumer services Tranche A 6/29/2025 L+7.50%
(Floor 1.00%) 		2,508 2,508 2,258
Tranche B 6/29/2025 9.50% PIK 570 570 427
Tranche C 6/29/2025 — 565 565 424
Equity — — — 749 749
Lightbox Intermediate, L.P. Software & IT services First Lien 5/9/2026 L+5.00% 4,960 4,924 4,899
LOGIX Holdings Company, LLC Telecommunications First Lien 12/23/2024 L+5.75%
(Floor 1.00%) 		5,842 5,821 5,521
Mills Fleet Farm Group LLC Consumer products & retail First Lien 10/24/2024 L+6.25%
(Floor 1.00%) 		4,623 4,580 4,623
National Credit Care Consumer services First Lien - Term Loan A 12/23/2026 L+6.50%
(Floor 1.00%) 		2,500 2,450 2,450
First Lien - Term Loan B 12/23/2026 L+7.50%
(Floor 1.00%) 		2,500 2,450 2,450
NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 L+5.50%
(Floor 1.00%) 		2,681 2,664 1,855
NinjaTrader, Inc. Financial services First Lien 12/18/2024 L+6.25%
(Floor 1.00%) 		5,000 4,900 4,900
NorthStar Group Services, Inc. Environmental services First Lien 11/9/2026 L+5.50%
(Floor 1.00%) 		2,981 2,966 2,991
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Current
Investment Maturity Interest
Portfolio Company Industry Type Date
Rate 1
Principal Cost
Fair Value 2
PT Network, LLC Healthcare products First Lien 11/30/2023 L+5.50%, 2.00% PIK
(Floor 1.00%) 		4,500 4,500 4,500
0.795 Class C Interests — — — — 750
Research Now Group, Inc. Business services First Lien 12/20/2024 L+5.50%
(Floor 1.00%) 		4,949 4,949 4,893
Retail Services WIS Corporation Business services First Lien 5/20/2025 L+7.75%
(Floor 1.00%) 		2,977 2,927 2,933
SIB Holdings, LLC Business services First Lien 10/29/2026 L+6.00%
(Floor 1.00%) 		3,000 2,942 2,942
Stellant Midco, LLC Aerospace & defense First Lien 10/2/2028 L+5.50%
(Floor 0.75%) 		2,294 2,272 2,272
Tacala, LLC Consumer products & retail Second Lien 2/7/2028 L+7.50%
(Floor 0.75%) 		5,000 4,990 4,999
TEAM Services Group, LLC Healthcare services First Lien 12/20/2027 L+5.00%
(Floor 1.00%) 		6,704 6,659 6,687
TestEquity, LLC Capital equipment First Lien 4/28/2022 L+6.25%
(Floor 1.00%) 		3,805 3,802 3,729
First Lien - Term Loan B 4/28/2022 L+6.25%
(Floor 1.00%) 		942 941 923
UniTek Global Services, Inc. Telecommunications First Lien 8/20/2024 L+5.50%, 2.00% PIK
(Floor 1.00%) 		2,800 2,787 2,612
U.S. TelePacific Corp. Telecommunications First Lien 5/2/2023 L+6.00%
(Floor 1.00%) 		5,200 5,182 3,931
Vida Capital, Inc. Financial services First Lien 10/1/2026 L+6.00% 3,640 3,603 3,376
Wahoo Fitness Acquisition, LLC Consumer products & retail First Lien 8/14/2028 L+5.75%
(Floor 1.00%) 		5,000 4,858 4,972
YS Garments, LLC Consumer products & retail First Lien 8/9/2024 L+5.50%
(Floor 1.00%) 		4,313 4,295 4,162
Total Investments $ 190,091 $ 180,048

1 Represents the interest rate as of December 31, 2021. All interest rates are payable in cash, unless otherwise noted. The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”), Prime (“P”) or SOFR ("S") which reset daily, monthly, quarterly, or semiannually. For each investment, the Company has provided the spread over LIBOR, Prime, or SOFR in effect at December 31, 2021. Certain investments are subject to a LIBOR, Prime, or SOFR interest rate floor.
2 Represents the fair value determined utilizing a similar process as the Company in accordance with ASC 820. However, the determination of such fair value is determined by the Board of Managers of I-45 SLF LLC. It is not included in the Company’s Board of Directors’ valuation process described elsewhere herein.
3 Investment is on non-accrual status as of December 31, 2021, meaning the Company has ceased to recognize interest income on the investment.
4 The investment has approximately $0.3 million in an unfunded revolving loan commitment as of December 31, 2021.
5 The investment has approximately $2.0 million in an unfunded delayed draw loan commitment as of December 31, 2021.
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I-45 SLF LLC Loan Portfolio as of March 31, 2021
Current
Investment Maturity Interest
Portfolio Company Industry Type Date
Rate 1
Principal
Cost 2
Fair Value 3
AAC New Holdco Inc. Healthcare services First Lien 6/25/2025 10.00%, 8.00% PIK $ 1,752 $ 1,752 $ 1,743
304,075 shares common stock — — — 1,449 1,449
Warrants (Expiration - December 11, 2025) — — — 482 482
ADS Tactical Aerospace & defense First Lien 3/19/2026 L+5.75%
(Floor 1.00%) 		6,731 6,596 6,697
American Teleconferencing Services, Ltd. Telecommunications First Lien 6/8/2023 L+6.50%
(Floor 1.00%) 		6,759 6,698 3,590
ATX Canada Acquisitionco Inc. Technology products & components First Lien 12/31/2023 L+6.25%, 1.50% PIK
(Floor 1.00%) 		4,464 4,462 4,084
California Pizza Kitchen, Inc. Restaurants First Lien 11/23/2024 L+10.00%
(Floor 1.50%) 		937 913 936
First Lien Rolled Up 11/23/2024 1.00%, L+11.00% PIK
(Floor 1.50%) 		1,039 1,035 1,033
Second Lien 5/23/2025 1.00%, L+12.50% PIK
(Floor 1.50%) 		1,141 1,141 1,115
67,841 shares common stock — — — 1,845 1,845
Corel Software & IT services First Lien 7/2/2026 L+5.00% 7,030 6,834 7,008
Geo Parent Corporation Building & infrastructure products First Lien 12/19/2025 L+5.25% 4,900 4,867 4,888
Go Wireless Holdings, Inc. Consumer products & retail First Lien 12/22/2024 L+6.50%
(Floor 1.00%) 		6,848 6,816 6,839
Hunter Defense Technologies, Inc. Aerospace & defense First Lien 3/29/2023 L+6.00%
(Floor 1.00%) 		6,122 6,049 6,091
InfoGroup Inc. Software & IT services First Lien 4/3/2023 L+5.00%
(Floor 1.00%) 		2,880 2,870 2,741
Integro Parent Inc. Business services First Lien 10/28/2022 L+5.75%
(Floor 1.00%) 		3,253 3,226 3,201
Intermedia Holdings, Inc. Software & IT services First Lien 7/21/2025 L+6.00%
(Floor 1.00%) 		5,735 5,712 5,748
Inventus Power, Inc. Technology Products & Components First Lien 3/29/2024 L+5.00%
(Floor 1.00%) 		7,000 6,930 6,930
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Current
Investment Maturity Interest
Portfolio Company Industry Type Date
Rate 1
Principal
Cost 2
Fair Value 3
Isagenix International, LLC Consumer products & retail First Lien 6/14/2025 L+5.75%
(Floor 1.00%) 		1,823 1,812 1,376
KORE Wireless Group Inc. Telecommunications First Lien 12/20/2024 L+5.50% 4,706 4,680 4,700
Lab Logistics, LLC Healthcare services First Lien 9/25/2023 L+7.25%
(Floor 1.00%) 		6,305 6,255 6,305
Lift Brands, Inc. Consumer services Tranche A 6/29/2025 L+7.5%
(Floor 1.00%) 		2,521 2,521 2,370
Tranche B 6/29/2025 9.50% PIK 531 531 424
Tranche C 6/29/2025 — 565 565 452
1,051 shares common stock — — — 749 749
Lightbox Intermediate, L.P. Software & IT services First Lien 5/9/2026 L+5.00% 3,453 3,418 3,419
LOGIX Holdings Company, LLC Telecommunications First Lien 12/23/2024 L+5.75%
(Floor 1.00%) 		5,890 5,863 5,683
Lulu's Fashion Lounge, LLC Consumer products & retail First Lien 8/26/2022 L+7.00%, 2.50% PIK
(Floor 1.00%) 		3,686 3,633 3,152
Mills Fleet Farm Group LLC Consumer products & retail First Lien 10/24/2024 L+6.00%
(Floor 1.00%) 		4,625 4,570 4,533
NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 L+5.50%
(Floor 1.00%) 		2,738 2,714 2,468
Novetta Solutions, LLC Software & IT services First Lien 10/17/2022 L+5.00%
(Floor 1.00%) 		4,845 4,795 4,836
PaySimple, Inc. Software & IT services Delayed Draw Term Loan 8/23/2025 L+5.50% 1,369 1,346 1,365
First Lien 8/23/2025 L+5.50% 4,220 4,174 4,209
Pet Supermarket, Inc. Consumer products & retail First Lien 7/5/2022 L+5.50%
(Floor 1.00%) 		4,760 4,750 4,641
PT Network, LLC Healthcare products First Lien 11/30/2023 L+5.50%, 2.00% PIK
(Floor 1.00%) 		4,465 4,465 4,465
Research Now Group, Inc. Business Services First Lien 12/20/2025 L+5.50%
(Floor 1.00%) 		4,987 4,987 4,950
Signify Health, LLC Healthcare services First Lien 12/23/2024 L+4.50%
(Floor 1.00%) 		5,044 5,017 5,064
Tacala, LLC Consumer products & retail Second Lien 2/7/2028 L+7.50%
(Floor 0.75%) 		5,000 4,989 5,002
TestEquity, LLC Capital equipment First Lien 4/28/2022 L+6.25%
(Floor 1.00%) 		3,816 3,808 3,358
First Lien - Term Loan B 4/28/2022 L+6.25%
(Floor 1.00%) 		949 947 835
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Current
Investment Maturity Interest
Portfolio Company Industry Type Date
Rate 1
Principal
Cost 2
Fair Value 3
TGP Holdings III LLC Durable consumer goods Second Lien 9/25/2025 L+8.50%
(Floor 1.00%) 		2,500 2,479 2,483
Time Manufacturing Acquisition Capital equipment First Lien 2/3/2023 L+5.00%
(Floor 1.00%) 		5,802 5,785 5,824
UniTek Global Services, Inc. Telecommunications First Lien 8/20/2024 L+5.50%, 1.00% PIK
(Floor 1.00%) 		2,736 2,721 2,480
U.S. TelePacific Corp. Telecommunications First Lien 5/2/2023 L+5.50%
(Floor 1.00%) 		5,200 5,172 4,829
Vida Capital, Inc. Financial services First Lien 10/1/2026 L+6.00% 3,805 3,760 3,672
YS Garments, LLC Consumer products & retail First Lien 8/9/2024 L+6.00%
(Floor 1.00%) 		4,634 4,608 4,287
Total Investments $ 170,791 $ 164,351

1 Represents the interest rate as of March 31, 2021. All interest rates are payable in cash, unless otherwise noted. The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“Prime”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime in effect at March 31, 2021. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.
2 Represents amortized cost.
3 Represents the fair value determined utilizing a similar process as the Company in accordance with ASC 820. However, the determination of such fair value is determined by the Board of Managers of the Joint Venture. It is not included in the Company’s Board of Directors’ valuation process described elsewhere herein.

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14.    SUBSEQUENT EVENTS

On January 26, 2022, the Board of Directors declared a quarterly dividend of $0.48 per share for the quarter ended March 31, 2022. The record date for the dividend is March 15, 2022. They payment date for the dividend is March 31, 2022.
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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
Consolidated Schedule of Investments in and Advances to Affiliates (Unaudited)
Nine Months Ended December 31, 2021
(amounts in thousands)
Portfolio Company Type of Investment (1) December 31, 2021 Principal Amount - Debt Investments Amount of Interest or Dividends Credited in Income (2) Fair Value at March 31, 2021 Gross Additions (3) Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at December 31, 2021
Control Investments
I-45 SLF LLC 80% LLC equity interest $ — $ 4,862 $ 57,158 $ 3,200 $ — $ — $ (2,769) $ 57,589
Total Control Investments $ — $ 4,862 $ 57,158 $ 3,200 $ — $ — $ (2,769) $ 57,589
Affiliate Investments
Air Conditioning Specialists, Inc. Revolving Loan $ — $ 1 $ — $ (19) $ — $ — $ 19 $ —
First Lien 9,000 114 — 8,824 — — — 8,824
500,000 Preferred Units — — — 500 — — — 500
Catbird NYC, LLC Revolving Loan — 8 — (77) — — 77 —
First Lien 16,000 298 — 15,692 — — — 15,692
1,000,000 Class A Units — — — 1,000 — — — 1,000
500,000 Class B Units — — — 500 — — — 500
Central Medical Supply LLC Revolving Loan 300 34 276 5 — — (3) 278
First Lien 7,500 635 6,908 20 — — 25 6,953
Delayed Draw Term Loan 100 18 92 5 — — (4) 93
1,380,500 Preferred Units — — 641 101 — — (334) 408
Chandler Signs, LLC 1,500,000 units of Class A-1 common stock — — 1,343 — — — (419) 924
Delphi Intermediate Healthco LLC First Lien 1,501 125 1,398 87 — — (119) 1,366
First Lien 1,690 121 1,500 110 — — (173) 1,437
Protective Advance 73 1 — 73 — — (11) 62
1,681.04 Common Units — — 3,615 — — — (1,155) 2,460
Dynamic Communities, LLC Revolving Loan — 3 — 1 — — (1) —
First Lien 11,361 1,015 9,966 465 (140) — (55) 10,236
Senior subordinated debt 611 91 372 239 — — — 611
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Portfolio Company Type of Investment (1) December 31, 2021 Principal Amount - Debt Investments Amount of Interest or Dividends Credited in Income (2) Fair Value at March 31, 2021 Gross Additions (3) Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at December 31, 2021
2,000,000 Preferred units — — 1,274 — — — — 1,274
GrammaTech, Inc. Revolving Loan — 16 — 7 — — (7) —
First Lien 11,500 980 11,420 28 — — (1,673) 9,775
1,000 Class A units — — 1,208 — — — (496) 712
ITA Holdings Group, LLC Revolving loan — 13 — 5 — — (5) —
First Lien - Term Loan 10,071 656 10,061 31 — — (51) 10,041
First Lien - Term Loan B 5,036 446 5,101 19 — — (59) 5,061
First Lien - PIK Note A 2,884 323 2,630 315 — — (61) 2,884
First Lien - PIK Note B 114 8 103 9 — — 2 114
Warrants — — 2,968 — — — 636 3,604
9.25% Class A membership interest — 9 2,532 — — — 944 3,476
Lighting Retrofit International, LLC (DBA Envocore) Revolving Loan 456 — — 456 — — — 456
First Lien 5,208 1 — 5,208 — — — 5,208
Second Lien 5,208 — — 5,208 — — (2,083) 3,125
208,333.3333 Series A Preferred units — — — — — — — —
203,124.9999 Common units — — — — — — — —
Roseland Management, LLC Revolving Loan 1,175 30 — 1,177 — — (2) 1,175
First Lien 14,161 340 — 14,212 (36) — (15) 14,161
16,084 Class A Units — — — 2,041 — — (136) 1,905
SIMR, LLC First lien 13,340 3 12,103 224 (544) — (1,111) 10,672
9,374,510.2 Class B Common Units — — — — — — — —
1,357,354.96 Class W Units — — — — — — — —
Sonobi, Inc. First Lien — 445 8,500 15 (8,500) 140 (155) —
500,000 Class A Common Units — — 1,235 — — — 1,725 2,960
Total Affiliate Investments $ 117,289 $ 5,734 $ 85,246 $ 56,481 $ (9,220) $ 140 $ (4,700) $ 127,947
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Portfolio Company Type of Investment (1) December 31, 2021 Principal Amount - Debt Investments Amount of Interest or Dividends Credited in Income (2) Fair Value at March 31, 2021 Gross Additions (3) Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at December 31, 2021
Total Control & Affiliate Investments $ 117,289 $ 10,596 $ 142,404 $ 59,681 $ (9,220) $ 140 $ (7,469) $ 185,536

(1) The principal amount and ownership detail as shown in the Consolidated Schedules of Investments.
(2) Represents the total amount of interest or dividends credited to income for the portion of the year an investment was included in the Control or Affiliate categories, respectively.
(3) Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments, accrued PIK interest, and accretion of OID. Gross additions also include movement of an existing portfolio company into this category and out of a different category.
(4) Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include movement of an existing portfolio company out of this category and into a different category.
(5) The schedule does not reflect realized gains or losses on escrow receivables for investments which were previously exited and were not held during the period presented. Gains and losses on escrow receivables are classified in the Consolidated Statements of Operations according to the control classification at the time the investment was exited.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

The information contained herein may contain “forward-looking statements” based on our current expectations, assumptions and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “may,” “predict,” “will,” “continue,” “likely,” “would,” “could,” “should,” “expect,” “anticipate,” “potential,” “estimate,” “indicate,” “seek,” “believe,” “target,” “intend,” “plan,” or “project” and other similar expressions identify forward-looking statements. These risks include risks related to changes in the markets in which the Company invests; changes in the financial and lending markets; interest rate volatility, including the decommissioning of LIBOR; regulatory changes; tax treatment and general economic and business conditions; our ability to operate our wholly owned subsidiary, Capital Southwest SBIC I, LP, as a small business investment company; and uncertainties associated with the continued impact from the COVID-19 pandemic and new variants of COVID-19, including its impact on the global and U.S. capital markets and the global and U.S. economy, the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak; the effect of the COVID-19 pandemic on our business prospects and the operational and financial performance of our portfolio companies, including our ability and their ability to achieve their respective objectives, and the effects of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results could differ materially from those we express in the forward-looking statements as a result of several factors more fully described in “Risk Factors” and elsewhere in our Form 10-K for the fiscal year ended March 31, 2021 and in this Form 10-Q. The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. You should read the following discussion in conjunction with the consolidated financial statements and related footnotes and other financial information included in our Form 10-K for the fiscal year ended March 31, 2021. We undertake no obligation to update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as required by law.

OVERVIEW

We are an internally managed closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. We specialize in providing customized debt and equity financing to LMM companies and debt capital to UMM companies in a broad range of investment segments located primarily in the United States. Our investment objective is to produce attractive risk-adjusted returns by generating current income from our debt investments and capital appreciation from our equity and equity related investments. Our investment strategy is to partner with business owners, management teams and financial sponsors to provide flexible financing solutions to fund growth, changes of control, or other corporate events. We invest primarily in senior debt securities, secured by security interests in portfolio company assets. We also invest in equity interests in our portfolio companies alongside our debt securities.

We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline. We primarily target senior debt and equity investments in LMM companies, and opportunistically target first and second lien loans in UMM companies. Our target LMM companies typically have annual EBITDA between $3.0 million and $20.0 million, and our LMM investments generally range in size from $5.0 million to $30.0 million. Our UMM investments generally include first and second lien loans in companies with EBITDA generally greater than $20.0 million, and our UMM investments typically range in size from $5.0 million to $15.0 million.

We seek to fill the financing gap for LMM companies, which, historically, have had more limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a LMM company’s capital structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options. Providing customized financing solutions is important to LMM companies. We generally seek to partner directly with financial sponsors, entrepreneurs, management teams and business owners in making our investments. Our LMM debt investments typically include senior loans with a first lien on the assets of the portfolio company. Our LMM debt investments typically have a
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term of between five and seven years from the original investment date. We also often seek to invest in the equity securities of our LMM portfolio companies.

Our investments in UMM companies primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privately held companies that are generally larger in size than the LMM companies included in our portfolio. Our UMM debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.

Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing investment and portfolio management professionals. We believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms that are externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio. For the nine months ended December 31, 2021 and 2020, the ratio of our last twelve months ("LTM") operating expenses, excluding interest expense, as a percentage of our LTM average total assets was 2.27% and 2.50%, respectively.

Recent COVID-19 Developments

We have been closely monitoring, and will continue to monitor, the impact of the COVID-19 pandemic (including new variants of COVID-19) and its impact on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets. Given the fluidity of the pandemic, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position or cash flows at this time. Further, the operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments. We believe our portfolio companies have taken, and continue to take, immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related orders imposed by state and local governments, including developing liquidity plans supported by internal cash reserves, and shareholder support. The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, cancellations of events and restrictions on travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain disruptions, labor difficulties and shortages, commodity inflation and elements of economic and financial market instability in the United States and globally. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods covered by the consolidated financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an on-going basis, we evaluate our estimates, including those related to the matters below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.

Valuation of Investments

The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our investment portfolio and the related amounts of unrealized appreciation and depreciation. As of December 31, 2021 and March 31, 2021, our investment portfolio at fair value represented approximately 96.1% and 93.6% of our total assets, respectively. We are required to report our investments at fair value. We follow the provisions of Accounting Standards Codification, or ASC 820, Fair Value Measurements and Disclosures ("ASC 820").  ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment is to be sold in the principal market to independent market
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participants, which may be a hypothetical market.  See Note 4 — “Fair Value Measurements” in the notes to consolidated financial statements for a detailed discussion of our investment portfolio valuation process and procedures.

Due to the inherent uncertainty in the valuation process, our determination of fair value for our investment portfolio may differ materially from the values that would have been determined had a ready market for the securities actually existed. In addition, changes in the market environment, portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.

Our Board of Directors is responsible for determining, in good faith, the fair value for our investment portfolio and our valuation procedures, consistent with 1940 Act requirements. Our Board of Directors believes that our investment portfolio as of December 31, 2021 and March 31, 2021 reflects the fair value as of those dates based on the markets in which we operate and other conditions in existence on those reporting dates.

Revenue Recognition

Interest and Dividend Income

Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. Dividend income is recognized on the date dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. Discounts/premiums received to par on loans purchased are capitalized and accreted or amortized into income over the life of the loan using the effective interest method. In accordance with our valuation policy, accrued interest and dividend income is evaluated quarterly for collectability. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding its ability to service debt or other obligations, it will be restored to accrual basis. As of December 31, 2021, we had three investments on non-accrual status, which represent approximately 1.6% of our total investment portfolio's fair value and approximately 2.7% of its cost. As of March 31, 2021, we did not have any investments on non-accrual status.

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, "Reference rate reform (Topic 848)—Facilitation of the effects of reference rate reform on financial reporting." The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and under our Credit Facility (as described in Note 5) and the I-45 SLF LLC credit facility (as described in Note 13). Many of these agreements (including the credit agreements relating to the Credit Facility and the I-45 credit facility) include an alternative successor rate or language for choosing an alternative successor rate when LIBOR reference is no longer considered to be appropriate. With respect to other agreements, the Company intends to work with its portfolio companies to modify agreements to choose an alternative successor rate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The standard is effective as of March 12, 2020 through December 31, 2022 and the Company plans to apply the amendments in this update to account for contract modifications due to changes in reference rates. The Company does not believe that it will have a material impact on its consolidated financial statements or its disclosures.

In November 2020, the SEC issued a final rule that modernized and simplifies Management's Discussion and Analysis and certain financial disclosure requirements in Regulation S-K (the “Amendments”). Specifically, the Amendments: (i) eliminate Item 301 of Regulation S-K (Selected Financial Data); (ii) simplify Item 302 of Regulation S-K (Supplementary Financial Information); and (iii) amend certain aspects of Item 303 of Regulation S-K (Management's Discussion and Analysis of Financial Condition and Results of Operations). The Amendments became effective on February 10, 2021 and compliance will be required for the registrants' fiscal year ending on or after August 9, 2021. Early adoption of the Amendments is permitted on an item-by-item basis after the effective date; however, a registrant
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must fully comply with each adopted item in its entirety. The Company does not believe that the Amendments will have a material impact on its consolidated financial statements or its disclosures.

INVESTMENT PORTFOLIO COMPOSITION

The total value of our investment portfolio was $876.8 million as of December 31, 2021, as compared to $688.4 million as of March 31, 2021. As of December 31, 2021, we had investments in 71 portfolio companies with an aggregate cost of $886.8 million. As of March 31, 2021, we had investments in 55 portfolio companies with an aggregate cost of $703.6 million.

As of December 31, 2021 and March 31, 2021, approximately $712.1 million, or 95.6%, and $546.6 million, or 95.5%, respectively, of our debt investment portfolio (at fair value) bore interest at floating rates, of which 100.0% were subject to contractual minimum interest rates. As of December 31, 2021 and March 31, 2021, the weighted average contractual minimum interest rate is 1.09% and 1.30%, respectively. As of December 31, 2021 and March 31, 2021, approximately $32.5 million, or 4.4%, and $26.0 million, or 4.5%, respectively, of our debt investment portfolio (at fair value) bore interest at fixed rates.

The following tables provide a summary of our investments in portfolio companies as of December 31, 2021 and March 31, 2021 (excluding our investment in I-45 SLF LLC):
December 31, 2021 March 31, 2021
(dollars in thousands)
Number of portfolio companies (a) 70 54
Fair value $ 819,176 $ 631,274
Cost $ 810,800 $ 630,757
% of portfolio at fair value - debt 90.9 % 90.7 %
% of portfolio at fair value - equity 9.1 % 9.3 %
% of investments at fair value secured by first lien 82.9 % 83.0 %
Weighted average annual effective yield (b) 9.5 % 10.8 %
Weighted average EBITDA (c) $ 19,613 $ 16,960
Weighted average leverage through CSWC security (d) 3.9x 4.1x

(a) At December 31, 2021 and March 31, 2021, we had equity ownership in approximately 55.7% and 53.7%, respectively, of our investments.
(b) The weighted-average annual effective yields were computed using the effective interest rates during the quarter for all debt investments at cost as of December 31, 2021 and March 31, 2021, respectively, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments. As of December 31, 2021, there were three investments on non-accrual status. As of March 31, 2021, we did not have any investments on non-accrual status. Weighted-average annual effective yield is not a return to shareholders and is higher than what an investor in shares in our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor.
(c) Includes CSWC debt investments only. Weighted average EBITDA metric is calculated using investment cost basis weighting. For the quarter ended December 31, 2021, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. For the year ended March 31, 2021, six portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.
(d) Includes CSWC debt investments only. Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’s position, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA. Weighted average leverage is calculated using investment cost basis weighting. Management uses this metric as a guide to evaluate relative risk of its position in each portfolio debt investment. For the quarter ended December 31, 2021, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. For the year ended March 31, 2021, six portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.
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Portfolio Asset Quality

We utilize an internally developed investment rating system to rate the performance and monitor the expected level of returns for each debt investment in our portfolio. The investment rating system takes into account both quantitative and qualitative factors of the portfolio company and the investments held therein, including each investment's expected level of returns and the collectability of our debt investments, comparisons to competitors and other industry participants and the portfolio company's future outlook. The ratings are not intended to reflect the performance or expected level of returns of our equity investments.

• Investment Rating 1 represents the least amount of risk in our portfolio. The investment is performing materially above underwriting expectations and the trends and risk factors are generally favorable. The investment generally has a higher probability of being prepaid in part or in full.
• Investment Rating 2 indicates the investment is performing as expected at the time of underwriting and the trends and risk factors are generally favorable to neutral. All new loans are initially rated 2.
• Investment Rating 3 involves an investment performing below underwriting expectations and the trends and risk factors are generally neutral to negative. The investment may be out of compliance with financial covenants and interest payments may be impaired, however principal payments are generally not past due.
• Investment Rating 4 indicates that the investment is performing materially below underwriting expectations, the trends and risk factors are generally negative and the risk of the investment has increased substantially. Interest and principal payments on our investment are likely to be impaired.

As the COVID-19 pandemic continues to evolve, we are maintaining close communications with our portfolio companies to proactively assess and manage potential risks across our debt investment portfolio. We have also increased oversight and analysis of credits in vulnerable industries in an attempt to improve loan performance and reduce credit risk.

The following table shows the distribution of our debt portfolio investments on the 1 to 4 investment rating scale at fair value as of December 31, 2021 and March 31, 2021:
As of December 31, 2021
Investment Rating Debt Investments at Fair Value Percentage of Debt Portfolio
(dollars in thousands)
1 $ 129,464 17.4 %
2 580,624 78.0
3 34,419 4.6
4 174 0.0
Total $ 744,681 100.0 %
As of March 31, 2021
Investment Rating Debt Investments at Fair Value Percentage of Debt Portfolio
(dollars in thousands)
1 $ 58,466 10.2 %
2 461,239 80.6
3 52,909 9.2
4 — —
Total $ 572,614 100.0 %

Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to
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recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due.

As of December 31, 2021, we had three debt investments on non-accrual status, which represent approximately 1.6% of our total investment portfolio's fair value and approximately 2.7% of its cost. As of March 31, 2021, we did not have any investments on non-accrual status.

Investment Activity

During the nine months ended December 31, 2021, we made new debt investments in 29 portfolio companies totaling $350.3 million, follow-on debt investments in nine portfolio companies totaling $29.5 million, and equity investments in thirteen new and four existing portfolio companies totaling $11.8 million. We also funded $3.2 million on our existing equity commitment to I-45 SLF LLC. We received contractual principal repayments totaling approximately $11.7 million and full prepayments of approximately $209.8 million. We funded $15.3 million on revolving loans and received $5.1 million in repayments on revolving loans. In addition, we received proceeds from sales of investments totaling $11.9 million.

During the nine months ended December 31, 2020, we made new debt investments in ten portfolio companies totaling $101.3 million, follow-on debt investments in twelve portfolio companies totaling $25.4 million, and equity investments in four existing and five new portfolio companies totaling $6.3 million. We also funded $12.8 million on our existing equity commitment to I-45 SLF LLC. We received contractual principal repayments totaling approximately $22.9 million and full prepayments of approximately $39.9 million. We funded $4.5 million on revolving loans and received $8.5 million in repayments on revolving loans. In addition, we received proceeds from sales of investments totaling $9.8 million.
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Total portfolio investment activity for the nine months ended December 31, 2021 and 2020 was as follows (dollars in thousands):
Nine months ended December 31, 2021 First Lien Loans Second Lien Loans Subordinated Debt Preferred
& Common Equity 		I-45 SLF, LLC Total
Fair value, beginning of period $ 524,161 $ 36,919 $ 11,534 $ 58,660 $ 57,158 $ 688,432
New investments 376,192 18,669 237 11,768 3,200 410,066
Proceeds from sales of investments — (53) — (11,881) — (11,934)
Principal repayments received (219,454) (7,152) — — — (226,606)
Conversion of security (4,683) 5,208 — (525) — —
PIK interest earned 1,994 1,079 477 — — 3,550
Accretion of loan discounts 1,972 172 33 — — 2,177
Realized (loss) gain (580) (2,274) — 8,845 — 5,991
Unrealized gain (loss) (418) 483 165 7,628 (2,769) 5,089
Fair value, end of period $ 679,184 $ 53,051 $ 12,446 $ 74,495 $ 57,589 $ 876,765
Weighted average yield on debt investments at end of period 9.48 %
Weighted average yield on total investments at end of period 9.35 %
Nine months ended December 31, 2020 First Lien Loans Second Lien Loans Subordinated Debt Preferred
& Common Equity 		Financial Instruments I-45 SLF, LLC Total
Fair value, beginning of period $ 427,447 $ 37,139 $ 9,747 $ 38,979 $ — $ 39,760 $ 553,072
New investments 130,710 — 516 6,297 — 12,800 150,323
Proceeds from sales of investments — — — (9,782) — — (9,782)
Principal repayments received (71,102) (188) — — — — (71,290)
Conversion of security (9,692) 778 — 8,914 — — —
PIK interest earned 3,880 642 685 — — — 5,207
Accretion of loan discounts 1,569 143 18 — — — 1,730
Realized gain (11,939) — — 6,489 (1,517) — (5,450)
Unrealized gain (loss) 11,367 (758) 141 3,138 1,517 11,075 24,963
Fair value, end of period $ 482,240 $ 37,756 $ 11,107 $ 54,035 $ — $ 63,635 $ 648,773
Weighted average yield on debt investments at end of period 10.64 %
Weighted average yield on total investments at end of period 11.20 %
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RESULTS OF OPERATIONS

The composite measure of our financial performance in the Consolidated Statements of Operations is captioned “Net increase in net assets from operations” and consists of four elements. The first is “Net investment income,” which is the difference between income from interest, dividends and fees and our combined operating and interest expenses, net of applicable income taxes. The second element is “Net realized (loss) gain on investments, net of tax,” which is the difference between the proceeds received from the disposition of portfolio securities and their stated cost. The third element is the “Net unrealized appreciation (depreciation) on investments, net of tax,” which is the net change in the market or fair value of our investment portfolio, compared with stated cost. The “Net realized (loss) gain on investments before income tax” and “Net unrealized appreciation (depreciation) on investments, net of tax” are directly related in that when an appreciated portfolio security is sold to realize a gain, a corresponding decrease in net unrealized appreciation occurs by transferring the gain associated with the transaction from being “unrealized” to being “realized.” Conversely, when a loss is realized on a depreciated portfolio security, an increase in net unrealized appreciation occurs. The fourth element is the “Realized loss on extinguishment of debt”, which is the difference between the principal amount due at maturity adjusted for any unamortized debt issuance costs and any "make-whole" premium payable at the time of the debt extinguishment.

Comparison of three months ended December 31, 2021 and December 31, 2020
Three Months Ended
December 31, Net Change
2021 2020 Amount %
(in thousands)
Total investment income $ 22,311 $ 19,040 $ 3,271 17.2 %
Interest expense (4,655) (4,528) (127) 2.8 %
Other operating expenses (5,819) (4,540) (1,279) 28.2 %
Income before taxes 11,837 9,972 1,865 18.7 %
Income tax (benefit) provision (62) 1,455 (1,517) (104.3) %
Net investment income 11,899 8,517 3,382 39.7 %
Net realized gain (loss) on investments, net of tax 2,715 (127) 2,842 2,237.8 %
Net unrealized (depreciation) appreciation on investments, net of tax (2,054) 7,271 (9,325) (128.2) %
Realized loss on extinguishment of debt — (262) 262 (100.0) %
Net increase (decrease) in net assets from operations $ 12,560 $ 15,399 $ (2,839) (18.4) %

Investment Income

Total investment income consisted of interest income, dividend income and other income for each applicable period. For the three months ended December 31, 2021, we reported investment income of $22.3 million, a $3.3 million, or 17.2%, increase as compared to the three months ended December 31, 2020. The increase was primarily due to a $3.0 million increase in interest income generated from our debt investments due to a 39.2% increase in the cost basis of debt investments held by us from $541.5 million to $754.0 million year-over-year and an increase of $1.5 million in prepayment fees received, partially offset by a decrease of $1.2 million in dividend income due to a decrease in distributions received from portfolio companies in the current quarter.

Operating Expenses

Due to the nature of our business, the majority of our operating expenses are related to interest and fees on our borrowings, employee compensation (including both cash and share-based compensation) and general and administrative expenses.

Interest and Fees on our Borrowings

For the three months ended December 31, 2021, our total interest expense was $4.7 million, an increase of $0.2 million, as compared to the total interest expense of $4.5 million for the three months ended December 31, 2020. The increase was primarily attributable to an increase in average borrowings outstanding, partially offset by a decrease in the
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weighted average interest rate on our total debt from 4.19% to 3.18% for the three months ended December 31, 2020 and December 31, 2021, respectively. This decrease in the weighted average interest rate was primarily due to the redemption of the $140 million in aggregate principal amount of the October 2024 Notes, which had an interest rate of 5.375%, and the issuance of the $150 million in aggregate principal amount of the October 2026 Notes, which have an interest rate of 3.375%.

Salaries, General and Administrative Expenses

For the three months ended December 31, 2021, our total employee compensation expense (including both cash and share-based compensation) increased by $1.0 million, or 30.7%, as compared to the total employee compensation expense for the three months ended December 31, 2020. The increase was primarily due to an increase in accrued bonus compensation based on the Company's projected performance compared to its plan. For the three months ended December 31, 2021, our total general and administrative expense was $1.6 million, an increase of $0.3 million or 22.0%, as compared to the total general and administrative expense of $1.3 million for the three months ended December 31, 2020. The increase was primarily due to an increase in director compensation and the addition of a new independent board member.

Net Investment Income

For the three months ended December 31, 2021, income before taxes increased by $1.9 million, or 18.7%. Net investment income increased from the prior year period by $3.4 million, or 39.7%, to $11.9 million as a result of a $3.3 million increase in total investment income and a $1.5 million decrease in income tax (benefit) provision, partially offset by a $0.1 million increase in interest expense.

Net Realized and Unrealized Gains (Losses) on Investments

During the three months ended December 31, 2021, we recognized net realized and unrealized gains totaling $0.7 million, which primarily consisted of net realized and unrealized gains on equity investments of $5.5 million, offset by net realized and unrealized losses on debt investments of $2.1 million and on I-45 SLF LLC of $2.0 million. These realized and unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment, as well as exits of investments. We also recorded an income tax provision related to realized gains on investments of $1.4 million and net unrealized appreciation related to deferred tax of $0.7 million associated with the Taxable Subsidiary.

During the three months ended December 31, 2020, we recognized net realized and unrealized gains totaling $7.2 million, which primarily consisted of net realized and unrealized gains on equity investments of $7.2 million and I-45 SLF LLC of $2.2 million, offset by net realized and unrealized losses on debt investments of $1.5 million. These realized and unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment, as well as exits of investments. We also recorded net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $0.7 million.

Realized Loss on Extinguishment of Debt

During the three months ended December 31, 2021, we did not recognize any loss on extinguishment of debt. During the three months ended December 31, 2020, we recognized a loss on extinguishment of debt of $0.3 million due to the partial redemption of the December 2022 Notes.


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Comparison of nine months ended December 31, 2021 and December 31, 2020

Nine Months Ended
December 31, Net Change
2021 2020 Amount %
(in thousands)
Total investment income $ 61,186 $ 50,889 $ 10,297 20.2 %
Interest expense (15,015) (13,253) (1,762) 13.3 %
Other operating expenses (14,855) (12,391) (2,464) 19.9 %
Income before taxes 31,316 25,245 6,071 24.0 %
Income tax provision 648 1,590 (942) (59.2) %
Net investment income 30,668 23,655 7,013 29.6 %
Net realized gain (loss) on investments, net of tax 5,259 (6,953) 12,212 175.6 %
Net unrealized appreciation on investments, net of tax 4,306 24,512 (20,206) (82.4) %
Realized loss on extinguishment of debt (17,087) (548) (16,539) 3,018.1 %
Net increase in net assets from operations $ 23,146 $ 40,666 $ (17,520) (43.1) %
Investment Income

Total investment income consisted of interest income, dividend income and other income for each applicable period. For the nine months ended December 31, 2021, we reported investment income of $61.2 million, a $10.3 million, or 20.2%, increase as compared to the nine months ended December 31, 2020. The increase was primarily due to a $9.1 million increase in interest income generated from our debt investments, which was due to a 39.2% increase in the cost basis of debt investments held by us from $541.5 million to $754.0 million year-over-year, and a $1.8 million increase in prepayment fees received.

Operating Expenses

Due to the nature of our business, the majority of our operating expenses are related to interest and fees on our borrowings, employee compensation (including both cash and share-based compensation) and general and administrative expenses.

Interest and Fees on our Borrowings

For the nine months ended December 31, 2021, our total interest expense was $15.0 million, an increase of $1.8 million as compared to the total interest expense of $13.3 million for the nine months ended December 31, 2020. The increase was primarily attributable to an increase in average borrowings outstanding, partially offset by a decrease in the weighted average interest rate on total debt from 4.33% to 3.71% for the nine months ended December 31, 2020 and December 31, 2021, respectively. This decrease in the weighted average interest rate was primarily due to the redemption of the $140 million in aggregate principal amount of the October 2024 Notes, which had an interest rate of 5.375%, and the issuance of the $150 million in aggregate principal amount of the October 2026 Notes, which have an interest rate of 3.375%.

Salaries, General and Administrative Expenses

For the nine months ended December 31, 2021, our total employee compensation expense (including both cash and share-based compensation) increased by $1.6 million, or 18.8%, as compared to the total employee compensation expense for the nine months ended December 31, 2020. The increase is primarily due to an increase in accrued bonus compensation based on the Company's projected performance compared to its plan and an increase in share-based compensation related to the restricted stock award modification during the three months ended June 30, 2021. For the nine months ended December 31, 2021, our total general and administrative expense was $4.9 million, an increase of $0.9 million or 22.2%, as compared to the total general and administrative expense of $4.0 million for the nine months ended December 31, 2020. The an increase was primarily due to employee recruiting costs related to the hiring of a new
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principal, an increase in director compensation relating to the addition of a new independent board member, and an increase in insurance costs.

Net Investment Income

For the nine months ended December 31, 2021, income before taxes increased by $6.1 million, or 24.0%. Net investment income increased from the prior year period by $7.0 million, or 29.6%, to $30.7 million as a result of a $10.3 million increase in total investment income and a $0.9 million decrease in income tax provision, partially offset by a $1.8 million increase in interest expense and a $2.5 million increase in other operating expenses .

Net Realized and Unrealized Gains (Losses) on Investments

During the nine months ended December 31, 2021, we recognized net realized and unrealized gains totaling $9.6 million, which primarily consisted of net realized and unrealized gains on equity investments of $16.5 million, offset by net realized and unrealized losses on debt investments of $1.9 million and I-45 SLF LLC of $2.8 million. These realized and unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment, as well as exits of investments. We also recorded an income tax provision related to realized gains on investments of $1.4 million and net unrealized depreciation related to deferred tax of $0.8 million associated with the Taxable Subsidiary .

During the nine months ended December 31, 2020, we recognized realized and unrealized gains totaling $17.5 million, which primarily consisted of net realized and unrealized gains on equity investments of $9.6 million and I-45 SLF LLC of $11.1 million, offset by net realized and unrealized losses on debt investments of $1.2 million. These realized and unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment, as well as exits of investments. We also recorded net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $2.0 million.

Realized Loss on Extinguishment of Debt

During the nine months ended December 31, 2021, we recognized a loss on extinguishment of debt of $17.1 million due to the full redemption of the October 2024 Notes, which included a make-whole premium of $15.2 million. During the nine months ended December 31, 2020, we recognized a loss on extinguishment of debt of $0.5 million due to the partial redemption of the December 2022 Notes.
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FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources are generated primarily from cash flows from operations, the net proceeds of public offerings of debt and equity securities, advances from the Credit Facility and access to the debentures guaranteed by the Small Business Administration (the "SBA Debentures"). Management believes that the Company’s cash and cash equivalents, cash available from investments, and commitments under the Credit Facility are adequate to meet its needs for the next twelve months. We anticipate that we will continue to fund our investment activities through existing cash and cash equivalents, cash flows generated through our ongoing operating activities, utilization of available borrowings under our Credit Facility and future issuances of debt and equity on terms we believe are favorable to the Company and our shareholders. Our primary uses of funds will be investments in portfolio companies and operating expenses. Due to the diverse capital sources available to us at this time, we believe we have adequate liquidity to support our near-term capital requirements. As the impact of COVID-19 continues to evolve, we will continually evaluate our overall liquidity position and take proactive steps to maintain that position based on the current circumstances.

Cash Flows

For the nine months ended December 31, 2021, we experienced a net decrease in cash and cash equivalents in the amount of $12.9 million. During the foregoing period, our operating activities used $139.1 million in cash, consisting primarily of new portfolio investments of $410.1 million, partially offset by $221.5 million from sales and repayments received from debt investments in portfolio companies and $11.9 million from sales and return of capital of equity investments in portfolio companies. In addition, our financing activities increased cash by $126.2 million, consisting primarily of net borrowings on our Credit Facility of $70.0 million, net proceeds from the Equity ATM Program of $73.3 million, net proceeds from the issuance of the October 2026 Notes of $146.4 million and net proceeds from issuance of SBA debentures of $28.3 million, partially offset by the redemption of the October 2024 Notes of $125.0 million and cash dividends paid in the amount of $46.8 million. At December 31, 2021, the Company had cash and cash equivalents of approximately $18.7 million.

For the nine months ended December 31, 2020, we experienced a net increase in cash and cash equivalents in the amount of $30.0 million. During that period, our operating activities used $45.7 million in cash, consisting primarily of new portfolio investments of $150.3 million, partially offset by $70.3 million from sales and repayments received from debt investments in portfolio companies and $9.8 million from sales and return of capital of equity investments in portfolio companies. In addition, our financing activities increased cash by $75.7 million, consisting primarily of net proceeds from issuance of the October 2024 Notes of $49.0 million, net proceeds from issuance of the January 2026 Notes of $73.5 million and net proceeds from the Equity ATM Program of $26.8 million, partially offset by the partial redemption of December 2022 Notes of $40.0 million, cash dividends paid in the amount of $29.0 million and net repayments of our Credit Facility of $4.0 million. At December 31, 2020, the Company had cash and cash equivalents of approximately $43.7 million.

Financing Transactions

In accordance with the 1940 Act, with certain limitations, effective April 25, 2019, the Company is only allowed to borrow amounts such that its asset coverage (i.e., the ratio of assets less liabilities not represented by senior securities to senior securities such as borrowings), calculated pursuant to the 1940 Act, is at least 150% after such borrowing. The Board of Directors also approved a resolution which limits the Company’s issuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, which became effective April 25, 2019. On August 11, 2021, we received an exemptive order from SEC to permit us to exclude the senior securities issued by SBIC I or any future SBIC subsidiary of the Company from the definition of senior securities in the asset coverage requirement applicable to the Company under the 1940 Act. As of December 31, 2021, the Company’s asset coverage was 187%.

Credit Facility

In August 2016, CSWC entered into a senior secured credit facility (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Facility”) to provide additional liquidity to support its investment and operational activities. The Credit Facility contains an accordion feature that allows CSWC to increase the total commitments under the Credit Facility up to $400 million from new and existing lenders on the same terms and conditions as the existing commitments.
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On August 9, 2021, CSWC entered into the Second Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement"). Prior to the Credit Agreement, (1) borrowings under the Credit Facility accrued interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 2.50% with no LIBOR floor, and (2) the total borrowing capacity was $340 million with commitments from a diversified group of eleven lenders. The Credit Agreement (1) decreased the total borrowing capacity under the Credit Facility to $335 million with commitments from a diversified group of ten lenders, (2) reduced the interest rate on borrowings to LIBOR plus 2.15% with no LIBOR floor and removed conditions related thereto as previously set forth in the Amended and Restated Senior Secured Revolving Credit Agreement, and (3) extended the end of the Credit Facility's revolver period from December 21, 2022 to August 9, 2025 and extended the final maturity from December 21, 2023 to August 9, 2026. The Credit Agreement also modified certain covenants in the Credit Facility, including, among other things, to increase the minimum obligors’ net worth test from $180 million to $200 million.

CSWC pays unused commitment fees of 0.50% to 1.00% per annum, based on utilization, on the unused lender commitments under the Credit Facility. The Credit Facility contains certain affirmative and negative covenants, including but not limited to: (1) certain reporting requirements, (2) maintaining RIC and BDC status, (3) maintaining a minimum senior coverage ratio of 2 to 1, (4) maintaining a minimum shareholders’ equity, (5) maintaining a minimum consolidated net worth, (6) maintaining a regulatory asset coverage of not less than 150%, (7) maintaining an interest coverage ratio of at least 2.25 to 1.0, and (8) at any time the outstanding advances exceed 90% of the borrowing base, maintaining a minimum liquidity of not less than 10% of the covered debt amount.

The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, bankruptcy, and change of control, with customary cure and notice provisions. If the Company defaults on its obligations under the Credit Facility, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests.

The Credit Facility is secured by (1) substantially all of the present and future property and assets of the Company and the guarantors and (2) 100% of the equity interests in the Company’s wholly-owned subsidiary. As of December 31, 2021, substantially all of the Company’s assets were pledged as collateral for the Credit Facility, except for assets held in SBIC I.

At December 31, 2021, CSWC had $190.0 million in borrowings outstanding under the Credit Facility. CSWC recognized interest expense related to the Credit Facility, including unused commitment fees and amortization of deferred loan costs, of $1.6 million and $4.5 million for the three and nine months ended December 31, 2021, respectively. For the three and nine months ended December 31, 2020, CSWC recognized interest expense of $1.8 million and $5.3 million, respectively. The weighted average interest rate on the Credit Facility was 2.37% and 2.52%, respectively, for the three and nine months ended December 31, 2021. For the three and nine months ended December 31, 2020, the weighted average interest rate on the Credit Facility was 2.91% and 3.13%, respectively. Average borrowings for the three and nine months ended December 31, 2021 were $200.2 million and $165.8 million, respectively. For the three and nine months ended December 31, 2020, average borrowings were $184.1 million and $129.5 million, respectively. As of December 31, 2021, CSWC was in compliance with all financial covenants under the Credit Facility.

December 2022 Notes

In December 2017, the Company issued $57.5 million in aggregate principal amount, including the underwriters’ full exercise of their option to purchase additional principal amounts to cover over-allotments, of 5.95% Notes due 2022 (the “December 2022 Notes”). The December 2022 Notes bore interest at a rate of 5.95% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 2018.

On June 11, 2018, the Company entered into an ATM debt distribution agreement, pursuant to which it may offer for sale, from time to time, up to $50 million in aggregate principal amount of December 2022 Notes through B. Riley FBR, Inc., acting as its sales agent. The Company issued an additional $19.6 million in aggregate principal amount of the December 2022 Notes under this agreement. All issuances of December 2022 Notes ranked equally in right of payment and form a single series of notes.

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On September 29, 2020, the Company redeemed $20,000,000 in aggregate principal of the $77,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes. On December 10, 2020, the Company redeemed $20,000,000 in aggregate principal of the $57,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes. On January 21, 2021, the Company redeemed the remaining $37,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes. The December 2022 Notes were redeemed at 100% of their principal amount, plus the accrued and unpaid interest thereon, through, but excluding each of the redemption dates. Accordingly, the Company recognized a realized loss on extinguishment of debt, equal to the write-off of the related unamortized debt issuance costs, of $1.0 million during the year ended March 31, 2021.

The Company recognized interest expense related to the December 2022 Notes, including amortization of deferred issuance costs of $0.9 million and $3.4 million for the three and nine months ended December 31, 2020, respectively. Average borrowings for the three and nine months ended December 31, 2020 were $52.4 million and $68.7 million, respectively. The December 2022 Notes had a weighted average effective yield of 5.93%.

October 2024 Notes

In September 2019, the Company issued $65.0 million in aggregate principal amount of 5.375% Notes due 2024 (the “Existing October 2024 Notes”). In October 2019, the Company issued an additional $10.0 million in aggregate principal amount of the October 2024 Notes (the "Additional October 2024 Notes"). In August 2020, the Company issued an additional $50.0 million in aggregate principal amount of the October 2024 Notes (the "New Notes" together with the Existing October 2024 Notes and the Additional October 2024 Notes, the "October 2024 Notes"). The Additional October 2024 Notes and the New Notes were treated as a single series with the Existing October 2024 Notes under the indenture and had the same terms as the Existing October 2024 Notes. The maturity date of the October 2024 Notes was October 1, 2024 and were redeemable in whole or in part at any time prior to July 1, 2024, at par plus a “make-whole” premium, and thereafter at par. The October 2024 Notes bore interest at a rate of 5.375% per year, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2020.

On September 24, 2021, the Company redeemed $125,000,000 in aggregate principal amount of the issued and outstanding October 2024 Notes. The October 2024 Notes were redeemed at 100% of their principal amount, plus (i) the accrued and unpaid interest thereon, through, but excluding the redemption date, and (ii) a "make-whole" premium. Accordingly, the Company recognized a realized loss on extinguishment of debt, equal to the write-off of the related unamortized debt issuance costs of $1.8 million and the "make-whole" premium of $15.2 million during the three months ended September 30, 2021.

The Company did not recognize any interest expense related to the October 2024 Notes for the three months ended December 31, 2021. The Company recognized interest expense, including amortization of deferred issuance costs, of $3.6 million for the nine months ended December 31, 2021. For the three and nine months ended December 31, 2020, the Company recognized interest expense of $1.8 million and $4.4 million, respectively. From April 1, 2021 through September 24, 2021 (the redemption date of the October 2024 Notes), average borrowings were $125.0 million. For the three and nine months ended December 31, 2020, average borrowings were $125.0 million and $100.8 million, respectively. The October 2024 Notes had a weighted average effective yield of 5.375%.

January 2026 Notes

In December 2020, the Company issued $75.0 million in aggregate principal amount of 4.50% Notes due 2026 (the "Existing January 2026 Notes"). The Existing January 2026 Notes were issued at par. In February 2021, the Company issued an additional $65.0 million in aggregate principal amount of the January 2026 Notes (the "Additional January 2026 Notes" together with the Existing January 2026 Notes, the "January 2026 Notes"). The Additional January 2026 Notes were issued at a price of 102.11% of the aggregate principal amount of the Additional January 2026 Notes, resulting in a yield-to-maturity of approximately 4.0% at issuance. The Additional January 2026 Notes are treated as a single series with the Existing January 2026 Notes under the indenture and had the same terms as the Existing January 2026 Notes. The January 2026 Notes mature on January 31, 2026 and may be redeemed in whole or in part at any time prior to October 31, 2025, at par plus a "make-whole" premium, and thereafter at par. The January 2026 Notes bear interest at a rate of 4.50% per year, payable semi-annually on January 31 and July 31 of each year, beginning on July 31, 2021. The January 2026 Notes are the direct unsecured obligations of the Company and rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility and the SBA Debentures.
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As of December 31, 2021, the carrying amount of the January 2026 Notes was $138.6 million on an aggregate principal amount of $140.0 million at a weighted average effective yield of 4.46%. As of December 31, 2021, the fair value of the January 2026 Notes was $137.5 million. This is a Level 3 fair value measurement under ASC 820 based on a valuation model using a discounted cash flow analysis. The Company recognized interest expense related to the January 2026 Notes, including amortization of deferred issuance costs, of $1.6 million and $5.0 million for the three and nine months ended December 31, 2021, respectively. For both the three and nine months ended December 31, 2020, the Company recognized interest expense of $0.1 million. For both the three and nine months ended December 31, 2021, average borrowings were $140.0 million. Since the issuance of the January 2026 Notes on December 29, 2020 through December 31, 2020, average borrowings were $75.0 million.

The indenture governing the January 2026 Notes contains certain covenants, including certain covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not the Company continues to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to the Company by the SEC, to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, after giving effect to any exemptive relief granted to the Company by the SEC and subject to certain other exceptions, and to provide financial information to the holders of the January 2026 Notes and the trustee under the indenture if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These covenants are subject to important limitations and exceptions that are described in the indenture and the third supplemental indenture relating to the January 2026 Notes.

In addition, holders of the Notes can require the Company to repurchase some or all of the January 2026 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the third supplemental indenture relating to the January 2026 Notes.

October 2026 Notes

In August 2021, the Company issued $100.0 million in aggregate principal amount of 3.375% Notes due 2026 (the "Existing October 2026 Notes"). The Existing October 2026 Notes were issued at a price of 99.418% of the aggregate principal amount of the Existing October 2026 Notes, resulting in a yield-to-maturity of 3.5%. In November 2021, the Company issued an additional $50.0 million in aggregate principal amount of the October 2026 Notes (the "Additional October 2026 Notes" together with the Existing October 2026 Notes, the "October 2026 Notes"). The Additional October 2026 Notes were issued at a price of 99.993% of the aggregate principal amount, resulting in a yield-to-maturity of approximately 3.375% at issuance. The Additional October 2026 Notes are treated as a single series with the Existing October 2026 Notes under the indenture and had the same terms as the Existing October 2026 Notes. The October 2026 Notes mature on October 1, 2026 and may be redeemed in whole or in part at any time prior to July 1, 2026, at par plus a "make-whole" premium, and thereafter at par. The October 2026 Notes bear interest at a rate of 3.375% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The October 2026 Notes are the direct unsecured obligations of the Company and rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility and the SBA Debentures.

As of December 31, 2021, the carrying amount of the October 2026 Notes was $146.4 million on an aggregate principal amount of $150.0 million at a weighted average effective yield of 3.5%. As of December 31, 2021, the fair value of the October 2026 Notes was $147.2 million. This is a Level 3 fair value measurement under ASC 820 based on a valuation model using a discounted cash flow analysis. The Company recognized interest expense related to the October 2026 Notes, including amortization of deferred issuance costs, of $1.3 million and $1.7 million for the three and nine ended December 31, 2021, respectively. For the three months ended December 31, 2021, average borrowings were $128.8 million. Since the issuance of the October 2026 Notes on August 27, 2021 through December 31, 2021, average borrowings were $120.9 million.

The indenture governing the October 2026 Notes contains certain covenants, including certain covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not the Company continues to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to the Company by the SEC, to comply with Section 18(a)(1)(B) as
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modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, after giving effect to any exemptive relief granted to the Company by the SEC and subject to certain other exceptions, and to provide financial information to the holders of the October 2026 Notes and the trustee under the indenture if the Company is no longer subject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the indenture and the fourth supplemental indenture relating to the October 2026 Notes.

In addition, holders of the Notes can require the Company to repurchase some or all of the October 2026 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the fourth supplemental indenture relating to the October 2026 Notes.

SBA Debentures

On April 20, 2021, SBIC I received a license from the SBA to operate as an SBIC under Section 301(c) of the SBIC Act. The license allows SBIC I to obtain leverage by issuing SBA Debentures, subject to the issuance of a leverage commitment by the SBA. SBA Debentures are loans issued to an SBIC which have interest payable semi-annually and a ten-year maturity. The interest rate is fixed shortly after issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities. Interest on SBA Debentures is payable semi-annually on March 1 and September 1. Current statutes and regulations permit SBIC I to borrow up to $175 million in SBA Debentures with at least $87.5 million in regulatory capital (as defined in the SBA regulations).

On May 25, 2021, SBIC I received a leverage commitment from the SBA in the amount of $40.0 million to be issued on or prior to September 30, 2025. As of December 31, 2021, SBIC I had regulatory capital of $40.0 million and approved and unused SBA Debenture commitments of $11.0 million. The SBA may limit the amount that may be drawn each year under these commitments, and each issuance of leverage is conditioned on the Company’s full compliance, as determined by the SBA, with the terms and conditions set forth in the SBIC Act.

As of December 31, 2021, the carrying amount of SBA Debentures was $28.0 million on an aggregate principal amount of $29.0 million. As of December 31, 2021, the fair value of the SBA Debentures was $28.9 million. The fair value of the SBA Debentures is estimated by discounting the remaining payments using current market rates for similar instruments and considering such factors as the legal maturity date and the ability of market participants to prepay the SBA Debentures, which are Level 3 inputs under ASC Topic 820. The Company recognized interest expense and related fees related to SBA Debentures of $0.1 million and $0.2 million for the three and nine months ended December 31, 2021, respectively. The weighted average interest rate on the SBA Debentures was 1.43% and 1.24%, respectively, for the three and nine months ended December 31, 2021. For the three and nine months ended December 31, 2021, average borrowings were $21.0 million and $10.1 million, respectively.

As of December 31, 2021, the Company's issued and outstanding SBA Debentures mature as follows:

Pooling Date (1) Maturity Date Fixed Interest Rate December 31, 2021
9/22/2021 9/1/2031 1.575% $ 15,000
(2) (2) (2) 14,000
$ 29,000
(1) The SBA has two scheduled pooling dates for SBA Debentures (in March and in September). Certain SBA Debentures funded during the reporting periods may not be pooled until the subsequent pooling date.
(2) The Company issued $14.0 million in SBA Debentures that will pool in March 2022. Until the pooling date, the SBA Debentures bear interest at a fixed rate and an interim interest rate of 0.91%. The Company expects the current interim interest rate will reset to a higher long-term fixed rate on the pooling date.

Equity Capital Activities

In January 2016, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $10 million of its outstanding shares of common stock in the open market at certain thresholds below our NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act. On March 1, 2016, the Company entered into a share repurchase agreement, which became effective immediately and terminated on March 26, 2020 upon the Company's purchase of the aggregate gross dollar amount (inclusive of
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commission fees) of its common stock under the share repurchase program meeting the threshold set forth in the share repurchase agreement.

On July 28, 2021, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $20 million of its outstanding shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act. On August 31, 2021 the Company entered into a share repurchase agreement, which became effective immediately, and the Company shall cease purchasing its common stock under the share repurchase program upon the earlier of, among other things: (1) the date on which the aggregate purchase price for all shares equals $20 million including, without limitation, all applicable fees, costs and expenses; or (2) upon written notice by the Company to the broker that the share repurchase agreement is terminated.

Cumulative to date, we have repurchased a total of 840,543 shares of our common stock in the open market under the share repurchase programs, at an average price of $11.85, including commissions paid.

On March 4, 2019, the Company established an "at-the-market" offering (the "Equity ATM Program") pursuant to which the Company may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $50,000,000. On February 4, 2020, the Company (i) increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $100,000,000 from $50,000,000 and (ii) added two additional sales agents to the Equity ATM Program. On May 26, 2021, the Company (i) increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $250,000,000 from $100,000,000 and (ii) reduced the commission paid to the sales agents for the Equity ATM Program to 1.5% from 2.0% of the gross sales price of shares of the Company's common stock sold through the sales agents pursuant to the Equity ATM Program on and after May 26, 2021.

During the three months ended December 31, 2021, the Company sold 616,156 shares of its common stock under the Equity ATM Program at a weighted-average price of $25.97 per share, raising $16.0 million of gross proceeds. Net proceeds were $15.8 million after commissions to the sales agents on shares sold. During the nine months ended December 31, 2021, the Company sold 2,834,734 shares of its common stock under the Equity ATM Program at a weighted-average price of $26.27 per share, raising $74.5 million of gross proceeds. Net proceeds were $73.3 million after commissions to the sales agents on shares sold.

During the three months ended December 31, 2020, the Company sold 1,264,776 shares of its common stock under the Equity ATM Program at a weighted-average price of $16.64 per share, raising $21.1 million of gross proceeds. Net proceeds were $20.6 million after commissions to the sales agents on shares sold. During the nine months ended December 31, 2020, the Company sold 1,673,065 shares of its common stock under the Equity ATM Program at a weighted-average price of $16.33 per share, raising $27.3 million of gross proceeds. Net proceeds were $26.8 million after commissions to the sales agents on shares sold.

Cumulative to date, the Company has sold 7,140,363 shares of its common stock under the Equity ATM Program at a weighted-average price of $22.17, raising $158.3 million of gross proceeds. Net proceeds were $155.5 million after commissions to the sales agents on shares sold. As of December 31, 2021, the Company has $91.7 million available under the Equity ATM Program.

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CONTRACTUAL OBLIGATIONS

As shown below, we had the following contractual obligations as of December 31, 2021.
Payments Due By Period
(in thousands)
Total Less than 1-3 Years 3-5 Years More Than
Contractual Obligations 1 Year 5 Years
Operating lease obligations (1) $ 4,449 $ 95 $ 809 $ 857 $ 2,688
Credit Facility (2) 211,027 4,566 9,144 197,317 —
January 2026 Notes (3) 168,350 6,300 12,600 149,450 —
October 2026 Notes (3) 175,791 5,541 10,125 160,125 —
$ 559,617 $ 16,502 $ 32,678 $ 507,749 $ 2,688

(1) The Company executed an agreement to lease new office space, which will commence on February 1, 2022.
(2) Amounts include interest payments calculated at an average rate of 2.37% of outstanding Credit Facility borrowings, which were $190.0 million as of December 31, 2021.
(3) Includes interest payments.

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OFF-BALANCE SHEET ARRANGEMENTS

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet.

At December 31, 2021 and March 31, 2021, we had a total of approximately $139.3 million and $45.4 million, respectively, in currently unfunded commitments (as discussed in Note 10 to the Consolidated Financial Statements). Included within the total unfunded commitments as of December 31, 2021 were commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. As of December 31, 2021 , we had $3.7 million in letters of credit issued and outstanding under these commitments on behalf of the portfolio companies. For the letters of credit issued and outstanding, we would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. Of these letters of credit, $0.2 million expire in April 2022, $3.1 million expire in May 2022 and $0.4 million expire in August 2022. As of December 31, 2021, none of the letters of credit issued and outstanding were recorded as a liability on the Company's balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company.

The Company believes its assets will provide adequate coverage to satisfy these unfunded commitments. As of December 31, 2021, the Company had cash and cash equivalents of $18.7 million and $141.7 million in available borrowings under the Credit Facility.

RECENT DEVELOPMENTS

On January 26, 2022, the Board of Directors declared a quarterly dividend of $0.48 per share for the quarter ended March 31, 2022. The record date for the dividend is March 15, 2022. They payment date for the dividend is March 31, 2022.
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Item 3.    Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risk. Market risk includes risk that arise from changes in interest rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies in which we invest; conditions affecting the general economy, including the impact of COVID-19 and new variants of COVID-19; overall market changes, including an increase in market volatility due to COVID-19; legislative reform; local, regional, national or global political, social or economic instability; and interest rate volatility, including the decommissioning of LIBOR.

Interest Rate Risk

We are subject to interest rate risk. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing internals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest-bearing liabilities. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio. Our net investment income is affected by fluctuations in various interest rates including LIBOR and prime rates. A large portion of our portfolio is comprised of floating rate investments that utilize LIBOR or an alternative rate. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. Our interest expenses will also be affected by changes in the published LIBOR rate in connection with our Credit Facility. The interest rates on the October 2026 Notes and the January 2026 Notes are fixed for the life of such debt. Once pooled, the interest rate on the SBA Debentures are fixed for the life of such debt. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks. We regularly measure exposure to interest rate risk and determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. As of December 31, 2021, we were not a party to any hedging arrangements.

As of December 31, 2021, approximately 95.6% of our debt investment portfolio (at fair value) bore interest at floating rates, 100.0% of which were subject to contractual minimum interest rates. Based on interest rates as of December 31, 2021, a hypothetical 100 basis point increase in interest rates could decrease our net investment income by a maximum of $0.9 million, or $0.04 per share, on an annual basis. A hypothetical 100 basis point decrease in interest rates could increase our net investment income by a maximum of $0.5 million, or $0.02 per share, on an annual basis. Our Credit Facility bears interest on a per annum basis equal to the applicable LIBOR rate plus 2.15%. We pay unused commitment fees of 0.50% to 1.00% per annum, based on utilization.

Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in our portfolio. It also does not adjust for other business developments, including future borrowings that could affect the net increase in net assets resulting from operations, or net income. It also does not assume any repayments from borrowers. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by our investment portfolio.
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Item 4.    Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based upon this evaluation, management, including our President and Chief Executive Officer and our Chief Financial Officer, concluded that our current disclosure controls and procedures are effective as of December 31, 2021.

During the three months ended December 31, 2021, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. – OTHER INFORMATION

Item 1.    Legal Proceedings

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. We have no currently pending material legal proceedings to which we are party or to which any of our assets is subject.

Item 1A.    Risk Factors

Investing in our common stock involves a number of significant risks. Other than as set forth below, there have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 that we filed with the SEC on May 26, 2021.

The interest rates of our loans to our portfolio companies, any LIBOR-linked securities, and other financial obligations that extend beyond 2021 might be subject to change based on recent regulatory changes, including the decommissioning of LIBOR.

LIBOR is the basic rate of interest used in lending transactions between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. Prior to December 31, 2021, we typically used LIBOR as a reference rate in floating-rate loans extended to portfolio companies such that the interest due to us pursuant to a term loan extended to a portfolio company is calculated using LIBOR, including with respect to loans that mature after LIBOR is no longer available. Uncertainty relating to the LIBOR calculation process, the valuation of LIBOR alternatives, and other economic consequences from the phasing out of LIBOR may adversely affect our results of operations, financial condition and liquidity.

On March 5, 2021, the United Kingdom's Financial Conduct Authority (the "FCA"), which regulates LIBOR, announced that it will not compel panel banks to contribute to the overnight 1, 3, 6 and 12 months USD LIBOR tenors after June 30, 2023 and all other tenors after December 31, 2021. On November 16, 2021, the FCA issued a statement confirming that starting January 1, 2022, entities supervised by the FCA will be prohibited from using LIBORs, including USD LIBOR, that will be discontinued as of December 31, 2021 as well as, except in very limited circumstances, those tenors of USD LIBOR that will be discontinued or declared non-representative after June 30, 2023. While LIBOR will cease to exist or be declared non-representative, there continues to be uncertainty regarding the nature of potential changes to specific USD LIBOR tenors, the development and acceptance of alternative reference rates and other reforms.

Central banks and regulators in a number of major jurisdictions (for example, United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for LIBORs and other interbank offered rates ("IBORs"). To identify a successor rate for USD LIBOR, the Alternative Reference Rates Committee (“ARRC”), U.S.-based group convened by the U.S. Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. On July 29, 2021, the ARRC formally recommended SOFR as its preferred alternative replacement rate for LIBOR. On July 29, 2021, the ARRC also recommended a forward-looking term rate based on SOFR published by CME Group. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere. Alternative reference rates that may replace LIBOR, including SOFR for USD transactions, may not yield the same or similar economic results as LIBOR over the lives of such transactions. There can be no guarantee that SOFR will become the dominant alternative to USD LIBOR or that SOFR will be widely used and other alternatives may or may not be developed and adopted with additional consequences.

On April 6, 2021, legislation was signed into law in the state of New York that provides that contracts, securities and instruments governed by New York law that reference USD LIBOR and that either lack benchmark
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fallback provisions or include ineffective benchmark fallback provisions in connection with USD LIBOR no longer being published or becoming non-representative, will, by operation of law, refer to a replacement rate based on SOFR. Despite the adoption of the New York legislation, successful legal challenges against the legislation may render it partially or wholly unconstitutional or unenforceable, e.g., based on other federal or state law grounds.

The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market value of and/or transferability of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us, valuation measurements used by us that include LIBOR as an input, our operational processes or our overall financial condition or results of operations. In addition, while the majority of our LIBOR-linked loans contemplate that LIBOR may cease to exist and allow for amendment to a new base rate without the approval of 100% of the lenders. However, if LIBOR ceases to exist, we will still need to renegotiate certain credit agreements within our portfolio that utilize LIBOR as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on our overall financial condition or results of operations. Following the replacement of LIBOR, some or all of these credit agreements may bear interest at a lower interest rate, which could have an adverse impact on the value and liquidity of our investment in these portfolio companies and, as a result, on our results of operations. Such adverse impacts and the uncertainty of the transition could result in disputes and litigation with counterparties and borrowers regarding the implementation of alternative reference rates.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

On January 25, 2016, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $10 million of our outstanding shares of common stock in the open market at certain thresholds below our net asset value per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Securities Exchange Act of 1934, as amended. On March 1, 2016, the Company entered into a share repurchase agreement, which became effective immediately and terminated on March 26, 2020 upon the Company's purchase of the aggregate gross dollar amount (inclusive of commission fees) of its common stock under the share repurchase program meeting the threshold set forth in the share repurchase agreement.

On July 28, 2021, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $20 million of its outstanding shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act. On August 31, 2021 the Company entered into a share repurchase agreement, which became effective immediately, and the Company shall cease purchasing its common stock under the share repurchase program upon the earlier of, among other things: (1) the date on which the aggregate purchase price for all shares equals $20 million including, without limitation, all applicable fees, costs and expenses; or (2) upon written notice by the Company to the broker that the share repurchase agreement is terminated. During the three months ended December 31, 2021, the Company did not repurchase any shares under the share repurchase program.

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    Mine Safety Disclosures.

None.

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Item 5.    Other Information.

None.

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Item 6.     Exhibits
Exhibit No. Description

*    Filed herewith.
^    The certifications, attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing.

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SIGNATURES

Pursuant to the requirements the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPITAL SOUTHWEST CORPORATION
February 1, 2022 By: /s/ Bowen S. Diehl
Date Bowen S. Diehl
President and Chief Executive Officer
February 1, 2022 By: /s/ Michael S. Sarner
Date Michael S. Sarner
Chief Financial Officer, Secretary and Treasurer


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TABLE OF CONTENTS
Part I Financial InformationItem 1. Consolidated Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits

Exhibits

3.1 Articles of Incorporation, dated April 19, 1961, including amendments dated June 30, 1969, July 20, 1987, April 23, 2007 and July 15, 2013 (incorporated by reference to Exhibit (a) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on September 8, 2017). 3.2 Certificate of Amendment to the Articles of Incorporation, dated August 1, 2019 (Incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 814-00061) filed on August 1, 2019). 3.3 Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-Q (File No. 814-00061) filed on November 7, 2017). 3.4 Amendment to Second Amended and Restated Bylaws of Capital Southwest Corporation (Incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 814-00061) filed April 25, 2019). 4.2 Indenture, dated October 23, 2017, between the Company and U.S. Bank National Association, Trustee (incorporated by reference to Exhibit (d)(2) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on October 23, 2017). 4.3 Third Supplemental Indenture, dated as of December 29, 2020, relating to the 4.50% Notes due 2026, by and between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on December 29, 2020). 4.4 Form of Global Note with respect to the 4.50% Notes due 2026 (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed on December 29, 2020). 4.5 Fourth Supplemental Indenture, dated as of August 27, 2021, relating to the 3.375% Notes due 2026, by and between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on August 27, 2021).. 4.6 Form of Global Note with respect to the 3.375% Notes due 2026 (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed on August 27, 2021). 10.1 Form of Second Amendment, dated November 2, 2021, to Third and Amended Restated Equity Distribution Agreement between the Company and each of Jefferies LLC and Raymond James & Associates, Inc., respectively (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 2, 2021). 10.2 Form of Second Amendment, dated November 2, 2021, to Amended and Restated Equity Distribution Agreement between the Company and each of JMP Securities LLC and B. Riley Securities, Inc., respectively (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on November 2, 2021). 31.1* Certification of President and Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act. 31.2* Certification of Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act. 32.1*^ Certification of President and Chief Executive Officer required by Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code. 32.2*^ Certification of Chief Financial Officer required by Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.