Capital Southwest Corporation

    CSWC ·NASDAQ ·Inc. in TX
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    Item 1.     Business
     
    ORGANIZATION
     
    Capital Southwest Corporation (“we,” “our,” “us,” “CSWC,” or the “Company”), a Texas corporation, is an internally managed closed-end, non-diversified investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. Because CSWC is internally managed, all of the executive officers and other employees are employed by CSWC. Therefore, CSWC does not pay any external investment advisory fees, but instead directly incurs the operating costs associated with employing investment and portfolio management professionals.

    Since September 30, 2015, we have pursued a credit-focused investment strategy. We specialize in providing customized financing to lower middle market ("LMM") companies in a broad range of industry segments located primarily in the United States. We invest primarily in first lien debt securities and also invest in preferred stock and common stock alongside our debt investments or through warrants. Our common stock trades on The Nasdaq Global Select Market under the ticker symbol “CSWC.”
     
    As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, effective April 25, 2019, we are allowed to borrow money such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing. Additionally, the Board of Directors approved a resolution that 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%, at any time after the effective date.
     
    We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes 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 be subject to U.S. federal income tax on any ordinary income or capital gains that we timely distribute to our shareholders as dividends. To continue to maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and generally distribute annually at least 90% of our "investment company taxable income" (i.e., net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any). We will be subject to U.S. federal income tax on any income that we do not timely distribute to our shareholders. Our U.S. federal income tax liability may be reduced to the extent that we make certain distributions during the following calendar year and satisfy other procedural requirements.

    Capital Southwest Equity Investments, Inc. (the “Taxable Subsidiary”), Capital Southwest SPV LLC (“SPV”), Capital Southwest SBIC I, LP (“SBIC I”) and Capital Southwest SBIC II, LP (“SBIC II” and together with SBIC I, the "SBIC Subsidiaries") are wholly owned subsidiaries of the Company and are consolidated in its financial statements. The Taxable Subsidiary was formed to permit us to hold certain interests in entities that are classified as partnerships for U.S. federal income tax purposes while complying with the source-of-income requirements applicable to RICs. The Taxable Subsidiary is classified as a corporation for U.S. federal income tax purposes and is subject to U.S. federal income tax imposed at corporate rates based on its taxable income. SPV is a special purpose vehicle that was formed to hold investments for the SPV Credit Facility (as defined below) to support our investment and operating activities.
     
    SBIC I and SBIC II each 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, on April 20, 2021 and April 17, 2025, respectively. The SBIC Subsidiaries have an investment strategy substantially similar to the Company and make similar types of investments in accordance with SBA regulations. The SBIC Subsidiaries and their general partner are consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by the SBIC Subsidiaries are included in the consolidated financial statements. See “Regulation as a Small Business Investment Company” below for more information about the regulations applicable to the SBIC Subsidiaries.

    On January 22, 2026, the Company and Trinity Capital Inc. ("Trinity") formed CapTrin Partners LLC ("CapTrin"), a joint venture established for the purpose of primarily investing in first out senior secured debt opportunities in the LMM. CapTrin is owned equally by the Company and Trinity, with each holding a 50% equity interest and making a $50 million capital commitment, of which $21.0 million has been funded by each of the Company and Trinity as of the date hereof. All investment and operational decisions for CapTrin are made by CapTrin's board of managers, which consists of equal
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    representation from both joint venture partners. CapTrin has also entered into a special purpose vehicle financing credit facility to provide additional liquidity to support its investment and operational activities.

    Corporate Information
     
    Our principal executive offices are located at 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225. We maintain a website at www.capitalsouthwest.com. You can review the filings we have made with the Securities and Exchange Commission, or the SEC, free of charge on the SEC's website at www.sec.gov. We also make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports and any other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after filing these reports with the SEC. Information on our website is not incorporated by reference into this Annual Report on Form 10-K and you should not consider that information to be part of this Annual Report on Form 10-K. The charters adopted by the committees of our Board of Directors are also available on our website.  
     
    OVERVIEW OF OUR BUSINESS
     
    We are an internally managed closed-end, non-diversified 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 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 first lien debt securities, secured by security interests in portfolio company assets. We also may 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. Our core business is to target senior debt investments and equity investments in LMM companies. Our target companies generally have annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $3.0 million and $25.0 million, and our investments generally range in size from $5.0 million to $50.0 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 participation. 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 term of up to five years from the original investment date. We also often seek to invest in the equity securities of our LMM portfolio companies.

    We offer managerial assistance to our portfolio companies and provide them access to our investment experience, direct industry expertise and contacts. Our obligation to offer to make available significant managerial assistance to our portfolio companies is consistent with our belief that providing managerial assistance to a portfolio company is important to its business development activities.
     
    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.
     
    Our Investment Strategy
     
    We intend to achieve our investment objective of producing attractive risk-adjusted returns by generating current income from our debt investments and realizing capital appreciation from our equity and equity-related investments. We have adopted the following investment strategies to achieve our investment objective:
     
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    •Leveraging the Experience of Our Management Team.  Our senior management team has extensive experience investing in and lending to LMM companies across changing market cycles. The members of our management team have diverse investment backgrounds, with prior experience at BDCs in the capacity of senior officers. We believe this extensive experience provides us with an in-depth understanding of the strategic, financial and operational challenges and opportunities of the LMM companies in which we invest. We believe this understanding allows us to select and structure better investments and to efficiently monitor and provide managerial assistance to our portfolio companies.

    •Applying Rigorous Underwriting Policies and Active Portfolio Management.  Our senior management team has implemented rigorous underwriting policies that are followed in each transaction. These policies include a thorough analysis of each potential portfolio company’s competitive position, financial performance, management team operating discipline, growth potential and industry attractiveness, which we believe allows us to better assess the company’s prospects. After investing in a company, we monitor the investment closely, typically receiving monthly, quarterly and annual financial statements. Senior management, together with the deal team and accounting and finance departments, generally meets at least quarterly to analyze and discuss in detail the company’s financial performance and industry trends. We believe that our initial and ongoing portfolio review process allows us to effectively monitor the performance and prospects of our portfolio companies.

    •Investing Across Multiple Companies, Industries, Regions and End Markets.  We seek to maintain a portfolio of investments that is appropriately diverse among various companies, industries, geographic regions and end markets. This portfolio balance is intended to mitigate the potential effects of negative economic events for particular companies, regions, industries and end markets. However, we may from time to time hold securities of an individual portfolio company that comprise more than 5% of our total assets and/or more than 10% of the outstanding voting securities of the portfolio company. For that reason, we are classified as a non-diversified investment company that has elected to be regulated as a BDC under the 1940 Act.

    •Utilizing Long-Standing Relationships to Source Deals.  Our senior management team and investment professionals maintain extensive relationships with entrepreneurs, financial sponsors, attorneys, accountants, investment bankers, commercial bankers and other non-bank providers of capital who refer prospective portfolio companies to us. These relationships historically have generated significant investment opportunities. We believe that our network of relationships will continue to produce attractive investment opportunities.

    •Focusing on Underserved Markets.  The LMM has traditionally been underserved. We believe that operating margin and growth pressures, as well as regulatory concerns, have caused many financial institutions to de-emphasize services to LMM companies in favor of larger corporate clients and more liquid capital market transactions. We also invest in securities that would be rated below investment grade if they were rated. We believe these dynamics have resulted in the financing market for LMM companies being underserved, providing us with greater investment opportunities.

    •Focus on Established Companies.  We generally invest in companies with established market positions, proven management teams with strong operating discipline, histories of generating revenues, and recurring cash flow streams. We believe that those companies generally possess better risk adjusted return profiles than earlier stage companies that are building their management teams and establishing their revenue base. We also believe that established companies in our target size range generally provide opportunities for capital appreciation.

    •Capital Structures Appropriate for Potential Industry and Business Volatility. Our investment team spends significant time understanding the performance of both the target portfolio company and its specific industry throughout a full economic cycle. The history of each specific industry and target portfolio company will demonstrate a different level of potential volatility in financial performance. We seek to understand this dynamic thoroughly and invest our capital at leverage levels in the capital structure that will remain within enterprise value and in securities that will receive interest payments if such downside volatility were to occur.
     
    •Providing Customized Financing Solutions.  We offer a variety of financing structures and have the flexibility to structure our investments to meet the needs of our portfolio companies. We primarily invest in senior debt securities coupled with equity interests. We believe our ability to customize financing structures makes us an attractive partner to LMM companies.
    •Benefitting from Lower, Fixed, Long-Term Cost of Capital. The SBIC licenses held by the SBIC Subsidiaries allow them to issue SBA-guaranteed debentures. SBA-guaranteed debentures carry long-term fixed interest rates that are generally lower than interest rates on comparable bank loans and other debt. Because lower-cost SBA leverage is, and will continue to be, a part of our capital base through the SBIC Subsidiaries, our relative cost of debt capital should be
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    Financial statements

    data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .

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    From 10-K filed 2026-05-19 (period ending 2026-03-31).

    Item 7.    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 included elsewhere in this Annual Report on Form 10-K. Statements we make in the following discussion which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions.  Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the headings “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in Part I of this report.

    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 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 first lien debt securities, secured by security interests in portfolio company assets. We also may 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. Our target companies typically have annual EBITDA between $3.0 million and $25.0 million, and our investments generally range in size from $5.0 million to $50.0 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 term of up to five years from the original investment date. We also often seek to invest in the equity securities of our LMM portfolio companies.

    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. As of March 31, 2026, 2025, and 2024 the ratio of our last twelve months ("LTM") operating expenses, excluding interest expense, as a percentage of our LTM average total assets was 1.43%, 1.73% and 1.72%, respectively.

    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.


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    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 March 31, 2026 and March 31, 2025, our investment portfolio at fair value represented approximately 96.3% and 94.8% of our total assets, respectively. We are required to report our investments at fair value. We follow the provisions of 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 participants, which may be a hypothetical market.  See Note 4 - Fair Value Measurements in the Notes to the 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.

    Pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors designated a valuation committee (the "Valuation Committee") comprised of certain officers of the Company as its valuation designee to determine the fair value of the Company's investments that do not have readily available market quotations, subject to the oversight of the Board of Directors. Our Valuation Committee believes that our investment portfolio as of March 31, 2026 and March 31, 2025 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. Upon the prepayment of a loan, any unamortized discount or premium is accelerated into interest income. 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 the portfolio company's ability to service debt or other obligations, it will be restored to accrual basis. As of March 31, 2026, investments on non-accrual status represented approximately 1.1% of our total investment portfolio's fair value and approximately 2.4% of its cost. As of March 31, 2025, investments on non-accrual status represented approximately 1.7% of our total investment portfolio's fair value and approximately 3.5% of its cost.

    Recently Issued Accounting Standards

    In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which was issued to enhance the transparency and decision usefulness of income tax disclosures, including an annual requirement to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The new guidance is effective for annual periods beginning after December 15, 2024. The Company has adopted this standard on a prospective basis as currently required and these are reflected in the related disclosures.

    In November 2024, the FASB issued ASU 2024-03, "Disaggregation of Income Statement Expenses," which requires additional disclosure of the nature of expenses included in the income statement in response to requests from investors for more information about an entity's expenses. The new standard requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The new guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the new standard on the Company's consolidated financial
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    statements and related disclosures and does not believe it will have a material impact on its consolidated financial statements or its disclosures.

    In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements," which clarifies the form and content of interim financial statements, adds a comprehensive list of required interim disclosures, and provides a disclosure principle for condensed interim financial statements. The new guidance is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and, on adoption, can be applied either prospectively or retrospectively to any or all periods presented in the financial statements. The Company has evaluated the impact of the new standard on the Company's consolidated financial statements and related disclosures and concluded that it will not have a material impact on its consolidated financial statements or its disclosures.

    INVESTMENT PORTFOLIO COMPOSITION

    The total fair value of our investment portfolio was $2,097.4 million as of March 31, 2026, as compared to $1,785.3 million as of March 31, 2025. As of March 31, 2026, we had investments in 131 portfolio companies with an aggregate cost of $2,119.5 million. As of March 31, 2025, we had investments in 121 portfolio companies with an aggregate cost of $1,779.4 million. The following table presents certain additional selected information regarding our debt investments as of March 31, 2026 and March 31, 2025 (dollars in millions):

    March 31, 2026March 31, 2025
    Debt investments, at fair value, bearing a floating rate$1,830.3 $1,562.3 
    Percentage of debt bearing a floating rate95.5 %97.3 %
    Percentage of floating rate debt subject to contractual minimum interest rates100.0 %99.1 %
    Debt investments, at fair value, bearing a fixed rate$86.2 $43.6 
    Percentage of debt bearing a fixed rate4.5 %2.7 %
    Weighted average contractual minimum interest rate1.5 %1.5 %

    The following tables provide a summary of our investments in portfolio companies as of March 31, 2026 and March 31, 2025:
    March 31, 2026March 31, 2025
    (dollars in thousands)
    Number of portfolio companies (a)131121
    Fair value$2,097,446 $1,785,299 
    Cost$2,119,485 $1,779,360 
    % of portfolio at fair value - debt91.4 %90.0 %
    % of portfolio at fair value - equity8.6 %10.0 %
    % of investments at fair value secured by first lien90.1 %88.9 %
    Weighted average annual effective yield on debt investments (b)10.8 %11.7 %
    Weighted average annual effective yield on total investments (c)10.9 %11.5 %
    Weighted average EBITDA (d)$15,684 $18,499 
    Weighted average leverage through CSWC security (e)3.6x3.5x

    (a)At March 31, 2026 and March 31, 2025, we had equity ownership in approximately 66.4% and 65.3%, respectively, of our portfolio companies.
    (b)The weighted average annual effective yield of debt investments is not the same as a return on investment for CSWC's shareholders, but rather relates to CSWC's investment portfolio and is calculated before the payment of all of CSWC's and subsidiaries' fees and expenses. The weighted average annual effective yields were computed using the effective interest rates during the quarter for all debt investments at cost as of March 31, 2026 and March 31, 2025, respectively, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments. As of March 31, 2026, investments on non-accrual status represented approximately 1.1% of our total investment portfolio's fair value and approximately 2.4% of its cost. As of March 31, 2025, investments on non-accrual status represented approximately 1.7% of our total investment portfolio's fair value and approximately 3.5% of its cost. 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.
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    (c)The weighted average annual effective yield of total investments is not the same as a return on investment for CSWC's shareholders, but rather relates to CSWC's investment portfolio and is calculated before the payment of all of CSWC's and subsidiaries' fees and expenses. The weighted average annual effective yields on total investments were calculated by dividing total investment income, exclusive of non-recurring fees, by average total investments at fair value.
    (d)Includes CSWC debt investments only. Weighted average EBITDA metric is calculated using investment cost basis weighting. As of March 31, 2026, 10 portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. As of March 31, 2025, 12 portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.
    (e)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. As of March 31, 2026, 10 portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful. As of March 31, 2025, 12 portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

    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, however interest payments are generally not past due and the investment is typically on accrual.
    •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. Interest payments on our investment are likely to be impaired and the investment is typically on non-accrual, however there is not an expectation of significant principal loss.
    •Investment Rating 5 indicates that the investment is performing materially below underwriting expectations, the trends and risk factors are negative and the risk of the investment has increased substantially. Interest payments on our investment are impaired, the investment is on non-accrual, and there is an expectation of significant principal loss.

    We continue to observe certain macro-economic risks and uncertainties, including those relating to commodity inflation and elements of geopolitical instability (including the ongoing conflict between Russia and Ukraine and the ongoing turmoil and political unrest in the Middle East and South America). Changes to trade policies, including the imposition of new tariffs, could disrupt supply chains and may negatively impact the financial condition of certain of our portfolio companies as well as the macro-economic environment. In the event that the U.S. economy enters into a protracted recession, it is possible that the results of certain U.S. LMM companies could experience deterioration. We are closely monitoring the effect of such market volatility may have on our portfolio companies and our investment activities, and we have also increased oversight of credits in vulnerable industries to mitigate any decline in loan performance and reduce credit risk.


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    The following table shows the distribution of our debt portfolio investments on the 1 to 5 investment rating scale at fair value as of March 31, 2026 and March 31, 2025:
    As of March 31, 2026
    Investment RatingDebt Investments at Fair ValuePercentage of Debt Portfolio
    (dollars in thousands)
    1$361,204 18.8 %
    21,320,824 68.9 
    3207,101 10.9 
    425,050 1.3 
    52,315 0.1 
    Total$1,916,494 100.0 %
    As of March 31, 2025
    Investment RatingDebt Investments at Fair ValuePercentage of Debt Portfolio
    (dollars in thousands)
    1$400,989 25.0 %
    21,035,968 64.5 
    3144,929 9.0 
    420,259 1.3 
    53,761 0.2 
    Total$1,605,906 100.0 %

    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 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 March 31, 2026, investments on non-accrual status represented approximately 1.1% of our total investment portfolio's fair value and approximately 2.4% of its cost. As of March 31, 2025, investments on non-accrual status represented approximately 1.7% of our total investment portfolio's fair value and approximately 3.5% of its cost.

    Investment Activity

    During the year ended March 31, 2026, we made debt investments totaling $597.0 million and equity investments totaling $15.7 million. In connection with the sale of a preferred equity investment, we also received an earnout with a cost basis of $3.5 million. We received contractual principal repayments totaling approximately $39.7 million and full prepayments of approximately $221.3 million. We funded $74.4 million on revolving loans and received $51.9 million in repayments on revolving loans. In addition, we received proceeds from sales of debt and equity investments totaling $74.0 million.

    During the year ended March 31, 2025, we made debt investments totaling $554.0 million and equity investments totaling $14.5 million. We received contractual principal repayments totaling approximately $60.8 million and full prepayments of approximately $151.4 million. We funded $52.0 million on revolving loans and received $36.5 million in repayments on revolving loans. In addition, we received proceeds from sales of debt investments totaling $49.6 million.
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    Total portfolio investment activity for the year ended March 31, 2026 and 2025 was as follows (dollars in thousands):
    Year ended March 31, 2026First Lien LoansSecond Lien LoansSubordinated DebtPreferred
    & Common Equity    		EarnoutTotal
    Fair value, beginning of period$1,586,622 $18,066 $1,218 $179,393 $— $1,785,299 
    New investments671,315 — 57 15,727 3,457 690,556 
    Proceeds from sales of investments(30,987)— — (42,982)— (73,969)
    Principal repayments received(310,505)(2,308)(146)— — (312,959)
    Conversion/exchange of security(11,947)7,996 — 3,951 — — 
    PIK interest earned13,979 79 8 — — 14,066 
    Accretion of loan discounts9,603 (46)— — — 9,557 
    Realized gain (loss)(18,092)(5,833)— 36,799 — 12,874 
    Unrealized (loss) gain(19,582)6,977 20 (15,974)581 (27,978)
    Fair value, end of period$1,890,406 $24,931 $1,157 $176,914 $4,038 $2,097,446 

    Year ended March 31, 2025First Lien LoansSecond Lien LoansSubordinated DebtPreferred
    & Common Equity    		Total
    Fair value, beginning of period$1,309,449 $33,774 $1,336 $132,002 $1,476,561 
    New investments605,898 — 57 14,509 620,464 
    Proceeds from sales of investments(31,584)— — (17,986)(49,570)
    Principal repayments received(244,854)(3,840)(75)— (248,769)
    Distributions-in-kind (1)4,115 — — 2,294 6,409 
    Conversion/exchange of security(14,719)(5,015)(153)19,887 — 
    PIK interest earned12,843 70 17 — 12,930 
    Accretion of loan discounts6,616 37 — — 6,653 
    Realized (loss) gain (50,534)(8,978)— 14,051 (45,461)
    Unrealized gain (loss) (10,608)2,018 36 14,636 6,082 
    Fair value, end of period$1,586,622 $18,066 $1,218 $179,393 $1,785,299 
    (1)In connection with the dissolution and liquidation of I-45 SLF LLC, the joint venture between CSWC and Main Street Capital Corporation, the Company received distributions-in-kind of investments.

    The following table summarizes the contractual principal repayment and maturity of our debt investment portfolio by fiscal year, assuming no voluntary prepayments, as of March 31, 2026 (amounts in thousands):
    Amount
    For the fiscal years ending March 31:
    2027$220,321 
    2028475,941 
    2029474,908 
    2030429,553 
    2031363,337 
    Thereafter35,017 
    Total contractual repayments$1,999,077 

    As of March 31, 2026, the weighted average remaining years to maturity was 2.7 years.
    62
    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 gain (loss) 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 (depreciation) appreciation on investments, net of tax,” which is the net change in the market or fair value of our investment portfolio, compared with the stated cost. The “Net realized gain (loss) on investments before income tax” and “Net unrealized (depreciation) appreciation 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, with respect to the full redemption of the January 2026 Notes, the October 2026 Notes and the August 2028 Notes, is the difference between the principal amount due at maturity adjusted for any unamortized debt issuance costs.

    Set forth below is a comparison of the results of operations for the years ended March 31, 2026 and 2025. For the comparison of the results of operations for the years ended March 31, 2025 and 2024, see the Company's Annual Report on Form 10-K for the year ended March 31, 2025, which was filed with the SEC on May 20, 2025, located within Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference herein.

    Comparison of year ended March 31, 2026 and March 31, 2025

    Years Ended
    March 31,Net Change
    20262025Amount%
    (in thousands)
    Total investment income$232,105 $204,439 $27,666 13.5 %
    Interest expense66,617 54,959 11,658 21.2 %
    Other operating expenses28,900 29,033 (133)0.5 %
    Income before taxes136,588 120,447 16,141 13.4 %
    Income tax provision1,121 2,265 (1,144)(50.5)%
    Net investment income135,467 118,182 17,285 14.6 %
    Net realized gain (loss) on investments, net of tax5,518 (49,650)55,168 (111.1)%
    Net unrealized (depreciation) appreciation on investments, net of tax(25,832)2,423 (28,255)(1,166.1)%
    Realized loss on extinguishment of debt2,156 387 1,769 457.1 %
    Realized loss on disposal of fixed assets2 20 (18)100.0 %
    Net increase in net assets from operations$112,995 $70,548 $42,447 60.2 %

    Investment Income

    Total investment income for the year ended March 31, 2026 was approximately $232.1 million, a $27.7 million, or 13.5%, increase as compared to the year ended March 31, 2025. Investment income primarily consists of interest income, dividend income, fee income and other income for each applicable period.


    63
    The following table summarizes the components of investment income for the year ended March 31, 2026 and 2025 (amounts in thousands):

    Years Ended March 31,
    20262025
    Interest income$182,464 $167,540 
    PIK interest income14,411 12,677 
    Amortization of purchase discounts and fees9,556 6,653 
    Dividend income12,708 4,546 
    Fee income10,938 10,654 
    Other investment income2,028 2,369 
    Total investment income$232,105 $204,439 

    Interest income, PIK interest income, and amortization of purchase discounts and fees on an aggregate basis for the year ended March 31, 2026 totaled $206.4 million as compared to $186.9 million for the year ended March 31, 2025. The increase was primarily due to a 20.3% increase in the average monthly cost basis of debt investments held by us from $1,487.4 million to $1,789.9 million year-over-year, partially offset by a decrease in weighted average yield on debt investments from 11.7% to 10.8% year-over-year primarily due to a decrease in benchmark interest rates. Dividend income for the year ended March 31, 2026 increased $8.2 million as compared to the year ended March 31, 2025 due to an increase in distributions received from portfolio companies. Fee income for the year ended March 31, 2026 increased $0.3 million as compared to the year ended March 31, 2025 primarily due to an increase in administrative fees. Other income for the year ended March 31, 2026 decreased $0.4 million as compared to the year ended March 31, 2025 primarily due to a decrease in interest income on cash balances held.

    Operating Expenses

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    Held by

    holders ( registered funds via N-PORT, institutional investors via 13F). Showing top by dollar value.

    Holder Type ETF MF Position ($) % of holder Δ % of holder Holder AUM

    Recent insider activity

    Last 90 days. Open-market trades (purchases & sales) by directors, officers, and 10%+ owners. 1 transaction across 1 insider. Net: +2,695 shares, $59,013.

    Date Insider Role Action Shares Price Value
    2026-02-27 Sarner Michael Scott President and CEO Buy +2,695 $21.90 $59,013

    Source: SEC Form 4 filings.

    Next expected filings

    • ~2026-08-06 10-Q expected by 2026-08-13 (in 78 days)
    • ~2026-11-02 10-Q expected by 2026-11-09 (in 166 days)
    • ~2027-02-01 10-Q expected by 2027-02-08 (in 257 days)
    • ~2027-05-18 10-K expected by 2027-05-19 (in 363 days)

    Predicted from historical filing cadence; not an SEC commitment.

    Recent SEC filings

    • 2026-05-19 10-K Annual Report
    • 2026-05-19 8-K Material Agreement Entered; Financial Statements and Exhibits
    • 2026-05-13 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2026-05-13 PRE 14A Preliminary Proxy Statement
    • 2026-04-16 8-K Earnings Release; Financial Statements and Exhibits
    • 2026-02-02 10-Q Quarterly Report
    • 2026-02-02 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2026-01-15 8-K Earnings Release; Financial Statements and Exhibits
    • 2025-11-03 10-Q Quarterly Report
    • 2025-11-03 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2025-10-15 8-K Earnings Release; Financial Statements and Exhibits
    • 2025-09-18 8-K Material Agreement Entered; Material Financial Obligation; Financial Statements and Exhibits
    • 2025-09-11 8-K Material Agreement Entered; Material Financial Obligation; Other Events; Financial Statements and Exhibits
    • 2025-08-07 10-Q Quarterly Report
    • 2025-08-06 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits