Capital Southwest Corporation (CSWC) reported solid QQ2 2025 results, supported by durable pre-tax NII per share of $0.64 that fully covered the regular dividend of $0.58 and a supplemental $0.06 for the quarter. On an annualized basis, NII coverage remained robust, with quarterly distributions aligned to excess earnings. The quarter featured meaningful portfolio activity and a constructive backdrop for near-term growth: new debt commitments of $72 million across four new platforms plus $16 million in add-ons, and equity issuances via the ATM program totaling approximately $21 million at a price of $24.49 per share (148% of NIV). Management emphasized disciplined balance sheet management, with a conservative leverage posture at the low end of the target range and robust liquidity (approximately $475 million in cash and undrawn capacity across facilities), underscoring the flexibility to fund growth and opportunistically repurchase stock if NAV permits.
The portfolio remains heavily secured and diversified: on-balance sheet credit at $1.4 billion (up 17% YoY), 118 portfolio companies, 89.2% of fair value in first-lien senior secured debt, and an embedded equity co-investment program that continues to drive upside via minority stakes. Yield on the credit book stood at 12.9% with 3.4x debt service coverage and 43% average enterprise value exposure per borrower. Nonaccruals represented 3.5% of the portfolio, with two new non-accruals expected to be restructured by year-end. Management highlighted ongoing portfolio upgrades outpacing downgrades and a strong track record of dividend sustainability, supported by a 119% NII coverage for the trailing 12 months and 111% cumulative coverage since the inception of the credit strategy.
Looking forward, the company signaled a strong fourth quarter (calendar Q4) driven by a sizable backlog of signed and likely-to-close deals, with an estimated net portfolio growth of roughly $150Γ’β¬β$200 million for the quarter and continued access to capital via secured/unsecured debt and ATM equity. The antagonist to this constructive view remains macro volatility and competition from banks and larger private equity sponsors, which could compress spreads and test underwriting discipline. Overall, CSWC presents a balanced, downside-mitigated path to NAV growth and dividend stability through 2025, anchored by its internally managed model, diversified asset mix, andLiquidity runway.