Capital Southwest Corporation delivered a constructive QQ4 2025, underpinned by meaningful balance-sheet strengthening, portfolio diversification, and a disciplined approach to risk in a volatile macro environment. The quarter featured elevated net investment income per share driven by realized gains in equity investments and a favorable, though uneven, external backdrop. Management highlighted substantial growth in the investment portfolio (approximately $300 million year-over-year, up 21% to $1.8B) and a reduction in non-accruals to 1.7% of fair value, reflecting ongoing credit discipline. The company also advanced funding flexibility through a second SBIC license and an active ATM program, positioning CSWC to pursue lower-middle-market opportunities with a robust liquidity cushion (roughly $384 million in cash and undrawn facilities).
Net income for the quarter was $60.999 million with GAAP EPS of $1.33, aided by one-time expenses related to former leadership and two equity exits that increased the undistributed taxable income balance to $0.79 per share. Exits realized in the quarter contributed to a growing UTI balance that CSWC intends to deploy to sustain its quarterly and supplemental dividends. Net investment income (pre-tax) was $0.56 per share, while adjusted pre-tax NII (excluding one-time CEO transition costs) was $0.61 per share. Management reiterated a track record of dividend safety, capital flexibility, and above-book trading, noting that the company has never cut the regular dividend and has grown the quarterly dividend by 29 times since inception.
Looking forward, CSWC remains focused on: (1) originations in the $125–$150 million range for the next quarter, including add-ons, (2) a pipeline of 3–5 new platform opportunities with $75–$100 million of new capital and roughly $50 million in add-ons, (3) execution of the second SBIC program to deploy up to $175 million in debentures, and (4) maintaining conservative leverage (target regulatory leverage 0.8–0.95x) with ample liquidity to weather policy uncertainty. The near-term outlook also acknowledges tariff and policy volatility, with management expecting potential deal-volume slowdowns in tariff-exposed sectors but continued deal activity in defensive, service-oriented industries. Overall, the combination of steady NII, substantial UTI, and strategic capital access supports a constructive, albeit data-dependent, investment thesis for CSWC.