SEC Filing Summary: Capital Southwest Corp (8-K)
Business Context and Reporting Period
This Current Report on Form 8-K was filed by Capital Southwest Corporation on September 27, 2019. The filing reports the entry into a material definitive agreement and the creation of a direct financial obligation related to a new debt offering.
Key Financial Metrics and Transaction Details
- Debt Issuance: The Company issued $65,000,000 aggregate principal amount of 5.375% Notes due 2024.
- Net Proceeds: Approximately $63.5 million.
- Transaction Costs: Estimated underwriting discounts and commissions of $1.3 million and offering expenses of $200,000.
- Interest Terms: 5.375% per year, payable semi-annually in arrears beginning April 1, 2020.
- Maturity: October 1, 2024.
- Redemption: Redeemable at the Company's option prior to July 1, 2024, at par plus a "make-whole" premium; thereafter at par.
- Use of Proceeds: Primarily to repay outstanding indebtedness under the senior secured revolving credit facility. The Company intends to re-borrow under the credit facility to fund investments in lower and upper middle market portfolio companies, marketable securities, and general corporate purposes.
Material Changes and Debt Structure
The Notes are direct unsecured obligations of the Company. They rank pari passu with existing and future unsubordinated unsecured indebtedness. The Notes are senior to any future indebtedness expressly subordinated to them but are effectively subordinated to all existing and future secured indebtedness (including borrowings under the Credit Facility) to the extent of the value of the assets securing such indebtedness. They are also structurally subordinated to all obligations of the Company's subsidiaries.
Management Commentary, Risks, and Contingencies
- Covenants: The Indenture includes covenants requiring compliance with Section 18(a)(1)(A) of the Investment Company Act of 1940 (as modified) and provisions to provide financial information to Note holders if the Company ceases to be subject to Exchange Act reporting requirements.
- Change of Control: Holders have the right to require the Company to repurchase the Notes at 100% of principal plus accrued interest upon a "Change of Control Repurchase Event."
- Underwriter: Raymond James & Associates, Inc. served as the representative of the underwriters.
Investor Verification Checklist
- Verify the exact amount of debt repaid under the senior secured revolving credit facility using the net proceeds.
- Review the full text of the Second Supplemental Indenture (Exhibit 4.2) for specific limitations and exceptions to covenants.
- Confirm the Company's current leverage ratios post-transaction to assess the impact of the new unsecured debt.
- Monitor the Company's ability to re-borrow under the Credit Facility to maintain liquidity for new investments as intended.