Capital Southwest
Annual Report 2023

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2023 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR FORM 10-K For the transition period from to Commission File Number: 814-00061 CAPITAL SOUTHWEST CORPORATION (Exact name of registrant as specified in its charter) Texas (State or other jurisdiction of incorporation or organization) 8333 Douglas Avenue, Suite 1100, Dallas, Texas (Address of principal executive offices) 75-1072796 (I.R.S. Employer Identification No.) 75225 (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 Common Stock, $0.25 par value per share Trading Symbol(s) CSWC Name of Each Exchange on Which Registered The Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 ☒ 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, 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  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 has filed a report on and attestation to its management's assessment of the effective of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15.U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 30, 2022 was $457,460,183 based on the last sale price of such stock as quoted by The Nasdaq Global Select Market on such date. The number of shares of common stock, $0.25 par value per share, outstanding as of May 19, 2023 was 36,722,665. Documents Incorporated by Reference Portions of the registrant’s definitive Proxy Statement for its 2023 Annual Meeting of Shareholders to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Annual Report on Form 10-K. 1 TABLE OF CONTENTS Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities [Reserved] Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Disclosure Regarding Foreign Jurisdictions that Prevent Inspection Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Exhibits, Financial Statement Schedules Form 10-K Summary PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 9C. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. Item 16. Signatures Page 2 19 42 43 43 43 44 49 50 65 67 158 158 159 160 161 161 161 161 161 162 166 167 2 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements regarding the plans and objectives of management for future operations and future performance (including the internal rate of return to the Company). Any such forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words “may,” “predict,” “will,” “continue,” “likely,” “would,” “could,” “should,” “expect,” “anticipate,” “potential,” “estimate,” “indicate,” “seek,” “believe,” “target,” “intend,” “plan,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements involve risks and uncertainties and are based on assumptions that may be incorrect, and we cannot assure you that the projections included in these forward-looking statements will come to pass. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. We believe these factors include, but are not limited to, the following: • our future operating results; • market conditions and our ability to access debt and equity capital and our ability to manage our capital resources effectively; • the timing of cash flows, if any, from the operations of our portfolio companies; • our business prospects and the prospects of our existing and prospective portfolio companies; • the financial condition and ability of our existing and prospective portfolio companies to achieve their objectives; • the adequacy of our cash resources and working capital; • our ability to recover unrealized losses; • our expected financings and investments; • our contractual arrangements and other relationships with third parties; • the impact of interest rate volatility, including the decommissioning of LIBOR, and inflation on our business and our portfolio companies; • the impact of a protracted decline in the liquidity of credit markets on our business; • our ability to operate as a business development company and to qualify and maintain our qualification as a regulated investment company, including the impact of changes in laws or regulations, including the tax reform, governing our operations or the operations of our portfolio companies; • our ability to operate our wholly owned subsidiary, Capital Southwest SBIC I, LP, as a small business investment company; • the dependence of our future success on the general economy and its impact on the industries in which we invest; • the impact of supply chain disruptions and labor shortages on our portfolio companies; • changes in laws and regulations, changes in political, economic or industry conditions, and changes in the interest rate environment or other conditions affecting the financial and capital markets, including changes resulting from or in response to, or potentially even the absence of changes as a result of, the impact of the COVID-19 pandemic; • our ability to successfully invest any capital raised in an offering; • the return or impact of current and future investments; • the performance and the valuation of our investments in portfolio companies, particularly those having no liquid trading market; • our regulatory structure and tax treatment; and • the timing, form and amount of any dividend distributions. For a discussion of these and other factors that could cause our actual results to differ materially from forward-looking statements contained in this Annual Report, please see the discussion under “Risk Factors” in Item 1A. We have based the forward-looking statements included in this Annual Report on Form 10-K on information available to us on the date of this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements and you should carefully consider all of the factors identified in this report that could cause actual results to differ. We assume no obligation to update any such forward-looking statements, unless we are required to do so by applicable law. 1 Table of Contents Item 1. Business ORGANIZATION PART I 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 investing strategy. We specialize in providing customized financing to middle market companies in a broad range of industry segments located primarily in the United States. We invest primarily in debt securities, including senior debt and second lien, 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, or RIC, under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, or the Code. As such, we generally will not be subject to U.S. federal income tax at corporate rates 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 distribute annually at least 90% of our 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, and possibly a 4% U.S. federal excise 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. CSWC has a direct wholly owned subsidiary that has elected to be treated as an association taxable as a corporation for U.S. federal income tax purposes (the “Taxable Subsidiary”). The primary 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 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 subject to U.S. federal income tax at normal corporate tax rates based on its taxable income. 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 has an investment strategy substantially similar to ours and makes 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. See “Regulation as a Small Business Investment Company” below for more information about the regulations applicable to SBIC I. 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 EDGAR, the Electronic Data Gathering, Analysis, and Retrieval System of the SEC, accessible 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, 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 2 Table of Contents 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 lower middle market, or LMM, companies and debt capital to upper middle market, or 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. Our core business is to target senior debt investments and equity investments in LMM companies. We also opportunistically target first and second lien loans in UMM companies. Our target LMM companies generally have annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $3.0 million and $20.0 million, and our LMM investments generally range in size from $5.0 million to $35.0 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 $20.0 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 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 between three and seven years from the original investment date. 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. Recent Developments On March 31, 2023, Moody's Investors Service, Inc. assigned CSWC an investment grade long-term issuer rating of Baa3 with a stable outlook. On April 26, 2023, the Board of Directors declared a total dividend of $0.59 per share, comprised of a regular dividend of $0.54 and a supplemental dividend of $0.05, for the quarter ended June 30, 2023. The record date for the dividend is June 15, 2023. The payment date for the dividend is June 30, 2023. On April 26, 2023, pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors designated a committee of certain officers of the Company as the Board's valuation designee (the “Valuation Designee”) to determine the fair value of the 3 Table of Contents Company's investments that do not have readily available market quotations, subject to the oversight of the Board of Directors, effective beginning as of the fiscal quarter ending June 30, 2023. 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: • Leveraging the Experience of Our Management Team. Our senior management team has extensive experience investing in and lending to middle market 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 middle market 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 middle market 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 middle market 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 middle market 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 4 Table of Contents 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 middle market companies. INVESTMENT CRITERIA AND OBJECTIVES Our investment team has identified the following investment criteria that we believe are important in evaluating prospective investment opportunities. However, not all of these criteria have been or will be met in connection with each of our investments: • • Positive and Sustainable Cash Flow: We generally seek to invest in established companies with sound historical financial performance. Excellent Management: Management teams with a proven record of achievement, exceptional ability, unyielding determination and integrity. We believe management teams with these attributes are more likely to manage the companies in a manner that protects and enhances value. • Competitive Advantages in Markets: We primarily focus on companies having competitive advantages in their respective markets and/or operating in industries • with barriers to entry, which may help protect their market position. Strong Private Equity Sponsors: We focus on developing relationships with leading private equity firms in order to partner with these firms and provide them capital to support the acquisition and growth of their portfolio companies. • Appropriate Risk-Adjusted Returns: We focus on and price opportunities to generate returns that are attractive on a risk-adjusted basis, taking into consideration factors in addition to the ones depicted above, including credit structure, leverage levels and the general volatility and potential volatility of cash flows. We have an investment committee that is responsible for all aspects of our investment process relating to investments made by us. The current members of the investment committee are Bowen Diehl, Chief Executive Officer; Michael Sarner, Chief Financial Officer; Josh Weinstein, Senior Managing Director; and Ramona Rogers-Windsor, a member of the Board of Directors and a non-voting, observer of the investment committee. Investment Process Our investment strategy involves a team approach, whereby our investment team screens potential transactions before they are presented to the investment committee for approval. Transactions that are either above a certain hold size or outside our general investment policy will also be reviewed and approved by the Board of Directors. Our investment team generally categorizes the investment process into six distinctive stages: • Deal Generation/Origination: Deal generation and origination is maximized through long-standing and extensive relationships with private equity firms, leveraged loan syndication desks, brokers, commercial and investment bankers, entrepreneurs, service providers such as lawyers and accountants, and current and former portfolio companies and investors. • • Screening: Once it is determined that a potential investment has met our investment criteria, we will screen the investment by performing preliminary due diligence, which could include discussions with the private equity firm, management team, loan syndication desk, etc. Upon successful screening of the proposed investment, the investment team makes a recommendation to move forward and prepares an initial screening memo for our investment committee. We then issue either a non-binding term sheet (in the case of a directly originated transaction), or submit an order to the loan syndication desk (in the case of a large-market syndicated loan transaction). Term Sheet: In a directly originated transaction, the non-binding term sheet will typically include the key economic terms of our investment proposal, along with exclusivity, confidentiality, and expense reimbursement provisions, as well as other terms relevant to the particular investment. Upon acceptance of the term sheet, we will begin our formal due diligence process. In a syndicated loan transaction, rather than a formal term sheet, we will submit an order for an allocation to the syndicated loan desk. • Due Diligence: Due diligence is performed under the direction of our senior investment professionals, and involves our entire investment team as well as certain external resources who together perform due diligence to understand the 5 Table of Contents relationships among the prospective portfolio company’s business plan, operations, financial performance, and legal risks. On our directly originated transactions, our due diligence often will include (1) conducting site visits with management and key personnel; (2) performing a detailed review of historical and projected financial statements, often with a third-party accounting firm, to evaluate the target company’s normalized cash flow; (3) creating our own detailed modeling projections, including a downside case which attempts to project how the business would perform in a recession based on past operating history of either the company or the industry; (4) interviewing key customers and suppliers; (5) evaluating company management, including a formal background check; (6) reviewing material contracts; (7) conducting an industry, market and strategy analysis; and (8) obtaining a review by legal, environmental or other consultants. In instances where a financial sponsor is investing in the equity in a transaction, we will leverage work done by the financial sponsor for purposes of our due diligence. In syndicated loan transactions, our due diligence may exclude direct customer and supplier interviews, and will consist of a detailed review of reports from the financial sponsor or syndication agent for industry and market analysis and legal and environmental diligence. • Document and Close: Upon completion of a satisfactory due diligence review, our investment team presents its written findings to the investment committee. For transactions that are either over a certain hold size or outside our general investment policy, the investment team will present the transaction to our Board of Directors for approval. Upon approval of the investment, we re-confirm our regulatory company compliance, process and finalize all required legal documents and fund the investment. • Post-Investment: We continuously monitor the status and progress of our portfolio companies, as well as our investment thesis developed at the time of investment. We offer managerial assistance to our portfolio companies and provide them access to our investment experience, direct industry expertise and contacts. The same investment team leader that was involved in the investment process will continue to be involved in the portfolio company post- investment. This approach provides continuity of knowledge and allows the investment team to maintain a strong business relationship with the financial sponsor, business owner and key management of our portfolio companies. As part of the monitoring process, members of our investment team will analyze monthly, quarterly and annual financial statements against previous periods, review financial projections, meet with the financial sponsor and management (when necessary), attend board meetings (when appropriate) and review all compliance certificates and covenants. Our investment team generally meets once each quarter with senior management to review the performance of our portfolio companies. We utilize an internally developed investment rating system to rate the performance of 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. Determination of Net Asset Value Quarterly Determinations We determine our net asset value, or NAV, per share on a quarterly basis. The NAV per share is equal to our total assets minus liabilities divided by the total number of shares of common stock outstanding. 6 Table of Contents We determine in good faith the fair value of our portfolio investments pursuant to a valuation policy in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) and a valuation process approved by our Board of Directors and in accordance with the 1940 Act. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio. We undertake a multi-step valuation process each quarter in connection with determining the fair value of our investments. The valuation process is led by the finance department in conjunction with the investment teams and senior management. Valuations of each portfolio security are prepared quarterly by the finance department using updated portfolio company financial and operational information. Each investment valuation is also subject to review by the executive officers and investment teams. In conjunction with the internal valuation process, we have engaged multiple independent consulting firms that specialize in financial due diligence, valuation and business advisory services to provide third-party valuation reviews of the majority of our investments on a quarterly basis. As of March 31, 2023, our Board of Directors is ultimately responsible for overseeing, reviewing and approving, in good faith, our determination of the fair value of each investment in our portfolio. Beginning as of the fiscal quarter ending June 30, 2023, pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors has designated a valuation committee comprised of certain officers of the Company (the "Valuation Committee") 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. Determinations in Connection with our Offerings The 1940 Act prohibits us from selling shares of our common stock at a price below the current NAV per share of such stock, with certain exceptions. One such exception is prior shareholder approval of issuances below current NAV per share, provided that our Board of Directors determines that such sale is in the best interests of the Company and its shareholders. We do not intend to seek shareholder authorization to sell shares of our common stock below the then current NAV per share of our common stock at our 2023 annual meeting of shareholders. However, in the event we change our position, we will seek requisite approval of our shareholders. In connection with each offering of shares of our common stock, our Valuation Committee is required by the 1940 Act to make the determination of whether we are selling shares of our common stock at a price below our then current NAV at the time at which the sale is made, subject to the oversight of the Board of Directors. Our Valuation Committee considers the following factors, among others, in making such determination: • • • the NAV of our common stock disclosed in the most recent periodic report we filed with the SEC; our management’s assessment of whether any material change in the NAV has occurred (including through the realization of net gains on the sale of our investments) from the period beginning on the date of the most recently disclosed NAV per share of our common stock and ending as of a time within 48 hours (excluding Sundays and holidays) of the sale of our common stock; and the magnitude of the difference between (i) a value that our Valuation Committee has determined reflects the current (as of a time within 48 hours, excluding Sundays and holidays) NAV of our common stock, which is based upon the NAV disclosed in the most recent periodic report we filed with the SEC, as adjusted to reflect our management’s assessment of any material change in the NAV since the date of the most recently disclosed NAV, and (ii) the offering price of the shares of our common stock in the proposed offering. Moreover, to the extent that there is even a remote possibility that we may (i) issue shares of our common stock at a price below the then current NAV of our common stock at the time at which the sale is made or (ii) trigger the undertaking (which we would provide to the SEC) to suspend the offering of shares of our common stock if the NAV fluctuates by certain amounts in certain circumstances, our Valuation Committee will elect, in the case of clause (i) above, either to postpone the offering until such time that there is no longer the possibility of the occurrence of such event or to undertake to determine NAV within two days prior to any such sale to ensure that such sale will not be below our then current NAV, and, in the case of clause (ii) above, to comply with such undertaking or to undertake to determine NAV to ensure that such undertaking has not been triggered. These processes and procedures are part of our compliance policies and procedures. Records are made contemporaneously with all determinations described in this section and these records are maintained with other records we are required to maintain under the 1940 Act. 7 Table of Contents COMPETITION We compete for attractive investment opportunities with other financial institutions, including BDCs, junior capital lenders, and banks. We believe we are able to be competitive with these entities primarily on the basis of the experience and contacts of our management team and our responsive and efficient investment analysis and decision-making processes. However, many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Furthermore, our competitors may have a lower cost of funds and many have access to funding sources that are not available to us. In addition, certain of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships, and build their market shares. Likewise, many of our competitors are not subject to the regulatory restrictions and valuation requirements that the 1940 Act imposes on us as a BDC. See “Risk Factors—Risks Related to Our Business and Structure—We operate in a highly competitive market for investment opportunities.” We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. In addition, because of this competition, we may be unable to take advantage of attractive investment opportunities and may be unable to identify and make investments that satisfy our investment objectives or meet our investment goals. HUMAN CAPITAL Our employees are vital to our success as an internally managed BDC. The long-term success of our business and the success of our investment strategy depends on our people. We strive to attract, develop and retain our employees by offering advancement and promotion opportunities, attractive compensation and benefit packages and a close-knit culture. The departure of our key investment and operations personnel could cause our operating results to suffer. Our investment strategy depends heavily on the business owners, management teams, and financial sponsors of our portfolio companies and their respective employees, contractors and service providers. In our investment process, the analysis of these individuals is a critical part of our overall investment underwriting process and as a result we carefully review the qualifications and experience of the portfolio company’s business owners and management team and their employment practices. We strive to partner with business owners, management teams, and financial sponsors whose business practices reflect our core values. We also strive to recruit talented and driven individuals who share our values. Our recruiting efforts utilize strong relationships with a variety of sources from which we recruit. We offer selected students investment analyst internships, which are expected to lead to permanent roles for high performing and high potential interns. Through our internship program, interns who want to become investment analysts have the opportunity to see the full investment process from origination to closing, as well as post-closing portfolio management activities. We routinely promote from within, promoting current employees who have shown the technical ability, attitude, interest and the initiative to take on greater responsibility. We have designed a compensation structure, including an array of benefit plans and programs, that we believe is attractive to our current and prospective employees. For certain employees, our compensation strategy also includes an equity incentive plan, which we have structured to further align the interests of our employees with our shareholders, and to cultivate a strong sense of ownership and commitment to the Company. Through our performance review processes, our employees are annually evaluated by supervisors and our senior management team to ensure employees continue to develop and advance as expected. We provide a workplace designed to enable our employees to balance work, family and family-related situations including flexible working arrangements. Our employees have access to a parental leave program for birth, adoption placement or foster child placement. We are committed to creating and maintaining an atmosphere where all employees feel welcomed, valued, respected and heard so that they feel motivated and encouraged to contribute fully to their careers, the Company and our communities. We are committed to fostering a workplace conducive to the open communication of any concerns regarding unethical, fraudulent or illegal activities. We seek to promote a safe environment that is free of harassment or bullying. We do not tolerate discrimination or harassment of any kind, including, but not limited to, sexual, gender identity, race, religion, ethnicity, age, or disability, among others. We seek feedback from employees on matters related to their employment or our operations including its financial statement disclosures, accounting, internal accounting controls or auditing matters. Under our Whistleblower Policy, each employee of the Company has the ability to confidentially report via a dedicated, confidential reporting hotline questionable or improper accounting, internal controls, auditing matters, disclosure, or fraudulent business practices or other illegal or unethical behavior. We seek to protect the confidentiality of those making reports of possible misconduct and our 8 Table of Contents Whistleblower Policy prohibits retaliation against those who report activities believed in good faith to be a violation of any law, rule, regulation or internal policy. Our Code of Business Conduct establishes applicable policies, guidelines, and procedures that promote ethical practices and conduct by the Company and all its employees, officers, and directors. Our Whistleblower Policy and Code of Business Conduct can be found on our website at www.capitalsouthwest.com/governance. As of March 31, 2023, we had twenty-six employees. These employees include our corporate officers, investment and portfolio management professionals and administrative staff. All of our employees are located in our principal executive offices in Dallas, Texas. LEVERAGE We borrow funds to make investments, a practice known as “leverage,” in an attempt to increase returns to our shareholders. Effective April 25, 2019, we are allowed to borrow amounts such that our asset coverage, as calculated in accordance with 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. The amount of leverage that we employ at any particular time will depend on management’s and our Board of Directors’ assessments of portfolio mix, prevailing market advance rates, and other market factors at the time of any proposed borrowing. See “Risk Factors – Risks Related to Our Business and Structure – Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.” On August 11, 2021, we received an exemptive order from the 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. We intend to continue borrowing under our senior secured credit facility (the "Credit Facility") in the future, and we may increase the size of the Credit Facility, add additional credit facilities, or otherwise issue additional debt securities or other evidences of indebtedness in the future, although there can be no assurance that we will be able to do so. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Liquidity and Capital Resources" as well as Note 5 to our consolidated financial statements for the year ended March 31, 2023 for information regarding the Credit Facility and the issuance of the 4.50% Notes due 2026 (the "January 2026 Notes") and the 3.375% Notes due 2026 (the "October 2026 Notes"). DIVIDEND REINVESTMENT PLAN We have adopted a dividend reinvestment plan, or DRIP, that provides for the reinvestment of dividends on behalf of our shareholders in shares of our common stock. Under the DRIP, if we declare a dividend, registered shareholders who have opted into the DRIP as of the dividend record date will have their dividend automatically reinvested into additional shares of our common stock. The share requirements of the DRIP are satisfied through open market purchases of common stock by the DRIP plan administrator. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs. ELECTION TO BE REGULATED AS A BUSINESS DEVELOPMENT COMPANY We are a closed-end, non-diversified investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, we have elected, and intend to qualify annually, to be treated as a RIC for U.S. federal income tax purposes. Our election to be regulated as a BDC and our election to be treated as a RIC for U.S. federal income tax purposes have a significant impact on our operations. Some of the most important effects on our operations of our election to be regulated as a BDC and our election to be treated as a RIC are outlined below. • We report our investments at market value or fair value with changes in value reported through our Consolidated Statements of Operations. In accordance with the requirements of the 1940 Act and Article 6 of Regulation S-X, we report all of our investments, including debt investments, at market value or, for investments that do not have a readily available market value, at their “fair value” as determined in good faith by our Board of Directors. Changes in these values are reported through our Consolidated Statements of Operations under the caption of “net change in unrealized appreciation on investments.” See “Determination of Net Asset Value” above. 9 Table of Contents • We intend to distribute substantially all of our income to our shareholders. We generally will be subject to U.S. federal income tax only on the portion of our taxable income we do not timely distribute to shareholders (actually or constructively). As a RIC, so long as we meet certain minimum distribution, source of income, and asset diversification requirements, we generally are subject to U.S. federal income tax only, and possibly a 4% U.S. federal excise tax, on the portion of our taxable income and gains that we do not timely distribute (actually or constructively) and certain built-in gains. 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. We intend to distribute to our shareholders substantially all of our income. We may, however, make deemed distributions to our shareholders of any retained net long-term capital gains. If this happens, our shareholders will be treated as if they received an actual distribution of the net capital gains and reinvested the net after-tax proceeds in us. Our shareholders also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to their allocable share of the U.S. federal income tax we pay on the deemed distribution. See “Material U.S. Federal Income Tax Considerations.” We met the minimum distribution requirements for tax years 2021 and 2020 and intend to meet the minimum distribution requirements for tax year 2022. We continually monitor our distribution requirements with the goal of ensuring compliance with the Code. In addition, we have a Taxable Subsidiary that 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. Generally Accepted Accounting Principles, or 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 generally would flow through directly to us. To the extent that such 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 U.S. federal income taxes. Where interests in LLCs (or other pass-through entities) are owned by the Taxable Subsidiary, the income from those interests is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. The Taxable Subsidiary is not consolidated for U.S. federal income tax purposes and may generate U.S. federal income tax expense as a result of its ownership of the portfolio companies. This U.S. federal income tax expense, if any, is reflected in our Consolidated Statements of Operations. • Our ability to use leverage as a means of financing our portfolio of investments is limited. As a BDC, we are required to meet a coverage ratio of total assets to total senior securities of at least 150%, which became effective April 25, 2019. Additionally, the Board of Directors approved a resolution that limits the Company's issuance of senior securities such that our asset coverage ratio, taking into account any such issuance, would not be less than 166% at any time after the effective date. For this purpose, senior securities include all borrowings and any preferred stock we may issue in the future. Additionally, our ability to utilize leverage as a means of financing our portfolio of investments may be limited by this asset coverage requirement. While the use of leverage may enhance returns if we meet our investment objective, our returns may be reduced or eliminated if our returns on investments are less than the costs of borrowing. On August 11, 2021, we received an exemptive order from the 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. • We are required to comply with the provisions of the 1940 Act applicable to business development companies. As a BDC, we are required to have a majority of directors who are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Company. In addition, we are required to comply with other applicable provisions of the 1940 Act, including those requiring the adoption of a code of ethics, maintaining a fidelity bond and placing and maintaining our securities and similar investments in custody. See “Regulation as a Business Development Company” below. Regulation as a Business Development Company We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates and principal underwriters as well as their respective affiliates. The 1940 Act requires that a majority of the members of the board of directors of a BDC be persons other than “interested persons,” as defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by holders of a majority of our outstanding voting securities. 10 Table of Contents The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of (1) 67% or more of the voting securities of holders present or represented by proxy at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (2) more than 50% of our voting securities. The following is a brief description of the 1940 Act provisions applicable to BDCs, which is qualified in its entirety by reference to the full text of the 1940 Act and rules issued thereunder by the SEC: • Generally, BDCs must offer, and must provide upon request, significant managerial assistance to eligible portfolio companies. In general, as a BDC, a company must, among other things: (1) be a domestic company; (2) have registered a class of its securities pursuant to Section 12 of the Exchange Act; (3) operate for the purpose of investing in the securities of certain types of eligible portfolio companies, which may include early stage or emerging companies and bankrupt, insolvent or distressed companies (see following paragraph); (4) offer to make available significant managerial assistance to such eligible portfolio companies; and (5) file a proper notice of election with the SEC. • An "eligible portfolio company" generally is a domestic company that is not a regulated or private investment company or a financial company (such as brokerage firms, banks, insurance companies and investment banking firms) and that: (1) does not have a class of securities listed on a national securities exchange; (2) has a class of securities listed on a national securities exchange with an equity market capitalization of less than $250 million; or (3) is controlled by the BDC itself or together with others and, as a result of such control, the BDC has an affiliated person on the board of directors of the company. The 1940 Act presumes that a person has “control” of a portfolio company if that person owns at least 25% of its outstanding voting securities. • As a BDC, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our shareholders arising from any act or omission constituting willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of that person’s office. • We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer who reports directly to the Board of Directors to be responsible for administering these policies and procedures. Qualifying Assets The 1940 Act provides that we may not acquire any assets other than "qualifiying assets" specified in the 1940 Act unless at the time of the investment at least 70% of the value of our total assets (measured as of the date of our most recently filed financial statements) consists of qualifying assets. Qualifying assets include: (1) securities of eligible portfolio companies; (2) securities of certain companies that were eligible portfolio companies at the time we initially acquired their securities and in which we retain a substantial interest; (3) securities of certain controlled companies; (4) securities of certain bankrupt, insolvent or distressed companies; (5) securities received in exchange for or distributed in or with respect to any of the foregoing; and (6) cash items, U.S. government securities and high-quality short-term debt. Significant Managerial Assistance to Portfolio Companies BDCs generally must offer, and must provide upon request, significant managerial assistance to certain of their portfolio companies, except in circumstances where either (i) the BDC controls such issuer of securities or (ii) the BDC purchases such securities in conjunction with one or more other persons acting together and one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, provides, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. Temporary Investments Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securities, short-term investments in secured debt investments, independently rated debt investments, and diversified bond funds, which we refer to as temporary investments. Senior Securities 11 Table of Contents BDCs generally have been permitted by the 1940 Act, under specific conditions, to issue multiple classes of debt and one class of stock senior to its common stock if its asset coverage, as defined by the 1940 Act, is at least 200% immediately after each such issuance. However, the 1940 Act allows a BDC to increase the maximum amount of leverage it may incur by reducing the minimum asset coverage ratio from 200% to 150%, if certain requirements under the 1940 Act are met. On April 25, 2018, the Board of Directors unanimously approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, effective April 25, 2019, the minimum asset coverage ratio applicable to the Company was decreased from 200% to 150%. Additionally, the Board of Directors also 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 are required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to reduce our asset coverage requirement to 150%, our leverage capacity and usage, and risks related to leverage. As of March 31, 2023, we had $235.0 million, $140.0 million and $150.0 million in total aggregate principal amount of debt outstanding under our Credit Facility, the January 2026 Notes and the October 2026 Notes, respectively. As of March 31, 2023, our asset coverage for borrowed amounts was 235%. In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our shareholders or repurchasing such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. Under specific conditions, we are also permitted by the 1940 Act to issue warrants. Common Stock We are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, sell our common stock, warrants, options or rights to acquire our common stock at a price below the then current NAV of our common stock if our Board of Directors determines that such sale is in our best interests and that of our shareholders, and our shareholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). We do not intend to seek shareholder authorization to sell shares of our common stock below the then current NAV per share of our common stock at our 2023 annual meeting of shareholders. See "Risk Factors - Risks Relating to Our Business and Structure - Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital." Code of Ethics and Code of Conduct We adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as those investments are made in accordance with the code’s requirements. We have also adopted a code of conduct that applies to our Chief Executive Officer, Chief Financial Officer (or persons performing similar functions), our Board of Directors, and all other employees. This code sets forth policies that these executives and employees must follow when performing their duties. The code of ethics and code of conduct are available on the Company website at www.capitalsouthwest.com/governance. Proxy Voting Policies and Procedures We vote proxies relating to our portfolio securities in a manner in which we believe is consistent with the best interest of our shareholders. We review on a case- by-case basis each proposal submitted to a shareholder vote to determine its impact on the portfolio securities held by us. Although we generally vote against proposals that we expect would have a negative impact on our portfolio securities, we may vote for such a proposal if there exists compelling long-term reasons to do so. Our proxy voting decisions are made by the investment team that is responsible for monitoring the investments. To ensure that our vote is not the product of a conflict of interest, we require that anyone involved in the decision-making process discloses to our Chief Compliance Officer any potential conflict of which he or she is aware. Shareholders may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by making a written request for proxy voting information to: Chief Financial Officer c/o Capital Southwest Corporation, 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225. Compliance Policies and Procedures 12 Table of Contents We have adopted and implemented written policies and procedures reasonably designed to prevent violation of the U.S. federal securities laws, and we are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. We are further required to designate a Chief Compliance Officer to be responsible for administering these policies and procedures. Michael S. Sarner serves as our Chief Compliance Officer. Exemptive Relief The right to grant restricted stock awards under the 2010 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"), which became effective on July 28, 2021, as part of the compensation package for its employees, the terms of which are, in all material respects, identical to the 2010 Plan. 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, the Company's Board of Directors and shareholders approved the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Award Plan (the "Non-Employee Director Plan"), which became effective on July 27, 2022, as part of the compensation package for non-employee directors of the Board of Directors. In connection therewith, on May 16, 2022, we received an exemptive order that supersedes the Order (the "Superseding Order") and covers both employees and non-employee directors of the Board of Directors. Other We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board of Directors who are not interested persons and, in some cases, prior approval by the SEC. The prior approval of the SEC is not required, however, where a transaction involves no negotiation of terms other than price. We expect to periodically be examined by the SEC for compliance with the 1940 Act. MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares. This summary does not purport to be a complete description of the income tax considerations applicable to us or to investors in such an investment. For example, we have not described tax consequences that we assume to be generally known by investors or certain considerations that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including shareholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, financial institutions, U.S. shareholders (as defined below) whose functional currency is not the U.S. dollar, persons who mark-to- market our shares and persons who hold our shares as part of a “straddle,” “hedge” or “conversion” transaction. This summary assumes that investors hold shares of our common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this Annual Report on Form 10-K and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets. For purposes of our discussion, a “U.S. shareholder” means a beneficial owner of shares of our common stock that is for U.S. federal income tax purposes: • A citizen or individual resident of the United States; • A corporation, or other entity treated as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; • An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or • A trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) it has a valid election in place to be treated as a U.S. person. 13 Table of Contents For purposes of our discussion, a “non-U.S. shareholder” means a beneficial owner of shares of our common stock that is neither a U.S. shareholder nor a partnership (including an entity treated as a partnership for U.S. federal income tax purposes). If an entity treated as a partnership for U.S. federal income tax purposes (a “partnership”) holds shares of our common stock, the tax treatment of a partner or member of the partnership will generally depend upon the status of the partner or member and the activities of the partnership. A prospective shareholder that is a partner or member in a partnership holding shares of our common stock should consult his, her or its tax advisors with respect to the purchase, ownership and disposition of shares of our common stock. Tax matters are very complicated and the tax consequences to an investor of an investment in our shares will depend on the facts of his, her, or its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of U.S. federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws. Taxation as a Regulated Investment Company Election to be Taxed as a RIC We have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally are not subject to U.S. federal income tax on any income that we timely distribute to our shareholders from our tax earnings and profits. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to obtain RIC tax treatment, we generally must distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the Annual Distribution Requirement. 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. In such case, we generally will be subject to U.S. federal income tax at corporate rates on our undistributed taxable income and could be subject to U.S. federal excise, state, local and foreign taxes. Under the Code, we may satisfy certain of our RIC distributions with dividends paid after the end of the current year. In particular, if we pay a distribution in January of the following year that was declared in October, November, or December of the current year and is payable to shareholders of record in the current year, the dividend will be treated for all U.S. federal tax purposes as if it were paid on December 31 of the current year. In addition, under the Code, we may pay dividends, referred to as “spillover dividends,” that are paid during the following taxable year that will allow us to maintain our qualification for taxation as a RIC and eliminate our liability for U.S. federal income tax. Under these spillover dividend procedures, we may defer distribution of income earned during the current year until December of the following year. For example, we may defer distributions of income earned during 2022 until as late as December 31, 2023. If we choose to pay a spillover dividend, we will incur the nondeductible 4% U.S. federal excise tax on some or all of the distribution. Taxation as a RIC Provided that we qualify as a RIC, we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (which we define as net long-term capital gain in excess of net short-term capital loss) that we timely distribute to shareholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our shareholders. We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the calendar year ended December 31 and (3) any income and gains recognized, but not distributed, in preceding years and on which we paid no U.S. federal income tax. In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: • Meet the Annual Distribution Requirement; • Qualify to be regulated as a BDC or be registered as a management investment company under the 1940 Act at all times during each taxable year; 14 Table of Contents • 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 or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code), or the 90% Income Test; and • Diversify our holdings so 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 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 (which for these purposes includes the equity securities of a “qualified publicly traded partnership”); and no more than 25% of the value of our assets is invested in (i) the securities, other than U.S. Government securities or securities of other RICs, of one issuer, (ii) the securities, other than the securities of other RICs, of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses, or (iii) the securities of one or more “qualified publicly traded partnerships,” or the Diversification Tests. To the extent that we invest in entities treated as partnerships for U.S. federal income tax purposes (other than a “qualified publicly traded partnership”), we generally must include the items of gross income derived by the partnerships for purposes of the 90% Income Test, and the income that is derived from a partnership (other than a “qualified publicly traded partnership”) will be treated as qualifying income for purposes of the 90% Income Test only to the extent that such income is attributable to items of income of the partnership which would be qualifying income if realized by us directly. In addition, we generally must take into account our proportionate share of the assets held by partnerships (other than a “qualified publicly traded partnership”) in which we are a partner for purposes of the Diversification Tests. In order to meet the 90% Income Test, we have established the Taxable Subsidiary to hold assets from which we do not anticipate earning dividends, interest or other income under the 90% Income Test. We may establish additional subsidiaries for the same purpose in the future. Any investments held through the Taxable Subsidiary generally are subject to U.S. federal income and other taxes, and therefore we can expect to achieve a reduced after-tax yield on such investments. We may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (including debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount or payment-in-kind interest that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to U.S. federal income tax. Furthermore, a portfolio company in which we invest may face financial difficulty that requires us to work-out, modify or otherwise restructure our investment in the portfolio company. Any such restructuring may result in unusable capital losses and future non-cash income. Any restructuring may also result in our recognition of a substantial amount of non-qualifying income for purposes of the 90% Income Test, such as cancellation of indebtedness income in connection with the work-out of a leveraged investment (which, while not free from doubt, may be treated as non-qualifying income) or the receipt of other non-qualifying income. Gain or loss realized by us from warrants acquired by us, as well as any loss attributable to the lapse of such warrants, generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant. 15 Table of Contents Investments by us in non-U.S. securities may be subject to non-U.S. income, withholding and other taxes, and therefore, our yield on any such securities may be reduced by such non-U.S. taxes. Shareholders will generally not be entitled to claim a credit or deduction with respect to non-U.S. taxes paid by us. We are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. Under the 1940 Act, we are not permitted to make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Regulation as a Business Development Company” above. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or to avoid the excise tax, we may make such dispositions at times that are not advantageous from an investment standpoint. If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to our shareholders. In that case, all of such income will be subject to U.S. federal income tax at corporate rates, reducing the amount available to be distributed to our shareholders. See “Failure To Obtain RIC Tax Treatment” below. As a RIC, we are not allowed to carry forward or carry back a net operating loss for purposes of computing our investment company taxable income in other taxable years. U.S. federal income tax law generally permits a RIC to carry forward (1) the excess of its net short-term capital loss over its net long-term capital gain for a given year as a short-term capital loss arising on the first day of the following year and (2) the excess of its net long-term capital loss over its net short-term capital gain for a given year as a long-term capital loss arising on the first day of the following year. Future transactions we engage in may cause our ability to use any capital loss carryforwards, and unrealized losses once realized, to be limited under Section 382 of the Code. Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (1) disallow, suspend, or otherwise limit the allowance of certain losses or deductions, (2) convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital gain or ordinary income, (3) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not be qualifying income for purposes of the 90% Income Test. We will monitor our transactions and may make certain tax elections in order to mitigate the effect of these provisions. As described above, to the extent that we invest in equity securities of entities that are treated as partnerships for U.S. federal income tax purposes, the effect of such investments for purposes of the 90% Income Test and the Diversification Tests will depend on whether or not the partnership is a “qualified publicly traded partnership” (as defined in the Code). If the entity is a “qualified publicly traded partnership,” the net income derived from such investments will be qualifying income for purposes of the 90% Income Test and will be “securities” for purposes of the Diversification Tests. If the entity is not treated as a “qualified publicly traded partnership,” however, the consequences of an investment in the partnership will depend upon the amount and type of income and assets of the partnership allocable to us. The income derived from such investments may not be qualifying income for purposes of the 90% Income Test and therefore could adversely affect our qualification as a RIC. We intend to monitor our investments in equity securities of entities that are treated as partnerships for U.S. federal income tax purposes to prevent our disqualification as a RIC. We may invest in preferred securities or other securities for which the U.S. federal income tax treatment may not be clear or may be subject to re- characterization by the Internal Revenue Service, or the IRS. To the extent the tax treatment of such securities or the income from such securities differs from the expected tax treatment, such tax treatment could affect the timing or character of income recognized, requiring us to purchase or sell securities or otherwise change our portfolio in order to comply with the tax rules applicable to RICs under the Code. We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each shareholder. Under certain applicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of shareholders are treated as taxable dividends. The IRS has issued a revenue procedure indicating that this rule will apply where the total amount of cash to be distributed is not less than 20% of the total distribution. Under this revenue procedure, if too many shareholders elect to receive their distributions in cash, each such shareholder would receive a pro rata share of the total cash to be distributed and would receive the remainder of their distribution in shares of stock. If we decide to make any distributions consistent with this revenue procedure that are payable in part in our common stock, taxable shareholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, our common stock, or a combination thereof) as ordinary income (or as long-term capital gain, to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and 16 Table of Contents profits for U.S. federal income tax purposes. As a result, a U.S. shareholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. shareholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. If a significant number of our shareholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. Failure to Obtain RIC Tax Treatment If we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a RIC for that year if certain relief provisions are applicable (which may, among other things, require us to pay certain U.S. federal tax at corporate rates or to dispose of certain assets). If we were unable to obtain tax treatment as a RIC, we would be subject to U.S. federal income tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to shareholders, nor would they be required to be made. Distributions would generally be taxable to our shareholders as dividend income to the extent of our current and accumulated earnings and profits (in the case of non-corporate U.S. shareholders, generally at a maximum federal income tax rate applicable to qualified dividend income of 20%). Subject to certain holding period and other limitations under the Code, corporate distributees may be eligible for the dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the shareholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. If we fail to meet the RIC requirements for more than two consecutive years and then seek to re-qualify as a RIC, we would be subject to U.S. federal income tax at corporate rates on any built-in gain recognized during the succeeding five-year period, unless we made a special election to recognize all built-in gain upon our re- qualification as a RIC and pay the U.S. federal income tax on such built-in gain. Possible Legislative or Other Actions Affecting Tax Considerations Prospective investors should recognize that the present U.S. federal income tax treatment of an investment in our common stock may be modified by legislative, judicial or administrative action at any time, and that any such action may affect investments and commitments previously made. The rules governing U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in U.S. federal tax laws and interpretations thereof could affect the tax consequences of an investment in our common stock. See "Risk Factors – Legislative or other actions relating to taxes could have a negative effect on us." REGULATION AS A SMALL BUSINESS INVESTMENT COMPANY SBIC I’s SBIC license allows it to incur leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA regulations currently permit SBIC I to borrow up to $175 million in SBA-guaranteed debentures with at least $87.5 million in regulatory capital (as defined in the SBA regulations), subject to SBA approval. SBA-guaranteed debentures are non-recourse, interest only debentures, with interest payable semi-annually and have a ten-year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over U.S. Treasury Notes with ten- year maturities. Receipt of an SBIC license does not assure that SBIC I will receive SBA-guaranteed debenture funding; rather, such funding is dependent upon SBIC I continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to SBIC I’s assets over our shareholders in the event we liquidate SBIC I or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC I upon an event of default. On August 11, 2021, we received an exemptive order from the 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. SBICs are designed to stimulate the flow of private investor capital to eligible “small businesses” as defined by the SBA. Under SBA regulations, SBICs may make loans to eligible small businesses, invest in the equity securities of such businesses, and provide them with consulting and advisory services. Under current SBA regulations, eligible small businesses 17 Table of Contents generally include businesses that (together with their affiliates) have a tangible net worth not exceeding $24.0 million and has average annual net income after U.S. federal income taxes not exceeding $8.0 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In addition, an SBIC must invest 25.0% of its investment capital to “smaller enterprises” as defined by the SBA. The definition of a smaller enterprise generally includes a business that (together with its affiliates) has a tangible net worth not exceeding $6.0 million for the most recent fiscal year and has average net income after U.S. federal income taxes not exceeding $2.0 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. SBA regulations also provide alternative industry size standard criteria to determine eligibility for designation as an eligible small business or a smaller enterprise, which criteria depends on the primary industry in which the business is engaged and is based on the number of employees or gross revenue of the business and its affiliates. However, once an SBIC has invested in an eligible small business, it may continue to make follow-on investments in the company, regardless of the size of the company at the time of the follow-on investment, up to the time of the company's initial public offering, if any. The SBA generally prohibits an SBIC from providing financing to small businesses with certain characteristics, such as relending or businesses with the majority of their employees located outside the United States, and business engaged in certain prohibited industries, such as project finance, real estate, farmland, financial intermediaries or “passive” (i.e. non-operating) businesses. Without prior SBA approval, an SBIC may not provide financing or a commitment to a small business in an amount equal to more than approximately 30.0% of the SBIC’s regulatory capital in any one company and its affiliates. The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies (such as limiting the permissible interest rate on debt securities held by an SBIC in a portfolio company). An SBIC may exercise control over a small business for a period of up to seven years from the date on which the SBIC initially acquires its control position. This control period may be extended for an additional period of time with the SBA's prior written approval. The SBA restricts the ability of an SBIC to provide financing to an “associate,” as defined in the SBA regulations, without prior written approval from the SBA. SBA regulations also prohibit, without prior SBA approval, a “change of control” or “change in ownership” of transfer of an SBIC (as such terms are defined in the SBA regulations) and require that SBICs invest idle funds in accordance with SBA regulations. In addition, SBIC I may also be limited in its ability to make distributions to us if it does not have sufficient capital, in accordance with SBA regulations. SBIC I is subject to regulation and oversight by the SBA, including, among other things, requirements with respect to maintaining certain minimum financial ratios and other covenants, a periodic examination by an SBA examiner, and the performance of a financial audit by an independent auditor. THE NASDAQ GLOBAL SELECT MARKET CORPORATE GOVERNANCE REGULATIONS The NASDAQ Global Select Market, or Nasdaq, has adopted corporate governance listing standards with which listed companies must comply in order to remain listed. We believe that we are in compliance with these corporate governance listing standards. We intend to monitor our compliance with future listing standards and to take all necessary actions to ensure that we remain in compliance. SECURITIES EXCHANGE ACT OF 1934 AND SARBANES-OXLEY ACT COMPLIANCE We are subject to the reporting and disclosure requirements of the Exchange Act, including the filing of quarterly, annual and current reports, proxy statements and other required items. In addition, we are subject to the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and regulations promulgated thereunder, which imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. For example: • • • • pursuant to Rule 13a-14 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer are required to certify the accuracy of the financial statements contained in our periodic reports; pursuant to Item 307 of Regulation S-K, our periodic reports are required to disclose our conclusions about the effectiveness of our disclosure controls and procedures; pursuant to Rule 13a-15 under the Exchange Act, our management is required to prepare a report on its assessment of our internal control over financial reporting; and pursuant to Item 308 of Regulation S-K and Rule 13a-15 under the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal control over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 18 Table of Contents Item 1A. Risk Factors Investing in our securities involves a number of significant risks. In addition to other information contained in this Annual Report on Form 10-K, investors should consider the following information before making an investment in our securities. The risks and uncertainties described below could materially adversely affect our business, financial conditions and results of operations. The risks set forth below are not the only risks we face. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, also may impair our operations and performance. If any of the following risks, or risks not presently known to us, actually occur, the trading price of our securities could decline, and you may lose all or part of your investment. The following is a summary of the principal risk factors associated with an investment in us. Further details regarding each risk included in the below summary list can be found further below. • Our financial condition and results of operations will depend on our ability to effectively allocate and manage capital. • Our business model depends to a significant extent upon strong referral relationships. Our inability to maintain or develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business. • All of our assets are subject to security interests under our secured Credit Facility and if we default on our obligations under the Credit Facility, we may suffer adverse consequences, including foreclosure on our assets. • In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, that, if not complied with, could accelerate our repayment obligations under the Credit Facility—thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions. • Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us. • A failure on our part to maintain our status as a BDC would significantly reduce our operating flexibility. • We will become subject to U.S. federal income tax at corporate rates if we are unable to maintain our qualification as a regulated investment company under Subchapter M of the Code or satisfy regulated investment company distribution requirements. • Our portfolio investments generally are not publicly traded. As a result, the fair value of these investments may not be readily determinable and will be recorded at fair value as determined in good faith and under the direction of our Board of Directors. As a result, there may be uncertainty as to the value of our portfolio investments. • We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and results of operations. • Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies, which may, in turn, impact the valuation of such portfolio companies. • We operate in a highly competitive market for investment opportunities. • Our success depends on attracting and retaining qualified personnel in a competitive environment. • Our investments in portfolio companies involve a number of significant risks. • • • SBIC I has an SBIC license and is subject to SBA regulations, and any failure to comply with SBA regulations could have an adverse effect on our operations. Rising credit spreads could affect the value of our investments, and rising interest rates make it more difficult for portfolio companies to make periodic payments on their loans. The lack of liquidity in our investments may adversely affect our business. • Defaults by our portfolio companies could harm our operating results. • We generally will not control our portfolio companies. 19 Table of Contents • • • Investing in shares of our common stock may involve an above average degree of risk. Shares of closed-end investment companies, including BDCs, may trade at a discount to their NAV. The January 2026 Notes and the October 2026 Notes are unsecured and therefore are effectively subordinated to any existing and future secured indebtedness, including indebtedness under our Credit Facility. • We may not be able to repurchase the January 2026 Notes and the October 2026 Notes upon a Change of Control Repurchase Event. • If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the January 2026 Notes and the October 2026 Notes. RISKS RELATED TO OUR BUSINESS AND STRUCTURE Our financial condition and results of operations will depend on our ability to effectively allocate and manage capital. Our ability to achieve our investment objective of maximizing risk-adjusted returns to shareholders depends on our ability to effectively allocate and manage capital. Capital allocation depends in part upon our investment team’s ability to identify, evaluate, invest in and monitor companies that meet our investment criteria. Accomplishing our investment objectives is largely a function of our investment team’s management of the investment process and our access to investments offering attractive risk adjusted returns. In addition, members of our investment team may be called upon, from time to time, to provide managerial assistance to some of our portfolio companies. The results of our operations depend on many factors, including the availability of opportunities for investment, readily accessible short- and long-term funding alternatives in the financial markets and economic conditions. Our ability to make new investments at attractive relative returns is also a function of our marketing and our management of the investment process, as well as conditions in the private credit markets in which we invest. If we fail to invest our capital effectively, our return on equity may be negatively impacted, which could have a material adverse effect on the price of the shares of our common stock. Any unrealized losses we experience may be an indication of future realized losses, which could reduce our income available to make distributions. As a BDC, we are required to carry our investments at market value or, if no market quotation is readily available, at fair value as determined in good faith by our Valuation Committee pursuant to a valuation methodology approved by our Board of Directors. Decreases in the market values or fair values of our investments will be recorded as unrealized losses. An unrealized loss could be an indication of a portfolio company’s inability to generate cash flow or meet its repayment obligations. This could result in realized losses in the future and ultimately in reductions of our income available to pay dividends or interest and principal on our securities and could have a material adverse effect on your investment. Our business model depends to a significant extent upon strong referral relationships. Our inability to develop or maintain these relationships, as well as the potential failure of these relationships to generate investment opportunities, could adversely affect our business. We expect that members of our management team will maintain their relationships with financial sponsors, intermediaries, financial institutions, investment bankers, commercial bankers, financial advisors, attorneys, accountants, consultants and other individuals within our network, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If our management team fails to maintain its existing relationships or develop new relationships with sources of investment opportunities, we will not be able to effectively invest our capital. Individuals with whom members of our management team have relationships are not obligated to provide us with investment opportunities; therefore, there is no assurance that these relationships will generate investment opportunities for us. All of our assets are subject to security interests under our secured Credit Facility and if we default on our obligations under the Credit Facility, we may suffer adverse consequences, including foreclosure on our assets. All of our assets are currently pledged as collateral under our Credit Facility. If we default on our obligations under the Credit Facility, the lenders party thereto may have the right to foreclose upon and sell, or otherwise transfer, the collateral 20 Table of Contents subject to their security interests. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and prices we would not consider advantageous. Moreover, such deleveraging of the Company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we have historically paid to our shareholders. In addition, if the lenders exercise their right to sell the assets pledged under our Credit Facility, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under the Credit Facility. These distressed prices could be materially below our most recent valuation of each security, which could have a significantly negative effect on NAV. In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, that, if not complied with, could accelerate our repayment obligations under the Credit Facility—thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions. We will have a continuing need for capital to finance our investments. As of March 31, 2023, the Credit Facility provides us with a revolving credit line of up to $400.0 million of which $235.0 million was drawn. The Credit Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, minimum consolidated net worth, minimum consolidated interest coverage ratio, minimum asset coverage, and maintenance of RIC tax treatment and BDC status. The Credit Facility also contains customary events of default with customary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenants, bankruptcy, and change of control. The Credit Facility permits us to fund additional loans and investments as long as we are within the conditions set out in the Credit Facility. Our continued compliance with these covenants depends on many factors, some of which are beyond our control, and there are no assurances that we will continue to comply with these covenants. If we breach a covenant under the terms of the Credit Facility and seek a waiver, we may not be able to obtain a waiver from the required lenders. Our failure to satisfy these covenants could result in foreclosure by our lenders, which would accelerate our repayment obligations under the Credit Facility and thereby have a material adverse effect on our business, liquidity, financial condition, results of operations, and ability to pay distributions to our shareholders. Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us. Borrowings to fund investments, also known as leverage, magnify the potential for loss on investments in our indebtedness and gain or loss on investments in our equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. We may borrow from banks and other lenders, including under our Credit Facility, and may issue debt securities or enter into other types of borrowing arrangements in the future. If the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any decrease in our income would cause net investment income to decline more sharply than it would have had we not leveraged our business. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. Use of leverage is generally considered a speculative investment technique. As of March 31, 2023, we had $235.0 million debt outstanding out of $400 million of total commitments under our Credit Facility. Borrowings under the Credit Facility bear interest, on a per annum basis at a rate equal to the applicable LIBOR rate plus 2.15% with no LIBOR floor. We pay 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 is secured by substantially all of our assets. If we are unable to meet our financial obligations under the Credit Facility, the lenders under the Credit Facility may exercise their remedies under the Credit Facility as the result of a default by us. As of March 31, 2023, the carrying amount of the January 2026 Notes was $139.1 million. 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. 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 subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility. 21 Table of Contents As of March 31, 2023, the carrying amount of the October 2026 Notes was $147.3 million. 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 on April 1 and October 1 of each year. 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 subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility. Our ability to achieve our investment objective may depend in part on our ability to access additional leverage on favorable terms by borrowing from banks or insurance companies or by issuing debt securities and there can be no assurance that such additional leverage can in fact be achieved. Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. Assumed Return on Our Portfolio (net of expenses) (1) Corresponding net return to common shareholder (2) (10.0)% (27.20)% (5.0)% (16.55)% 0.0% (5.90)% 5.0% 4.75% 10.0% 15.40% (1) Assumes $1,257.7 million in total assets, $645.0 million in debt principal outstanding, $590.4 million in net assets and a weighted-average interest rate of 5.27% on our indebtedness based on our financial data available on March 31, 2023. Actual interest payments may be different. In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our March 31, 2023 total assets of at least 2.77%. (2) If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy. As a BDC, we are not permitted to acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. As of March 31, 2023, 86.1% of our total assets consisted of qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if those investments are not qualifying assets for purposes of the 1940 Act. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies, or we could be required to dispose of investments at inopportune or inappropriate times to comply with the 1940 Act (which could result in the dilution of our position). If we need to dispose of investments quickly, it could be difficult to dispose of such investments on favorable terms. We may not be able to find a buyer for such investments and, even if we do find a buyer, we may have to sell the investments at a substantial loss. Any such outcomes could have a material adverse effect on our business, financial condition, results of operations, and cash flows. A failure on our part to maintain our status as a BDC would significantly reduce our operating flexibility. If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company that is required to register under the 1940 Act, which would subject us to additional regulatory restrictions and significantly decrease our operating flexibility. In addition, any such failure could cause an event of default under our outstanding indebtedness, which could have a material adverse effect on our business, financial condition or results of operations. We will become subject to U.S. federal income tax at corporate rates if we are unable to maintain our qualification as a regulated investment company under Subchapter M of the Code or satisfy regulated investment company distribution requirements. We have elected, and intend to qualify annually, to be treated as a RIC under Subchapter M of the Code. No assurance can be given that we will be able to maintain our qualification as a RIC. To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements: 22 Table of Contents • • • The annual distribution requirement for a RIC is generally satisfied if we timely distribute to our shareholders on an annual basis at least 90% of our net ordinary income and realized short-term capital gains in excess of realized net long-term capital losses. We will be subject to U.S. federal income tax, and possibly a 4% U.S. federal excise 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. The source of income requirement is satisfied if we obtain at least 90% of our gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code), or the 90% Income Test. The asset diversification requirement is satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. Government securities, securities of other RICs, and 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 (which for these purposes includes the equity securities of a “qualified publicly traded partnership”). In addition, no more than 25% of the value of our assets can be invested in (i) the securities, other than U.S Government securities or securities of other RICs, of one issuer; (ii) the securities, other than securities of other RICs, of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses; or (iii) the securities of one or more “qualified publicly traded partnerships,” or the Diversification Tests. Failure to meet these requirements may result in us having to dispose of certain unqualified investments quickly in order to prevent the loss of RIC tax treatment. If we fail to maintain RIC tax treatment for any reason and are subject to U.S. federal income tax, the resulting corporate-level taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. In addition, to the extent we have unrealized gains, we would have to establish deferred tax liabilities, which would reduce our NAV accordingly. In addition, our shareholders would lose the tax credit realized when we, as a RIC, decide to retain the net realized capital gain and make deemed distributions of net realized capital gains, and pay taxes on behalf of our shareholders at the end of the tax year. The loss of this pass-through tax treatment could have a material adverse effect on the total return of an investment in our common stock. Even if the Company qualifies as a regulated investment company, it may face tax liabilities that reduce its cash flow. If we qualify for taxation as a RIC under the Code, we generally will not be subject to U.S. federal income tax on income that we timely distribute to our shareholders as dividends. Income derived through the Taxable Subsidiary will be subject to U.S. federal income tax at corporate rates without regard to the Annual Distribution Requirement. Our portfolio investments generally are not publicly traded. As a result, the fair value of these investments may not be readily determinable and will be recorded at fair value as determined in good faith by the Valuation Committee, subject to the oversight of our Board of Directors. As a result, there may be uncertainty as to the value of our portfolio investments. Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market quotation, at fair value as determined in good faith by the Valuation Committee, subject to the oversight of our Board of Directors. Typically, there is not a public market for the securities of the privately held companies in which we have invested and will continue to invest. As a result, the Valuation Committee values these securities quarterly at fair value based on inputs from our investment team and our third-party valuation firms, subject to the oversight of our Board of Directors. The determination of fair value and, consequently, the amount of unrealized gains and losses in our portfolio are, to a certain degree, subjective and dependent on our valuation process. Certain factors that may be considered in determining the fair value of our investments include external events, such as private mergers, sales and acquisitions involving comparable companies. Because of the inherent uncertainty of the valuation of portfolio securities that do not have readily available market quotations, our fair value determinations may differ materially from the values a third party would be willing to pay for our portfolio securities or the values that would be applicable to unrestricted securities having a public market. Due to this uncertainty, our fair value determinations may cause our NAV on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our investments. As a result, investors purchasing our common stock based on an overstated NAV may pay a higher price than the value of our investments might warrant. Conversely, investors selling 23 Table of Contents shares during a period in which the NAV understates the value of our investments may receive a lower price for their shares than the value of our investments might warrant. We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and results of operations. From time to time, capital markets may experience periods of disruption and instability. The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that began in December 2019 and the conflict between Russia and Ukraine that began in late February 2022 (see "Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the business in which we invest and harm our business, operating results and financial condition" for more information). Even after the COVID-19 pandemic subsides, the U.S. economy, as well as most other major economies, may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the United States and other major markets. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. The economic conditions caused by the COVID-19 pandemic could have, an adverse impact on the ability of lenders to originate loans, the volume and type of loans originated, the ability of borrowers to make payments and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by the Company and returns to the Company, among other things. With respect to the U.S. credit markets (in particular for middle-market loans), the COVID-19 outbreak has resulted in, and until fully resolved is likely to continue to result in, the following, among other things: (i) increased draws by borrowers on revolving lines of credit and other financing instruments; (ii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; and (iii) greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility and liquidity issues. These and future market disruptions and/or illiquidity could have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations and our ability to grow and could also have a material negative impact on our operating results and the fair values of our debt and equity investments. We may have to access, if available, alternative markets for debt and equity capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations. Past economic downturns or recessions have had a significant negative impact on the operating performance and fair value of middle market companies. For example, between 2008 and 2009, the U.S. and global capital markets were unstable, as evidenced by periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our shareholders and our directors who are not "interested persons" (as such term is used under Section 2(a)(19) of the 1940 Act) of the Company, or independent directors. Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital. If the current market conditions (which are similar to those experienced from 2008 through 2009) continue for any substantial length of time, it could make it difficult to refinance or extend the maturity of our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience, including being at a higher cost in a rising interest rate environment. If any of these conditions appear, they may have an adverse effect on our business, financial condition, and results of operations. These events could limit our investment originations, limit our ability to increase returns to equity holders through the effective use of leverage, and negatively impact our operating results. In addition, significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as 24 Table of Contents part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). Significant changes in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell our investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse effect on our business, financial condition or results of operations. Government authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the market dislocations or avert severe and prolonged reductions in economic activity. We also face an increased risk of investor, creditor or portfolio company disputes, litigation, and governmental and regulatory scrutiny as a result of the effects of COVID-19 on economic and market conditions. Events outside of our control, such as the COVID-19 pandemic, could negatively affect our portfolio companies and our results of our operations and financial condition. Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control. These types of events have adversely affected—and could continue to adversely affect—operating results for us and for our portfolio companies. For example, the COVID-19 pandemic has led to, and for an unknown period of time will continue to lead to, disruptions in local, regional, national and global markets and the economies affected thereby, including the United States. With respect to U.S. and global credit markets and the economy in general, 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, for some period thereafter. COVID-19 and the resulting economic dislocations have had adverse consequences for the business operations and financial performance of some of our portfolio companies, which may, in turn, impact the valuation of our investments and have adversely affected, and threaten to continue to adversely affect, our operations. We are unable to predict the duration of these business and supply chain disruptions, the extent to which the economic conditions caused by COVID-19 will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. With respect to loans to portfolio companies, the Company will be impacted if, among other things, (i) amendments and waivers are granted (or are required to be granted) to borrowers permitting deferral of loan payments or allowing for PIK interest payments, (ii) borrowers default on their loans, are unable to refinance their loans at maturity, or go out of business, or (iii) the value of loans held by the Company decreases as a result of such events and the uncertainty they cause. Portfolio companies may also be more likely to seek to draw on unfunded commitments we have made, and the risk of being unable to fund such commitments is heightened during such periods. Depending on the duration and extent of the disruption to the business operations of our portfolio companies, we expect some portfolio companies, particularly those in vulnerable industries, to experience financial distress and possibly to default on their financial obligations to us and/or their other capital providers. In addition, if such portfolio companies are subjected to prolonged and severe financial distress, we expect some of them to substantially curtail their operations, defer capital expenditures, and lay off workers. These developments would be likely to permanently impair their businesses and result in a reduction in the value of our investments in them. Any potential impact to our results of operations will depend, to a large extent, on future developments and new information that could emerge regarding the duration and severity of the COVID-19 pandemic and the actions taken by authorities and other entities to contain the spread or treat its impact, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our and our portfolio companies’ operating results and financial condition. Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies, which may, in turn, impact the valuation of such portfolio companies. Certain of our portfolio companies may be impacted by inflation, which may, in turn, impact the valuation of such portfolio companies. If such portfolio companies are unable to pass any increases in their costs along to their customers, it could adversely affect their results and their ability to pay interest and principal on our loans, particularly if interest rates rise in response to inflation. In addition, any projected future decreases in our portfolio companies’ operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future unrealized losses and therefore reduce our net assets resulting from operations. 25 Table of Contents Political, social and economic uncertainty creates and exacerbates risks. Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) could occur, potentially creating uncertainty and significantly impacting issuers, industries, governments and other systems, including the financial markets, to which companies and their investments are exposed. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions, or markets, including in established markets, such as the United States. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat. Uncertainty can result in or coincide with other phenomena, including, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; economic recessions or downturns; and difficulties in obtaining and/or enforcing legal judgments. Following the November 2022 elections in the United States, the Democratic Party controls the Presidency and the Senate, with the Republican Party controlling the House of Representatives. Despite political tensions and uncertainty in a divided legislature, changes in federal policy, including tax policies, and at regulatory agencies may occur over time through policy and personnel changes, which can lead to changes involving the level of oversight and regulation of the financial services industry as well as changes in tax rates. The nature, timing and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain. Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and our investments, it is clear that these types of events are impacting us and our portfolio companies and will, for at least some time, continue to impact us and our portfolio companies; further, in many instances, the impact will be adverse and profound. The effect of global climate change may impact the operations and valuation of our portfolio companies. Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products or services is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition through, for example, decreased revenues, which may, in turn, impact the valuation of such portfolio companies. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions. In December 2015, the United Nations adopted a climate accord (the “Paris Agreement”), which the United States rejoined in 2021, with the long-term goal of limiting global warming and the short-term goal of significantly reducing greenhouse gas emissions. Additionally, the Inflation Reduction Act of 2022 included several measures designed to combat climate change, including restrictions on methane emissions. As a result, some of our portfolio companies may become subject to new or strengthened regulations or legislation, which could increase their operating costs and/or decrease their revenues, which may, in turn, impact their ability to make payments on our investments. Environmental, social and governance factors may adversely affect our business or cause us to alter our business strategy. 26 Table of Contents Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate governance and transparency. Adverse incidents with respect to ESG activities could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new regulatory initiatives related to ESG could adversely affect our business. For example, the SEC has announced that it may require disclosure of certain ESG-related matters. At this time, there is uncertainty regarding the scope of such proposals or when they would become effective (if at all). Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we or our prospective portfolio companies conduct our businesses and adversely affect our profitability. Downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition, and results of operations. U.S. debt ceiling and budget deficit concerns have increased the possibility of credit-rating downgrades, or a recession in the U.S. Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, including in December 2021, ratings agencies have threatened to lower the long-term sovereign credit rating on the United States. The impact of the increased debt ceiling and/or downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time resulting in, among other things, inadequate funding for and/or the shutdown of certain government agencies, including the SEC and the SBA, on which the operation of our business may rely. Inadequate funding for and/or the shutdown of these or other government agencies prevents them from performing their normal business functions, which could impact, among other things, (i) our and our portfolio companies’ ability to access the public markets and obtain necessary capital in order to, among other things, properly capitalize, continue or expand operations, or, in the case of portfolio investments held by us, liquidate such investments; (ii) the ability for SBIC I to originate loans; and (iii) the ability of other governmental agencies to timely review and process regulatory submissions of our portfolio companies, as applicable. Continued adverse political and economic conditions, including a prolonged U.S. federal government shutdown, could have a material adverse effect on our business, financial condition and results of operations. Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us. The financial markets recently have encountered volatility associated with concerns about the balance sheets of banks, especially small and regional banks that may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks have already been impacted and others may be materially and adversely impacted. Our business is dependent on bank relationships, including small and regional banks, and we are proactively monitoring the financial health of banks with which we (or our portfolio companies) do or may in the future do business. To the extent that our portfolio companies work with banks that are negatively impacted by the foregoing, such portfolio companies’ ability to access their own cash, cash equivalents and investments may be threatened. In addition, such affected portfolio companies may not be able to enter into new banking arrangements or credit facilities or receive the benefits of their existing banking arrangements or credit facilities. Any such developments could harm our business, financial condition, and operating results, and prevent us from fully implementing our investment plan. Continued strain on the banking system may adversely impact our business, financial condition and results of operations. Changes in the laws or regulations governing our business or the operations of our portfolio companies, changes in the interpretations thereof or of newly enacted laws or regulations, and any failure by us to comply with these laws or regulations could require changes to certain business practices of us or our portfolio companies, negatively affect the profitability of the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. These laws and regulations, as well as their interpretation, may be changed from time to time, and new laws and regulations may be enacted. Any change in the laws or regulations, the interpretations of such laws and regulations, or newly enacted laws or 27 Table of Contents regulations could require changes to certain business practices used by us or our portfolio companies, negatively impact the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and/or be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon our business, results of operations or financial condition. We operate in a highly competitive market for investment opportunities. We compete for attractive investment opportunities with other financial institutions, including BDCs, junior capital lenders, and banks. Some of these competitors are substantially larger and have greater financial, technical and marketing resources, and some are subject to different, and frequently less stringent, regulations. Our competitors may have a lower cost of funds and may have access to funding sources that are not available to us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC and the Code imposes on us as a RIC. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and there can be no assurance that we will be able to identify and make investments that satisfy our objectives. A significant increase in the number and/or size of our competitors in our target market could force us to accept less attractive investment terms, which may impact our return on these investments. We cannot assure you that the competitive pressures we face will not have a materially adverse effect on our business, financial condition and results of operation. Our success depends on attracting and retaining qualified personnel in a competitive environment. Sourcing, selecting, structuring and closing our investments depends upon the diligence and skill of our management. Our management’s capabilities may significantly impact our results of operations. Our success requires that we retain investment and operations personnel in a competitive environment. Our ability to attract and retain personnel with the requisite credentials, experience and skills depends on several factors, including, but not limited to, our ability to offer competitive wages, benefits and professional growth opportunities. Many of the entities, including investment funds (such as private equity funds and debt funds) and traditional financial services companies, with which we compete for experienced personnel have greater resources than we have. The competitive environment for qualified personnel may require us to take certain measures to ensure that we are able to attract and retain experienced personnel. Such measures may include increasing the attractiveness of our overall compensation packages, altering the structure of our compensation packages through the use of additional forms of compensation or other steps. The inability to attract and retain experienced personnel could potentially have an adverse effect on our business. Effective April 25, 2019, our asset coverage requirement was reduced from 200% to 150%, which could increase the risk of investing in the Company. The 1940 Act generally prohibits BDCs from incurring indebtedness unless immediately after such borrowing it has an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our total assets). However, on March 23, 2018, the SBCAA was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement from 200% to 150%, if certain requirements are met. On April 25, 2018, the Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board of Directors, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum asset coverage ratio applicable to the Company was decreased from 200% to 150%, which became effective April 25, 2019. Additionally, the Board of Directors also approved a resolution that limits the Company’s issuance of senior securities such that the asset coverage ratio, taking into account such issuance, would not be less than 166%, at any time after the effective date. We are required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to reduce its asset coverage requirement to 150%, its leverage capacity and usage, and risks related to leverage. In addition, on August 11, 2021, we received an exemptive order from the 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. Leverage is generally considered a speculative investment technique and increases the risk of investing in our securities. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the NAV attributable to our common stock to increase more sharply than it 28 Table of Contents would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. If we incur additional leverage, you will experience increased risks of investing in our common stock. We expend significant financial and other resources to comply with the requirements of being a public company. As a public entity, we are subject to the reporting requirements of the Exchange Act and requirements of the Sarbanes-Oxley Act and the related rules and regulations promulgated by the SEC. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls, significant resources and management oversight are required. We have implemented procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s time and attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our ability to enter into transactions with our affiliates is restricted. We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is our affiliate for purposes of the 1940 Act, and we generally are prohibited from buying or selling any security from or to an affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we are prohibited from buying or selling any security from or to that person or certain of that person’s affiliates, or entering into prohibited joint transactions with that person, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital. Our business requires capital to operate and grow. We may acquire such additional capital from the following sources: Senior Securities. We may issue debt securities, preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as senior securities. As a result of issuing senior securities, we will be exposed to additional risks, including the following: • Under the provisions of the 1940 Act and effective April 25, 2019, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% immediately after each issuance of senior securities. The Board also approved a resolution that limits the Company's issuance of senior securities such that the asset coverage ratio, taking into account such issuance, would not be less than 166%, at any time after the effective date. In addition, on August 11, 2021, we received an exemptive order from the 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. If the value of our assets declines, we may be unable to satisfy this requirement. If that happens, we will be prohibited from issuing debt securities and/or borrowing money from banks or other financial institutions and may not be permitted to declare a dividend or make any distribution to shareholders or repurchase shares until such time as we satisfy this test. • Any amounts that we use to service our debt will not be available for dividends to our common shareholders. • It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaining a rating for such securities and other indebtedness, we may be required to abide by operating and investment guidelines that further restrict operating and financial flexibility. 29 Table of Contents • We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities and other indebtedness. • Any unsecured debt issued by us would rank (1) pari passu with our future unsecured indebtedness and effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and (2) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries • Upon a liquidation of the Company, holders of our debt securities and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock. Future offerings of additional debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing shareholders, may harm the value of our common stock. Additional Common Stock. The 1940 Act prohibits us from selling shares of our common stock at a price below the current NAV per share of such stock, with certain exceptions. One such exception is prior shareholder approval of issuances below current NAV per share provided that our Board of Directors determines that such sale is in the best interests of the Company and its shareholders. We do not intend to seek shareholder authorization to sell shares of our common stock below the then current NAV per share of our common stock at our 2023 annual meeting of shareholders. However, in the event we change our position, we will seek requisite approval of our shareholders. See “-Shareholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or issue securities that are convertible to shares of our common stock” for a discussion of the risks related to us issuing shares of our common stock below NAV. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our shareholders at that time would decrease, and they may experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all. SBIC I has an SBIC license and is subject to SBA regulations, and any failure to comply with SBA regulations could have an adverse effect on our operations. On April 20, 2021, SBIC I received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended, and is regulated by the SBA. The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies, regulates the types of financing, prohibits investing in small businesses with certain characteristics or in certain industries and requires capitalization thresholds that limit distributions to us. Accordingly, compliance with SBIC requirements may cause SBIC I to forego attractive investment opportunities that are not permitted under SBA regulations and/or to invest at less competitive rates in order to find investments that qualify under the SBA regulations. Further, SBA regulations require that an SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBA regulations. If SBIC I fails to comply with applicable regulations, the SBA could, depending on the severity of the violation, limit or prohibit SBIC I’s use of the debentures, declare outstanding debentures immediately due and payable, and/or limit SBIC I from making new investments. In addition, the SBA could revoke or suspend SBIC I’s license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the Small Business Investment Act of 1958, as amended, or any rule or regulation promulgated thereunder. These actions by the SBA would, in turn, negatively affect our operations because SBIC I is our wholly owned subsidiary. We do not have any prior experience managing an SBIC. Our lack of experience in complying with SBA regulations may hinder our ability to take advantage of SBIC I’s access to SBA-guaranteed debentures. Shareholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or issue securities that are convertible to shares of our common stock. The 1940 Act prohibits us from selling shares of our common stock at a price below the current NAV per share of such stock, with certain exceptions. One such exception is prior shareholder approval of issuances below NAV provided that our Board of Directors determines that such sale is in the best interests of the Company and its shareholders. We do not intend to seek shareholder authorization to sell shares of our common stock below the then current NAV per share of our common stock at our 2023 annual meeting of shareholders. However, in the event we change our position, we will seek the requisite approval of our shareholders. If we were to sell shares of our common stock below NAV per share, such sales would result in an immediate dilution to the NAV per share. This dilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in a shareholder’s interest in our earnings and assets and voting 30 Table of Contents interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted. Notwithstanding the foregoing, the example below illustrates the effect of dilution to existing shareholders resulting from the sale of common stock at prices below the NAV of such shares. In addition, if we issue securities that are convertible to shares of common stock, the exercise or conversion of such securities would increase the number of outstanding shares of our common stock. Any such exercise would be dilutive on the voting power of existing shareholders, and could be dilutive with regard to dividends and our NAV, and other economic aspects of the common stock. Illustration: Example of Dilutive Effect of the Issuance of Shares Below NAV. Assume that Company XYZ has 1,000,000 total shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The NAV per share of the common stock of Company XYZ is $10.00. The following table illustrates the reduction NAV and the dilution experienced by shareholder A following the sale of 100,000 shares of the common stock of Company XYZ at $9.00 per share, a price below its NAV per share. Reduction to NAV Total Shares Outstanding NAV per share Dilution to Existing Shareholder Shares held by Shareholder A Percentage Held by Shareholder A Total Interest of Shareholder A in NAV Prior to Sale Below NAV Following Sale Below NAV Percentage Change $ $ 1,000,000 10.00 $ 1,100,000 9.91 10,000 1.00 % 100,000 $ 10,000 (1) 0.91 % 99,091 10.00 % (0.91)% — % (9.09)% (0.91)% (1) Assumes that Shareholder A does not purchase additional shares in the sale of shares below NAV. Legislative or other actions relating to taxes could have a negative effect on us. Legislative or other actions relating to taxes could have a negative effect on us. The rules governing U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. We cannot predict with certainty how any changes in the tax laws might affect us, our shareholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation or regulations could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our shareholders of such qualification, or could have other adverse consequences. Shareholders are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities. We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our shareholders. Our business is highly dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control and adversely affect our business. There could be: • • • • • sudden electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and hurricanes; disease pandemics (including the COVID-19 pandemic); events arising from local or larger scale political or social matters, including terrorist acts; and cyber-attacks. These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our shareholders. 31 Table of Contents A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively. The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or consequential employee error could have an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data. If a significant number of our employees were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised. We, and the third-party service providers with which we do business, depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering. We may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, or system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted through our computer systems and networks. Such an attack could cause interruptions or malfunctions in our operations, which could result in financial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of damages and remediation. Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions, and these relationships allow for the storage and processing of our information, as well as counterparty, employee and borrower information. Cybersecurity failures or breaches by service providers (including, but not limited to, accountants, transfer agents, and custodians), and the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its NAV, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or additional compliance costs. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents with increased costs and other consequences, including those as described above. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Our service providers may be impacted by operating restrictions, which may include requiring employees to continue to work from remote locations. Policies of extended periods of remote working could strain technology resources, introduce operational risks and otherwise heighten the risks described above. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit weaknesses in a remote work environment. Accordingly, the risks described above are heightened under current conditions, which may continue for an unknown duration. Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm our business, operating results and financial condition. Terrorist attacks, acts of war or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. These events have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic or global economy. These events could create additional uncertainties, which may negatively affect the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable. The continued threat of global terrorism and the impact of military and other action will likely continue to cause volatility in the economies of certain countries, contribute to increased market volatility and economic uncertainties or deterioration in the United States and worldwide and various aspects thereof, including in prices of commodities. Our portfolio investments may involve significant strategic assets having a national or regional profile. The nature of these assets could 32 Table of Contents expose them to a greater risk of being the subject of a terrorist attack than other assets or businesses. In late February 2022, Russia launched a large scale military attack on Ukraine. The invasion significantly amplified already existing geopolitical tensions among Russia, Ukraine, Europe, NATO and the West, including the United States. In response to the ongoing military action by Russia, various countries, including the United States, the United Kingdom, and European Union issued broad-ranging economic sanctions against Russia. Such sanctions included, among other things, a prohibition on doing business with certain Russian companies, large financial institutions, officials and oligarchs; a commitment by certain countries and the European Union to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications (“SWIFT”), the electronic banking network that connects banks globally; and restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. Additional sanctions may be imposed in the future. Such sanctions (and any future sanctions) and other actions against Russia may adversely impact, among other things, the Russian economy and various sectors of the economy, including but not limited to, financials, energy, metals and mining, engineering and defense and defense-related materials sectors; result in a decline in the value and liquidity of Russian securities; result in boycotts, tariffs, and purchasing and financing restrictions on Russia’s government, companies and certain individuals; weaken the value of the ruble; downgrade the country’s credit rating; freeze Russian securities and/or funds invested in prohibited assets and impair the ability to trade in Russian securities and/or other assets; and have other adverse consequences on the Russian government, economy, companies and region. The ramifications of the hostilities and sanctions, however, may not be limited to Russia and Russian companies but may spill over to and negatively impact other regional and global economic markets (including Europe and the United States), companies in other countries (particularly those that have done business with Russia) and on various sectors, industries and markets for securities and commodities globally, such as oil and natural gas. Accordingly, the actions discussed above and the potential for a wider conflict could increase financial market volatility, cause severe negative effects on regional and global economic markets, industries, and companies and have a negative effect on the Company’s investments and performance, which may, in turn, impact the valuation of such portfolio companies. In addition, Russia may take retaliatory actions and other countermeasures, including cyberattacks and espionage against other countries and companies around the world, which may negatively impact such countries and the companies in which the Company invests. The extent and duration of the military action or future escalation of such hostilities, the extent and impact of existing and future sanctions, market disruptions and volatility, and the result of any diplomatic negotiations cannot be predicted. These and any related events could have a significant impact on the Company’s performance and the value of an investment in the Company. Our business and operations may be negatively affected if we become subject to securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of our investment strategy and impact our stock price. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space. While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our Board of Directors’ attention and resources from our business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism. RISKS RELATED TO OUR INVESTMENTS Our investments in portfolio companies involve a number of significant risks. We primarily invest in privately held U.S. middle market companies. Investments in privately held middle market companies involve a number of significant risks, including the following: • • These companies are more likely to depend on the management talents and efforts of a small group of key employees. Therefore, the death, disability, resignation, termination, or significant under-performance of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. These companies may have unpredictable operating results, could become parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require 33 Table of Contents • • • substantial additional capital to support their operations, finance expansion or maintain their competitive position. Private companies generally have less publicly available information about their businesses, operations and financial condition. Consequently, we rely on the ability of our management team and investment professionals to obtain adequate information to evaluate the potential returns from making investments in these portfolio companies. If we are unable to uncover all material information about the portfolio company, we may not make a fully informed investment decision and may lose all or part of our investment. These companies may have shorter operating histories, narrower product lines, smaller market shares and/or more significant customer concentration than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. These companies may have limited financial resources and may be unable to meet their obligations under their debt instruments that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees from subsidiaries or affiliates of our portfolio companies that we may have obtained in connection with our investment, as well as a corresponding decrease in the value of the equity components of our investments. In addition, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our officers and directors may serve as directors on the boards of these companies. To the extent that litigation arises out of our investments in these companies, our officers and directors may be named as defendants in such litigation, which could result in an expenditure of funds for claims in excess of our directors’ and officers’ insurance coverage (through our indemnification of our officers and directors) and the diversion of management’s time and resources. The lack of liquidity in our investments may adversely affect our business. We invest, and will continue to invest, in portfolio companies whose securities are not publicly traded. These securities generally are subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. As a result, we do not expect to achieve liquidity in our investments in the near-term. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments and, as a result, we may suffer losses. Defaults by our portfolio companies could harm our operating results. Portfolio companies may fail to satisfy financial, operating or other covenants imposed by us or other lenders, which could lead to non-payment of interest and other defaults and, potentially, acceleration of its loans and foreclosure on its secured assets. These events could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations, including under the debt or equity securities we hold. We may also incur expenses to the extent necessary to recover upon a default or to negotiate new terms, which may include the waiver of certain financial covenants, with the defaulting portfolio company. We may not realize gains from our equity investments. We may purchase common stock and other equity securities, including warrants, alongside our debt investments. Although equity securities have historically generated higher average total returns than fixed-income securities over the long term, equity securities have also experienced significantly more volatility in those returns. The equity securities we acquire may fail to appreciate and may decline in value or become worthless, and our ability to recover our investment depends on our portfolio company's success. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make non-control, equity investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of these equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We often seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer; however, we may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress. 34 Table of Contents Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity. We are subject to the risk that the debt investments we make in our portfolio companies may be prepaid prior to maturity, the specific timing of which we do not control. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our securities. We are exposed to risks associated with changes in interest rates. Because we have borrowed and intend to continue to borrow money to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In response to market indicators showing a rise in inflation, since March 2022, the Federal Reserve has been rapidly increasing interest rates and has indicated that it would consider additional rate hikes in response to ongoing inflation concerns. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make an investment in shares of our common stock less attractive if we are not able to increase our distribution rate, which could reduce the value of our common stock. Further, rising interest rates could also adversely affect our performance if such increases cause our borrowing costs to rise at a rate in excess of the rate that our investments yield. It is possible that the Federal Reserve's tightening cycle could also result in a recession in the United States. In the current and any future periods of rising interest rates, to the extent we borrow money subject to a floating interest rate (such as under the Credit Facility), 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. Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum (or “floor”) interest rates, while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may temporarily increase our interest expense, even though our interest income from investments is not increasing in a corresponding manner if market rates remain lower than the existing floor rate. If interest rates continue to rise, there is also a risk that portfolio companies in which we hold floating rate loans will be unable to pay escalating interest amounts, which could increase the risk of payment defaults and cause the portfolio companies to defer or cancel needed investment. Any failure of one or more portfolio companies to repay or refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments following an increase in contractual interest rates could have a material adverse effect on our business, financial condition, results of operations and cash flows. The value of our securities could also be reduced from an increase in market credit spreads as rates available to investors could make an investment in our securities less attractive than alternative investments. There may be circumstances in which our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims. Even though we may have structured our investments as secured debt, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, and based upon principles of equitable subordination, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing our subordinated claim to the bankruptcy estate. The principles of equitable subordination based on case law generally provide that a claim may be subordinated only if its holder is guilty of misconduct or where the secured debt is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistance or actions to compel and collect payments from the borrower outside the ordinary course of business. As a RIC, we may have certain regulatory restrictions that could preclude us from making additional investments in our portfolio companies. 35 Table of Contents We may not have the ability to make additional investments in our portfolio companies. After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to that company or have the opportunity to increase our investment or make follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation, or may reduce the expected return on the investment. 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. The London Interbank Offered Rate (“LIBOR”) is an index rate that historically has been widely used in lending transactions and remains a common reference rate for setting the floating interest rate on private loans. LIBOR typically has been the reference rate used in floating-rate loans extended to our portfolio companies and, to some degree, is expected to continue to be used as a reference rate until such time that private markets have fully transitioned to using the Secured Overnight Financing Rate (“SOFR”), or other alternative reference rates recommended by applicable market regulators. 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 the ICE Benchmark Administration ("IBA") (the entity regulated by the FCA that is responsible for calculating LIBOR) had notified the FCA of its intent, among other things, to cease providing 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 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. New York and several other states have passed laws intended to apply to U.S. dollar LIBOR-based contracts, securities, and instruments governed by those states’ laws. These laws established fallbacks for LIBOR when there is no or insufficient fallback rates in these contracts. The federal Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law on March 15, 2022. The federal legislation provides a statutory fallback mechanism on a nation-wide basis to replace U.S. dollar LIBOR with a benchmark rate, selected by the Federal Reserve Board and based on SOFR, for certain contracts that reference U.S. dollar LIBOR and contain no or insufficient fallback provisions. The New York and other state laws were superseded by the LIBOR Act. On December 16, 2022, the Federal Reserve Board adopted a final rule implementing certain provisions of the LIBOR Act (“Regulation ZZ”). Regulation ZZ specifies that on the LIBOR replacement date, which is the first London banking day after June 30, 2023, the Federal Reserve Board-selected benchmark replacement, based on SOFR and including any tenor spread adjustment as provided by Regulation ZZ, will replace references to overnight, 1, 3, 6, and 12-month LIBOR in certain contracts that do not mature before the LIBOR replacement date and that do not contain adequate fallback language. Regulation ZZ could apply to certain of our investments that reference LIBOR to the extent that they do not have fallback provisions or adequate fallback provisions. 36 Table of Contents 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. For instance, if the LIBOR reference rate of our LIBOR-linked securities, loans, and other financial obligations is higher than an alternative reference rate, such as SOFR, on our alternative reference rate-linked portfolio investments, the difference between the total interest income earned on interest earning assets and the total interest expense incurred on interest bearing liabilities may be compressed, reducing our net interest income and potentially adversely affecting our operating results. In addition, while the majority of our LIBOR- linked loans contemplate that LIBOR may cease to exist and allow for amendment to a new alternative reference rate without the approval of 100% of the lenders, if LIBOR ceases to exist, we could be required, in such situations, to negotiate modifications to credit agreements governing such instruments, in order to replace LIBOR with such alternative reference rate and to incorporate any conforming changes to applicable credit spreads or margins. 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. We generally will not control our portfolio companies. We do not, and do not expect to, control most of our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree, and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity of our investments in private companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings. Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. Further, in cases where we invest in unsecured subordinated debt, we would not have any lien on the collateral. In each of these cases, if there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us. Certain loans that we make are either secured by a second priority security interest in the same collateral pledged by a portfolio company to secure senior debt owed by the portfolio company to commercial banks or other traditional lenders, or in the case of unsecured subordinated debt, we have no lien at all on the assets. Often the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lender’s consent. Prior to and as a condition of permitting the portfolio company to borrow money from us secured by the same collateral pledged to the senior lender, or in the case where we invest in unsecured subordinated debt, the senior lender will require assurances that it will control the disposition of any collateral in the event of bankruptcy or other default. In many cases, the senior lender will require us to enter into an “intercreditor agreement” prior to permitting the portfolio company to borrow from us. Typically, the intercreditor agreements we are requested to execute expressly subordinate our debt instruments to those held by the senior lender and further provide that the senior lender will control: (1) the commencement of foreclosure or other proceedings to liquidate and collect on the collateral, subject to a negotiated “standstill period” after which we can initiate; (2) the nature, timing and conduct of foreclosure or other collection proceedings, subject to a negotiated “standstill period” after which we can initiate; (3) the amendment of any collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement. Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans. Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in those companies. We invest primarily in the secured term debt of middle market companies and equity issued by middle market companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, these debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying its senior creditors, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we 37 Table of Contents would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. Changes in healthcare laws and other regulations, or the enforcement or interpretation of such laws or regulations, applicable to some of our portfolio companies’ businesses may constrain their ability to offer their products and services. Our investments in the healthcare sector are subject to substantial risk. Changes in healthcare or other laws and regulations, or the enforcement or interpretation of such laws or regulations, applicable to the businesses of some of our portfolio companies may occur that could increase their compliance and other costs of doing business, require significant systems enhancements, or render their products or services less profitable or obsolete, any of which could have a material adverse effect on their results of operations. Healthcare companies often must obtain and maintain regulatory approvals to market many of their products, change prices for certain regulated products and consummate some of their acquisitions and divestitures. Delays in obtaining or failing to obtain or maintain these approvals could reduce revenue or increase costs. There has also been an increased political and regulatory focus on healthcare laws in recent years, and new legislation could have a material effect on the business and operations of some of our portfolio companies. Additionally, because of the possibility of additional changes to healthcare laws and regulations under the current U.S. presidential administration, we cannot quantify or predict with any certainty the likely impact on our portfolio companies, our business model, prospects, financial condition or results of operations. We also anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare delivery system. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation on certain of our portfolio companies, our business model, prospects, financial condition or results of operations. RISKS RELATED TO OUR SECURITIES The market price of our common stock may fluctuate significantly. The market price of our common stock will fluctuate with market conditions and other factors. Our common stock is intended for long-term investors and should not be treated as a trading vehicle. The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include: • • • • • • • • • • • • • • significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which is not necessarily related to the operating performance of these companies; exclusion of our common stock from certain market indices, such as the Russell 2000 Financial Services Index, which could reduce the ability of certain investment funds to own our common stock and put short-term selling pressure on our common stock; changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to BDCs or RICs; failure to qualify for RIC tax treatment; our origination activity, including the pace of, and competition for, new investment opportunities; changes or perceived changes in earnings or variations of operating results; changes or perceived changes in the value of our portfolio of investments; any shortfall in our investment income or net investment income or any increase in losses from levels expected by investors or securities analysts; proposed, or completed, offerings of our securities, including securities other than our common stock; departure of our key personnel; operating performance of companies comparable to us; credit market changes; general economic trends and other external factors; and loss of a major funding source. Investing in shares of our common stock may involve an above average degree of risk. The investments we make in accordance with our investment objectives may result in a higher amount of risk, volatility or loss of principal than alternative investment options. Our investments in portfolio companies may be highly speculative, and therefore, an investment in our common stock may not be suitable for investors with lower risk tolerance. 38 Table of Contents Shares of closed-end investment companies, including BDCs, may trade at a discount to their NAV. Our common stock is listed on The Nasdaq Global Select Market. Shareholders desiring liquidity may sell their shares on The Nasdaq Global Select Market at current market value, which could be below NAV. Shares of closed-end investment companies frequently trade at discounts from NAV, which is a risk separate and distinct from the risk that a fund’s performance will cause its NAV to decrease. We cannot predict whether our common stock will trade at, above or below NAV. In addition, if our common stock trades below our NAV per share, we will generally not be able to issue additional common stock at the market price unless our shareholders approve such a sale and our Board of Directors make certain determinations. See “Shareholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or issue securities that are convertible to shares of our common stock” for a discussion of the risks related to us issuing shares of our common stock below NAV. The January 2026 Notes and the October 2026 Notes are unsecured and therefore are effectively subordinated to any existing and future secured indebtedness, including indebtedness under our Credit Facility. Each of the January 2026 Notes and the October 2026 Notes (collectively, the “Notes”) are not secured by any of our assets or any of the assets of any of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred (including our Credit Facility) or may incur in the future (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our secured indebtedness or secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of March 31, 2023, we had $235.0 million in outstanding indebtedness under our Credit Facility, which is secured by (1) substantially all of the present and future property and assets of the Company and the guarantors and (2) 100.0% of the equity interests in the Company’s wholly owned subsidiaries (except for the assets held in SBIC I). The indenture under which the January 2026 Notes and the October 2026 Notes were issued contain limited protection for holders of the January 2026 Notes and the October 2026 Notes. The respective indenture under which the January 2026 Notes and the October 2026 Notes were issued offer limited protection to holders of the January 2026 Notes and the October 2026 Notes. The terms of the respective indenture and the January 2026 Notes and the October 2026 Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on the investment of the holders of the January 2026 Notes and the October 2026 Notes, respectively. In particular, the terms of the respective indenture and the January 2026 Notes and the October 2026 Notes will not place any restrictions on our or our subsidiaries’ ability to: • • issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in those entities and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in each case, to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from incurring additional borrowings, including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowings; pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, including subordinated indebtedness, except that we have agreed that, for the period of time during which the Notes are outstanding, we will not violate Section 18(a)(1)(B) as modified by (i) Section 61(a)(2) of the 1940 Act or any successor provisions and after giving effect to any exemptive relief granted to us by the SEC and (ii) the following two exceptions: (A) we will be permitted to declare a cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under Subchapter M of the Code; and (B) this restriction will not be triggered unless and until such time as our asset 39 Table of Contents coverage has not been in compliance with the minimum asset coverage required by 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 us by the SEC) for more than six consecutive months. If Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act were currently applicable to us in connection with this offering, these provisions would generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, were below 150% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase; sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); enter into transactions with affiliates; create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; create restrictions on the payment of dividends or other amounts to us from our subsidiaries. • • • • make investments; or • In addition, the respective indenture governing the January 2026 Notes and the October 2026 Notes will require us to make an offer to purchase the January 2026 Notes and the October 2026 Notes in connection with a change of control or any other event, respectively. Furthermore, the terms of the respective indenture and the January 2026 Notes and the October 2026 Notes do not protect holders of the January 2026 Notes and the October 2026 Notes, respectively, in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity. Our ability to recapitalize, incur additional debt (including additional debt that matures prior to the maturity of the January 2026 Notes and the October 2026 Notes), and take a number of other actions that are not limited by the terms of each of the January 2026 Notes and the October 2026 Notes may have important consequences for you as a holder of the January 2026 Notes and the October 2026 Notes, including making it more difficult for us to satisfy our obligations with respect to the January 2026 Notes and the October 2026 Notes or negatively affecting the market value of the January 2026 Notes and the October 2026 Notes. Other debt we issue or incur in the future could contain more protections for its holders than the respective indenture and the January 2026 Notes and the October 2026 Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for, trading levels, and prices of the January 2026 Notes and the October 2026 Notes. We may not be able to repurchase the January 2026 Notes and the October 2026 Notes upon a Change of Control Repurchase Event. Upon a Change of Control Repurchase Event (as defined in the relevant indenture), holders of the January 2026 Notes and the October 2026 Notes may require us to repurchase for cash some or all of the January 2026 Notes and the October 2026 Notes, respectively, at a repurchase price equal to 100% of the aggregate principal amount of the January 2026 Notes and the October 2026 Notes, respectively, being repurchased, plus their respective accrued and unpaid interest to, but not including, the repurchase date. We may not be able to repurchase the January 2026 Notes and/or the October 2026 Notes upon a Change of Control Repurchase Event because we may not have sufficient funds. Before making any such repurchase of the January 2026 Notes or the October 2026 Notes, we would also have to comply with certain requirements under our Credit Facility, to the extent such requirements remain in effect at such time, or otherwise obtain consent from the lenders under our Credit Facility. The terms of our Credit Facility also provide that certain change of control events will constitute an event of default thereunder entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate our Credit Facility. In addition, the occurrence of a Change of Control Repurchase Event enabling the holders of the January 2026 Notes and/or the October 2026 Notes to require the mandatory purchase of the January 2026 Notes and/or the October 2026 Notes, respectively, would likely constitute an event of default under our Credit Facility, entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate our Credit Facility. Our and our subsidiaries' future financing facilities may contain similar restrictions and provisions. Our failure to purchase such tendered January 2026 Notes or the October 2026 Notes upon the occurrence of such Change of Control Repurchase Event would cause an event of default under the respective indenture governing the January 2026 Notes or the October 2026 Notes, respectively, and a cross-default under the agreements governing certain of our other indebtedness, including under the agreements governing our Credit Facility, which may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately. If the holders of the January 2026 Notes or the October 2026 Notes exercise their respective right to require us to repurchase the 40 Table of Contents January 2026 Notes or the October 2026 Notes, respectively, upon a Change of Control Repurchase Event, the financial effect of any such repurchase could cause a default under our current and future debt instruments, even if the Change of Control Repurchase Event itself would not cause a default. If a Change of Control Repurchase Event were to occur, we may not have sufficient funds to repay any such accelerated indebtedness. While a trading market developed after issuing the January 2026 Notes and the October 2026 Notes, we cannot assure you that an active trading market for the January 2026 Notes and the October 2026 Notes will be maintained. While a trading market developed after issuing the January 2026 Notes and the October 2026 Notes, we cannot assure you that an active and liquid market for the January 2026 Notes and the October 2026 Notes will be maintained. We do not intend to list the January 2026 Notes or the October 2026 Notes on any securities exchange or for quotation of the January 2026 Notes or the October 2026 Notes on any automated dealer quotation system. If the January 2026 Notes or the October 2026 Notes are traded after their initial issuance, they may trade at a discount to their public offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, our financial condition, performance and prospects, general economic conditions, including the impact of COVID-19, or other relevant factors. The underwriters may discontinue any market-making in the January 2026 Notes or the October 2026 Notes at any time at their sole discretion. In addition, any market-making activity will be subject to limits imposed by law. Accordingly, we cannot assure you that a liquid trading market will be maintained for the January 2026 Notes and the October 2026 Notes, that holders will be able to sell their respective January 2026 Notes or October 2026 Notes at a particular time or that the price the holder receive when he or she sell will be favorable. To the extent an active trading market is not maintained, the liquidity and trading price for the January 2026 Notes and the October 2026 Notes may be adversely affected. If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the January 2026 Notes and the October 2026 Notes. Any default under the agreements governing our indebtedness, including a default under our Credit Facility, the respective indenture governing the January 2026 Notes and the October 2026 Notes, or other indebtedness to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by lenders or the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the January 2026 Notes and the October 2026 Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness (including the Credit Facility, the January 2026 Notes and the October 2026 Notes), we could be in default under the terms of the agreements governing such indebtedness, including the Notes. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Credit Facility or other debt we may incur in the future could elect to terminate their commitment, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. Our ability to generate sufficient cash flow in the future is, to some extent, subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under the Credit Facility or otherwise, in an amount sufficient to enable us to meet our payment obligations under the Notes, our other debt, and to fund other liquidity needs. If our operating performance declines and we are not able to generate sufficient cash flow to service our debt obligations, we may in the future need to refinance or restructure our debt, including the Notes, sell assets, reduce or delay capital investments, seek to raise additional capital or seek to obtain waivers from the lenders under the Credit Facility, the holders of the Notes, or other debt that we may incur in the future to avoid being in default. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Notes and our other debt. If we breach our covenants under the Credit Facility, the respective indenture governing the January 2026 Notes and the October 2026 Notes, or any of our other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders thereof. If this occurs, we would be in default under the Credit Facility, the Notes, the respective indenture governing the January 2026 Notes and the October 2026 Notes, or other debt, the lenders or holders could exercise rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing the debt. Because the Credit Facility has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the January 2026 Notes and the October 2026 Notes, the Credit Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due. 41 Table of Contents Terms relating to redemption may materially adversely affect the return on our debt securities. The January 2026 Notes are redeemable, in whole or in part, at any time at our option prior to October 31, 2025, at par plus a "make-whole" premium, and thereafter at par. The October 2026 Notes are redeemable, in whole or in part, at any time at our option prior to July 1, 2026 at par plus a "make-whole" premium, and thereafter at par. We may choose to redeem the January 2026 Notes or the October 2026 Notes at times when prevailing interest rates are lower than the interest rate paid on the January 2026 Notes or the October 2026 Notes. We currently intend to pay quarterly dividends. However, in the future we may not pay any dividends depending on a variety of factors. While we intend to pay dividends to our shareholders out of taxable income available for distribution, there can be no assurance that we will do so. Any dividends that we do pay may be payable in cash, in our common stock, or in stock in any of our holdings or in a combination of all three. All dividends will be paid at the discretion of our Board of Directors and will depend upon our financial condition, maintenance of our RIC tax treatment, and compliance with applicable BDC regulations. We currently pay dividends in cash. However, in the future we may choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive. We may distribute taxable dividends that are payable in part in our common stock. Under certain applicable provisions of the Code and the Treasury regulations, distributions payable by us in cash or in shares of stock (at the shareholders election) would satisfy the annual distribution requirement for a RIC. The IRS has issued a revenue procedure providing that a dividend payable in stock or in cash at the election of the shareholders will be treated as a taxable dividend eligible for the dividends paid deduction provided that at least 20% of the total dividend is payable in cash and certain other requirements are satisfied. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such dividend is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. shareholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. shareholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividends payable in stock. If a significant number of our shareholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. We may not be able to invest a significant portion of the net proceeds from future capital raises on acceptable terms, which could harm our financial condition and operating results. Delays in investing the net proceeds raised in an offering may cause our performance to be worse than that of other fully invested BDCs or other lenders or investors pursuing comparable investment strategies. We cannot assure you that we will be able to identify any investments that meet our investment objective or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds of any offering on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results. In the event that we cannot invest our net proceeds as desired we will invest the net proceeds from any offering primarily in cash, cash equivalents, U.S. Government securities and other high-quality debt investments that mature in one year or less from the time of investment. These securities may have lower yields than our other investments and accordingly may result in lower distributions, if any, during such period. Provisions of Texas law and our charter could deter takeover attempts and have an adverse impact on the price of our common stock. Texas law and our charter contain provisions that may have the effect of discouraging, delaying or making difficult a change in control. The existence of these provisions, among others, may have a negative impact on the price of our common stock and may discourage third-party bids for ownership of the Company. These provisions may prevent any premiums being offered to you for our common stock. Item 1B. Unresolved Staff Comments 42 Table of Contents None. Item 2. Properties We do not own any real estate or other physical properties. We maintain our offices at 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225, where we lease approximately 13,000 square feet of office space pursuant to a lease agreement expiring in September 2032. We believe that our offices are adequate to meet our current and expected future needs. Item 3. Legal Proceedings We and our subsidiaries 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. As of the date hereof, we and our subsidiaries are not a party to, and none of our assets are subject to, any material pending legal proceedings and are not aware of any claims that could have a materially adverse effect on our financial position, results of operations or cash flows. Item 4. Mine Safety Disclosures Not applicable. 43 Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities SENIOR SECURITIES Information about our senior securities is shown in the following table for the years ended March 31, 2023, 2022, 2021 2020, 2019, 2018 and 2017. The report of RSM US LLP, our independent registered public accountants for the fiscal years ended March 31, 2023, 2022, 2021 2020, 2019, and 2018, on the senior securities table as of March 31, 2023, 2022, 2021 2020, 2019, and 2018 is attached as an exhibit to this Annual Report on Form 10-K. Class and Year Credit Facility 2023 2022 2021 2020 2019 2018 2017 December 2022 Notes 2023 2022 2021 2020 2019 2018 2017 October 2024 Notes 2023 2022 2021 2020 2019 2018 2017 January 2026 Notes 2023 2022 2021 2020 2019 2018 2017 Total Amount Outstanding Exclusive of Treasury Securities (1) (dollars in thousands) Asset Coverage per Unit (2) Involuntary Liquidating Preference per Unit (3) Average Market Value per Unit (4) $ $ $ $ 235,000 205,000 120,000 154,000 141,000 40,000 25,000 — — — 77,136 77,136 57,500 — — — 125,000 75,000 — — — 140,000 140,000 140,000 — — — — 44 2.35 1.93 1.87 1.89 2.49 4.16 12.40 — — — 1.89 2.49 4.16 — — — 1.87 1.89 — — — 2.35 1.93 1.87 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 22.01 25.50 25.40 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A October 2026 Notes 2023 2022 $ 150,000 150,000 2.35 1.93 — — N/A N/A (1) Total amount of each class of senior securities outstanding at the end of the period presented. (2) Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness. On August 11, 2021, we received an exemptive order from the SEC to permit us to exclude the senior securities issued by SBIC I or any future SBIC subsidiary of CSWC from the definition of senior securities in the asset coverage requirement applicable to CSWC under the 1940 Act. (3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. The “-” indicates information which the SEC expressly does not required to be disclosed for certain types of senior securities. (4) Average market value per unit for our Credit Facility, October 2024 Notes, January 2026 Notes and October 2026 Notes is not applicable because these are not registered for public trading. PRICE RANGE OF COMMON STOCK AND HOLDERS Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol “CSWC.” The following table sets forth, for each fiscal quarter within the two most recent fiscal years and the current fiscal year to date, the range of high and low selling prices of our common stock as reported on the Nasdaq Global Select Market, as applicable, and the sales price as a percentage of the NAV per share of our common stock. NAV (1) High Low Premium (Discount) of High Sales Price to NAV (2) Premium (Discount) of Low Sales Price to NAV (2) Price Range Year ending March 31, 2024 First Quarter (through May 19, 2023) * $ 18.67 $ Year ended March 31, 2023 Fourth Quarter Third Quarter Second Quarter First Quarter Year ended March 31, 2022 Fourth Quarter Third Quarter Second Quarter First Quarter $ $ 16.37 $ 16.25 16.53 16.54 16.86 $ 16.19 16.36 16.58 20.20 $ 19.72 21.23 24.40 26.61 $ 28.41 28.33 28.10 17.22 16.34 16.28 16.70 17.79 22.78 23.75 23.28 22.16 * * 23.40 % 21.36 28.43 47.52 57.83 % 75.48 73.17 69.48 (0.18)% 0.18 1.03 7.56 35.11 % 46.70 42.30 33.66 (1) NAV per share, is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period. (2) Calculated as the respective high or low share price divided by NAV and subtracting 1. * Not determinable at the time of filing. Our common stock is traded on The Nasdaq Global Select Market under the symbol “CSWC.” On May 19, 2023, there were approximately 333 holders of record of our common stock, which did not include shareholders for whom shares are held in "nominee" or "street name." Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value per share or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value per share will decrease. It is not possible to predict whether our common stock will trade at, above, or below net asset value per share. 45 DISTRIBUTION POLICY We generally intend to make distributions on a quarterly basis to our shareholders of substantially all of our taxable income. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the calendar year ended December 31, and (3) any ordinary income and net capital gains for the preceding year that were not distributed during that year. We will not be subject to excise taxes on amounts on which we are required to pay corporate income tax (such as retained net capital gains). In order to obtain the tax benefits applicable to RICs, we will be required to distribute to our shareholders with respect to each taxable year at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses. We may be subject to U.S. federal income tax and a 4% U.S. federal excise 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. We may retain for investment realized net long-term capital gains in excess of realized net short-term capital losses. We may make deemed distributions to our shareholders of any retained net capital gains. If this happens, our shareholders will be treated as if they received an actual distribution of the capital gains we retain and then reinvested the net after-tax proceeds in our common stock. Our shareholders also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. Please refer to “Business —Material U.S. Federal Income Tax Considerations” included in Item 1 of Part I of this Annual Report for further information regarding the consequences of our retention of net capital gains. We may, in the future, make actual distributions to our shareholders of some or all realized net long-term capital gains in excess of realized net short-term capital losses. Our ability to make distributions in the future may be limited by our Credit Facility, the indentures governing each of our January 2026 Notes and our October 2026 Notes and the 1940 Act. For a more detailed discussion, see “Business — Election to be Regulated as a Business Development Company – Regulation as a Business Development Company,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Note 5” to our consolidated financial statements included in this Annual Report on Form 10-K. We have adopted a DRIP which provides for reinvestment of our distributions on behalf of our common shareholders if opted into by a common shareholder. See “Business — Dividend Reinvestment Plan” included in Item I of Part I of this Annual Report on Form 10-K. Shareholders who receive dividends in the form of stock generally are subject to the same federal, state and local tax consequences as are shareholders who elect to receive their dividends in cash. A shareholder’s basis for determining gain or loss upon the sale of stock received in a dividend from us will be equal to the total dollar amount of the dividend payable to the shareholder. Any stock received in a dividend will have a holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. shareholder’s account. RECENT SALES OF UNREGISTERED EQUITY SECURITIES We did not sell any securities during the period covered by this Annual Report that were not registered under the Securities Act of 1933, as amended. ISSUER PURCHASES OF EQUITY SECURITIES 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 will 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 year ended March 31, 2023, the Company did not repurchase any shares under the share repurchase program. 46 The following table provides information regarding purchases of our common stock during the year ended March 31, 2023. Period April 1 through April 30, 2022 May 1 through May 31, 2022 June 1 through June 30, 2022 (1) July 1 through July 31, 2022 August 1 through August 31, 2022 September 1 through September 30, 2022 October 1 through October 31, 2022 November 1 through November 30, 2022 (1) December 1 through December 31, 2022 January 1 through January 31, 2023 February 1 through February 28, 2023 March 1 through March 31, 2023 Total Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2) — $ — 29,673 — — — — 19,917 — — — — 49,590 $ — — 21.60 — — — — 19.09 — — — — 20.59 — $ — — — — — — — — — — — — $ — — — — — — — — — — — — — (1) Represents shares of common stock withheld upon vesting of restricted stock to cover withholding tax obligations. (2) 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 year ended March 31, 2023, the Company did not repurchase any shares under the share repurchase program. As of March 31, 2023, the Company has $20 million available under the share repurchase program. 47 The following graph compares our cumulative total shareholder return during the last five years (based on the market price of our common stock and assuming reinvestment of all dividends, prior to any tax effect) with the Russell 2000 ETF, the S&P BDC Index and the S&P Regional Banking ETF. The graph assumes initial investment of $100 on March 31, 2018 and reinvestment of dividends. The graph measures total shareholder return, which takes into account both changes in stock price and distributions. It assumes that distributions paid are invested in like securities. Performance Graph The graph and other information furnished under this Part II Item 5 of this Annual Report on Form 10-K shall not be deemed to be "soliciting material" or to be filed with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the above graph is not necessarily indicative of future stock performance. 48 Item 6. [Reserved] 49 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 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 $35.0 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 $20.0 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 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 years ended March 31, 2023, 2022, and 2021 the ratio of our last twelve months ("LTM") operating expenses, excluding interest expense, as a percentage of our LTM average total assets was 1.91%, 2.20% and 2.42%, 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 50 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 March 31, 2023 and March 31, 2022, our investment portfolio at fair value represented approximately 95.9% and 96.2% 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 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. As of March 31, 2023, our Board of Directors was 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 March 31, 2023 and March 31, 2022 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 March 31, 2023, investments on non-accrual status represented approximately 0.3% of our total investment portfolio's fair value and approximately 1.3% of its cost. As of March 31, 2022, investments on non-accrual status represented approximately 1.5% of our total investment portfolio's fair value and approximately 2.6% of its cost. 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 certain lenders. Many of these agreements 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 and certain lenders 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. On December 21, 2022, the FASB issued ASU 2022-06 "Reference rate reform (Topic 848)—Deferral of the Sunset Date of Topic 51 848," which defers the sunset date of ASC 848 until December 31, 2024. ASU 2022-06 became effective upon issuance. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2024, except for hedging transactions as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company does not believe it will have a material impact on its consolidated financial statements or its disclosure and did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the year ended March 31, 2023. In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which was issued to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The new guidance is effective for interim and annual periods beginning after December 15, 2023. The Company is currently evaluating the impact of the new standard on the Company's consolidated financial statements and related disclosures and does not believe it will have a material impact on its consolidated financial statements or its disclosure. INVESTMENT PORTFOLIO COMPOSITION The total value of our investment portfolio was $1,206.4 million as of March 31, 2023, as compared to $936.6 million as of March 31, 2022. As of March 31, 2023, we had investments in 86 portfolio companies with an aggregate cost of $1,220.2 million. As of March 31, 2022, we had investments in 73 portfolio companies with an aggregate cost of $938.3 million. As of March 31, 2023 and March 31, 2022, approximately $1,002.9 million, or 96.7%, and $772.7 million, or 97.3%, 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 March 31, 2023 and March 31, 2022, the weighted average contractual minimum interest rate is 1.15% and 1.08%, respectively. As of March 31, 2023 and March 31, 2022, approximately $34.7 million, or 3.3%, and $21.1 million, or 2.7%, 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 March 31, 2023 and March 31, 2022 (excluding our investment in I-45 SLF LLC): Number of portfolio companies (a) Fair value Cost % of portfolio at fair value - debt % of portfolio at fair value - equity % of investments at fair value secured by first lien Weighted average annual effective yield on debt investments (b) Weighted average annual effective yield on total investments (c) Weighted average EBITDA (d) Weighted average leverage through CSWC security (e) March 31, 2023 March 31, 2022 (dollars in thousands) $ $ $ 85 1,155,132 1,139,352 $ $ 89.8 % 10.2 % 86.7 % 12.8 % 12.1 % 21,049 $ 4.0x 72 879,011 862,303 90.3 % 9.7 % 84.2 % 9.3 % 9.0 % 20,889 4.0x (a) At March 31, 2023 and March 31, 2022, we had equity ownership in approximately 62.4% and 56.9%, 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 March 31, 2023 and March 31, 2022, respectively, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments. As of March 31, 2023, investments on non- accrual status represented approximately 0.3% of our total investment portfolio's fair value and approximately 1.3% of its cost. As of March 31, 2022, investments on non-accrual status represented approximately 1.5% of our total investment portfolio's fair value and approximately 2.6% 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. (c) 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. For the year ended March 31, 2023, nine portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio 52 that was not meaningful. For the year ended March 31, 2022, three 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. For the year ended March 31, 2023, nine 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, 2022, three 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 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. We also have observed, and continue to observe, supply chain disruptions, labor and resource shortages, commodity inflation, elements of financial market instability (including rapidly rising interest rates and volatility in the banking systems, particularly with small and regional banks), an uncertain economic outlook for the United States (which may include a recession), and elements of geopolitical instability (including the ongoing war in Ukraine and U.S. and China relations). In the event that the U.S. economy enters into a protracted recession, it is possible that the results of certain U.S. middle market 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. The following table shows the distribution of our debt portfolio investments on the 1 to 4 investment rating scale at fair value as of March 31, 2023 and March 31, 2022: Investment Rating 1 2 3 4 Total As of March 31, 2023 Debt Investments at Fair Value Percentage of Debt Portfolio (dollars in thousands) $ $ 153,118 839,456 44,726 295 1,037,595 14.8 % 80.9 4.3 0.0 100.0 % 53 Investment Rating 1 2 3 4 Total As of March 31, 2022 Debt Investments at Fair Value Percentage of Debt Portfolio (dollars in thousands) $ $ 124,192 632,675 36,648 319 793,834 15.6 % 79.7 4.6 0.1 100.0 % 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, 2023, investments on non-accrual status represented approximately 0.3% of our total investment portfolio's fair value and approximately 1.3% of its cost. As of March 31, 2022, investments on non-accrual status represented approximately 1.5% of our total investment portfolio's fair value and approximately 2.6% of its cost. Investment Activity During the year ended March 31, 2023, we made new debt investments totaling $259.5 million, follow-on debt investments totaling $115.1 million, and equity investments totaling $13.5 million. We also funded $4.8 million on our existing equity commitment to I-45 SLF LLC. We received contractual principal repayments totaling approximately $29.4 million and full prepayments of approximately $89.7 million. We funded $40.3 million on revolving loans and received $22.1 million in repayments on revolving loans. In addition, we received proceeds from sales of debt and equity investments totaling $3.4 million. During the year ended March 31, 2022, we made new debt investments totaling $412.2 million, follow-on debt investments totaling $46.2 million, and equity investments totaling $15.0 million. We also funded $3.2 million on our existing equity commitment to I-45 SLF LLC. We received contractual principal repayments totaling approximately $16.0 million and full prepayments of approximately $241.2 million. We funded $22.6 million on revolving loans and received $9.1 million in repayments on revolving loans. In addition, we received proceeds from sales of equity investments totaling $11.9 million. 54 Total portfolio investment activity for the year ended March 31, 2023 and 2022 was as follows (dollars in thousands): Preferred & Common Equity Subordinated Debt Second Lien Loans Year ended March 31, 2023 Fair value, beginning of period New investments Proceeds from sales of investments Principal repayments received Conversion of security PIK interest earned Accretion of loan discounts Realized (loss) gain Unrealized gain (loss) Fair value, end of period $ Year ended March 31, 2022 Fair value, beginning of period New investments Proceeds from sales of investments Principal repayments received Conversion of security PIK interest earned Accretion of loan discounts Realized gain Unrealized gain (loss) Fair value, end of period First Lien Loans $ 524,161 $ 462,032 — (247,538) (4,683) 2,455 2,726 (67) 786 739,872 $ $ First Lien Loans $ 739,872 $ 411,745 — (128,932) (13,715) 5,577 3,587 (4,957) (12,193) 1,000,984 $ I-45 SLF, LLC Total 52,645 $ 2,735 (692) (12,310) — 314 255 (2,239) (4,888) 35,820 $ 1,317 $ 385 — — (587) 74 — (104) (294) 791 $ 85,177 $ 13,535 (2,664) — 14,302 — — (9,260) 16,447 117,537 $ 57,603 $ 4,800 — — — — — — (11,147) 51,256 $ 936,614 433,200 (3,356) (141,242) — 5,965 3,842 (16,560) (12,075) 1,206,388 Second Lien Loans Subordinated Debt Preferred & Common Equity I-45 SLF, LLC Total 36,919 $ 18,669 (53) (7,223) 5,208 1,217 233 (2,274) (51) 52,645 $ 11,534 $ 318 — (11,521) — 518 46 46 376 1,317 $ 58,660 $ 14,999 (11,881) — (525) — — 8,845 15,079 85,177 $ 57,158 $ 3,200 — — — — — — (2,755) 57,603 $ 688,432 499,218 (11,934) (266,282) — 4,190 3,005 6,550 13,435 936,614 55 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 (depreciation) appreciation 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. Set forth below is a comparison of the results of operations for the years ended March 31, 2023 and 2022. For the comparison of the results of operations for the years ended March 31, 2022 and 2021, see the Company's Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 24, 2022, 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 years ended March 31, 2023 and March 31, 2022 Total investment income Interest expense Other operating expenses Income before taxes Income tax (benefit) provision Net investment income Net realized (loss) gain on investments, net of tax Net unrealized (depreciation) appreciation on investments, net of tax Realized loss on extinguishment of debt Realized loss on disposal of fixed assets Net increase in net assets from operations Investment Income Years Ended March 31, Net Change 2023 2022 Amount % (in thousands) $ $ 119,300 $ (28,873) (21,387) 69,040 329 68,711 (17,029) (18,589) — — 33,093 $ 82,215 $ (19,924) (18,989) 43,302 615 42,687 5,834 11,467 (17,087) (86) 42,815 $ 37,085 (8,949) (2,398) 25,738 (286) 26,024 (22,863) (30,056) 17,087 86 (9,722) 45.1 % 44.9 % 12.6 % 59.4 % (46.5)% 61.0 % (391.9)% (262.1)% (100.0)% (100.0)% (22.7)% Total investment income consisted of interest income, dividend income, fee income and other income for each applicable period. For the year ended March 31, 2023, we reported investment income of $119.3 million, a $37.1 million, or 45.1%, increase as compared to the year ended March 31, 2022. The increase was primarily due to a $36.6 million increase in interest income generated from our debt investments due to a 3.2% increase in the weighted average yield on debt investments, a 32.6% increase in the cost basis of debt investments held by us from $802.3 million to $1,063.4 million year-over-year and an increase of $0.9 million in dividend income, partially offset by a decrease of $0.5 million in fee income. 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. 56 Interest and Fees on our Borrowings For the year ended March 31, 2023, our total interest expense was $28.9 million, an increase of $8.9 million, as compared to the total interest expense of $19.9 million for the year ended March 31, 2022. The increase was primarily attributable to an increase in average total borrowings outstanding and an increase in the weighted average interest rate on total debt. Salaries, General and Administrative Expenses For the year ended March 31, 2023, our total employee compensation expense (including both cash and share-based compensation) increased by $1.2 million, or 9.3%, as compared to the total employee compensation expense for the year ended March 31, 2022. For the year ended March 31, 2023, our total general and administrative expense was $7.8 million, an increase of $1.2 million, or 19.0%, as compared to the total general and administrative expense of $6.6 million for the year ended March 31, 2022. The increase was primarily due to an increase in audit fees, an increase in expenses related to the Company's new office space and an increase in insurance costs, as well as an increase in professional fees incurred in connection with the compensation consultant engaged by the Compensation Committee and the initial fee related to being assigned an investment grade rating by Moody's Investors Services. Net Investment Income For the year ended March 31, 2023, income before taxes increased by $25.7 million, or 59.4%. Net investment income increased from the prior year period by $26.0 million, or 61.0%, to $68.7 million as a result of a $37.1 million increase in total investment income and a $0.3 million decrease in income tax provision, partially offset by a $8.9 million increase in interest expense. Net Realized Gains (Losses) on Investments The following table provides a summary of the primary components of the total net realized loss on investments of $17.0 million for the year ended March 31, 2023: Full Exits Net Gain (Loss) Partial Exits Net Gain (Loss) Year Ended March 31, 2023 Restructures Net Gain (Loss) Other (1) Net Gain (Loss) Total Net Gain (Loss) Debt Equity Total net realized gain (loss) $ $ (1,220) $ 853 (367) $ 420 $ — 420 $ (6,983) $ (10,107) (17,090) $ 302 $ (294) 8 $ (7,481) (9,548) (17,029) (1) Included in other is a $0.1 million income tax provision related to realized gains on equity investments, as well as realized gains and losses from transactions, which are not considered to be significant individually or in the aggregate. The following table provides a summary of the primary components of the total net realized gain on investments of $5.8 million for the year ended March 31, 2022: Full Exits Net Gain (Loss) Partial Exits Net Gain (Loss) Year Ended March 31, 2022 Restructures Net Gain (Loss) Other (1) Net Gain (Loss) Total Net Gain (Loss) Debt Equity Total net realized gain (loss) $ $ 1,210 $ 7,419 8,629 $ 176 $ — 176 $ (3,649) $ — (3,649) $ 640 $ 38 678 $ (1,623) 7,457 5,834 (1) Included in other is a $1.4 million income tax provision related to realized gains on equity investments, as well as realized gains and losses from transactions, which are not considered to be significant individually or in the aggregate. 57 Net Unrealized Gains (Losses) on Investments The following table provides a summary of the total net unrealized (depreciation) appreciation on investments of $18.6 million for the year ended March 31, 2023 (amounts in thousands): Accounting reversals of net unrealized (appreciation) depreciation recognized in prior periods due to net realized (gains) losses recognized during the current period Net unrealized (depreciation) appreciation relating to portfolio investments Total net unrealized (depreciation) appreciation on investments $ $ (2,009) $ (15,366) (17,375) $ (1,257) $ 1 11,190 9,933 $ — $ (11,147) (11,147) $ (3,26 (15,32 (18,58 1 Includes a deferred tax provision of $6.5 million associated with the Taxable Subsidiary. Debt Equity I-45 SLF LLC Total Year Ended March 31, 2023 The following table provides a summary of the total net unrealized appreciation (depreciation) on investments of $11.5 million for the year ended March 31, 2022 (amounts in thousands): Accounting reversals of net unrealized depreciation (appreciation) recognized in prior periods due to net realized losses (gains) recognized during the current period Net unrealized (depreciation) appreciation relating to portfolio investments Total net unrealized appreciation (depreciation) on investments $ $ 2,000 $ (888) 1,112 $ (8,286) $ 1 21,396 13,110 $ — $ (2,755) (2,755) $ (6,286) 17,753 11,467 Debt Equity I-45 SLF LLC Total Year Ended March 31, 2022 1 Includes a deferred tax provision of $2.0 million associated with the Taxable Subsidiary. Realized Loss on Extinguishment of Debt During the year ended March 31, 2023, we did not recognize any loss on extinguishment of debt. During the year ended March 31, 2022, 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. 58 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 our continued 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 (including the Equity ATM Program, as described below). 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. In light of current market conditions, we will continually evaluate our overall liquidity position and take proactive steps to maintain that position based on the current circumstances. This "Financial Liquidity and Capital Resources" section should be read in conjunction with the notes of our consolidated financial statements. Cash Flows For the year ended March 31, 2023, we experienced a net increase in cash and cash equivalents in the amount of $10.2 million. During the foregoing period, our operating activities used $227.1 million in cash, consisting primarily of new portfolio investments of $433.2 million, partially offset by $139.1 million from sales and repayments received from debt investments in portfolio companies and $2.7 million from sales and return of capital of equity investments in portfolio companies. In addition, our financing activities provided cash of $237.5 million, consisting primarily of net proceeds from the Equity ATM Program of $158.9 million, net proceeds from an underwritten equity offering of $44.1 million, net proceeds from the issuance of SBA debentures of $78.1 million and net borrowings on our Credit Facility of $30.0 million, partially offset by cash dividends paid in the amount of $71.1 million. At March 31, 2023, the Company had cash and cash equivalents of approximately $21.6 million. For the year ended March 31, 2022, we experienced a net decrease in cash and cash equivalents in the amount of $20.2 million. During that period, our operating activities used $182.7 million in cash, consisting primarily of new portfolio investments of $499.2 million, partially offset by $259.2 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 provided cash of $164.5 million, consisting primarily of net borrowings on our Credit Facility of $85.0 million, net proceeds from the Equity ATM Program of $98.1 million, net proceeds from the issuance of the October 2026 Notes of $146.4 million and net proceeds from issuance of SBA debentures of $39.0 million, partially offset by the redemption of the October 2024 Notes of $125.0 million and cash dividends paid in the amount of $58.6 million. At March 31, 2022, the Company had cash and cash equivalents of approximately $11.4 million. Financing Transactions In accordance with the 1940 Act, 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 March 31, 2023, the Company’s asset coverage was 235%. Credit Facility In August 2016, CSWC entered into a senior secured credit facility (the “Credit Facility”) to provide additional liquidity to support its investment and operational activities. On August 9, 2021, CSWC entered into the Second Amended and Restated Senior Secured Revolving Credit Agreement (as amended or otherwise modified from time to time, 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 59 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. 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 May 11, 2022, CSWC entered into Amendment No. 2 (the "Amendment") to the Credit Agreement. The Amendment changed the benchmark interest rate from LIBOR to Adjusted Term SOFR. In addition, CSWC entered into an Incremental Commitment Agreement, pursuant to which the total commitments under the Credit Agreement increased from $335 million to $380 million. On November 16, 2022, CSWC entered into an Incremental Assumption Agreement that increased the total commitments under the accordion feature of the Credit Agreement by $20 million, which increased total commitments from $380 million to $400 million. The $20 million increase was provided by one existing lender and one new lender, bringing the total bank syndicate to eleven participants. 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 Agreement 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 Agreement, 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 March 31, 2023, substantially all of the Company’s assets were pledged as collateral for the Credit Facility, except for assets held in SBIC I. At March 31, 2023, CSWC had $235.0 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 $13.2 million, $6.2 million and $6.8 million for the years ended March 31, 2023, 2022 and 2021, respectively. The weighted average interest rate on the Credit Facility was 5.22% and 2.50% for the years ended March 31, 2023 and 2022, respectively. Average borrowings for the years ended March 31, 2023 and 2022 were $213.7 million and $173.5 million, respectively. As of March 31, 2023 and 2022, CSWC was in compliance with all financial covenants under the Credit Agreement. 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 the October 2024 Notes 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. 60 On September 24, 2021, the Company redeemed $125.0 million 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 year ended March 31, 2023. For the years ended March 31, 2022 and 2021, the Company recognized interest expense related to the October 2024 Notes, including amortization of deferred issuance costs, of $3.6 million and $6.3 million, respectively. From April 1, 2021 through September 24, 2021 (the redemption date of the October 2024 Notes), average borrowings were $125.0 million. 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 have 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. 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 March 31, 2023, the carrying amount of the January 2026 Notes was $139.1 million on an aggregate principal amount of $140.0 million at a weighted average effective yield of 4.46%. As of March 31, 2023, the fair value of the January 2026 Notes was $122.8 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 $6.6 million, $6.7 million and $1.2 million for the years ended March 31, 2023, 2022 and 2021, respectively. For each of the years ended March 31, 2023 and 2022, average borrowings were $140.0 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 January 2026 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 61 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 have 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. 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 March 31, 2023, the carrying amount of the October 2026 Notes was $147.3 million on an aggregate principal amount of $150.0 million at a weighted average effective yield of 3.5%. As of March 31, 2023, the fair value of the October 2026 Notes was $132.2 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 $5.8 million and $3.1 million for the years ended March 31, 2023, respectively. For the year ended March 31, 2023, average borrowings were $150.0 million. Since the issuance of the October 2026 Notes on August 27, 2021 through March 31, 2022, average borrowings were $132.9 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 October 2026 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 Small Business Investment Act of 1958, as amended. 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. On January 28, 2022, SBIC I received an additional leverage commitment in the amount of $40.0 million to be issued on or prior to September 30, 2026. On November 22, 2022, SBIC I received an additional leverage commitment in the amount of $50.0 million to be issued on or prior to September 30, 2027. As of March 31, 2023, SBIC I had regulatory capital of $65.0 million and leverageable capital of $65.0 million. As of March 31, 2023, SBIC I had a total leverage commitment from the SBA in the amount of $130.0 million, of which $10.0 million remains unused. 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 SBA regulations. As of March 31, 2023, the carrying amount of SBA Debentures was $116.3 million on an aggregate principal amount of $120.0 million. As of March 31, 2023, the fair value of the SBA Debentures was $115.8 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 820. The Company recognized interest expense and fees related to SBA Debentures of $3.2 million and $0.3 million for the years ended March 31, 2023 and 2022, respectively. The weighted average interest rate on 62 the SBA Debentures was 3.38% and 1.30% for the years ended March 31, 2023 and 2022, respectively. For the years ended March 31, 2023 and 2022, average borrowings were $82.6 million and $17.0 million, respectively. As of March 31, 2023, the Company's issued and outstanding SBA Debentures mature as follows (amounts in thousands): Pooling Date (1) 9/22/2021 3/23/2022 9/21/2022 3/22/2023 Maturity Date 9/1/2031 3/1/2032 9/1/2032 3/1/2033 Fixed Interest Rate 1.575% 3.209% 4.435% 5.215% $ $ March 31, 2023 15,000 25,000 40,000 40,000 120,000 (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. Equity Capital Activities On November 17, 2022, the Company completed an underwritten public equity offering of 2,534,436 shares of common stock, including shares issuable pursuant to the underwriters' option to purchase additional shares, at a public offering price of $18.15 per share, raising $46.0 million of gross proceeds. Net proceeds were $44.1 million after deducting underwriting discounts and offering expenses. 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. On August 2, 2022, the Company increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $650,000,000 from $250,000,000. The following table summarizes certain information relating to shares sold under the Equity ATM Program: Number of shares sold Gross proceeds received (in thousands) 1 Net proceeds received (in thousands) Weighted average price per share Years Ended March 31, 2023 2022 8,435,462 161,216 $ 158,798 $ 19.11 $ 3,872,031 99,636 98,142 25.73 $ $ $ 1 Net proceeds reflects proceeds after deducting commissions to the sales agents on shares sold and offering expenses. As of March 31, 2023, no proceeds remained receivable. As of March 31, 2022, $1.7 million in proceeds remained receivable and was included in other receivables in the Consolidated Statement of Assets and Liabilities. Cumulative to date, the Company has sold 16,613,122 shares of its common stock under the Equity ATM Program at a weighted-average price of $20.75, raising $344.7 million of gross proceeds. Net proceeds were $339.1 million after commissions to the sales agents on shares sold. As of March 31, 2023, the Company has $305.3 million available under the Equity ATM Program. 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 63 Company will 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 years ended March 31, 2023 and 2022, the Company did not repurchase any shares under the share repurchase program. 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. 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 generally is 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. At March 31, 2023 and March 31, 2022, we had a total of approximately $125.2 million and $134.3 million, respectively, in currently unfunded commitments (as discussed in Note 11 to the Consolidated Financial Statements). As of March 31, 2023, the total unfunded commitments included commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. As of March 31, 2023, we had $0.9 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, $0.3 million expire in August 2023, $0.4 million expire in February 2024 and $0.2 million expire in April 2024. As of March 31, 2023, 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 March 31, 2023, the Company had cash and cash equivalents of $21.6 million and $164.4 million in available borrowings under the Credit Facility. Contractual Obligations As shown below, we had the following contractual obligations as of March 31, 2023. For information on our unfunded investment commitments, see Note 11 of the Notes to Consolidated Financial Statements. Contractual Obligations Operating lease obligations Credit Facility (1) January 2026 Notes (2) October 2026 Notes (2) Payments Due By Period (in thousands) Total 4,262 $ 276,784 158,900 170,250 610,196 $ $ $ Less than 1 Year 1-3 Years 3-5 Years More Than 5 Years 406 $ 12,474 6,300 5,062 24,242 $ 842 $ 24,879 152,600 10,125 188,446 $ 882 $ 239,431 — 155,063 395,376 $ 2,132 — — — 2,132 (1) Amounts include interest payments calculated at an average rate of 5.22% of outstanding Credit Facility borrowings, which were $235.0 million as of March 31, 2023. (2) Includes interest payments. RECENT DEVELOPMENTS On April 26, 2023, the Board of Directors declared a total dividend of $0.59 per share, comprised of a regular dividend of $0.54 and a supplemental dividend of $0.05, for the quarter ending June 30, 2023. The record date for the dividend is June 15, 2023. The payment date for the dividend is June 30, 2023. On April 26, 2023, pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors designated a committee of certain 64 officers of the Company as the Board's valuation designee (the “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, effective beginning as of the fiscal quarter ending June 30, 2023. Item 7A. 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; overall market changes, including an increase in market volatility; interest rate volatility, including the decommissioning of LIBOR and rising interest rates; inflationary pressures; legislative reform; and local, regional, national or global political, social or economic instability. 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 the decommissioning of LIBOR and changes in alternate rates and prime rates, to the extent our debt investments include floating interest rates. A large portion of our portfolio is comprised of floating rate investments that utilize LIBOR, SOFR or an alternative rate. Since March 2022, the Federal Reserve has been rapidly raising interest rates and has indicated that it would consider additional rate hikes in response to ongoing inflation concerns. In a rising interest rate environment, 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. It is possible that the Federal Reserve's tightening cycle could result in a recession in the United States, which would likely lead to a decrease in interest rates. Alternatively, 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 base rates, such as LIBOR or SOFR, are not offset by a corresponding increase in the spread over such base rate that we earn on any portfolio investments or a decrease in the interest rate of our floating interest rate liabilities tied to such base rate. See “Risk Factors — 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” for more information. Our interest expenses also will be affected by changes in the published SOFR rate in connection with our Credit Facility. The interest rates on the October 2026 Notes, the January 2026 Notes and 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 March 31, 2023, we were not a party to any hedging arrangements. As of March 31, 2023, approximately 96.7% of our debt investment portfolio (at fair value) bore interest at floating rates, 100.0% of which were subject to contractual minimum interest rates. Our Credit Facility bears interest on a per annum basis equal to the applicable Adjusted Term SOFR rate plus 2.15%. We pay unused commitment fees of 0.50% to 1.00% per annum, based on utilization. The following table shows the approximate annualized increase or decrease in net investment income due to hypothetical base rate changes in interest rates, assuming no changes in our investments and borrowings as of March 31, 2023. 65 Basis Point Change Increase (decrease) in net investment income (in thousands) Increase (decrease) net investment income per share (200 bps) (150 bps) (100 bps) (50 bps) 50 bps $ (16,942) $ (12,707) (8,471) (4,236) 4,236 (0.47) (0.35) (0.23) (0.12) 0.12 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 table 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. 66 Table of Contents Item 8. Financial Statements and Supplementary Data Index to Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 49) Consolidated Statements of Assets and Liabilities as of March 31, 2023 and 2022 Consolidated Statements of Operations for Years Ended March 31, 2023, 2022 and 2021 Consolidated Statements of Changes in Net Assets for Years Ended March 31, 2023, 2022 and 2021 Consolidated Statements of Cash Flows for Years Ended March 31, 2023, 2022 and 2021 Consolidated Schedules of Investments as of March 31, 2023 and 2022 Notes to Consolidated Financial Statements 67 Page 68 70 71 72 73 74 105 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Capital Southwest Corporation and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated statements of assets and liabilities of Capital Southwest Corporation and Subsidiaries (the Company), including the consolidated schedules of investments, as of March 31, 2023 and 2022, the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended March 31, 2023, and the related notes to the consolidated financial statements and the Schedule of Investments in and Advances to Affiliates of the Company listed in Schedule 12-14 for the year ended March 31, 2023 (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations, changes in net assets, and cash flows for each of the three years in the period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America, and in our opinion, the related Schedule of Investments in and Advances to Affiliates, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of March 31, 2023 and 2022, by correspondence with the custodians or the portfolio companies and other appropriate procedures where replies were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair value of investments using significant unobservable inputs As discussed in Note 4, at March 31, 2023, the fair value of the Company’s investments categorized as Level 3 investments within the fair value hierarchy (Level 3 investments) totaled $1,155.132 million. Level 3 investments represent investments whose values are based on unobservable inputs that are significant to the overall fair value measurement. Management estimates, and the Board of Directors approves, the fair value of the Company’s Level 3 investments by applying the methodologies outlined in Notes 2 and 4 to the financial statements. We identified the fair value of Level 3 investments as a critical audit matter because of the management judgment necessary to select the valuation techniques used to estimate the fair value of the investments and to estimate the significant unobservable 68 Table of Contents inputs used in those valuation techniques. Auditing the fair value of the Company’s Level 3 investments is complex, as the valuation techniques, unobservable inputs and assumptions used by management are highly judgmental and changes could have a significant effect on the fair value measurements of such investments. The audit procedures we performed to address this critical audit matter included the following, among others: • We evaluated the appropriateness of the Company’s valuation techniques used for Level 3 investments by reviewing the reasonableness of significant changes in those valuation techniques from the prior year-end, if applicable, and also comparing to those used by market participants. • We tested the reasonableness of assumptions used by management to estimate the unobservable inputs, including market yield, financial performance measures, • and discounts rates, by comparing these inputs to market information obtained from external sources. For a sample of investments, we utilized valuation specialists, with specialized skill and knowledge, to assist with evaluation of the Company’s valuation techniques and testing the reasonableness of the assumptions used by management. • We evaluated the Company’s historical ability to estimate fair value by comparing the transaction price of available transactions occurring subsequent to the prior period valuation date against the fair value estimate determined by the Company in the prior period. • We evaluated subsequent events and other available information and considered whether this information corroborated or contradicted the Company’s year-end valuations. • We tested broker quotes using third-party quotes, if available. /s/ RSM US LLP We have served as the Company's auditor since 2017. Chicago, Illinois May 23, 2023 69 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (In thousands, except shares and per share data) March 31, 2023 March 31, 2022 Assets Investments at fair value: Non-control/Non-affiliate investments (Cost: $947,829 and $721,392, respectively) Affiliate investments (Cost: $191,523 and $140,911, respectively) Control investments (Cost: $80,800 and $76,000, respectively) Total investments (Cost: $1,220,152 and $938,303, respectively) Cash and cash equivalents Receivables: Dividends and interest Escrow Other Income tax receivable Debt issuance costs (net of accumulated amortization of $5,642 and $4,573, respectively) Other assets Total assets Liabilities SBA Debentures (Par value: $120,000 and $40,000, respectively) January 2026 Notes (Par value: $140,000 and $140,000, respectively) October 2026 Notes (Par value: $150,000 and $150,000, respectively) Credit facility Other liabilities Accrued restoration plan liability Income tax payable Deferred tax liability Total liabilities Commitments and contingencies (Note 11) $ $ $ Net Assets Common stock, $0.25 par value: authorized, 40,000,000 shares; issued, 38,415,937 shares at March 31, 2023 and 27,298,032 shares at March 31, 2022 Additional paid-in capital Total distributable (loss) earnings Treasury stock - at cost, 2,339,512 shares Total net assets Total liabilities and net assets Net asset value per share (36,076,425 shares outstanding at March 31, 2023 and 24,958,520 shares outstanding at March 31, 2022) $ $ The accompanying Notes are an integral part of these Consolidated Financial Statements. 70 966,627 $ 188,505 51,256 1,206,388 21,585 18,430 363 647 368 3,717 6,186 1,257,684 $ 116,330 $ 139,051 147,263 235,000 16,761 598 156 12,117 667,276 9,604 646,586 (41,845) (23,937) 590,408 1,257,684 $ 747,132 131,879 57,603 936,614 11,431 12,106 1,344 2,238 158 4,038 6,028 973,957 38,352 138,714 146,522 205,000 14,808 2,707 1,240 5,747 553,090 6,825 448,235 (10,256) (23,937) 420,867 973,957 16.37 $ 16.86 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except shares and per share data) Investment income: Interest income: Non-control/Non-affiliate investments Affiliate investments Payment-in-kind interest income: Non-control/Non-affiliate investments Affiliate investments Dividend income: Non-control/Non-affiliate investments Affiliate investments Control investments Fee income: Non-control/Non-affiliate investments Affiliate investments Control investments Other income Total investment income Operating expenses: Compensation Share-based compensation Interest Professional fees General and administrative Total operating expenses Income before taxes Federal income, excise and other taxes Deferred taxes Total income tax provision Net investment income Realized (loss) gain Non-control/Non-affiliate investments Affiliate investments Income tax provision Total net realized (loss) gain on investments, net of tax Net unrealized (depreciation) appreciation on investments Non-control/Non-affiliate investments Affiliate investments Control investments Income tax provision Total net unrealized (depreciation) appreciation on investments, net of tax Net realized and unrealized (losses) gains on investments Realized loss on extinguishment of debt Realized loss on disposal of fixed assets Net increase in net assets from operations Pre-tax net investment income per share - basic and diluted Net investment income per share – basic and diluted Net increase in net assets from operations – basic and diluted Weighted average shares outstanding – basic and diluted Years Ended March 31, 2022 2023 2021 $ 87,982 $ 11,658 58,136 $ 7,122 42,880 6,126 2,382 3,060 1,824 141 7,337 4,057 638 100 121 119,300 9,870 3,705 28,873 3,180 4,632 50,260 69,040 630 (301) 329 68,711 $ (5,872) $ (11,027) (130) (17,029) (6,942) 6,014 (11,147) (6,514) (18,589) (35,618) — — 33,093 $ 2.30 $ 2.29 $ 1.10 $ 2,051 1,160 1,654 28 6,720 4,833 494 — 17 82,215 8,838 3,585 19,924 2,489 4,077 38,913 43,302 181 434 615 42,687 $ 7,136 $ 140 (1,442) 5,834 20,940 (4,750) (2,755) (1,968) 11,467 17,301 (17,087) (86) 42,815 $ 1.90 $ 1.87 $ 1.87 $ $ $ $ $ $ $ 4,268 3,018 1,752 33 6,609 3,233 122 — 21 68,062 7,756 2,944 17,941 2,193 3,115 33,949 34,113 637 1,805 2,442 31,671 (6,908) (1,628) — (8,536) 21,218 (2,825) 12,598 (2,236) 28,755 20,219 (1,007) — 50,883 1.79 1.66 2.67 30,015,533 22,839,835 19,060,131 The accompanying Notes are an integral part of these Consolidated Financial Statements. 71 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (In thousands, except shares) Common Stock Treasury Stock Number of Shares Par Value Number of Shares Par Value Additional Paid-In Capital Total Distributable Earnings (Loss) Balances at March 31, 2020 Issuance of common stock Share-based compensation Issuance of common stock under restricted stock plan, net of forfeitures Common stock withheld for payroll taxes upon vesting of restricted stock Dividends to shareholders Change in restoration plan liability Reclassification for certain permanent book-to-tax differences Net increase resulting from operations Balances at March 31, 2021 Issuance of common stock Share-based compensation Issuance of common stock under restricted stock plan, net of forfeitures Common stock withheld for payroll taxes upon vesting of restricted stock Dividends to shareholders Change in restoration plan liability Reclassification for certain permanent book-to-tax differences Net increase resulting from operations Balances at March 31, 2022 Issuance of common stock Share-based compensation Issuance of common stock under restricted stock plan, net of forfeitures Common stock withheld for payroll taxes upon vesting of restricted stock Dividends to shareholders Change in restoration plan liability Reclassification for certain permanent book-to-tax differences Net increase resulting from operations Balances at March 31, 2023 17,998,098 $ 2,810,541 — 5,085 702 — 211,994 53 (15,309) — — — — 21,005,324 $ 3,872,031 — 133,289 (52,124) — — — — 24,958,520 $ 10,969,898 — (4) — — — — 5,836 969 — 33 (13) — — — — 6,825 2,742 — 197,597 49 (49,590) — — — — 36,076,425 $ (12) — — — — 9,604 72 2,339,512 $ (23,937) $ — — — — — — — — — — — — — — — — 310,846 $ 49,691 2,944 (53) (235) — (7) (6,739) — 2,339,512 $ (23,937) $ 356,447 $ — — — — — — — — — — — — — — — — 97,138 3,585 (33) (1,395) — 141 (7,648) — 2,339,512 $ (23,937) $ 448,235 $ — — — — — — — — — — — — — — — — 200,039 3,705 (49) (1,009) — 2,085 (6,420) — 2,339,512 $ (23,937) $ 646,586 $ Total Net Asset Value 272,222 50,393 2,944 — (239) (39,945) (7) — 50,883 336,251 98,107 3,585 — (1,408) (58,624) 141 — 42,815 420,867 202,781 3,705 — (1,021) (71,102) 2,085 — 33,093 590,408 (19,772) $ — — — — (39,945) — 6,739 50,883 (2,095) $ — — — — (58,624) — 7,648 42,815 (10,256) $ — — — — (71,102) — 6,420 33,093 (41,845) $ Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Cash flows from operating activities Net increase in net assets from operations Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: Purchases and originations of investments Proceeds from sales and repayments of debt investments in portfolio companies Proceeds from sales and return of capital of equity investments in portfolio companies Payment of accreted original issue discounts Payment of accrued payment-in-kind interest Depreciation and amortization Net pension benefit Realized loss (gain) on investments before income tax Realized loss on extinguishment of debt Realized loss on disposal of fixed assets Net unrealized depreciation (appreciation) on investments before income tax Accretion of discounts on investments Payment-in-kind interest Share-based compensation expense Deferred income taxes Changes in other assets and liabilities: (Increase) decrease in dividend and interest receivable Decrease (increase) in escrow receivables (Increase) decrease in tax receivable Decrease (increase) in other receivables (Increase) decrease in other assets (Decrease) increase in taxes payable Increase in other liabilities Net cash used in operating activities Cash flows from investing activities Acquisition of fixed assets Net cash used in investing activities Cash flows from financing activities Proceeds from common stock offering Equity offering costs paid Borrowings under credit facility Repayments of credit facility Debt issuance costs paid Proceeds from issuance of SBA Debentures Proceeds from issuance of October 2024 Notes Proceeds from issuance of January 2026 Notes Proceeds from issuance of October 2026 Notes Redemption of December 2022 Notes Redemption of October 2024 Notes Payment for debt extinguishment costs Dividends to shareholders Common stock withheld for payroll taxes upon vesting of restricted stock Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow disclosures: Cash paid for income taxes Cash paid for interest Years Ended March 31, 2022 2023 2021 $ 33,093 $ 42,815 $ 50,883 (433,200) 139,051 2,664 1,570 1,313 2,750 (24) 17,222 — — 12,075 (3,842) (5,965) 3,705 6,369 (6,803) 756 (209) 1,591 (128) (1,085) 1,997 (227,100) (281) (281) (499,218) 259,158 11,881 3,692 3,485 2,230 (132) (6,617) 17,103 86 (13,435) (3,005) (4,190) 3,585 2,402 (1,539) (159) (4) (2,067) (3,090) 1,191 3,153 (182,675) (1,995) (1,995) 202,956 (102) 185,000 (155,000) (1,248) 78,052 — — — — — — (71,102) (1,021) 237,535 10,154 11,431 21,585 $ 98,141 — 315,000 (230,000) (3,865) 39,026 — — 146,414 — (125,000) (15,196) (58,624) (1,408) 164,488 (20,182) 31,613 11,431 $ (219,349) 97,589 17,841 1,228 — 1,967 (110) 8,549 1,007 — (30,991) (2,347) (7,880) 2,944 3,784 (144) 493 (8) (119) 95 (463) 6,779 (68,252) — — 50,410 — 182,000 (216,000) (540) — 49,000 138,571 — (77,136) — — (39,945) (239) 86,121 17,869 13,744 31,613 1,896 $ 25,466 461 $ 18,404 1,464 11,738 $ $ The accompanying Notes are an integral part of these Consolidated Financial Statements. 73 Table of Contents Portfolio Company 1,18 Non-control/Non-affiliate 5 Investments CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 2 Type of Investment Industry Current Interest 3 Rate Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 360 QUOTE TOPCO, LLC Revolving Loan Media & marketing 6/16/2022 6/16/2027 $ 3,250 $ 3,209 $ 3,006 SOFR+6.50% (Floor 1.00%)/Q, Current Coupon 11.55% SOFR+6.50% (Floor 1.00%)/Q, Current Coupon 11.55% Healthcare services 18.00% PIK 12/11/2020 6/25/2025 10,199 6/16/2022 6/16/2027 25,000 AAC NEW HOLDCO INC. First Lien 19 10 First Lien Delayed Draw Term Loan 374,543 shares common stock Warrants (Expiration - December 11, 2025) ACACIA BUYERCO V LLC Revolver Loan 10 Software & IT services First Lien - Term Loan A 10 Delayed Draw Term Loan 1,000,000 Class B-2 Units 9,13 ACCELERATION, LLC Revolving Loan 10 Media & marketing First Lien - Term Loan A First Lien - Term Loan B 10 First Lien - Term Loan C Delayed Draw Term Loan 13,451.22 Preferred Units 1,611.22 Common Units 9,13 9,13 24,674 27,883 10,199 270 1,785 2,198 14,452 (37) 23,125 26,131 9,842 264 716 881 11,703 — 274 — — — 18.00% PIK 1/31/2023 6/25/2025 — — 12/11/2020 12/11/2020 — — 11/25/2022 11/26/2027 SOFR+6.50% (Floor 1.00%) SOFR+6.50% (Floor 1.00%)/Q, Current Coupon 11.35% SOFR+6.50% (Floor 1.00%)/Q, Current Coupon 11.43% 11/25/2022 11/26/2027 5,000 4,905 4,920 11/25/2022 11/26/2027 7,500 7,332 7,380 — 11/25/2022 — — 1,000 13,200 1,000 13,300 SOFR+8.50% (Floor 1.00%)/Q, Current 20 Coupon 13.56% SOFR+7.50% (Floor 1.00%)/Q, Current Coupon 12.35% SOFR+8.50% (Floor 1.00%)/Q, Current Coupon 13.35% SOFR+9.50% (Floor 1.00%)/Q, Current Coupon 14.35% SOFR+8.50% (Floor 1.00%) — — 74 6/13/2022 6/14/2027 3,700 3,616 3,700 6/13/2022 6/14/2027 9,228 9,067 9,228 6/13/2022 6/14/2027 9,228 9,066 9,228 6/13/2022 6/14/2027 9,228 9,066 9,228 6/13/2022 6/14/2027 6/13/2022 6/13/2022 — — — — — (42) 893 107 31,773 — 1,482 165 33,031 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry ACCELERATION PARTNERS, LLC 8 First Lien 1,019 Preferred Units 1,019 Class A Common Units 9,13 9,13 Media & marketing Current Interest 3 Rate SOFR+8.15% (Floor 1.00%)/Q, Current 20 Coupon 12.90% — 12/1/2020 12/1/2020 12/1/2025 — — 12/1/2020 — 19,550 — — Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value ACE GATHERING, INC. ALLIANCE SPORTS GROUP, L.P. 15 Second Lien Unsecured convertible Note 3.88% membership preferred interest Energy services (midstream) Consumer products & retail SOFR+12.00% (Floor 2.00%)/Q, Current Coupon 16.85% 12/13/2018 12/13/2023 7,698 6.00% PIK 7/15/2020 9/30/2024 — 8/1/2017 — 173 — 19,162 1,019 14 20,195 7,668 173 2,500 2,673 19,550 1,223 — 20,773 7,082 201 2,691 2,892 AMERICAN NUTS OPERATIONS LLC First Lien - Term Loan A Food, agriculture and beverage First Lien - Term Loan B 3,000,000 units of Class A common stock 9,13 AMERICAN TELECONFERENCING SERVICES, LTD. (DBA PREMIERE GLOBAL SERVICES, INC.) Revolving Loan 10,16 Telecommunications First Lien 16 ARBORWORKS, LLC Revolving Loan 10 Environmental services First Lien 100 Class A Units 9,13 ASC ORTHO MANAGEMENT COMPANY, LLC 2,572 Common Units 9,13 Healthcare services SOFR+6.75%, 1.00% PIK (Floor 1.00%)/Q, Current Coupon 12.49% SOFR+8.75%, 1.00% PIK (Floor 1.00%)/Q, Current Coupon 14.49% 3/11/2022 4/10/2026 11,716 11,667 10,978 3/11/2022 4/10/2026 11,716 11,667 9,958 — 4/10/2018 — — 3,000 26,334 — 20,936 P+5.50%/Q (Floor 2.00%), Current Coupon 9.00% P+5.50%/Q (Floor 2.00%), Current Coupon 9.00% L+7.00%, 3.00% PIK (Floor 1.00%)/Q, Current Coupon 14.83% L+7.00%, 3.00% PIK (Floor 1.00%)/Q, Current Coupon 14.85% — — 75 9/17/2021 4/7/2023 862 853 9/21/2016 6/8/2023 4,899 4,858 5,711 44 251 295 11/17/2021 11/9/2026 2,000 1,956 1,502 11/17/2021 11/17/2021 11/9/2026 — 12,610 — 12,417 100 14,473 9,470 — 10,972 8/31/2018 — — 1,026 847 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry ATS OPERATING, LLC Revolving Loan 10 Consumer products & retail First Lien - Term Loan A First Lien - Term Loan B 1,000,000 Preferred units 9,13 900,000 shares of common stock Distribution 1,131,579 Series A Preferred units 89,335 Series C Preferred units 9,13 9,13 Telecommunications BINSWANGER HOLDING CORP. BROAD SKY NETWORKS LLC (DBA EPIC IO TECHNOLOGIES) C&M CONVEYOR, INC. First Lien - Term Loan A 15 Business services First Lien - Term Loan B 15 CADMIUM, LLC Revolving Loan Software & IT services First Lien CAMIN CARGO CONTROL, INC. First Lien Energy services (midstream) CAVALIER BUYER, INC. Revolving Loan 10 Healthcare services First Lien 625,000 Preferred Units 625,000 Class A-1 Units 9,13 9,13 Current Interest 3 Rate SOFR+6.50% (Floor 1.00%)/Q, Current Coupon 11.39% SOFR+5.50% (Floor 1.00%)/Q, Current Coupon 10.35% SOFR+7.50% (Floor 1.00%)/Q, Current Coupon 12.35% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 1/18/2022 1/18/2027 500 462 492 1/18/2022 1/18/2027 9,250 9,104 9,102 1/18/2022 1/18/2027 9,250 9,102 9,102 — — — — 1/18/2022 3/9/2017 12/11/2020 10/21/2022 — — — — — — — — 1,000 19,668 900 1,132 89 1,221 1,000 19,696 — 1,649 130 1,779 SOFR+7.50% (Floor 1.50%)/M, Current Coupon 12.28% SOFR+5.50% (Floor 1.50%)/M, Current Coupon 10.28% L+7.00% (Floor 1.00%)/Q, Current Coupon 12.16% L+7.00% (Floor 1.00%)/Q, Current Coupon 12.16% SOFR+6.50% (Floor 1.00%)/M, Current Coupon 11.42% SOFR+8.00% (Floor 2.00%) SOFR+8.00% (Floor 2.00%)/Q, Current Coupon 12.88% — — 76 1/3/2023 9/30/2026 6,500 6,377 6,377 1/3/2023 9/30/2026 6,500 6,377 12,754 6,377 12,754 1/7/2022 12/22/2026 615 611 594 1/7/2022 12/22/2026 7,385 7,326 7,937 7,134 7,728 6/2/2021 6/4/2026 5,692 5,652 5,692 2/10/2023 2/10/2028 — (19) — 2/10/2023 2/10/2028 6,500 2/10/2023 2/10/2023 — — — — 6,372 625 — 6,978 6,372 625 — 6,997 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry CRAFTY APES, LLC 8 First Lien Media & marketing EVEREST TRANSPORTATION SYSTEMS, LLC First Lien Transportation & logistics EXACT BORROWER, LLC Revolving Loan 10 Media & marketing First Lien - Term Loan A 10 First Lien - Term Loan B Delayed Draw Term Loan Promissory Note 615.156 Common units FLIP ELECTRONICS, LLC First Lien Technology products & components Delayed Draw Term Loan 2,000,000 Common Units 9,11,13 FM SYLVAN, INC. Revolving Loan 10 Industrial services First Lien FOOD PHARMA SUBSIDIARY HOLDINGS, LLC First Lien 75,000 Class A Units 9,13 Food, agriculture & beverage Current Interest 3 Rate SOFR+7.02% (Floor 1.00%)/Q, Current 20 Coupon 12.07% SOFR+8.00% (Floor 1.00%)/M, Current Coupon 12.91% SOFR+7.50% (Floor 2.00%) SOFR+7.50% (Floor 2.00%)/Q, Current Coupon 12.24% SOFR+7.50% (Floor 2.00%)/Q, Current Coupon 12.24% SOFR+7.50% (Floor 2.00%) 13.574% SOFR+7.50% (Floor 1.00%)/Q, Current 20 Coupon 12.41% SOFR+7.50% (Floor 1.00%)/Q, Current Coupon 12.25% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 6/9/2021 11/1/2024 15,000 14,911 15,000 11/9/2021 8/26/2026 12/7/2022 8/6/2027 8,566 — 8,498 (47) 8,566 — 12/7/2022 8/6/2027 9,450 9,271 9,271 12/7/2022 8/6/2027 9,450 9,271 9,271 12/7/2022 12/7/2022 12/7/2022 8/6/2027 12/6/2028 — — 385 — (23) 385 615 — 385 770 19,472 19,697 1/4/2021 1/2/2026 31,845 31,214 31,845 3/24/2022 1/2/2026 2,818 2,777 2,818 — 1/4/2021 — — 2,000 35,991 17,678 52,341 SOFR+8.00% (Floor 1.00%)/Q, Current Coupon 12.94% SOFR+8.00% (Floor 1.00%)/Q, Current Coupon 12.85% L+6.50% (Floor 1.00%)/Q, Current Coupon 11.25% — 77 11/8/2022 11/8/2027 2,000 1,816 2,000 11/8/2022 11/8/2027 11,963 6/1/2021 6/1/2021 6/1/2026 — 7,030 — 11,737 13,553 6,908 750 7,658 11,963 13,963 7,030 911 7,941 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry GAINS INTERMEDIATE, LLC Revolving Loan 10 Business services First Lien - Term Loan A First Lien - Term Loan B Delayed Draw Term Loan 10 First Lien 1,500,000 Class A Units Warrants (Expiration - February 10, 2033) 9,13 Transportation & logistics GUARDIAN FLEET SERVICES, INC. GULF PACIFIC ACQUISITION, LLC Revolving Loan 10 Food, agriculture & beverage First Lien Delayed Draw Term Loan 10 HYBRID APPAREL, LLC Second Lien 15 INFOLINKS MEDIA BUYCO, LLC First Lien Delayed Draw Term Loan 1.68% LP interest 10 9,10,11,13 Consumer products & retail Media & marketing Current Interest 3 Rate SOFR+7.50% (Floor 2.00%) SOFR+6.50% (Floor 2.00%)/Q, Current Coupon 11.35% SOFR+8.50% (Floor 2.00%)/Q, Current Coupon 13.35% SOFR+7.50% (Floor 2.00%) SOFR+7.25%, 1.75% PIK (Floor 2.50%)/Q, Current Coupon 14.05% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 12/15/2022 12/15/2027 — (47) — 12/15/2022 12/15/2027 7,500 7,357 7,358 12/15/2022 12/15/2027 7,500 7,356 7,358 12/15/2022 12/15/2027 — 2/10/2023 2/10/2028 4,511 — — 2/10/2023 2/10/2023 — — — — (162) 14,504 — 14,716 4,376 1,500 80 5,956 4,376 1,500 80 5,956 SOFR+6.00% (Floor 1.00%)/Q, Current 20 Coupon 10.99% SOFR+6.00% (Floor 1.00%)/Q, Current Coupon 11.05% SOFR+6.00% (Floor 1.00%)/Q, Current Coupon 11.11% SOFR+8.25% (Floor 1.00%)/Q, Current Coupon 13.10% L+5.50% (Floor 1.00%)/Q, Current Coupon 10.66% L+5.50% (Floor 1.00%) — 78 9/30/2022 9/29/2028 353 335 347 9/30/2022 9/29/2028 3,642 3,574 3,573 9/30/2022 9/29/2028 303 286 4,195 297 4,217 6/30/2021 6/30/2026 15,750 15,528 13,120 11/1/2021 10/30/2026 7,653 11/1/2021 10/29/2021 10/30/2026 — — — 7,537 (16) 588 8,109 7,653 — 944 8,597 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry ISI ENTERPRISES, LLC Revolving Loan 10 Software & IT services First Lien 1,000,000 Series A Preferred units ISLAND PUMP AND TANK, LLC Revolving Loan 10 Environmental services First Lien 750,000 Preferred units 9,13 JVMC HOLDINGS CORP. First Lien Financial services KMS, INC. 15 First Lien Distribution Delayed Draw Term Loan 10 LASH OPCO, LLC Revolving Loan 10 Consumer products & retail First Lien LGM PHARMA, LLC First Lien Healthcare products Delayed Draw Term Loan Unsecured convertible note 142,278.89 units of Class A common stock 9,13 9,13 Current Interest 3 Rate L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/Q, Current Coupon 11.75% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 10/1/2021 10/1/2026 — (28) — 10/1/2021 10/1/2026 — 10/1/2021 — 5,000 — 4,926 1,000 5,898 5,000 1,000 6,000 SOFR+7.50% (Floor 2.00%)/Q, Current Coupon 12.67% SOFR+7.50% (Floor 2.00%)/Q Current Coupon 12.66% 3/2/2023 8/3/2026 500 471 471 3/2/2023 8/3/2026 9,000 8,823 8,823 — 3/2/2023 — — 750 10,044 750 10,044 L+6.50% (Floor 1.00%)/M, Current Coupon 11.34% L+7.25% (Floor 1.00%)/Q, Current Coupon 12.44% L+7.25% (Floor 1.00%)/Q, Current Coupon 12.44% L+7.00% (Floor 1.00%)/S, Current 20 Coupon 11.89% L+7.00% (Floor 1.00%)/S, Current Coupon 11.84% L+8.50% (Floor 1.00%), 1.00% PIK/Q, Current Coupon 14.16% L+10.00% (Floor 1.00%), 1.00% PIK/Q, Current Coupon 15.66% 2/28/2019 2/28/2024 6,132 6,117 6,132 10/4/2021 10/2/2026 15,800 15,681 14,299 10/4/2021 10/2/2026 2,228 2,174 17,855 2,016 16,315 12/29/2021 9/18/2025 343 336 330 12/29/2021 3/18/2026 10,532 10,315 10,651 10,110 10,440 11/15/2017 11/15/2023 11,477 11,436 11,477 7/24/2020 11/15/2023 2,501 25.00% PIK 12/21/2021 12/31/2024 — 11/15/2017 — 113 — 79 2,491 113 1,600 15,640 2,501 113 1,692 15,783 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry LIGHTNING INTERMEDIATE II, LLC (DBA VIMERGY) Revolving Loan 10 Healthcare products First Lien 0.88% LLC interest 9,13 LLFLEX, LLC First Lien 15 Containers & packaging MAKO STEEL LP Revolving Loan 10 Business services First Lien MERCURY ACQUISITION 2021, LLC (DBA TELE-TOWN HALL) First Lien Telecommunications Second Lien 2,089,599 Series A units 9,13 MICROBE FORMULAS LLC Revolving Loan 10 Healthcare products First Lien MUENSTER MILLING COMPANY, LLC Revolving Loan 10 Food, agriculture & beverage First Lien 1,000,000 Class A units 9,13 Current Interest 3 Rate SOFR+6.50% (Floor 1.00%) SOFR+6.50% (Floor 1.00%)/S, Current Coupon 11.54% — L+9.00% (Floor 1.00%)/Q, Current Coupon 13.75% L+7.25% (Floor 0.75%)/S, Current 20 Coupon 11.89% L+7.25% (Floor 0.75%)/Q, Current Coupon 12.30% L+8.00% (Floor 1.00%)/Q, Current Coupon 12.75% L+11.00% (Floor 1.00%)/Q, Current Coupon 15.75% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 6/6/2022 6/7/2027 — (31) — 6/6/2022 6/6/2022 6/7/2027 — 22,714 — 22,318 600 22,887 22,305 416 22,721 8/16/2021 8/14/2026 10,835 10,656 10,131 3/15/2021 3/13/2026 943 921 939 3/15/2021 3/13/2026 7,879 7,778 8,699 7,839 8,778 12/6/2021 12/7/2026 12,344 12,150 11,949 12/6/2021 12/7/2026 2,759 2,715 2,593 — 12/6/2021 — SOFR+6.25% (Floor 1.00%) SOFR+6.25% (Floor 1.00%)/M, Current Coupon 11.09% SOFR+7.25% (Floor 1.00%) SOFR+7.25% (Floor 1.00%)/Q, Current Coupon 11.99% 4/4/2022 4/3/2028 4/4/2022 4/3/2028 11,621 — — — 14,865 (27) 11,421 11,394 770 15,312 — 11,505 11,505 8/10/2021 8/10/2026 — (67) — 8/10/2021 8/10/2026 21,800 21,457 21,800 — 12/15/2022 — — 1,000 22,390 1,185 22,985 80 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry NATIONAL CREDIT CARE, LLC First Lien - Term Loan A Consumer services First Lien - Term Loan B 191,049.33 Class A-3 Preferred units 9,11,13 NEUROPSYCHIATRIC HOSPITALS, LLC Revolving Loan Healthcare services First Lien - Term Loan A First Lien - Term Loan B First Lien - Term Loan C NEW SKINNY MIXES, LLC Revolving Loan 10 Food, agriculture & beverage First Lien Delayed Draw Term Loan 10 NINJATRADER, INC. Revolving Loan 10 Financial services First Lien Delayed Draw Term Loan 2,000,000 Preferred Units 9,11,13 10 Current Interest 3 Rate L+6.50% (Floor 1.00%)/Q, Current Coupon 11.25% L+7.50% (Floor 1.00%)/Q, Current Coupon 12.25% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 12/23/2021 12/23/2026 9,716 9,564 9,550 12/23/2021 12/23/2026 9,716 9,563 9,550 — 3/17/2022 — — 2,000 21,127 2,000 21,100 L+8.00% (Floor 1.00%)/Q, Current Coupon 12.75% L+7.00% (Floor 1.00%)/Q, Current Coupon 11.75% L+9.00% (Floor 1.00%)/Q, Current Coupon 13.75% SOFR+10.00% (Floor 1.00%)/Q, Current Coupon 15.00% SOFR+8.00% (Floor 2.00%) SOFR+8.00% (Floor 2.00%)/Q, Current Coupon 12.79% SOFR+8.00% (Floor 2.00%) L+6.25% (Floor 1.00%) L+6.25% (Floor 1.00%)/Q, Current Coupon 11.00% L+6.25% (Floor 1.00%) 5/14/2021 5/14/2026 4,400 4,338 4,180 3/21/2023 5/14/2026 7,478 7,375 7,104 3/21/2023 5/14/2026 7,478 7,375 6,356 3/21/2023 5/14/2026 3,176 3,097 22,185 3,097 20,737 12/21/2022 12/21/2027 — (76) — 12/21/2022 12/21/2027 13,000 12,750 12,753 12/21/2022 12/21/2027 12/18/2019 12/18/2024 — — (28) 12,646 — 12,753 (3) — 12/18/2019 12/18/2024 23,150 22,864 23,150 12/31/2020 12/18/2024 — 12/18/2019 — — — (28) 2,000 24,833 — 11,138 34,288 NWN PARENT HOLDINGS, LLC Revolving Loan 10 Software & IT services First Lien SOFR+8.00% (Floor 1.00%)/Q, Current 20 Coupon 12.85% SOFR+8.00% (Floor 1.00%)/Q, Current Coupon 12.87% 81 5/7/2021 5/7/2026 1,020 997 1,006 5/7/2021 5/7/2026 12,688 12,519 13,516 12,510 13,516 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry OPCO BORROWER, LLC (DBA GIVING HOME HEALTH CARE) Revolving Loan 10 Healthcare services First Lien Second Lien Warrants (Expiration - August 19, 2029) 9 PIPELINE TECHNIQUE LTD. Revolving Loan 10 Energy services (midstream) First Lien RESEARCH NOW GROUP, INC. Second Lien Business services ROOF OPCO, LLC Revolving Loan 10 Consumer services First Lien 535,714.29 Class A Units 9,13 RTIC SUBSIDIARY HOLDINGS, LLC Revolving Loan 10 Consumer products & retail First Lien SCRIP INC. 8 First Lien 100 shares of common stock Healthcare products Current Interest 3 Rate SOFR+6.50% (Floor 1.00%) SOFR+6.50% (Floor 1.00%)/M, Current Coupon 11.50% 12.50% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 8/19/2022 8/19/2027 — (7) — 8/19/2022 8/19/2022 8/19/2027 2/19/2028 — 8/19/2022 — 9,052 3,000 — 8,970 2,755 207 11,925 9,052 3,000 399 12,451 P+6.25% (Floor 2.00%)/Q, Current Coupon 14.25% SOFR+7.25% (Floor 1.00%)/Q, Current Coupon 12.32% L+9.50% (Floor 1.00%)/S, Current Coupon 14.31% SOFR+6.50% (Floor 1.00%) SOFR+6.50% (Floor 1.00%)/Q, Current Coupon 11.35% 8/23/2022 8/19/2027 500 441 490 8/23/2022 8/19/2027 9,750 9,574 10,015 9,565 10,055 12/8/2017 12/20/2025 10,500 10,163 6,431 8/27/2021 8/27/2026 — (42) — 8/27/2021 8/27/2026 21,633 21,267 21,071 — 9/23/2022 — — 750 21,975 750 21,821 SOFR+7.75% (Floor 1.25%)/M, Current 20 Coupon 12.56% SOFR+7.75% (Floor 1.25%)/M, Current Coupon 12.52% L+10.98% (Floor 2.00%)/M, Current Coupon 15.83% — 82 9/1/2020 9/1/2025 822 813 715 9/1/2020 9/1/2025 6,166 6,123 6,936 5,364 6,079 3/21/2019 3/21/2024 16,750 16,634 15,594 3/21/2019 — — 1,000 17,634 751 16,345 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry SHEARWATER RESEARCH, 9 INC. Revolving Loan 10 Consumer products & retail First Lien 1,200,000 Class A Preferred Units 40,000 Class A Common Units SIB HOLDINGS, LLC Revolving Loan Business services First Lien 238,095.24 Common Units 9,13 SOUTH COAST TERMINALS, LLC Revolving Loan 10 Specialty chemicals First Lien SPECTRUM OF HOPE, LLC First Lien 1,000,000 Common units 9,13 Healthcare services SPOTLIGHT AR, LLC Revolving Loan 10 Business services First Lien 750 Common Units 9,11,13 SYSTEC CORPORATION (DBA INSPIRE AUTOMATION) Revolving Loan 10 Business services First Lien Current Interest 3 Rate L+6.25% (Floor 1.00%) L+6.25% (Floor 1.00%)/Q, Current Coupon 11.06% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 4/30/2021 4/30/2026 — (30) — 4/30/2021 4/30/2026 13,643 13,462 13,643 — — 4/30/2021 4/30/2021 — — — — 978 33 14,443 2,558 85 16,286 L+6.25% (Floor 1.00%)/M, Current 20 Coupon 11.23% L+6.25% (Floor 1.00%)/M, Current Coupon 11.21% 10/29/2021 10/29/2026 702 694 681 10/29/2021 10/29/2026 11,382 11,235 11,040 — 10/29/2021 — 12/13/2021 12/11/2026 12/13/2021 12/11/2026 17,839 9/6/2022 6/11/2024 22,358 22,020 21,934 — 2/17/2023 — — — 500 12,429 (28) 17,560 17,532 411 12,132 — 17,839 17,839 — — 7,481 — 1,000 23,020 (28) 7,370 750 8,092 1,000 22,934 — 7,481 972 8,453 12/8/2021 6/8/2026 12/8/2021 12/8/2021 6/8/2026 — 8/13/2021 8/13/2025 1,600 1,576 1,600 8/13/2021 8/13/2025 9,000 8,886 10,462 9,000 10,600 L+5.25% (Floor 1.00%) L+5.25% (Floor 1.00%)/M, Current Coupon 10.03% SOFR+7.50% (Floor 1.00%)/M, Current Coupon 12.24% L+6.75% (Floor 1.00%) L+6.75% (Floor 1.00%)/Q, Current Coupon 11.50% — L+7.50% (Floor 1.00%)/Q, Current 20 Coupon 12.32% L+7.50% (Floor 1.00%)/Q, Current Coupon 12.25% 83 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry THE PRODUCTO GROUP, LLC First Lien 1,500,000 Class A units 9,13 Industrial products Current Interest 3 Rate SOFR+8.00% (Floor 1.00%)/M, Current Coupon 12.92% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 12/31/2021 12/31/2026 17,655 17,355 17,655 — 12/31/2021 — — TRAFERA, LLC (FKA TRINITY 3, LLC) US COURTSCRIPT HOLDINGS, INC. 15 First Lien Unsecured convertible note 896.43 Class A units 9,13 9,11,13 Technology products & components L+6.50% (Floor 1.00%)/Q, Current Coupon 11.26% 9/30/2020 9/30/2025 5,775 10.00% PIK — 2/7/2022 11/15/2019 3/31/2026 — 92 — 9,13 First Lien 1,000,000 Class D-3 LP Units 211,862.61 Class D-4 LP Units 211,465.87 Class D-5 LP Units 9,13 9,13 Business services SOFR+6.00% (Floor 1.00%)/Q, Current 20 Coupon 10.87% 5/17/2022 5/17/2027 16,800 16,540 16,800 — — — 5/17/2022 10/31/2022 1/10/2023 — — — — — — 1,000 1,354 212 211 278 275 17,963 18,707 1,500 18,855 7,833 25,488 5,727 92 1,205 7,024 5,775 92 1,509 7,376 USA DEBUSK, LLC VERSICARE MANAGEMENT LLC First Lien Industrial services Revolving Loan 10 Healthcare services First Lien - Term Loan A Delayed Draw Term Loan 10 L+5.75% (Floor 1.00%)/M, Current Coupon 10.59% SOFR+8.00% (Floor 1.00%) SOFR+8.00% (Floor 1.00%)/Q, Current Coupon 12.85% SOFR+8.00% (Floor 1.00%)/Q, Current Coupon 13.16% VISTAR MEDIA INC. VTX HOLDINGS, INC. (DBA VERTEX ONE) 171,617 shares of Series A preferred stock 1,597,707 Series A Preferred units 9,13 9,13 Media & marketing Software & IT services — — 84 2/25/2020 9/8/2026 11,498 11,367 11,498 8/18/2022 8/18/2027 — (44) — 8/18/2022 8/18/2027 13,500 13,256 13,257 8/18/2022 8/18/2027 2,400 4/3/2019 7/23/2019 — — — — 2,332 15,544 1,874 1,598 2,357 15,614 9,054 2,694 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry WALL STREET PREP, INC. Revolving Loan 10 Education First Lien 1,000,000 Class A-1 Preferred Shares WELL-FOAM, INC. Revolving Loan 10 Energy services (upstream) First Lien WINTER SERVICES OPERATIONS, LLC Revolving Loan 10 Business services First Lien Delayed Draw Term Loan 10 ZENFOLIO INC. Revolving Loan Business services ZIPS CAR WASH, LLC First Lien Delayed Draw Term Loan - A Delayed Draw Term Loan - B Consumer services Total Non-control/Non-affiliate Investments (163.7% of net assets at fair value) Current Interest 3 Rate L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/Q, Current Coupon 11.75% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 7/19/2021 7/20/2026 — (13) — 7/19/2021 7/20/2026 10,588 10,436 10,588 — 7/19/2021 — 9/9/2021 9/9/2026 9/9/2021 9/9/2026 17,730 — — 1,000 11,423 (64) 17,466 17,402 1,205 11,793 — 17,730 17,730 11/19/2021 11/19/2026 — (65) — 11/19/2021 11/19/2026 20,000 19,693 20,000 11/19/2021 11/19/2026 — (32) 19,596 — 20,000 7/17/2017 7/17/2025 2,000 1,994 1,954 7/17/2017 7/17/2025 18,913 18,762 20,756 18,478 20,432 2/11/2022 3/1/2024 15,840 15,611 15,634 2/11/2022 3/1/2024 3,970 3,914 19,525 3,919 19,553 $ 947,829 $ 966,627 L+8.00% (Floor 1.00%) L+8.00% (Floor 1.00%)/Q, Current Coupon 12.75% L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/Q, Current Coupon 11.75% L+7.00% (Floor 1.00%) SOFR+9.00% (Floor 1.00%)/Q, Current Coupon 13.82% SOFR+9.00% (Floor 1.00%)/Q, Current Coupon 13.82% SOFR+7.25% (Floor 1.00%)/M, Current 20 Coupon 12.15% SOFR+7.25% (Floor 1.00%)/M, Current 20 Coupon 12.12% 85 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry Current Interest 3 Rate Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 6 Affiliate Investments AIR CONDITIONING SPECIALIST, INC. Revolving Loan 10 Consumer services First Lien 766,738.93 Preferred Units 9,13 CATBIRD NYC, LLC Revolving Loan 10 Consumer products & retail First Lien 1,000,000 Class A units 500,000 Class B 9,10,11,13 units 9,11,13 CENTRAL MEDICAL SUPPLY LLC Revolving Loan 10 Healthcare services First Lien Delayed Draw Capex 10 Term Loan 1,380,500 Preferred Units 9,13 SOFR+7.25% (Floor 1.00%)/Q, Current Coupon 12.40% SOFR+7.25% (Floor 1.00%)/Q, Current 20 Coupon 12.12% 11/9/2021 11/9/2026 $ 800 $ 766 $ 800 11/9/2021 11/9/2026 27,438 26,940 27,438 — 11/9/2021 — 10/15/2021 10/15/2026 — — 809 28,515 (57) 1,202 29,440 — SOFR+7.00% (Floor 1.00%) SOFR+7.00% (Floor 1.00%)/Q, Current Coupon 11.88% L+9.00% (Floor 1.75%)/Q, Current Coupon 13.75% L+9.00% (Floor 1.75%)/Q, Current Coupon 13.75% L+9.00% (Floor 1.75%)/Q, Current Coupon 13.75% 10/15/2021 10/15/2026 15,500 15,265 15,500 — — 10/15/2021 10/15/2021 — — — — 1,000 1,658 500 16,708 714 17,872 5/22/2020 5/22/2025 300 287 296 5/22/2020 5/22/2025 7,500 7,427 7,402 — 5/22/2020 5/22/2020 5/22/2025 — — 1/4/2016 100 — — 87 976 8,777 1,500 CHANDLER SIGNS, LLC 1,500,000 units of Class A-1 common stock 9,13 Business services DELPHI BEHAVIORAL HEALTH GROUP, LLC Protective Advance 16 First Lien 16 Healthcare services 16 First Lien 1,681.04 Common Units — L+16.70% PIK (Floor 1.00%)/Q, Current Coupon 21.06% L+11.00% PIK (Floor 1.00%)/S, Current Coupon 15.74% L+9.00% PIK (Floor 1.00%)/S, Current Coupon 14.13% — 86 8/31/2021 4/7/2023 1,448 1,448 4/8/2020 4/7/2023 1,649 1,649 4/8/2020 4/8/2020 4/7/2023 — 1,829 — 1,829 3,615 8,541 99 357 8,154 3,215 — — — — — Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry DYNAMIC COMMUNITIES, LLC First Lien - Term Loan A Business services Current Interest 3 Rate Acquisition Date 14 SOFR+4.50% PIK (Floor 2.00%)/Q, Current Coupon 9.41% 12/20/2022 Maturity Principal Cost 12,17 4 Fair Value 12/31/2026 3,846 3,826 3,823 9,13 First Lien - Term Loan B 250,000 Class A Preferred Units 5,435,211.03 Class B Preferred Units 255,984.22 Class C Preferred Units 2,500,000 Common units 9,13 9,13 9,13 GPT INDUSTRIES, LLC Revolving Loan 10 Industrial products 19 First Lien 1,000,000 Class A 9,13 Preferred Units GRAMMATECH, INC. Revolving Loan 10 Software & IT services First Lien 1,000 Class A units 360.06 Class A-1 units SOFR+6.50% PIK (Floor 2.00%)/ Q, Current Coupon 11.41% — — — — SOFR+9.00% (Floor 2.00%) SOFR+9.00% (Floor 2.00%)/Q, Current Coupon 13.93% 12/20/2022 12/31/2026 3,867 12/20/2022 12/20/2022 12/20/2022 12/20/2022 — — — — 1/30/2023 1/31/2028 — — — — — 1/30/2023 1/31/2028 6,150 — 1/30/2023 — SOFR+9.50% (Floor 2.00%) SOFR+9.50% (Floor 2.00%)/Q, Current Coupon 14.24% — — 11/1/2019 11/1/2024 11/1/2019 11/1/2019 1/10/2022 11/1/2024 — — — — 10,031 — — 87 3,844 250 2,218 — — 3,843 625 2,218 — — 10,138 10,509 (58) — 6,030 1,000 6,972 (14) 9,967 1,000 360 11,313 6,030 1,000 7,030 — 10,031 — 372 10,403 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry Current Interest 3 Rate Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value ITA HOLDINGS GROUP, LLC Revolving Loan Transportation & logistics First Lien - Term Loan First Lien - Term B Loan First Lien - PIK Note A First Lien - PIK Note B Warrants (Expiration - March 29, 2029) 9.25% Class A Membership Interest 9,13 9,13 LIGHTING RETROFIT INTERNATIONAL, LLC (DBA ENVOCORE) Environmental services 10 16 Revolving Loan First Lien Second Lien 208,333.3333 Series A Preferred units 203,124.9999 Common units 9,13 9,13 OUTERBOX, LLC Revolving Loan 10 Media & marketing First Lien 6,308.2584 Class A common units 9,13 SOFR+9.00%, 0.50% PIK (Floor 1.00%)/Q, Current Coupon 14.35% SOFR+8.00%, 0.50% PIK (Floor 1.00%)/Q, Current Coupon 13.35% SOFR+11.00%, 0.50% PIK (Floor 1.00%)/Q, Current Coupon 16.35% 10.00% PIK 10.00% PIK — — 7.50% 7.50% 10.00% PIK — — SOFR+6.75% (Floor 1.00%) SOFR+6.75% (Floor 1.00%)/Q, Current 20 Coupon 11.56% — 88 2/14/2018 5/12/2023 7,000 6,974 7,014 2/14/2018 5/12/2023 10,114 10,139 10,114 6/5/2018 3/29/2019 3/29/2019 3/29/2019 2/14/2018 5/12/2023 5/12/2023 5/12/2023 — — 12/31/2021 12/31/2021 12/31/2021 12/31/2021 12/31/2021 12/31/2025 12/31/2025 12/31/2026 — — 6/8/2022 6/8/2027 5,057 3,271 129 — — — 5,143 5,208 — — — 5,056 3,259 129 538 1,500 27,595 — 5,143 5,208 — — 5,068 3,255 128 4,046 4,348 33,973 — 5,143 3,594 — — 10,351 8,737 (25) — 6/8/2022 6/8/2027 14,625 14,428 14,552 6/8/2022 — — 631 15,034 773 15,325 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2023 Portfolio Company 1,18 2 Type of Investment Industry ROSELAND MANAGEMENT, LLC Revolving Loan 10 Healthcare services First Lien 3,364 Class A-2 Units 1,100 Class A-1 Units 16,084 Class A Units SONOBI, INC. 500,000 Class A Common Units 9,13 Media & marketing STATINMED, LLC First Lien Healthcare services STUDENT RESOURCE CENTER LLC Delayed Draw Term Loan 4,718.62 Class A Preferred Units 39,097.96 Class B Preferred Units First Lien 10,502,487.46 Preferred Units 2,000,000.00 Preferred Units 9,13 Current Interest 3 Rate SOFR+8.00%,2.00% PIK (Floor 2.00%)/Q, Current Coupon 14.74% SOFR+8.00%, 2.00% PIK (Floor 2.00%)/Q, Current Coupon 14.74% — — — — SOFR+9.50% PIK (Floor 2.00%)/M, Current Coupon 14.28% SOFR+9.50% PIK (Floor 2.00%)/M, Current Coupon 14.28% — — Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 11/9/2018 11/12/2024 575 566 555 11/9/2018 3/31/2023 9/26/2022 11/9/2018 11/12/2024 — — — 15,051 — — — 15,008 202 66 1,517 17,359 14,524 694 161 422 16,356 9/17/2020 — — 500 1,749 7/1/2022 7/1/2027 7,288 7,288 7,288 12/23/2022 4/15/2023 7/1/2022 7/1/2022 — — 122 — — 122 4,838 1,400 13,648 8,727 5,845 — 14,572 122 3,767 — 11,177 8,720 5,845 — 14,565 Education 8.50% PIK 12/31/2022 12/30/2027 8,889 — — 12/31/2022 12/31/2022 — — — — Total Affiliate Investments (31.9% of net assets at fair value) $ 191,523 $ 188,505 7 Control Investments 9, 10, 11 I-45 SLF LLC 80% LLC equity interest Multi-sector holdings — 10/20/2015 — Total Control Investments (8.7% of net assets at fair value) TOTAL INVESTMENTS (204.3% of net assets at fair value) — $ $ 80,800 $ 80,800 $ 51,256 51,256 $ 1,220,152 $ 1,206,388 89 Table of Contents 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 All debt investments are income-producing, unless otherwise noted. Equity investments are non-income producing, unless otherwise noted. 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. The majority of investments bear interest at a rate that may be determined by reference to Secured Overnight Financing Rate ("SOFR"), 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 SOFR, LIBOR or Prime and the current contractual interest rate in effect at March 31, 2023. Certain investments are subject to an interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest. SOFR based contracts may include a credit spread adjustment (the "Adjustment") that is charged in addition to the stated spread. The Adjustment is applied when the SOFR rate, plus the Adjustment, exceeds the stated floor rate, as applicable. As of March 31, 2023, SOFR based contracts in the portfolio had Adjustments ranging from 0.10% to 0.26161%. 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 - Fair Value Measurements for further discussion. 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, 2023, approximately 80.1% 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 163.7%. 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, 2023, approximately 15.6% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 31.9%. 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, 2023, approximately 4.2% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 8.7%. The investment is structured as a first lien last out term loan. 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 March 31, 2023, approximately 13.9% of the Company's assets were non-qualifying assets. The investment has an unfunded commitment as of March 31, 2023. Refer to Note 11 - Commitments and Contingencies for further discussion. Income producing through dividends or distributions. As of March 31, 2023, the cumulative gross unrealized appreciation for U.S. federal income tax purposes was approximately $72.3 million; cumulative gross unrealized depreciation for federal income tax purposes was $76.8 million. Cumulative net unrealized depreciation was $4.5 million, based on a tax cost of $1,210.8 million. Investment is held through a wholly-owned taxable subsidiary. 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, 2023 represented 204.3% of the Company's net assets or 95.9% of the Company's total assets, are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act. 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. Investment is on non-accrual status as of March 31, 2023, meaning the Company has ceased to recognize interest income on the investment. Negative cost in this column represents the original issue discount of certain undrawn revolvers and delayed draw term loans. 90 Table of Contents 18 19 20 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. The investment is structured as a first lien first out term loan. The rate presented represents a weighted-average rate for borrowings under the facility as of March 31, 2023. 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, 2023 is included in Note 15 - Significant Subsidiaries. The accompanying Notes are an integral part of these Consolidated Financial Statements. 91 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry Current Interest 3 Rate Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 5 Non-control/Non-affiliate Investments AAC NEW HOLDCO INC. First Lien 374,543 Common Warrants (Expiration - December 11, 2025) ACCELERATION PARTNERS, LLC 8 First Lien 1,000 Preferred Units 1,000 Class A Common Units 9,13 9,13 Healthcare services 10.00%, 8.00% PIK — 12/11/2020 12/11/2020 6/25/2025 — $ 8,653 $ — 8,653 $ 1,785 Media & marketing — 12/11/2020 — — L+8.17% (Floor 1.00%)/Q, Current Coupon 9.17% — 12/1/2020 12/1/2020 12/1/2025 — — 12/1/2020 — 11,875 — — ACE GATHERING, INC. Second Lien 15 ALLIANCE SPORTS GROUP, L.P. Unsecured convertible note 3.88% preferred membership interest Energy services (midstream) Consumer products & retail L+8.50% (Floor 2.00%)/Q, Current Coupon 10.50% 12/13/2018 12/13/2023 7,948 6.00% PIK 7/15/2020 9/30/2024 — 8/1/2017 — 173 — AMERICAN NUTS OPERATIONS LLC First Lien - Term Loan A Food, agriculture and beverage First Lien - Term Loan B 3,000,000 units of Class A common stock 9,13 AMERICAN TELECONFERENCING SERVICES, LTD. (DBA PREMIERE GLOBAL SERVICES, INC.) Revolving Loan 10,16 Telecommunications First Lien 16 AMWARE FULFILLMENT LLC First Lien Distribution SOFR+6.75% (Floor 1.00%)/Q, Current Coupon 7.75% SOFR+8.75% (Floor 1.00%)/Q, Current Coupon 9.75% 3/11/2022 4/10/2026 12,450 12,388 12,450 3/11/2022 4/10/2026 12,450 12,388 12,450 — 4/10/2018 — — 9/17/2021 6/30/2022 9/21/2016 6/8/2023 899 4,899 7/29/2016 4/15/2022 16,376 16,375 16,376 P+5.50%/Q, Current Coupon 9.00% P+5.50%/Q, Current Coupon 9.00% L+9.00% (Floor 1.00%)/M, Current Coupon 10.00% 92 8,350 1,785 2,198 12,333 11,875 1,153 — 13,028 7,765 495 3,681 4,176 2,198 12,636 11,600 1,000 — 12,600 7,881 173 2,500 2,673 3,000 27,776 890 4,858 5,748 4,195 29,095 49 269 318 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry ARBORWORKS, LLC Revolving Loan 10 Environmental services First Lien 100 Class A Units ASC ORTHO MANAGEMENT COMPANY, LLC 2,156 Common Units 9,13 Healthcare services ATS OPERATING, LLC Revolving Loan 10 Consumer products & retail First Lien - Term Loan A First Lien - Term Loan B 1,000,000 Preferred units 9,13 BINSWANGER HOLDING CORP. First Lien 900,000 shares of common stock Distribution BLASCHAK ANTHRACITE CORPORATION (FKA BLASCHAK COAL CORP.) Second Lien- Term Loan 15 Commodities & mining Second Lien- Term Loan B 15 BROAD SKY NETWORKS LLC (DBA EPIC IO TECHNOLOGIES) 1,131,579 Series A Preferred units Telecommunications CADMIUM, LLC Revolving Loan 10 Software & IT services First Lien Current Interest 3 Rate L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% — — SOFR+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% SOFR+5.50% (Floor 1.00%)/Q, Current Coupon 6.50% SOFR+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% — L+8.50% (Floor 1.00%)/M, Current Coupon 9.50% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 11/17/2021 11/9/2026 — (56) — 11/17/2021 11/17/2021 11/9/2026 — 12,903 — 8/31/2018 — — 1/18/2022 1/18/2027 1,000 12,660 100 12,704 801 952 12,657 100 12,757 584 952 1/18/2022 1/18/2027 9,250 9,071 9,071 1/18/2022 1/18/2022 1/18/2027 — 9,250 — 9,071 1,000 20,094 9,071 1,000 20,094 3/9/2017 3/10/2023 10,121 10,105 10,121 — 3/9/2017 — — 900 11,005 924 11,045 L+11.00%, 3.00% PIK (Floor 1.00%)/Q, Current Coupon 15.00% L+11.00%, 3.00% PIK (Floor 1.00%)/Q, Current Coupon 15.00% — L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 93 7/30/2018 7/30/2023 9,064 9,005 8,793 3/30/2020 7/30/2023 2,149 2,130 11,135 2,084 10,877 12/11/2020 — — 1,132 1,420 1/7/2022 12/22/2026 308 302 302 1/7/2022 12/22/2026 7,385 7,313 7,615 7,314 7,616 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry CALIFORNIA PIZZA KITCHEN, INC. 48,423 shares of common stock Restaurants CAMIN CARGO CONTROL, INC. First Lien Energy services (midstream) CITYVET, INC. Delayed Draw Term Loan 9,13 271,739 Class A units 10 Healthcare services 8 CRAFTY APES, LLC First Lien Media & marketing DUNN PAPER, INC. Second Lien Paper & forest products EVEREST TRANSPORTATION SYSTEMS, LLC First Lien Transportation & logistics FAST SANDWICH, LLC Revolving Loan 10 Restaurants First Lien FLIP ELECTRONICS, LLC First Lien Technology products & components Delayed Draw Term Loan 2,000,000 Common Units 9,11,13 10 FOOD PHARMA SUBSIDIARY HOLDINGS, LLC First Lien Food, agriculture & beverage Delayed Draw Term Loan 75,000 Class A Units 9,13 10 Current Interest 3 Rate Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value — L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% — L+6.21% (Floor 1.00%)/Q, Current Coupon 7.21% L+9.25% (Floor 1.00%)/M, Current Coupon 10.25% L+8.00% (Floor 1.00%)/M, Current Coupon 9.00% L+9.00% (Floor 1.00%) L+9.00% (Floor 1.00%)/Q,Current Coupon 10.00% SOFR+7.50% (Floor 1.00%)/M, Current Coupon 8.50% SOFR+7.50% (Floor 1.00%) 11/23/2020 — — 1,317 2,090 6/2/2021 6/4/2026 5,752 5,702 5,700 3/5/2021 3/5/2021 3/5/2026 — 13,000 — 12,656 500 13,156 13,247 1,757 15,004 6/9/2021 11/1/2024 10,000 9,921 10,000 9/28/2016 8/26/2023 3,000 2,984 2,208 11/9/2021 8/26/2026 5/24/2018 5/23/2023 8,938 — 5/24/2018 5/23/2023 3,277 8,853 (22) 3,262 3,240 8,848 — 3,277 3,277 1/4/2021 1/2/2026 17,755 17,443 17,755 3/24/2022 1/2/2026 — 1/4/2021 — — — (56) 2,000 19,387 — 6,373 24,128 L+6.50% (Floor 1.00%)/M, Current Coupon 7.50% L+6.50% (Floor 1.00%)/M, Current Coupon 7.50% — 94 6/1/2021 6/1/2026 5,000 4,914 5,000 6/1/2021 6/1/2021 6/1/2026 — 2,030 — 1,971 750 7,635 2,030 750 7,780 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry GS OPERATING, LLC Revolving Loan 10 Distribution First Lien Delayed Draw Term Loan 10 HYBRID APPAREL, LLC Second Lien 15 Consumer products & retail INFOLINKS MEDIA BUYCO, LLC First Lien Media & marketing Delayed Draw Term Loan 1.68% LP interest 9,10,13 10 ISI ENTERPRISES, LLC Revolving Loan 10 Software & IT services First Lien 1,000,000 Series A Preferred units JVMC HOLDINGS CORP. First Lien Financial services KLEIN HERSH, LLC Revolving Loan 10 Business services First Lien KMS, LLC First Lien 15 Distribution Delayed Draw Term Loan 10 Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 1/3/2022 1/3/2028 183 150 187 1/3/2022 1/3/2028 8,534 8,367 8,704 1/3/2022 1/3/2028 2,516 2,406 10,923 2,566 11,457 6/30/2021 6/30/2026 15,750 15,473 15,246 11/1/2021 10/30/2026 7,731 11/1/2021 10/29/2021 10/30/2026 — — — 7,587 (21) 588 8,154 7,615 — 588 8,203 10/1/2021 10/1/2026 800 764 800 10/1/2021 10/1/2026 — 10/1/2021 — 2/28/2019 2/28/2024 11/13/2020 11/13/2025 5,000 — 6,589 — 4,908 1,000 6,672 6,558 (13) 5,000 1,000 6,800 6,589 — 11/13/2020 11/13/2025 23,821 23,415 23,402 24,298 24,298 10/4/2021 10/2/2026 15,920 15,773 15,920 10/4/2021 10/2/2026 — (41) 15,732 — 15,920 Current Interest 3 Rate SOFR+6.00%(Floor 0.75%)/M, Current Coupon 6.75% SOFR+6.00%(Floor 0.75%)/M, Current Coupon 6.75% SOFR+6.00%(Floor 0.75%)/M, Current Coupon 6.75% L+8.25% (Floor 1.00%)/Q, Current Coupon 9.25% L+6.00% (Floor 1.00%)/M, Current Coupon 7.01% L+6.00% (Floor 1.00%) — L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% L+7.00% (Floor 1.00%)/M, Current Coupon 8.00% L+7.00% (Floor 0.75%) L+7.00% (Floor 0.75%)/Q, Current Coupon 7.85% L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% L+7.25% (Floor 1.00%) 95 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry LASH OPCO, LLC Revolving Loan 10 Consumer products & retail First Lien Delayed Draw Term Loan 10 LGM PHARMA, LLC First Lien Healthcare products Delayed Draw Term Loan Unsecured convertible note 142,278.89 units of Class A common stock 9,13 9,13 LLFLEX, LLC First Lien 15 Containers & packaging MAKO STEEL LP Revolving Loan 10 Business services First Lien MERCURY ACQUISITION 2021, LLC (DBA TELE-TOWN HALL) First Lien Telecommunications Second Lien 2,089,599 Series A units 9,13 Current Interest 3 Rate L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/M, Current Coupon 8.01% L+7.00% (Floor 1.00%)/M, Current Coupon 8.01% L+8.50% (Floor 1.00%), 2.00% PIK/Q, Current Coupon 11.50% L+10.00% (Floor 1.00%), 2.00% PIK/Q, Current Coupon 13.00% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 12/29/2021 9/18/2025 — (10) — 12/29/2021 3/18/2026 6,484 6,345 6,341 12/29/2021 3/18/2026 4,154 4,034 10,369 4,063 10,404 11/15/2017 11/15/2023 11,422 11,346 10,851 7/24/2020 11/15/2023 2,488 2,463 2,388 25.00% PIK 12/21/2021 12/31/2024 — 11/15/2017 — 88 — 88 88 1,600 15,497 376 13,703 8/16/2021 8/14/2026 10,945 10,723 10,671 3/15/2021 3/13/2026 943 913 910 3/15/2021 3/13/2026 8,032 7,900 8,813 7,751 8,661 12/6/2021 12/7/2026 12,469 12,232 12,232 12/6/2021 12/6/2021 12/7/2026 — 3,292 — 3,229 — 15,461 3,229 1,536 16,997 L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% L+7.25% (Floor (0.75%)/Q, Current Coupon 8.23% L+7.25% (Floor (0.75%)/Q, Current Coupon 8.38% L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% L+11.00% (Floor 1.00%)/Q, Current Coupon 12.00% — 96 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry MUENSTER MILLING COMPANY, LLC Revolving Loan 10 Food, agriculture & beverage First Lien Delayed Draw Term Loan 10 NATIONAL CREDIT CARE, LLC First Lien - Term Loan A Consumer services First Lien - Term Loan B 191,049.33 Class A-3 Preferred units 9,13 NEUROPSYCHIATRIC HOSPITALS, LLC Revolving Loan 10 Healthcare services First Lien Delayed Draw Term Loan 10 NINJATRADER, INC. Revolving Loan 10 Financial services First Lien Delayed Draw Term Loan 2,000,000 Preferred Units 9,11,13 10 Current Interest 3 Rate L+7.25%(Floor 1.00%) L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% L+7.25% (Floor 1.00%) L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 8/10/2021 8/10/2026 — (87) — 8/10/2021 8/10/2026 12,000 11,785 12,000 8/10/2021 8/10/2026 — (52) 11,646 — 12,000 12/23/2021 12/23/2026 11,250 11,035 11,171 12/23/2021 12/23/2026 11,250 11,035 11,171 — 3/17/2022 — — 2,000 24,070 2,000 24,342 L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% L+8.00%(Floor 1.00%)/Q, Current Coupon 9.00% L+8.00% (Floor 1.00%) L+6.25% (Floor 1.00%) L+6.25%(Floor 1.00%)/Q, Current Coupon 7.25% L+6.25% (Floor 1.00%) 5/14/2021 5/14/2026 4,400 4,317 4,299 5/14/2021 5/14/2026 14,913 14,657 14,569 5/14/2021 5/14/2026 12/18/2019 12/18/2024 — — (82) 18,892 — 18,868 (4) — 12/18/2019 12/18/2024 23,150 22,719 23,150 12/31/2020 12/18/2024 — 12/18/2019 — — — (45) 2,000 24,670 — 9,566 32,716 NWN PARENT HOLDINGS, LLC Revolving Loan 10 Software & IT services First Lien RESEARCH NOW GROUP, INC. Second Lien Business services 5/7/2021 5/7/2026 420 390 412 5/7/2021 5/7/2026 13,066 12,844 13,234 12,818 13,230 12/8/2017 12/20/2025 10,500 10,066 10,217 L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% L+9.50% (Floor 1.00%)/M, Current Coupon 10.50% 97 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry ROOF OPCO, LLC Revolving Loan 10 Consumer services First Lien Delayed Draw Term Loan 10 RTIC SUBSIDIARY HOLDINGS, LLC Revolving Loan Consumer products & retail First Lien SCRIP, INC. 8 First Lien 100 shares of common stock Healthcare products 9 SHEARWATER RESEARCH, INC. Revolving Loan 10 Consumer products & retail First Lien 10 Delayed Draw Term Loan 1,200,000 Class A Preferred Units 40,000 Class A Common Units SIB HOLDINGS, LLC Revolving Loan 10 Business services First Lien Delayed Draw Term Loan 238,095.24 Common Units 9,13 10 Current Interest 3 Rate L+6.00%(Floor 1.00%) L+6.00% (Floor 1.00%)/Q, Current Coupon 7.00% L+6.00% (Floor 1.00%)/Q, Current Coupon 7.00% L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% L+9.43% (Floor 2.00%)/M, Current Coupon 11.43% — L+6.25% (Floor 1.00%) L+6.25% (Floor 1.00%)/Q, Current Coupon 7.25% L+6.25% (Floor 1.00%) L+6.00% (Floor 1.00%)/M, Current Coupon 7.00% L+6.00% (Floor 1.00%)/M, Current Coupon 7.00% L+6.00% (Floor 1.00%) Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 8/27/2021 8/27/2026 — (53) — 8/27/2021 8/27/2026 11,000 10,802 10,791 8/27/2021 8/27/2026 7,578 7,394 18,143 7,578 18,369 9/1/2020 9/1/2025 1,370 1,357 1,370 9/1/2020 9/1/2025 6,933 3/21/2019 3/21/2019 3/21/2024 — 16,750 — 6,870 8,227 16,521 1,000 17,521 6,933 8,303 16,750 1,601 18,351 4/30/2021 4/30/2026 — (40) — 4/30/2021 4/30/2026 13,794 13,561 13,545 4/30/2021 4/30/2026 — — 4/30/2021 4/30/2021 — — 10/29/2021 10/29/2026 10/29/2021 10/29/2026 — 10/29/2021 — 98 — — — 47 (27) 978 33 — 979 33 14,505 14,557 37 46 — — (9) 500 7,852 — 500 7,869 10/29/2021 10/29/2026 7,427 7,324 7,323 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry SOUTH COAST TERMINALS, LLC Revolving Loan 10 Specialty chemicals First Lien SPOTLIGHT AR, LLC Revolving Loan 10 Business services First Lien 750 Common Units 9,13 STUDENT RESOURCE CENTER LLC Revolving Loan 10 Education First Lien 2,000 Preferred Units 9,13 SYSTEC CORPORATION (DBA INSPIRE AUTOMATION) Revolving Loan 10 Business services First Lien Delayed Draw Term Loan 10 THE PRODUCTO GROUP, LLC First Lien 1,500,000 Class A units 9,13 Industrial products TRAFERA, LLC (FKA TRINITY 3, LLC) Technology products & components 15 First Lien Unsecured convertible note 896.43 Class A units 9,13 9,11,13 USA DEBUSK, LLC First Lien Industrial services Current Interest 3 Rate L+6.25%(Floor 1.00%) L+6.25% (Floor 1.00%)/M, Current Coupon 7.25% L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% — L+8.00% (Floor 1.00%) L+8.00% (Floor 1.00%)/Q, Current Coupon 9.01% — L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% L+7.50% (Floor 1.00%) L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% — L+7.75%(Floor 1.00%)/Q, Current Coupon 8.75% Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 12/13/2021 12/11/2026 — (36) — 12/13/2021 12/11/2026 18,019 12/8/2021 6/8/2026 — 12/8/2021 12/8/2021 6/8/2026 — 7,500 — 6/25/2021 6/25/2026 — 6/25/2021 6/25/2021 6/25/2026 — 18,823 — 17,676 17,640 (37) 7,359 750 8,072 (23) 18,489 2,000 20,466 17,749 17,749 — 7,358 750 8,108 — 18,597 1,819 20,416 8/13/2021 8/13/2025 850 816 833 8/13/2021 8/13/2025 8/13/2021 8/13/2025 9,000 — 12/31/2021 12/31/2021 12/31/2026 — 12,644 — 8,844 (25) 9,635 12,401 1,500 13,901 8,820 — 9,653 12,391 1,500 13,891 9/30/2020 9/30/2025 9,875 9,764 9,835 10.00% PIK — 2/7/2022 11/15/2019 3/31/2026 — 84 — 84 1,205 11,053 84 3,000 12,919 2/25/2020 9/8/2026 11,614 11,451 11,614 L+5.75% (Floor 1.00%)/M, Current Coupon 6.75% 99 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry Current Interest 3 Rate Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value VISTAR MEDIA INC. VTX HOLDINGS, INC. (DBA VERTEX ONE) 171,617 shares of Series A preferred stock 1,597,707 Series A Preferred units Media & marketing — 4/3/2019 Software & IT services 7/23/2019 — — WALL STREET PREP, INC. Revolving Loan 10 Education First Lien 1,000,000 Class A-1 Preferred Shares WELL-FOAM, INC. Revolving Loan 10 Energy services (upstream) First Lien WINTER SERVICES OPERATIONS, LLC Revolving Loan 10 Business services First Lien Delayed Draw Term Loan 10 ZENFOLIO INC. Revolving Loan 10 Business services First Lien ZIPS CAR WASH, LLC Delayed Draw Term Loan - A Consumer services Delayed Draw Term Loan - B 10 Total Non-control/Non-affiliate Investments (177.5% of net assets at fair value) 7/19/2021 7/20/2026 7/19/2021 7/20/2026 10,863 10,670 10,656 — 7/19/2021 — — — — 1,874 1,598 (17) 9,273 2,082 — — — 1,000 11,653 (83) 17,583 17,500 1,000 11,656 — 17,910 17,910 9/9/2021 9/9/2026 9/9/2021 9/9/2026 17,910 11/19/2021 11/19/2026 2,444 2,362 2,386 11/19/2021 11/19/2026 20,000 11/19/2021 11/19/2026 — 19,624 (41) 21,945 19,520 — 21,906 7/17/2017 7/17/2023 1,000 996 995 7/17/2017 7/17/2023 18,915 18,785 19,781 18,820 19,815 2/11/2022 3/1/2024 16,000 15,691 15,691 2/11/2022 3/1/2024 199 159 15,850 159 15,850 $ 721,392 $ 747,132 — L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% L+8.50% (Floor 1.00%) L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% L+7.00% (Floor 1.00%) L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% L+7.25% (Floor 1.00%)/Q, Current Coupon 8.26% 100 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry 6 Affiliate Investments AIR CONDITIONING SPECIALIST, INC. Revolving Loan 10 Consumer services First Lien 623,693.55 Preferred Units 9,13 CATBIRD NYC, LLC Revolving Loan 10 Consumer products & retail First Lien 1,000,000 Class A units 500,000 Class B units 9,13 9,10,13 CENTRAL MEDICAL SUPPLY LLC Revolving Loan 10 Healthcare services First Lien 10 Delayed Draw Capex Term Loan 1,380,500 Preferred Units 9,13 CHANDLER SIGNS, LLC 1,500,000 units of Class A-1 common stock 9,13 Business services DELPHI BEHAVIORAL HEALTH GROUP, LLC First Lien Healthcare services First Lien Protective Advance 1,681.04 Common Units Current Interest 3 Rate Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value L+7.25% (Floor 1.00%) L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% 11/9/2021 11/9/2026 $ — $ (18) $ — 11/9/2021 11/9/2026 12,778 12,535 12,535 — 11/9/2021 — 10/15/2021 10/15/2026 10/15/2021 10/15/2021 10/15/2021 10/15/2026 — — — — 15,900 — — 624 13,141 (73) 15,606 1,000 500 17,033 634 13,169 — 15,884 1,221 572 17,677 5/22/2020 5/22/2025 300 281 290 5/22/2020 5/22/2025 7,500 7,398 7,260 5/22/2020 5/22/2020 5/22/2025 — 1/4/2016 — 100 — — 81 976 8,736 1,500 97 641 8,288 924 4/8/2020 4/7/2023 1,541 1,541 1,402 4/8/2020 4/7/2023 1,732 1,732 1,472 8/31/2021 4/8/2020 4/7/2023 — 526 — 526 3,615 7,414 526 2,460 5,860 L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% — — L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% — — L+9.50% PIK (Floor 1.00%)/Q, Current Coupon 10.50% L+9.00% PIK (Floor 1.00%)/Q, Current Coupon 10.00% L+11.50% PIK (Floor 1.00%)/Q, Current Coupon 12.50% — 101 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry DYNAMIC COMMUNITIES, LLC Revolving Loan 10 Business services First Lien Senior subordinated debt 2,000,000 Preferred Units 9,13 GRAMMATECH, INC. Revolving Loan 10 Software & IT services First Lien 1,000 Class A units 56.259 Class A-1 units ITA HOLDINGS GROUP, LLC Revolving Loan 10 Transportation & logistics First Lien - Term Loan First Lien - Term B Loan First Lien - PIK Note A First Lien - PIK Note B Warrants (Expiration - March 29, 2029) 9.25% Class A Membership Interest 9,11,13 9,13 LIGHTING RETROFIT INTERNATIONAL, LLC (DBA ENVOCORE) Environmental services 10 16 Revolving Loan First Lien Second Lien 208,333.3333 Series A Preferred units 203,124.9999 Common units 9,13 9,13 Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 7/17/2018 7/17/2023 — (1) — 7/17/2018 12/4/2020 7/17/2018 7/17/2023 1/16/2024 — 11,221 650 — 11,147 650 2,000 13,796 10,323 650 1,274 12,247 11/1/2019 11/1/2024 — (22) — 11/1/2019 11/1/2019 1/10/2022 0 11/1/2024 — — 11,500 — — 11,384 1,000 56 12,418 9,775 674 38 10,487 2/14/2018 2/14/2023 750 733 750 2/14/2018 2/14/2023 10,071 10,041 10,041 6/5/2018 3/29/2019 3/29/2019 3/29/2019 2/14/2018 12/31/2021 12/31/2021 12/31/2021 12/31/2021 12/31/2021 2/14/2023 2/14/2023 2/14/2023 — — 12/31/2025 12/31/2025 12/31/2026 — — 5,036 2,959 117 — — — 5,195 5,208 — — 5,010 2,721 117 538 1,500 20,660 — 5,195 5,208 — — 5,061 2,959 117 3,199 3,063 25,190 — 4,780 3,104 — — 10,403 7,884 Current Interest 3 Rate L+8.50% (Floor 1.00%) L+8.50% (Floor 1.00%)/Q, Current Coupon 9.51% 25.00% PIK — L+9.50% (Floor 2.00%) L+9.50% (Floor 2.00%)/Q, Current Coupon 11.50% — — L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% L+11.00% (Floor 1.00%)/Q, Current Coupon 12.00% 10.00% PIK 10.00% PIK — — 7.50% 7.50% 10.00% PIK — — 102 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2022 Portfolio Company 1,18 2 Type of Investment Industry ROSELAND MANAGEMENT, LLC Revolving Loan 10 Healthcare services First Lien 16,084 Class A Units SIMR, LLC 16 First Lien 9,374,510.2 Class B Common Units 904,903.31 Class W Units Healthcare services SONOBI, INC. 500,000 Class A Common Units 9,13 Media & marketing Total Affiliate Investments (31.3% of net assets at fair value) 7 Control Investments I-45 SLF LLC 9,10,11 80% LLC equity interest Multi-sector holdings Total Control Investments (13.7% of net assets at fair value) TOTAL INVESTMENTS (222.5% of net assets at fair value) Current Interest 3 Rate L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% — L+10.00%, 7.00% PIK (Floor 2.00%)/M, Current Coupon 19.00% — — — — Acquisition Date 14 Maturity Principal Cost 12,17 4 Fair Value 11/9/2018 11/9/2023 575 564 575 11/9/2018 11/9/2018 11/9/2023 — 14,125 — 9/7/2018 9/7/2023 13,235 9/7/2018 2/4/2021 9/17/2020 — — — — — — 14,021 1,517 16,102 13,101 6,107 — 19,208 500 14,125 1,905 16,605 10,588 — — 10,588 2,960 $ 140,911 $ 131,879 10/20/2015 — — $ $ $ 76,000 $ 76,000 $ 57,603 57,603 938,303 $ 936,614 1 2 3 4 All debt investments are income-producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted. 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. The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”), Secured Overnight Financing Rate ("SOFR") 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, SOFR or Prime and the current contractual interest rate in effect at March 31, 2022. Certain investments are subject to an interest rate floor. Certain investments, as noted, accrue payment-in- kind ("PIK") interest. 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. 103 Table of Contents 5 6 7 8 9 10 11 12 13 14 15 16 17 18 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, 2022, approximately 79.8% 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 177.5%. 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, 2022, approximately 14.1% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 31.3%. 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, 2022, approximately 6.2% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 13.7%. The investment is structured as a first lien last out term loan. 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, 2022, approximately 12.8% of the Company's assets are non-qualifying assets. The investment has an unfunded commitment as of March 31, 2022. Refer to Note 11 - Commitments and Contingencies for further discussion. Income producing through dividends or distributions. As of March 31, 2022, the cumulative gross unrealized appreciation for U.S. federal income tax purposes is approximately $67.8 million; cumulative gross unrealized depreciation for federal income tax purposes is $61.7 million. Cumulative net unrealized appreciation is $6.1 million, based on a tax cost of $852.4 million. Investment is held through a wholly-owned taxable subsidiary. 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, 2022 represented 222.5% of the Company's net assets or 96.2% of the Company's total assets, are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act. 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. Investment is on non-accrual status as of March 31, 2022, meaning the Company has ceased to recognize interest income on the investment. Represents amortized cost. Negative cost in this column represents the original issue discount of certain undrawn revolvers and delayed draw term loans. 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 March 31, 2022 is included in Note 13. Significant Subsidiaries. The accompanying Notes are an integral part of these Consolidated Financial Statements. 104 Table of Contents 1. ORGANIZATION AND BASIS OF PRESENTATION Notes to Consolidated Financial Statements 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. CSWC has elected to be regulated as a business development company under the 1940 Act. Our common stock currently trades on The Nasdaq Global Select Market under the ticker symbol “CSWC.” 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 have to pay U.S. federal income tax at corporate rates on any ordinary income or capital gains that we 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 timely 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. We may be subject to U.S. federal income tax and a 4% U.S. federal excise 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. 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 $35.0 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 $20.0 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. 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. 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 a small business investment company ("SBIC") under Section 301(c) of the Small Business Investment Act of 1958, as amended. SBIC I has an investment strategy substantially similar to ours and makes similar types of investments in accordance with SBA regulations. SBIC I and its general partner are consolidated for financial reporting purposes under generally accepted accounting principles in the United States ("U.S. GAAP"), 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 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 105 Table of Contents 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. 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 its total assets in qualifying assets. As of March 31, 2023, the Company has 86.1% of its 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; (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; and (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; and (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 106 Table of Contents 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 March 31, 2023, we satisfied all RIC requirements and have 11.3% 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 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. At March 31, 2023 and March 31, 2022, cash held in money market funds amounted to $8.9 million and $6.5 million, respectively. 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 March 31, 2023 and March 31, 2022, cash balances totaling $20.3 million and $10.2 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 the Taxable Subsidiary and SBIC I. 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 107 Table of Contents 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 March 31, 2023, investments on non-accrual status represented approximately 0.3% of our total investment portfolio's fair value and approximately 1.3% of its cost. As of March 31, 2022, investments on non-accrual status represented approximately 1.5% of our total investment portfolio's fair value and approximately 2.6% of its cost. 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 years ended March 31, 2023 and 2022, approximately 3.2% and 3.7%, 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 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 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 March 31, 2023 and March 31, 2022, we have not written off any accrued and uncollected PIK interest from prior periods. For the year ended March 31, 2023, we had three investments for which we stopped accruing PIK interest. For the year ended March 31, 2022, we had two investments for which we stopped accruing PIK interest. For the years ended March 31, 2023 and 2022, approximately 4.6% and 3.9%, 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 may 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 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 our shelf registration statement and expenses related to the launch of 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 108 Table of Contents 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 Losses 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 approximately 10 years. 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 the remaining lease term. The Company’s lease does 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 U.S. federal income taxes at corporate rates on ordinary income or capital gains timely distributed to shareholders. 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 rate U.S. 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 U.S. federal income tax paid at corporate rates 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. 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 an 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 109 Table of Contents meet the recognition of measurement criteria of ASC Topic 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 component of income tax provision. No interest or penalties expense was recorded during the years ended March 31, 2023, 2022 and 2021. 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. Stock-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 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"), which became effective on July 28, 2021, as part of the compensation package for its employees, the terms of which are, in all material respects, identical to the 2010 Plan. 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, the Company's Board of Directors and shareholders approved the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Plan (the "Non-Employee Director Plan"), which became effective on July 27, 2022, as part of the compensation package for non-employee directors of the Board of Directors. In connection therewith, on May 16, 2022, we received an exemptive order that supersedes the Order (the "Superseding Order") and covers both employees and non- employee directors of the Board of Directors. 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, generally are 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 certain lenders. Many of these agreements 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 and certain lenders 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. On December 21, 2022, the FASB issued ASU 2022-06 "Reference rate reform (Topic 848)—Deferral of the Sunset Date of Topic 848," which defers the sunset date of ASC 848 until December 31, 2024. ASU 2022-06 became effective upon issuance. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2024, except for hedging transactions as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company does not believe it will have a material impact on its consolidated financial statements or its disclosure and did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the year ended March 31, 2023. 110 Table of Contents In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which was issued to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The new guidance is effective for interim and annual periods beginning after December 15, 2023. The Company is currently evaluating the impact of the new standard on the Company's consolidated financial statements and related disclosures and does not believe it will have a material impact on its consolidated financial statements or its disclosure. 111 Table of Contents 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 March 31, 2023 and March 31, 2022: March 31, 2023: 1,2 First lien loans 2 Second lien loans 3 Subordinated debt Preferred equity Common equity & warrants 4 I-45 SLF LLC March 31, 2022: 1,2 First lien loans 2 Second lien loans 3 Subordinated debt Preferred equity Common equity & warrants 4 I-45 SLF LLC Fair Value Percentage of Total Portfolio at Fair Value Percentage of Net Assets at Fair Value (dollars in thousands) Cost Percentage of Total Portfolio at Cost $ $ $ $ 1,000,984 35,820 791 63,393 54,144 51,256 1,206,388 739,872 52,645 1,317 44,663 40,514 57,603 936,614 83.0 % 3.0 0.1 5.2 4.5 4.2 100.0 % 79.0 % 5.6 0.1 4.8 4.3 6.2 100.0 % 169.5 % $ 6.1 0.1 10.7 9.2 8.7 204.3 % $ 175.8 % $ 12.5 0.3 10.6 9.6 13.7 222.5 % $ 1,018,595 44,038 763 43,634 32,322 80,800 1,220,152 745,290 55,976 994 25,544 34,499 76,000 938,303 83.5 % 3.6 0.1 3.6 2.6 6.6 100.0 % 79.4 % 6.0 0.1 2.7 3.7 8.1 100.0 % 1 2 3 4 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 March 31, 2023 and March 31, 2022, the fair value of the first lien last out loans are $50.1 million and $38.6 million, respectively. 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 March 31, 2023 and March 31, 2022, the fair value of the split lien term loans included in first lien loans is $45.0 million and $36.4 million, respectively. As of March 31, 2023 and March 31, 2022, the fair value of the split lien term loans included in second lien loans is $20.2 million and $33.9 million, respectively. Included in subordinated debt are unsecured convertible notes with a fair value of $0.4 million and $0.7 million as of March 31, 2023 and March 31, 2022, respectively. 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 15 for further discussion. 112 Table of Contents 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 March 31, 2023 and March 31, 2022: Fair Value Percentage of Total Portfolio at Fair Value Percentage of Net Assets at Fair Value (dollars in thousands) Cost Percentage of Total Portfolio at Cost March 31, 2023: Media & Marketing Business Services Healthcare Services Consumer Services Consumer Products and Retail Food, Agriculture & Beverage Healthcare Products Technology Products & Components 1 I-45 SLF LLC Transportation & Logistics Software & IT Services Financial Services Industrial Products Environmental Services Education Industrial Services Energy Services (Midstream) Specialty Chemicals Energy Services (Upstream) Telecommunications Distribution Containers & Packaging Aerospace & Defense $ $ 149,357 146,727 126,971 91,913 86,385 68,833 66,355 59,718 51,256 48,494 47,641 40,420 32,518 29,753 26,357 25,460 22,829 17,839 17,730 17,386 16,315 10,131 6,000 1,206,388 12.4 % 12.2 10.5 7.6 7.2 5.7 5.5 5.0 4.2 4.0 3.9 3.3 2.7 2.5 2.2 2.1 1.9 1.5 1.5 1.4 1.4 0.8 0.5 100.0 % 113 25.3 % $ 24.9 21.5 15.6 14.6 11.7 11.2 10.1 8.7 8.2 8.1 6.8 5.5 5.0 4.5 4.3 3.9 3.0 3.0 2.9 2.8 1.7 1.0 204.3 % $ 139,750 147,056 143,455 91,142 86,607 73,223 67,555 43,016 80,800 42,049 47,563 30,950 25,827 34,869 25,995 24,920 23,337 17,531 17,402 21,796 18,755 10,656 5,898 1,220,152 11.5 % 12.1 11.8 7.5 7.1 6.0 5.5 3.5 6.6 3.4 3.9 2.5 2.1 2.9 2.1 2.0 1.9 1.4 1.4 1.9 1.5 0.9 0.5 100.0 % Table of Contents March 31, 2022: Business Services Consumer Products & Retail Healthcare Services Consumer Services 1 I-45 SLF LLC Distribution Food, Agriculture & Beverage Media & Marketing Financial Services Technology Products & Components Transportation & Logistics Software & IT Services Education Healthcare Products Environmental Services Telecommunications Energy Services (Upstream) Specialty Chemicals Industrial Products Energy Services (Midstream) Industrial Services Commodities & Mining Containers & Packaging Aerospace & Defense Restaurants Paper & Forest Products Fair Value Percentage of Total Portfolio at Fair Value Percentage of Net Assets at Fair Value (dollars in thousands) Cost Percentage of Total Portfolio at Cost $ $ 123,697 90,457 88,131 71,730 57,603 54,798 48,876 43,463 39,305 37,047 34,038 33,414 32,072 32,054 20,641 18,736 17,910 17,749 13,891 13,465 11,614 10,877 10,671 6,800 5,367 2,208 936,614 13.2 % 9.7 9.4 7.7 6.2 5.9 5.2 4.6 4.2 4.0 3.6 3.6 3.4 3.4 2.2 2.0 1.9 1.9 1.5 1.4 1.2 1.2 1.1 0.7 0.6 0.2 100.0 % 29.4 % $ 21.5 21.0 17.0 13.7 13.0 11.6 10.3 9.3 8.8 8.1 7.9 7.6 7.6 4.9 4.5 4.3 4.2 3.3 3.2 2.8 2.6 2.5 1.6 1.3 0.5 222.5 % $ 124,860 88,375 96,946 71,203 76,000 54,035 47,057 33,049 31,229 30,440 29,513 34,866 32,119 33,018 23,108 22,341 17,500 17,640 13,901 13,582 11,451 11,135 10,723 6,672 4,556 2,984 938,303 13.3 % 9.4 10.3 7.6 8.1 5.8 5.0 3.5 3.3 3.3 3.1 3.7 3.4 3.5 2.5 2.4 1.9 1.9 1.5 1.5 1.2 1.2 1.1 0.7 0.5 0.3 100.0 % 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 15 for further discussion. 114 Table of Contents 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 March 31, 2023 and March 31, 2022: March 31, 2023: Northeast Southeast Southwest West Midwest 1 I-45 SLF LLC International March 31, 2022: Northeast Southwest West Southeast Midwest 1 I-45 SLF LLC International Fair Value Percentage of Total Portfolio at Fair Value Percentage of Net Assets at Fair Value (dollars in thousands) Cost Percentage of Total Portfolio at Cost $ $ $ $ 269,569 235,782 234,127 233,079 156,233 51,256 26,342 1,206,388 225,578 206,057 163,924 136,588 132,308 57,603 14,556 936,614 22.3 % 19.5 19.4 19.3 13.1 4.2 2.2 100.0 % 24.1 % 22.0 17.5 14.6 14.1 6.1 1.6 100.0 % 45.7 % $ 39.9 39.6 39.5 26.4 8.7 4.5 204.3 % $ 53.6 % $ 49.0 38.9 32.5 31.4 13.7 3.4 222.5 % $ 255,995 236,333 231,467 232,109 158,989 80,800 24,459 1,220,152 221,780 204,443 153,292 138,929 129,354 76,000 14,505 938,303 21.0 % 19.4 19.0 19.0 13.0 6.6 2.0 100.0 % 23.6 % 21.8 16.3 14.9 13.8 8.1 1.5 100.0 % 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 geographic regions, which are similar to those in which CSWC invests directly. See Note 15 for further discussion. 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. 115 Table of Contents 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 determining, 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 March 31, 2023 and March 31, 2022, 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 CSWC's valuation policy and procedures that are established by the management of CSWC, with assistance from multiple third-party valuation advisors and approved by our Board of Directors. 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; 116 Table of Contents 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, 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. 117 Table of Contents 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. 118 Table of Contents The following fair value hierarchy tables set forth our investment portfolio by level as of March 31, 2023 and March 31, 2022 (in thousands): Asset Category First lien loans Second lien loans Subordinated debt Preferred equity Common equity & warrants 1 Investments measured at net asset value Total Investments Asset Category First lien loans Second lien loans Subordinated debt Preferred equity Common equity & warrants 1 Investments measured at net asset value Total Investments $ $ $ $ Quoted Prices in Active Markets for Identical Assets (Level 1) Fair Value Measurements at March 31, 2023 Using Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) — $ — — — — — — $ — $ — — — — — — $ 1,000,984 35,820 791 63,393 54,144 — 1,155,132 Total 1,000,984 $ 35,820 791 63,393 54,144 51,256 1,206,388 $ Fair Value Measurements at March 31, 2022 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Total Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 739,872 $ 52,645 1,317 44,663 40,514 57,603 936,614 $ — $ — — — — — — $ — $ — — — — — — $ 739,872 52,645 1,317 44,663 40,514 — 879,011 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 NAV per share at March 31, 2023 and March 31, 2022, 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. 119 Table of Contents 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 March 31, 2023 and March 31, 2022. 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. Type Valuation Technique Fair Value at March 31, 2023 (in thousands) Significant Unobservable Inputs First lien loans Income Approach $ 953,918 Discount Rate Market Approach Enterprise Value Waterfall Approach Second lien loans Income Approach Enterprise Value Waterfall Approach Market Approach Enterprise Value Waterfall Approach Enterprise Value Waterfall Approach Market Approach Enterprise Value Waterfall Approach Market Approach Subordinated debt Preferred equity Common equity & warrants Total Level 3 Investments Third Party Broker Quote 41,923 Cost 5,143 EBITDA Multiple Discount Rate 32,226 Discount Rate Third Party Broker Quote 3,594 EBITDA Multiple Discount Rate 205 Cost 586 EBITDA Multiple Discount Rate 59,518 EBITDA Multiple Discount Rate 3,875 Cost 53,064 EBITDA Multiple Discount Rate 1,080 Cost $ 1,155,132 120 Range 6.9% - 26.2% 5.1 - 96.5 94.1 - 98.1 9.4x - 9.4x 27.2% - 27.2% 18.3% - 34.3% 61.3 - 61.3 9.4x - 9.4x 27.2% - 27.2% 100.0 - 100.0 6.0x - 7.7x 20.2% - 25.0% 4.7x - 16.7x 11.7% - 30.8% 100.0 - 100.0 5.5x - 18.6x 11.4% - 36.6% 100.0 - 100.0 Weighted Average 13.0% 93.9 97.9 9.4x 27.2% 25.1% 61.3 9.4x 27.2% 100.0 6.6x 21.8% 9.8x 17.1% 100.0 9.5x 18.2% 100.0 Table of Contents Type Valuation Technique Fair Value at March 31, 2022 (in thousands) Significant Unobservable Inputs First lien loans Income Approach $ 645,034 Discount Rate Market Approach Second lien loans Income Approach Enterprise Value Waterfall Approach Income Approach Market Approach Enterprise Value Waterfall Approach Enterprise Value Waterfall Approach Market Approach Enterprise Value Waterfall Approach Market Approach Income Approach Subordinated debt Preferred equity Common equity & warrants Total Level 3 Investments Changes in Fair Value Levels Third Party Broker Quote 94,838 Cost Exit Value 49,541 Discount Rate Third Party Broker Quote 3,104 EBITDA Multiple Discount Rate 650 Discount Rate 172 Cost 495 EBITDA Multiple Discount Rate 41,563 EBITDA Multiple Discount Rate 3,100 Cost 36,667 EBITDA Multiple Discount Rate 1,757 Exit Value 2,090 Third Party Broker Quote $ 879,011 Range 7.3% - 30.6% 5.5 - 96.5 80.2 - 99.0 100.0 - 102.0 10.3% - 37.8% 97.3 - 97.3 8.3x - 8.3x 22.1% - 22.1% 27.4% - 27.4% 100.0 - 100.0 8.1x - 8.1x 20.5% - 20.5% 6.9x - 18.8x 12.5% - 40.8% 100.0 - 100.0 4.2x - 11.4x 10.1% - 32.2% 351.4 - 351.4 158.7 - 158.7 Weighted Average 10.7% 93.2 98.1 101.8 15.4% 97.3 8.3x 22.1% 27.4% 100.0 8.1x 20.5 10.6x 17.8% 100.0 8.5x 18.1% 351.4 158.7 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 years ended March 31, 2023 and 2022, we had no transfers between levels. 121 Table of Contents The following tables provide a summary of changes in the fair value of investments measured using Level 3 inputs during the year ended March 31, 2023 and 2022 (in thousands): Fair Value March 31, 2022 Realized & Unrealized Gains (Losses) Purchases of 1 Investments Repayments PIK Interest Capitalized Divestitures Conversion/Reclassification of Security Fair Value March 31, 2023 YTD Un Apprec (Deprecia Investmen period $ 739,872 $ (17,150) $ 415,332 $ (128,932) $ 5,577 $ — $ (13,715) $ 1,000,984 $ ( 52,645 1,317 44,663 40,514 (7,127) (398) (3,360) 10,547 2,990 385 7,788 5,747 (12,310) — — — 314 74 — — (692) — — (2,664) — (587) 14,302 — 35,820 791 63,393 54,144 $ 879,011 $ (17,488) $ 432,242 $ (141,242) $ 5,965 $ (3,356) $ — $ 1,155,132 $ Fair Value March 31, 2021 Realized & Unrealized Gains (Losses) Purchases of 1 Investments Repayments PIK Interest Capitalized Divestitures Conversion/Reclassification of Security Fair Value March 31, 2022 YTD Un Apprec (Deprecia Investmen period $ 524,161 $ 719 $ 464,758 $ (247,538) $ 2,455 $ — $ (4,683) $ 739,872 $ 36,919 11,534 22,608 36,052 (2,325) 422 11,889 12,035 18,902 364 10,691 4,308 (7,223) 1,217 (11,521) — — 518 — — (53) — — (11,881) 5,208 — (525) — 52,645 1,317 44,663 40,514 $ 631,274 $ 22,740 $ 499,023 $ (266,282) $ 4,190 $ (11,934) $ — $ 879,011 $ First lien loans Second lien loans Subordinated debt Preferred equity Common equity & warrants Total Investments First lien loans Second lien loans Subordinated debt Preferred equity Common equity & warrants Total Investments 1 Includes purchases of new investments, as well as discount accretion on existing investments. 122 Table of Contents 5. BORROWINGS In accordance with the 1940 Act, 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 March 31, 2023, the Company’s asset coverage was 235%. The Company had the following borrowings outstanding as of March 31, 2023 and March 31, 2022 (amounts in thousands): March 31, 2023 SBA Debentures Credit Facility January 2026 Notes October 2026 Notes March 31, 2022 SBA Debentures Credit Facility January 2026 Notes October 2026 Notes Outstanding Balance Unamortized Debt Issuance Costs and Debt Discount/Premium (1) Recorded Value $ $ $ $ 120,000 $ 235,000 140,000 150,000 645,000 $ 40,000 $ 205,000 140,000 150,000 535,000 $ (3,670) $ — (949) (2,737) (7,356) $ (1,648) $ — (1,286) (3,478) (6,412) $ 116,330 235,000 139,051 147,263 637,644 38,352 205,000 138,714 146,522 528,588 (1) The unamortized debt issuance costs for the Credit Facility are reflected as Debt issuance costs on the Consolidated Statements of Assets and Liabilities. Credit Facility In August 2016, CSWC entered into a senior secured credit facility (the “Credit Facility”) to provide additional liquidity to support its investment and operational activities. On August 9, 2021, CSWC entered into the Second Amended and Restated Senior Secured Revolving Credit Agreement (as amended or otherwise modified from time to time, 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. 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 May 11, 2022, CSWC entered into Amendment No. 2 (the "Amendment") to the Credit Agreement. The Amendment changed the benchmark interest rate from LIBOR to Adjusted Term SOFR. In addition, CSWC entered into an Incremental Commitment Agreement, pursuant to which the total commitments under the Credit Agreement increased from $335 million to $380 million. On November 16, 2022, CSWC entered into an Incremental Assumption Agreement that 123 Table of Contents increased the total commitments of the Credit Agreement by $20 million, which increased total commitments from $380 million to $400 million. The $20 million increase was provided by one existing lender and one new lender, bringing the total bank syndicate to eleven participants. 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 Agreement 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 Agreement, 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 March 31, 2023, substantially all of the Company’s assets were pledged as collateral for the Credit Facility, except for assets held in SBIC I. At March 31, 2023, CSWC had $235.0 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 $13.2 million, $6.2 million and $6.8 million for the years ended March 31, 2023, 2022 and 2021, respectively. The weighted average interest rate on the Credit Facility was 5.22% and 2.50% for the years ended March 31, 2023 and 2022, respectively. Average borrowings for the years ended March 31, 2023 and 2022 were $213.7 million and $173.5 million, respectively. As of March 31, 2023 and 2022, CSWC was in compliance with all financial covenants under the Credit Agreement. 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 the October 2024 Notes 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. On September 24, 2021, the Company redeemed $125.0 million 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 year ended March 31, 2023. For the years ended March 31, 2022 and 2021, the Company recognized interest expense related to the October 2024 Notes, including amortization of deferred issuance costs, of $3.6 million and $6.3 million, respectively. From April 1, 2021 through September 24, 2021 (the redemption date of the October 2024 Notes), average borrowings were $125.0 million. The October 2024 Notes had a weighted average effective yield of 5.375%. 124 Table of Contents 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 have 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. 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 March 31, 2023, the carrying amount of the January 2026 Notes was $139.1 million on an aggregate principal amount of $140.0 million at a weighted average effective yield of 4.46%. As of March 31, 2023, the fair value of the January 2026 Notes was $122.8 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 $6.6 million, $6.7 million and $1.2 million for the years ended March 31, 2023, 2022 and 2021, respectively. For each of the years ended March 31, 2023 and 2022, average borrowings were $140.0 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 January 2026 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 have 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. 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 March 31, 2023, the carrying amount of the October 2026 Notes was $147.3 million on an aggregate principal amount of $150.0 million at a weighted average effective yield of 3.5%. As of March 31, 2023, the fair value of the October 2026 Notes was $132.2 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 125 Table of Contents amortization of deferred issuance costs, of $5.8 million and $3.1 million for the years ended March 31, 2023 and 2022, respectively. For the year ended March 31, 2023, average borrowings were $150.0 million. Since the issuance of the October 2026 Notes on August 27, 2021 through March 31, 2022, average borrowings were $132.9 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 October 2026 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 Small Business Investment Act of 1958, as amended. 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. On January 28, 2022, SBIC I received an additional leverage commitment in the amount of $40.0 million to be issued on or prior to September 30, 2026. On November 22, 2022, SBIC I received an additional leverage commitment in the amount of $50.0 million to be issued on or prior to September 30, 2027. As of March 31, 2023, SBIC I had regulatory capital of $65.0 million and leverageable capital of $65.0 million. As of March 31, 2023, SBIC I had a total leverage commitment from the SBA in the amount of $130.0 million, of which $10.0 million remains unused. 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 SBA regulations. As of March 31, 2023, the carrying amount of SBA Debentures was $116.3 million on an aggregate principal amount of $120.0 million. As of March 31, 2023, the fair value of the SBA Debentures was $115.8 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 820. The Company recognized interest expense and fees related to SBA Debentures of $3.2 million and $0.3 million for the years ended March 31, 2023 and 2022, respectively. The weighted average interest rate on the SBA Debentures was 3.38% and 1.30% for the years ended March 31, 2023 and 2022, respectively. For the years ended March 31, 2023 and 2022, average borrowings were $82.6 million and $17.0 million, respectively. As of March 31, 2023, the Company's issued and outstanding SBA Debentures mature as follows (amounts in thousands): Pooling Date (1) 9/22/2021 3/23/2022 9/21/2022 3/22/2023 Maturity Date 9/1/2031 3/1/2032 9/1/2032 3/1/2033 126 Fixed Interest Rate 1.575% 3.209% 4.435% 5.215% $ $ March 31, 2023 15,000 25,000 40,000 40,000 120,000 Table of Contents (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. Contractual Payment Obligations A summary of the Company's contractual payment obligations for the repayment of outstanding indebtedness at March 31, 2023 is as follows: SBA Debentures Credit Facility January 2026 Notes October 2026 Notes Total 6. INCOME TAXES Years Ending March 31, 2024 2025 2026 2027 2028 Thereafter Total $ $ — $ — — — — $ — $ — — — — $ — $ — 140,000 — 140,000 $ — $ 235,000 — 150,000 385,000 $ — $ — — — — $ 120,000 $ — — — 120,000 $ 120,000 235,000 140,000 150,000 645,000 We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes 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 extended due date 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. For the tax years ended December 31, 2022, 2021 and 2020, 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. We have distributed or intend to distribute sufficient dividends to eliminate taxable income for our completed tax years. If we fail to satisfy the 90% distribution requirement or otherwise fail to qualify as a RIC in any tax year, we would be subject to tax in that year on all of our taxable income, regardless of whether we made any distributions to our shareholders. During the quarter ended March 31, 2023, CSWC declared a quarterly dividend in the amount of $20.9 million, or $0.58 per share ($0.53 per share in regular dividends and $0.05 per share in supplemental dividends). Our distributions for the tax years ended December 31, 2022 and 2021 were as follows: Payment Date Tax Year Ended December 31, 2022 March 31, 2022 1 June 30, 2022 September 30, 2022 2 December 31, 2022 Tax Year Ended December 31, 2021 3 March 31, 2021 3 June 30, 2021 3 September 30, 2021 4 December 31, 2021 127 Cash Dividend 0.48 0.63 0.50 0.57 2.18 0.52 0.53 0.54 0.97 2.56 $ $ $ $ Table of Contents Tax Year Ended December 31, 2020 3 March 31, 2020 3 June 30, 2020 3 September 30, 2020 3 December 31, 2020 $ $ 0.51 0.51 0.51 0.51 2.04 1 2 3 4 On June 30, 2022, CSWC paid a regular dividend of $0.48 per share and a special dividend of $0.15 per share. On December 31, 2022, CSWC paid a regular dividend of $0.52 per share and a supplemental dividend of $0.05 per share. On each of these dates, the dividend paid included a supplemental dividend of $0.10 per share. On December 31, 2021, CSWC paid a regular dividend of $0.47 per share and a supplemental dividend of $0.50 per share. 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 years ended March 31, 2023 and 2022, CSWC reclassified for book purposes amounts arising from permanent book/tax differences related to the tax treatment of return of capital and/or deemed distributions, tax treatment of investments upon disposition, and non-deductible expenses, as follows (amounts in thousands): Additional capital Total distributable earnings Years Ended March 31, 2023 2022 $ (6,420) $ 6,420 (7,648) 7,648 The determination of the tax attributes for CSWC’s distributions is made after tax year end, based upon its taxable income for the full year and distributions paid for the full tax year. Therefore, any determination made on an interim basis for fiscal year end is forward-looking based on currently available facts, rules and assumptions and may not be representative of the actual tax attributes of distributions determined at tax year end. For tax purposes, the 2022 dividends totaled $2.18 per share and were comprised entirely of ordinary income. In addition, 89.74% of each of the ordinary distributions represent interest-related dividends. 89.74% of total distributions represent the portion of CSWC’s dividends received by non-U.S. residents and foreign corporation shareholders that are generally exempt from U.S. withholding tax. For tax purposes, the 2021 dividends totaled $2.56 per share and were comprised entirely of ordinary income. In addition, 87.40% of each of the ordinary distributions represent interest-related dividends. 87.40% of total distributions represent the portion of CSWC’s dividends received by non-U.S. residents and foreign corporation shareholders that are generally exempt from U.S. withholding tax. 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 tax years ended December 31, 2022 and 2021 was as follows (amounts in thousands): Ordinary income Distributions of long term capital gains 1 Distributions on tax basis 1 Includes only those distributions which reduce estimated taxable income. Twelve Months Ended December 31, 2022 2021 $ $ 60,960 $ — 60,960 $ 56,633 — 56,633 As of March 31, 2023, CSWC estimates that it has cumulative undistributed taxable income of approximately $16.1 million, or $0.45 per share, that will be carried forward toward distributions to be paid in future periods. We intend to meet the applicable qualifications to be taxed as a RIC in future periods. 128 Table of Contents The following reconciles net increase in net assets resulting from operations to estimated RIC taxable income for the years ended March 31, 2023, 2022 and 2021: 1 Reconciliation of RIC Distributable Income Net increase in net assets from operations Net unrealized depreciation (appreciation) on investments Income/gain (expense/loss) recognized for tax on pass-through entities (Gain) loss recognized on dispositions 2 Capital loss carryover Net operating income - wholly-owned subsidiary Dividend income from wholly-owned subsidiary Non-deductible tax expense Loss on extinguishment of debt Non-deductible compensation Compensation related book/tax differences Interest on non-accrual loans Other book/tax differences Estimated distributable income before deductions for distributions 3 Distributions : Ordinary Capital gains Deemed distributions 3 Distributions payable Estimated annual RIC undistributed taxable income Years Ended March 31, 2023 2022 2021 33,093 $ 18,589 962 (1,473) 12,796 809 1,068 628 (2,726) 3,243 812 3,343 1,191 72,335 $ 70,034 $ — — — 2,301 $ 42,815 $ (11,467) 3,753 152 (878) (10,757) 4,000 65 12,268 3,679 36 4,171 1,530 49,367 $ 57,518 $ — — — (8,151) $ 50,883 (28,755) (11,000) 2,206 17,924 (378) — 1,066 — — — — 870 32,816 38,917 — — — (6,101) $ $ $ $ 1 2 3 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. At March 31, 2023, the Company had long-term capital loss carryforwards of $30.2 million to offset future capital gains. These capital loss carryforwards are not subject to expiration. Includes only those distributions which reduce estimated distributable income. As of March 31, 2023, 2022 and 2021, the components of estimated RIC accumulated earnings on a tax basis were as follows (amounts in thousands): 1 Components of RIC Accumulated Earnings on a Tax Basis Undistributed ordinary income - tax basis Undistributed net realized (loss) gain Unrealized (depreciation) appreciation on investments Other temporary differences Components of distributable earnings at year-end 2023 Years Ended March 31, 2022 2021 $ $ 16,070 $ (30,201) (61,710) (13,639) (89,480) $ 12,682 $ (17,252) (20,126) — (24,696) $ 21,083 (17,924) (766) (663) 1,730 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. 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, 2022, 2021 and 2020, there were no long-term capital gains and therefore had no deemed distributions to our shareholders or federal taxes incurred related to such items. 129 Table of Contents 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 U.S. federal income taxes at corporate rates. 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 Consolidated Statement of Operations. As of March 31, 2023, the cost of investments held at the RIC for U.S. federal income tax purposes was $1,172.7 million, with such investments having gross unrealized appreciation of $10.5 million and gross unrealized depreciation of $72.3 million, resulting in net unrealized depreciation of $61.8 million. As of March 31, 2023, the cost of investments held at the Taxable Subsidiary for U.S. federal income tax purposes was $38.1 million, with such investments having gross unrealized appreciation of $61.8 million and gross unrealized depreciation of $4.5 million, resulting in net unrealized appreciation of $57.3 million. On a consolidated basis, the total investment portfolio has net unrealized depreciation of $4.5 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 March 31, 2023 and March 31, 2022, the Taxable Subsidiary had a deferred tax liability of $12.1 million and $5.7 million, respectively. 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. 130 Table of Contents The following table sets forth the significant components of the deferred tax assets and liabilities as of March 31, 2023 and March 31, 2022 (amounts in thousands): Deferred tax asset: Net operating loss carryforwards Interest Total deferred tax asset Deferred tax liabilities: Net unrealized appreciation on investments Net basis differences in portfolio investments Total deferred tax liabilities Total net deferred tax (liabilities) assets March 31, 2023 March 31, 2022 $ $ — $ 219 219 (11,413) (923) (12,336) (12,117) $ — 185 185 (4,899) (1,033) (5,932) (5,747) The income tax provision, or benefit, and the related tax assets and liabilities, generated by CSWC and the Taxable Subsidiary, if any, are reflected in CSWC’s consolidated financial statements. For the year ended March 31, 2023, we recognized a net income tax provision of $0.3 million, principally consisting of a $0.6 million accrual for U.S. federal excise tax and a $0.3 million tax benefit relating to the Taxable Subsidiary. For the year ended March 31, 2022, we recognized a net income tax provision of $0.6 million, principally consisting of a $0.1 million accrual for U.S. federal excise tax and a $0.5 million tax provision relating to the Taxable Subsidiary. For the year ended March 31, 2021, we recognized total net income tax provision of $2.4 million, principally consisting of a $0.6 million accrual for U.S. federal excise tax and a provision for U.S. federal income taxes relating to CSMC of $1.8 million (all of which is related to the write off of the deferred tax asset at CSMC). 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, 2019 through December 31, 2021. The following table sets forth the significant components of income tax provision as of March 31, 2023, 2022 and 2021 (amounts in thousands): Components of Income Tax Provision 162(m) limitation Excise tax Write-off of deferred tax asset Tax (benefit) provision related to Taxable Subsidiary Stock compensation benefits Other Total income tax provision (benefit) 2023 Years Ended March 31, 2022 2021 $ $ — $ 630 — (301) — — 329 $ — $ 65 — 550 — — 615 $ 122 637 1,837 50 (207) 3 2,442 131 Table of Contents 7. SHAREHOLDERS' EQUITY Public Equity Offering On November 17, 2022, the Company completed an underwritten public equity offering of 2,534,436 shares of common stock, including shares issuable pursuant to the underwriters' option to purchase additional shares, at a public offering price of $18.15 per share, raising $46.0 million of gross proceeds. Net proceeds were $44.1 million after deducting underwriting discounts and offering expenses. Equity ATM Program On March 4, 2019, the Company established 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. On August 2, 2022, the Company increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $650,000,000 from $250,000,000. The following table summarizes certain information relating to shares sold under the Equity ATM Program: Number of shares sold Gross proceeds received (in thousands) 1 Net proceeds received (in thousands) Weighted average price per share Years Ended March 31, 2023 2022 8,435,462 161,216 $ 158,798 $ 19.11 $ 3,872,031 99,636 98,142 25.73 $ $ $ 1 Net proceeds reflects proceeds after deducting commissions to the sales agents on shares sold and offering expenses. As of March 31, 2023, no proceeds remained receivable. As of March 31, 2022, $1.7 million in proceeds remained receivable and was included in other receivables in the Consolidated Statement of Assets and Liabilities.. Cumulative to date, the Company has sold 16,613,122 shares of its common stock under the Equity ATM Program at a weighted-average price of $20.75, raising $344.7 million of gross proceeds. Net proceeds were $339.1 million after commissions to the sales agents on shares sold. As of March 31, 2023, the Company has $305.3 million available under the Equity ATM Program. Share Repurchases 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, which became effective on July 28, 2021, as part of the compensation package for its employees, the terms of which are, in all material respects, identical to the 2010 Plan. 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, the Company's Board of Directors and shareholders approved the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Plan (the "Non-Employee Director Plan"), which became effective on July 27, 2022, as part of the compensation package for non-employee directors of the Board of Directors. In connection therewith, on May 16, 2022, we received an exemptive order that supersedes the Order (the "Superseding Order") and covers both employees and non-employee directors of the Board of Directors. The following table summarizes certain information relating to shares repurchased in connection with the vesting of restricted stock awards: 132 Table of Contents Number of shares repurchased Aggregate cost of shares repurchased (in thousands) Weighted average price per share Years Ended March 31, 2023 2022 $ $ 49,590 1,021 $ 20.59 $ 52,124 1,408 27.01 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 will 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 years ended March 31, 2023 and 2022, the Company did not repurchase any shares under the share repurchase program. 8. STOCK BASED COMPENSATION PLANS 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 March 31, 2023, there are 1,005,633 shares of common stock available for issuance under the 2021 Employee Plan. In addition, the Company's Board of Directors and shareholders approved the Non-Employee Director Plan as part of the compensation package for non- employee directors of the Board of Directors. Under the Non-Employee Director Plan, at the beginning of each one-year term of service on our Board, each non- employee director will receive a number of shares equivalent to $50,000 based on the market value at the close of the Nasdaq Global Select Market on the date of grant. These shares will vest one year from the date of the grant and are expensed over the one-year term of non-employee directors. The Non-Employee Director Plan makes available for issuance 120,000 shares of common stock. As of March 31, 2023, there are 107,895 shares of common stock available for issuance under the Non- Employee Director 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 the fiscal years ended March 31, 2023, 2022, and 2021, we recognized total share based compensation expense of $3.7 million (of which $0.2 million was related to restricted stock issued to non-employee directors), $3.6 million and $2.9 million, respectively, related to the restricted stock issued. 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 March 31, 2023, the total remaining unrecognized compensation expense related to non-vested restricted stock awards was $7.0 million, which will be amortized over the weighted-average vesting period of approximately 2.3 years. 133 Table of Contents The following table summarizes the restricted stock outstanding under the 2010 Plan and the 2021 Employee Plan as of March 31, 2023: Restricted Stock Awards Unvested at March 31, 2021 Granted Vested Forfeited Unvested at March 31, 2022 Granted Vested Forfeited Unvested at March 31, 2023 Number of Shares Weighted Average Fair Value Per Share at grant date Weighted Average Remaining Vesting Term (in Years) 429,776 $ 172,945 (167,072) (39,656) 395,993 $ 199,042 (148,774) (13,550) 432,711 $ 17.05 27.60 17.71 16.07 21.48 21.25 20.49 24.71 21.61 The following table summarizes the restricted stock outstanding under the Non-Employee Director Plan as of March 31, 2023: Restricted Stock Awards Unvested at March 31, 2022 Granted Vested Forfeited Unvested at March 31, 2023 9. OTHER EMPLOYEE COMPENSATION Number of Shares Weighted Average Fair Value Per Share at grant date Weighted Average Remaining Vesting Term (in Years) — $ 12,105 — — 12,105 $ — 20.66 — — 20.66 2.5 — — — 2.4 — — — 2.4 — — — — 0.4 We established a 401(k) plan (the “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 each of the year ended March 31, 2023, 2022 and 2021, we made matching contributions of approximately $0.2 million. 134 Table of Contents 10. RETIREMENT PLANS CSWC sponsors an unfunded Retirement Restoration Plan, which is a nonqualified plan. Unvested accrued benefits under the Retirement Restoration Plan were forfeited as of September 30, 2015. The Retirement Restoration Plan is a frozen plan under which no new service cost is being accrued by plan participants. The following tables set forth the Retirement Restoration Plan’s net pension benefit and benefit obligation amounts at March 31, 2023, 2022 and 2021, as well as amounts recognized in our Consolidated Statements of Assets and Liabilities at March 31, 2023 and 2022 (amounts in thousands): Net pension cost Interest cost on projected benefit obligation Net amortization Net pension cost from restoration plan Change in benefit obligation Benefit obligation at beginning of year Interest cost Actuarial (gain) loss Benefits paid Benefit obligation at end of year Amounts recognized in our Consolidated Statements of Assets and Liabilities Projected benefit obligation Net actuarial (gain) loss recognized as a component of equity Total Accumulated benefit obligation Years ended March 31, 2023 2022 2021 $ $ 90 $ 33 123 $ 79 $ 37 116 $ 96 35 131 Years ended March 31, 2023 2022 2021 $ $ 2,707 $ 90 (2,052) (147) 598 $ 2,979 $ 79 (104) (247) 2,707 $ 3,082 96 42 (241) 2,979 Years ended March 31, 2023 2022 $ $ $ (598) $ (1,128) (1,726) $ (2,707) 957 (1,750) (598) $ (2,707) The corridor approach is used to amortize the actuarial gains or losses based on 10% of the projected benefit obligation. The increase in the actuarial gain in the current year was primarily due to the death of a retired participant in the Retirement Restoration Plan. 135 Table of Contents The following assumptions were used in estimating the actuarial present value of the projected benefit obligations: Discount rate The following assumptions were used in estimating the net periodic (income)/expense: Discount rate Years ended March 31, 2023 2022 2021 5.00 % 3.50 % 2.75 % Years ended March 31, 2023 2022 2021 3.50 % 2.75 % 3.25 % Following are the expected benefit payments for the next five years and in the aggregate for the years 2029-2033 (amounts in thousands): 2028 2025 2027 2024 2026 2029-2033 Restoration Plan $ 47 $ 47 $ 47 $ 46 $ 46 $ 221 136 Table of Contents 11. 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 generally is 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 unfunded debt commitments as of March 31, 2023 and March 31, 2022 were as follows (amounts in thousands): Portfolio Company Revolving Loans Acacia BuyerCo V LLC Acceleration, LLC Air Conditioning Specialist, Inc. American Teleconferencing Services, Ltd. (DBA Premiere Global Services, Inc.) ArborWorks, LLC ATS Operating, LLC Cadmium, LLC Catbird NYC, LLC Cavalier Buyer, Inc. Central Medical Supply LLC Dynamic Communities, LLC Exact Borrower, LLC Fast Sandwich, LLC FM Sylvan, Inc. Gains Intermediate, LLC GPT Industries, LLC GrammaTech, Inc. GS Operating, LLC Gulf Pacific Acquisition, LLC ISI Enterprises, LLC Island Pump and Tank, LLC ITA Holdings Group, LLC Klein Hersh, LLC Lash OpCo, LLC Lighting Retrofit International, LLC (DBA Envocore) Lightning Intermediate II, LLC Mako Steel LP Microbe Formulas LLC Muenster Milling Company, LLC NeuroPsychiatric Hospitals, LLC New Skinny Mixes, LLC NinjaTrader, Inc. NWN Parent Holdings, LLC 137 $ March 31, 2023 March 31, 2022 2,000 $ 1,300 1,200 154 1,000 2,000 — 4,000 2,000 1,200 — 2,500 — 8,000 2,500 3,000 2,500 — 657 2,000 1,000 — — 138 2,083 1,852 943 1,627 7,000 — 4,000 2,500 480 — — 1,000 117 3,000 1,500 308 4,000 — 1,200 500 — 3,100 — — — 2,500 1,540 — 1,200 — 1,250 938 481 2,083 — 943 — 5,000 600 — 2,500 1,380 Table of Contents Portfolio Company Opco Borrower, LLC (DBA Giving Home Health Care) Outerbox, LLC Pipeline Technique Ltd. Roof OpCo, LLC Roseland Management, LLC RTIC Subsidiary Holdings LLC Shearwater Research, Inc. SIB Holdings, LLC South Coast Terminals LLC Spotlight AR, LLC Student Resource Center, LLC Systec Corporation (DBA Inspire Automation) Versicare Management LLC Wall Street Prep, Inc. Well-Foam, Inc. Winter Services Operations, LLC Zenfolio Inc. Total Revolving Loans Delayed Draw Term Loans AAC New Holdco Inc. Acacia BuyerCo V LLC Acceleration, LLC Central Medical Supply LLC CityVet Inc. Exact Borrower, LLC Flip Electronics, LLC FoodPharma Subsidiary Holdings, LLC Gains Intermediate, LLC GS Operating, LLC Gulf Pacific Acquisition, LLC Infolinks Media Buyco, LLC KMS, LLC Lash OpCo, LLC Muenster Milling Company, LLC NeuroPsychiatric Hospitals, LLC New Skinny Mixes, LLC NinjaTrader, Inc. Roof OpCo, LLC Shearwater Research, Inc. SIB Holdings, LLC Systec Corporation (DBA Inspire Automation) US CourtScript Holdings, Inc. Versicare Management LLC Winter Services Operations, LLC Zips Car Wash, LLC - B 138 March 31, 2023 March 31, 2022 833 2,000 2,833 3,056 1,425 548 2,446 — 1,935 2,000 — 400 2,500 1,000 4,500 4,444 — 87,554 199 2,500 5,000 1,400 — 2,500 — — 5,000 — 1,212 2,250 2,286 — — — 3,000 4,692 — — — — — 2,600 4,444 — — — — 3,056 1,425 — 2,446 655 1,935 2,000 1,333 1,150 — 1,000 4,500 2,000 1,000 57,640 — — — 1,400 7,000 — 2,818 5,470 — 3,205 — 2,250 4,571 2,846 6,000 10,000 — 4,692 4,644 3,262 1,871 3,000 — — 4,444 3,801 Table of Contents Portfolio Company Total Delayed Draw Term Loans Total Unfunded Debt Commitments March 31, 2023 March 31, 2022 $ 37,083 124,637 $ 71,274 128,914 The following table provides additional information on the Company’s unfunded debt commitments regarding expirations (amounts in thousands): Unfunded Debt Commitments Expiring during: 2023 2024 2025 2026 2027 2028 2029 Total Unfunded Debt Commitments March 31, 2023 March 31, 2022 $ $ — $ 31,625 10,637 6,712 38,062 35,318 2,283 124,637 $ 39,946 37,321 5,000 8,194 38,453 — — 128,914 The balances of unfunded equity commitments as of March 31, 2023 and March 31, 2022 were as follows (amounts in thousands): Unfunded Equity Commitments Catbird NYC, LLC Infolinks Media Buyco, LLC I-45 SLF LLC Total Unfunded Equity Commitments March 31, 2023 March 31, 2022 $ $ 125 $ 412 — 537 $ 125 412 4,800 5,337 As of March 31, 2023, 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 March 31, 2023, the Company had $0.9 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, $0.3 million expire in August 2023, $0.4 million expire in February 2024, and $0.2 million expire in April 2024. As of March 31, 2023, 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 evaluate its leases to determine whether they should be classified as operating or financing leases. The Company previously had an operating lease for its office space that commenced October 1, 2014 and expired February 28, 2022. In March 2021, the Company executed an agreement to lease new office space that commenced on February 1, 2022 and expires September 30, 2032. The Company identified the foregoing as an operating lease. ASC 842 indicates that an ROU asset and lease liability should be recorded based on the effective date. As such, CSWC recorded an ROU asset, which is included in other assets on the Consolidated Statements of Assets and Liabilities, and a lease liability, which is included in other liabilities on the Consolidated Statements of Assets and Liabilities, as of February 1, 2022. The Company has recorded lease expense on a straight-line basis. Total lease expense incurred for the three years ended March 31, 2023, 2022 and 2021 was $0.3 million, $0.3 million and $0.2 million, respectively. As of both March 31, 2023 and 2022, the asset related to the operating lease was $1.8 million 139 Table of Contents and the lease liability was $2.8 million and $2.7 million, respectively. As of March 31, 2023, the remaining lease term was 9.5 years and the discount rate was 7.21%. The following table shows future minimum payments under the Company's operating leases as of March 31, 2023 (in thousands): Year ending March 31, 2024 2025 2026 2027 2028 Thereafter Total Contingencies Rent Commitment 406 416 426 436 446 2,132 4,262 $ $ 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. 140 Table of Contents 12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following presents a summary of the unaudited quarterly consolidated financial information for the years ended March 31, 2023 and 2022 (in thousands except per share amounts): 2023 Net investment income Net realized gain (loss) on investments, net of tax Net change in unrealized (depreciation) appreciation on investments, net of tax Net increase (decrease) in net assets from operations Pre-tax net investment income per share Net investment income per share Net increase (decrease) in net assets from operations per share 2022 Net investment income Net realized (loss) gain on investments Net change in unrealized appreciation (depreciation) on investments, net of tax Realized loss on extinguishment of debt Realized loss on disposal of fixed assets Net increase (decrease) in net assets from operations Pre-tax net investment income per share Net investment income per share Net increase (decrease) in net assets from operations per share First Quarter Second Quarter Third Quarter Fourth Quarter $ 12,438 $ 2,320 14,444 $ (8,635) 19,425 $ (11,086) 22,404 $ 372 (12,248) 2,510 0.50 0.49 0.10 3,649 9,458 0.54 0.52 0.34 (5,390) 2,949 0.60 0.62 0.09 (4,600) 18,176 0.65 0.64 0.52 First Quarter Second Quarter Third Quarter Fourth Quarter $ 9,043 $ (952) 9,726 $ 3,496 11,899 $ 2,715 12,019 $ 575 7,051 — — 15,142 0.45 0.43 0.71 (691) (17,087) — (4,556) 0.45 0.43 (0.20) (2,054) — — 12,560 0.51 0.51 0.54 7,161 — (86) 19,669 0.50 0.50 0.81 Total 68,711 (17,029) (18,589) 33,093 2.30 2.29 1.10 Total 42,687 5,834 11,467 (17,087) (86) 42,815 1.90 1.87 1.87 141 Table of Contents 13. 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 offer to provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We also are 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 years ended March 31, 2023 and 2022, we did not receive any management fees from our portfolio companies. As of both March 31, 2023 and March 31, 2022, we had dividends receivable from I-45 SLF LLC of $1.9 million, which were included in dividends and interest receivables on the Consolidated Statements of Assets and Liabilities. Additionally, we recognized administrative fee income from I-45 SLF LLC of $0.1 million for the year ended March 31, 2023, which was included in fee income on the Consolidated Statement of Operations. 142 Table of Contents 14. SUMMARY OF PER SHARE INFORMATION The following presents a summary of per share data for the years ended March 31, 2023, 2022, 2021, 2020, 2019, 2018, and 2017 (share amounts presented in thousands). Per Share Data: 1 Investment income 1 Operating expenses 1 Income taxes 1 Net investment income 1 Net realized (loss) gain, net of tax Net unrealized (depreciation) appreciation on investments, net of 1 tax 1 Realized loss on extinguishment of debt Total increase (decrease) from investment operations Accretive effect of share issuances and repurchases Dividends to shareholders Spin-off Compensation Plan Distribution, net of tax 1,2 Issuance of restricted stock Common stock withheld for payroll taxes upon vesting of restricted stock 3 Exercise of employee stock options Share based compensation expense Change in restoration plan Repurchase of common stock 4 Other (Decrease) increase in net asset value Net asset value Beginning of period End of period Ratios and Supplemental Data Ratio of operating expenses to average net assets Ratio of net investment income to average net assets Portfolio turnover 5 Total investment return 6 Total return based on change in NAV 2023 2022 2021 2020 2019 2018 2017 Years Ended March 31, $ 3.97 $ 3.60 $ 3.57 $ 3.45 $ 3.10 $ 2.18 $ (1.67) (0.01) 2.29 (0.57) (0.62) — 1.10 0.50 (2.28) — (0.14) (0.01) — 0.10 0.06 — 0.18 (0.49) (1.70) (0.03) 1.87 0.26 0.50 (0.75) 1.88 1.45 (2.52) — (0.10) (0.03) — 0.14 0.01 — 0.02 0.85 (1.78) (0.13) 1.66 (0.45) 1.51 (0.05) 2.67 0.30 (2.05) — (0.16) — — 0.14 — — (0.02) 0.88 (1.76) (0.12) 1.57 2.35 (5.16) — (1.24) 0.45 (2.75) — (0.06) — — 0.16 (0.01) 0.15 (0.19) (3.49) (1.62) (0.06) 1.42 1.24 (0.68) — 1.98 0.06 (2.27) — (0.23) (0.01) (0.12) 0.13 (0.01) — 0.01 (0.46) (1.16) (0.01) 1.01 0.10 1.34 — 2.45 (0.04) (0.99) (0.03) (0.18) (0.01) 0.01 0.11 (0.05) — 0.01 1.28 1.48 (0.87) (0.11) 0.50 0.50 0.49 — 1.49 — (0.79) (0.08) (0.15) — (0.09) 0.08 — — — 0.46 16.86 16.37 $ 16.01 16.86 15.13 16.01 $ 18.62 15.13 $ 19.08 18.62 $ $ 17.80 19.08 $ 17.34 17.80 $ 10.06 % 13.75 % 13.68 % (15.36)% 10.62 % 10.31 % 11.31 % 33.91 % 18.10 % 21.05 % 11.51 % 10.74 % 18.81 % 9.87 % 8.77 % 22.76 % 118.56 % (37.52)% 19.37 % (3.97)% 8.61 % 7.53 % 23.38 % 38.34 % 9.49 % 6.35 % 5.51 % 25.42 % 6.61 % 12.75 % 4.95 % 2.83 % 23.57 % 27.88 % 7.21 % 143 Table of Contents Per share market value at the end of the period Weighted-average basic shares outstanding Weighted-average diluted shares outstanding Common shares outstanding at end of period $ 17.78 $ 23.73 $ 22.16 $ 11.42 $ 21.04 $ 17.02 $ 30,016 30,016 36,076 22,840 22,840 24,959 19,060 19,060 21,005 18,000 18,000 17,998 16,074 16,139 17,503 16,074 16,139 16,162 16.91 15,825 15,877 16,011 1 2 3 4 5 6 Based on weighted average of common shares outstanding for the period. Reflects impact of the different share amounts as a result of issuance or forfeiture of restricted stock during the period. Net decrease is due to the exercise of employee stock options at prices less than beginning of period net asset value. 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. 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. 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. 144 Table of Contents 15. 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 March 31, 2023, total funded equity capital totaled $101.0 million, consisting of $80.8 million from CSWC and $20.2 million from Main Street. CSWC owns 80% of I-45 SLF LLC and has a current profits interest of 78.25%, while Main Street 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. As of March 31, 2023 and March 31, 2022, I-45 SLF LLC had total assets of $152.8 million and $189.1 million, respectively. I-45 SLF LLC had approximately $143.7 million and $176.7 million of total investments at fair value as of March 31, 2023 and March 31, 2022, respectively. The portfolio companies in I-45 SLF LLC are in industries similar to those in which CSWC may invest directly. For the years ended March 31, 2023 and 2022, I-45 SLF LLC declared total dividends of $9.4 million and $8.6 million, respectively. 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%. On March 30, 2023, the I-45 credit facility was further amended to permanently reduce the I-45 credit facility debt commitments to $100.0 million and replace LIBOR with Term SOFR as the reference interest rate. After giving effect to the amendment, the interest rate on borrowings is Term SOFR plus 2.41% per annum. Under the I-45 credit facility, $86.0 million has been drawn as of March 31, 2023. 145 Table of Contents At March 31, 2023, our investment in I-45 SLF LLC did not exceed the 10% threshold in any of the tests under Rule 4-08(g) and did not exceed the 20% threshold in any of the tests under Rule 3-09 of Regulation S-X. However, at March 31, 2021, our investment in I-45 SLF LLC exceeded the 10% and 20% thresholds in at least one of the tests under Rule 3-09 of Regulation S-X. Accordingly, we have included the financial statements of I-45 SLF LLC as an exhibit to our Annual Report on Form 10-K for the fiscal year ended March 31, 2023. Below is certain summarized financial information for I-45 SLF LLC as of March 31, 2023 and March 31, 2022 and for the years ended March 31, 2023, 2022 and 2021 (amounts in thousands): Selected Balance Sheet Information: Investments, at fair value (cost $169,874 and $187,714) Cash and cash equivalents Interest receivable Accounts receivable Deferred financing costs and other assets Total assets Senior credit facility payable Other liabilities Total liabilities Members’ equity Total liabilities and members' equity March 31, 2023 March 31, 2022 $ $ $ $ $ 143,712 $ 6,478 1,145 1,038 416 152,789 $ 86,000 $ 2,674 88,674 $ 64,115 152,789 $ 176,704 9,949 850 123 1,518 189,144 114,500 2,596 117,096 72,048 189,144 Selected Statement of Operations Information: Total revenues Total expenses Net investment income Net unrealized (depreciation) appreciation Net realized gains (losses) Net (decrease) increase in members’ equity resulting from operations 2023 Years Ended March 31, 2022 2021 $ $ 16,914 $ (7,542) 9,372 (15,153) 1,224 (4,557) $ 12,804 $ (4,166) 8,638 (4,569) 1,047 5,116 $ 13,930 (4,565) 9,365 30,467 (15,313) 24,519 146 Table of Contents 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 March 31, 2023 and March 31, 2022 (in thousands): Portfolio Company AAC New Holdco Inc. I-45 SLF LLC Loan Portfolio as of March 31, 2023 Industry Type Date Investment Maturity Current Interest 1 Rate Principal Cost 2 Fair Value 6/25/2025 18.00% PIK $ 2,238 $ 2,239 $ 2,160 Healthcare services First Lien Delayed Draw 5 Term Loan 304,075 shares common stock Warrants (Expiration - December 11, 2025) — — 6/25/2025 18.00% PIK ADS Tactical, Inc. American Teleconferencing Services, 3 Ltd. Aerospace & defense First Lien 3/19/2026 Telecommunications Revolving Loan 4/7/2023 Burning Glass Intermediate Holding Company, Inc. Software & IT services Corel Inc. Emerald Technologies (U.S.) Acquisitionco, Inc. Software & IT services Technology products & components First Lien Revolving 4 Loan First Lien First Lien 6/8/2023 6/10/2028 6/10/2028 7/2/2026 First Lien 12/29/2027 Evergreen AcqCo 1 LP Evergreen North America Acquisitions, LLC Geo Parent Corporation Consumer products & retail First Lien 4/26/2028 Industrial services Building & infrastructure products First Lien 8/13/2026 First Lien 12/19/2025 Infogain Corporation Software & IT services First Lien 7/28/2028 Integro Parent Inc. Business services First Lien 5/8/2023 Intermedia Holdings, Inc. Inventus Power, Inc. Software & IT services Technology products & components First Lien 7/21/2025 First Lien 3/29/2024 INW Manufacturing, LLC Food, agriculture, & beverage First Lien 3/25/2027 147 — — L+5.75% (Floor 1.00%) P+5.50% (Floor 2.00%) P+5.50% (Floor 2.00%) L+5.00% (Floor 1.00%) L+5.00% (Floor 1.00%) SOFR+5.00% SOFR+6.25% (Floor 1.00%) SOFR+5.50% (Floor 0.75%) L+6.75% (Floor 1.00%) SOFR+5.25% SOFR+5.75% (Floor 1.00%) SOFR+12.25% PIK (Floor 1.00%) L+6.00% (Floor 1.00%) SOFR+5.00% (Floor 1.00%) L+5.75% (Floor 0.75%) 60 — — 6,058 985 5,597 123 3,157 6,440 4,485 2,606 6,673 6,769 4,735 369 6,607 6,860 2,775 59 1,449 482 5,975 978 5,566 118 3,113 6,311 4,430 2,584 6,575 6,743 4,678 369 6,562 6,836 2,713 58 581 193 5,634 51 287 123 3,157 6,050 4,261 2,501 6,673 6,397 4,684 347 5,088 6,791 2,391 Table of Contents Portfolio Company Industry Type Date Investment Maturity 3 Isagenix International, LLC KORE Wireless Group Inc. Consumer products & retail Telecommunications First Lien First Lien 6/14/2025 12/20/2024 Lab Logistics, LLC Healthcare services First Lien 9/25/2023 Lash OpCo, LLC Lift Brands, Inc. Consumer services Consumer products & retail First Lien 3/18/2026 Tranche A Tranche B Tranche C 1,051 shares common stock First Lien 6/29/2025 6/29/2025 6/29/2025 — 5/9/2026 Lightbox Intermediate, L.P. Software & IT services LOGIX Holdings Company, LLC Telecommunications First Lien 12/23/2024 Mills Fleet Farm Group LLC Consumer products & retail National Credit Care Consumer services First Lien First Lien - Term Loan A First Lien - Term Loan B 10/24/2024 12/23/2026 12/23/2026 3 NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 NinjaTrader, Inc. Financial services First Lien 12/18/2024 Research Now Group, Inc. Business services First Lien 12/20/2024 Retail Services WIS Corporation Business services First Lien 5/20/2025 SIB Holdings, LLC Business services First Lien 10/29/2026 Stellant Midco, LLC Aerospace & defense First Lien 10/2/2028 Tacala, LLC Consumer products & retail First Lien 2/5/2027 TEAM Services Group, LLC Healthcare services First Lien 12/20/2027 Second Lien 2/4/2028 U.S. TelePacific Corp. Telecommunications First Lien 5/1/2026 148 Current Interest 1 Rate L+7.75% (Floor 1.00%) SOFR+5.50% SOFR+7.25% (Floor 1.00%) L+7.00% (Floor 1.00%) SOFR+7.50% (Floor 1.00%) 9.50% PIK — — L+5.00% L+5.75% (Floor 1.00%) L+6.25% (Floor 1.00%) L+6.50% (Floor 1.00%) L+7.50% (Floor 1.00%) L+5.50% (Floor 1.00%) L+6.25% (Floor 1.00%) L+5.50% (Floor 1.00%) L+7.75% (Floor 1.00%) L+6.25% (Floor 1.00%) SOFR+5.50% (Floor 0.75%) L+3.50% (Floor 0.75%) L+7.50% (Floor 0.75%) L+5.00% (Floor 1.00%) SOFR+1.00%, 7.25% PIK (Floor 1.00%) Principal Cost 2 Fair Value 1,650 5,597 1,641 5,582 10,050 10,017 6,113 2,477 602 565 — 6,876 4,443 4,491 2,159 2,159 2,606 5,000 5,874 2,827 2,929 2,265 990 6,000 6,620 5,999 2,477 602 565 749 6,831 4,431 4,462 2,125 2,125 2,593 4,939 5,837 2,793 2,884 2,247 950 5,958 6,582 561 5,317 9,929 5,868 2,427 548 514 553 6,636 3,638 4,401 2,122 2,122 78 5,000 4,505 2,742 2,841 2,172 974 5,501 6,454 5,635 5,635 1,479 Table of Contents Portfolio Company Industry Type Date Investment Maturity Veregy Consolidated, Inc. Vida Capital, Inc. Environmental services Financial services First Lien First Lien 11/3/2027 10/1/2026 3 Wahoo Fitness Acquisition, LLC Consumer products & retail First Lien 8/14/2028 YS Garments, LLC Total Investments Consumer products & retail First Lien 8/9/2026 Current Interest 1 Rate L+6.00% (Floor 1.00%) L+6.00% SOFR+5.75% (Floor 1.00%) L+7.50% (Floor 1.00%) Principal Cost 2 Fair Value 1,955 3,265 4,875 4,157 1,951 3,236 4,751 1,683 2,408 2,071 4,132 169,874 $ 3,741 143,712 $ 1 2 3 4 5 Represents the interest rate as of March 31, 2023. 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 Secured Overnight Financing Rate ("SOFR"), which reset daily, monthly, quarterly, or semiannually. For each investment, the Company has provided the spread over LIBOR, Prime, or SOFR in effect at March 31, 2023. Certain investments are subject to an interest rate floor. 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. Investment is on non-accrual status as of March 31, 2023, meaning the Company has ceased to recognize interest income on the investment. The investment has approximately $246.6 thousand in an unfunded revolving loan commitment as of March 31, 2023. The investment has approximately $43.8 thousand in an unfunded delayed draw loan commitment as of March 31, 2023. 149 Table of Contents Portfolio Company Industry Type Date Investment Maturity Current Interest 1 Rate Principal 2 Cost 3 Fair Value I-45 SLF LLC Loan Portfolio as of March 31, 2022 AAC New Holdco Inc. Healthcare services ADS Tactical, Inc. American Teleconferencing Services, 4 Ltd. Aerospace & defense Telecommunications ATX Networks (Toronto) Corporation Technology products & components Burning Glass Intermediate Holding Company, Inc. Software & IT services Corel, Inc. Emerald Technologies (U.S.) Acquisitionco, Inc. Software & IT services Technology products & components First Lien 304,075 shares common stock Warrants (Expiration - December 11, 2025) First Lien Revolving Loan First Lien First Lien Senior Subordinated Debt 196 Class A units Revolving 5 Loan First Lien First Lien — — 3/19/2026 6/30/2022 6/8/2023 9/1/2026 — 6/10/2028 6/10/2028 7/2/2026 First Lien 12/29/2027 Evergreen AcqCo 1 LP Evergreen North America Acquisitions, LLC Geo Parent Corporation Consumer products & retail First Lien 4/26/2028 Industrial services Building & infrastructure products First Lien 8/13/2026 First Lien 12/19/2025 GS Operating, LLC Distribution First Lien 1/3/2028 Infogain Corporation Software & IT services First Lien 7/28/2028 InfoGroup Inc. Software & IT services First Lien 4/3/2023 Integro Parent Inc. Business services First Lien 10/28/2022 Intermedia Holdings, Inc. Software & IT services First Lien 7/21/2025 150 6/25/2025 10.00%, 8.00% PIK $ 1,899 $ 1,899 $ 1,833 — — 1,449 1,449 9/1/2028 10.00% PIK 1,081 1,081 — L+5.75% (Floor 1.00%) P+5.50% P+5.50% L+7.50% (Floor 1.00%) — 6,394 1,027 5,598 2,617 482 6,283 1,021 5,566 2,610 — L+5.00% (Floor 1.00%) L+5.00% (Floor 1.00%) L+5.00% SOFR +6.25% (Floor 1.00%) L+5.50% (Floor 0.75%) L+6.75% (Floor 1.00%) L+5.25% SOFR +6.00% (Floor 0.75%) L+5.75% (Floor 1.00%) L+5.00% (Floor 1.00%) L+5.75% (Floor 1.00%) L+6.00% (Floor 1.00%) — 74 3,189 6,803 3,125 4,179 6,740 6,840 4,988 4,784 2,850 3,217 5,677 — 67 3,140 6,650 3,063 4,142 6,623 6,809 4,891 4,719 2,845 3,209 5,659 482 6,133 64 308 2,499 729 — 67 3,189 6,805 3,078 4,158 6,740 6,806 4,988 4,769 2,704 3,043 5,638 Table of Contents Portfolio Company Inventus Power, Inc. INW Manufacturing, LLC Industry Type Date Investment Maturity Technology products & components Food, agriculture, & beverage First Lien 3/29/2024 First Lien 3/25/2027 Isagenix International, LLC KORE Wireless Group Inc. Consumer products & retail Telecommunications First Lien First Lien 6/14/2025 12/20/2024 Lab Logistics, LLC Healthcare services First Lien 9/25/2023 Lash OpCo, LLC Consumer products & retail Lift Brands, Inc. Consumer services Lightbox Intermediate, L.P. Software & IT services First Lien Delayed Draw 6 Term Loan Tranche A Tranche B Tranche C 1,051 shares common stock First Lien 3/18/2026 3/18/2026 6/29/2025 6/29/2025 6/29/2025 — 5/9/2026 LOGIX Holdings Company, LLC Telecommunications First Lien 12/23/2024 Mills Fleet Farm Group LLC Consumer products & retail National Credit Care, LLC Consumer services First Lien First Lien - Term Loan A First Lien - Term Loan B 10/24/2024 12/23/2026 12/23/2026 NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 NinjaTrader, Inc. Financial services First Lien 12/18/2024 NorthStar Group Services, Inc. Environmental services First Lien 11/9/2026 Research Now Group, Inc. Business services First Lien 12/20/2024 Retail Services WIS Corporation Business services First Lien 5/20/2025 SIB Holdings, LLC Business services First Lien 10/29/2026 Stellant Midco, LLC Aerospace & defense First Lien 10/2/2028 Current Interest 1 Rate SOFR +5.00% (Floor 1.00%) L+5.75% (Floor 0.75%) L+5.75% (Floor 1.00%) L+5.50% L+7.25% (Floor 1.00%) L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%) L+7.50% (Floor 1.00%) 9.50% PIK — — L+5.00% L+5.75% (Floor 1.00%) L+6.25% (Floor 1.00%) L+6.50% (Floor 1.00%) L+7.50% (Floor 1.00%) L+5.50% (Floor 1.00%) L+6.25% (Floor 1.00%) L+5.50% (Floor 1.00%) L+5.50% (Floor 1.00%) L+7.75% (Floor 1.00%) L+6.00% (Floor 1.00%) L+5.50% (Floor 0.75%) 151 Principal 2 Cost 3 Fair Value 6,930 2,925 1,685 4,658 6,242 4,988 1,187 2,502 583 565 — 4,948 5,826 4,623 2,500 2,500 2,663 5,000 2,961 4,936 2,959 3,000 2,289 6,884 2,867 1,677 4,639 6,213 4,881 1,152 2,502 583 564 749 4,914 5,807 4,584 2,453 2,453 2,647 4,908 2,948 4,936 2,912 2,945 2,267 6,791 2,867 1,088 4,640 6,242 4,878 1,161 2,252 437 423 749 4,874 5,491 4,623 2,483 2,483 1,807 5,000 2,950 4,861 2,914 2,958 2,254 Table of Contents Portfolio Company Industry Type Date Investment Maturity Tacala, LLC Consumer products & retail Second Lien 2/7/2028 TEAM Services Group, LLC Healthcare services First Lien 12/20/2027 TestEquity, LLC Capital equipment First Lien First Lien - Term Loan B 4/28/2022 4/28/2022 UniTek Global Services, Inc. Telecommunications First Lien 8/20/2024 U.S. TelePacific Corp. Telecommunications First Lien 5/1/2026 Veregy Consolidated, Inc. Vida Capital, Inc. Environmental services Financial services First Lien First Lien 11/3/2027 10/1/2026 Wahoo Fitness Acquisition, LLC Consumer products & retail First Lien 8/14/2028 YS Garments, LLC Total Investments Consumer products & retail First Lien 8/9/2024 Current Interest 1 Rate L+7.50% (Floor 0.75%) L+5.00% (Floor 1.00%) L+6.25% (Floor 1.00%) L+6.25% (Floor 1.00%) L+5.50%, 2.00% PIK (Floor 1.00%) L+1.00%, 7.25% PIK (Floor 1.00%) L+6.00% (Floor 1.00%) L+6.00% L+5.75% (Floor 1.00%) L+5.50% (Floor 1.00%) Principal 2 Cost 3 Fair Value 5,000 6,687 3,805 942 4,991 6,644 3,804 942 4,944 6,637 3,805 942 2,814 2,802 2,627 5,239 1,975 3,565 4,969 4,282 5,239 1,970 3,531 4,833 3,714 1,936 3,283 4,869 4,265 187,714 $ 4,239 176,704 $ 1 2 3 4 5 6 Represents the interest rate as of March 31, 2022. 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”), Secured Overnight Financing Rate ("SOFR") or Prime (“Prime”) which reset daily, monthly, quarterly, or semiannually. For each, the Company has provided the spread over LIBOR, SOFR or Prime in effect at March 31, 2022. Certain investments are subject to an interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest. Represents amortized cost. 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. Investment is on non-accrual status as of March 31, 2022, meaning the Company has ceased to recognize interest income on the investment. The investment has approximately $0.3 million in an unfunded revolving loan commitment as of March 31, 2022. The investment has approximately $0.8 million in an unfunded delayed draw term loan commitment as of March 31, 2022. 152 Table of Contents 16. SUBSEQUENT EVENTS On April 26, 2023, the Board of Directors declared a total dividend of $0.59 per share, comprised of a regular dividend of $0.54 and a supplemental dividend of $0.05, for the quarter ending June 30, 2023. The record date for the dividend is June 15, 2023. The payment date for the dividend is June 30, 2023. On April 26, 2023, pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors designated a committee of certain officers of the Company as the Board's valuation designee (the "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, effective beginning as of the fiscal quarter ending June 30, 2023. 153 Table of Contents SCHEDULE 12-14 Schedule of Investments in and Advances to Affiliates (In thousands) Portfolio Company Control Investments I-45 SLF LLC Total Control Investments Affiliate Investments Air Conditioning Specialists, Inc. Catbird NYC, LLC Central Medical Supply LLC Chandler Signs, LLC Delphi Intermediate Healthco LLC Type of Investment (1) 80% LLC equity interest Revolving Loan First Lien 766,738.93 Preferred Units Revolving Loan First Lien 1,000,000 Class A Units 500,000 Class B Units Revolving Loan First Lien Delayed Draw Term Loan 1,380,500 Preferred Units 1,500,000 units of Class A-1 common stock First Lien First Lien Protective Advance 1,681.04 Common Units March 31, 2023 Principal Amount - Debt Investments Amount of Interest or Dividends Credited in Income (2) Fair Value at March 31, 2022 Gross Additions (3) Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at March 31, 2023 $ $ $ — $ — $ 7,337 $ 7,337 $ 57,603 $ 57,603 $ 4,800 $ 4,800 $ — $ — $ — $ — $ (11,147) $ (11,147) $ 51,256 51,256 800 $ 15 $ — $ 27,438 1,905 12,535 1,384 $ 14,574 (600) $ (170) — $ — 16 $ 499 800 27,438 — — 15,500 — 36 1,635 634 — 15,884 — — 300 7,500 100 — — 1,649 1,829 1,448 — 1,221 572 290 7,260 97 641 924 1,402 1,472 526 2,460 88 53 49 950 25 — — 108 98 79 — 154 186 16 59 — — 6 29 6 — — 108 97 922 — — — (400) — — — — — — — — — — — — — — — — — — — — — — — — — 382 (16) (43) 437 142 — 113 (4) (284) 1,202 — 15,500 1,658 714 296 7,402 99 357 2,291 3,215 (1,510) (1,569) (1,448) (2,460) — — — — Amount of Interest or Dividends Credited in Income (2) 1 286 Fair Value at March 31, 2022 — 10,323 Gross Additions (3) — 12 Gross Reductions (4) — (11,159) Amount of Realized Gain/(Loss) (5) 1 — Table of Contents Portfolio Company Type of Investment (1) Dynamic Communities, LLC GPT Industries, LLC GrammaTech, Inc. ITA Holdings Group, LLC Revolving Loan First Lien First Lien - Term Loan A First Lien - Term Loan B Senior subordinated debt 2,000,000 Preferred units 250,000 Class A Preferred units 5,435,211.03 Class B Preferred units 255,984.22 Class C Preferred units 2,500,000 Common units Revolving loan First lien 1,000,000 Class A Preferred Units Revolving Loan First Lien 1,000 Class A units 360.06 Class A-1 units Revolving loan First Lien - Term Loan First Lien - Term Loan B First Lien - PIK Note A First Lien - PIK Note B Warrants 9.25% Class A membership interest March 31, 2023 Principal Amount - Debt Investments — — 3,846 3,867 — — — — — — — 6,150 — — 10,031 — — 7,000 249 118 41 — — — — — 5 148 — 10 1,336 — — 786 — — 650 1,274 — — — — — — — — 9,775 674 38 750 10,114 1,232 10,041 5,057 3,271 129 — — 5,061 2,959 117 3,199 3,063 766 545 13 — — 155 Amount of Unrealized Gain/(Loss) Fair Value at March 31, 2023 (1) 824 (3) (1) — 726 375 — — — 58 — — (9) 1,674 (674) 30 23 (25) (40) (242) (1) 847 1,285 — — 3,823 3,843 — — 625 2,218 — — — 6,030 1,000 — 10,031 — 372 7,014 10,114 5,068 3,255 128 4,046 4,348 9,554 (4,604) (1,124) 9,423 (4,484) (1,095) 41 — 250 2,218 — — (58) 6,030 1,000 9 67 — 304 6,241 98 47 538 12 — — (587) (104) — — — — — — — — — (1,500) — — — — — — — — — (2,000) — — — — — — — — 15 — — — — — — — — — Table of Contents Portfolio Company Type of Investment (1) March 31, 2023 Principal Amount - Debt Investments Amount of Interest or Dividends Credited in Income (2) Fair Value at March 31, 2022 Gross Additions (3) Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at March 31, 2023 Lighting Retrofit International, LLC (DBA Envocore) Outerbox, LLC Roseland Management, LLC SIMR, LLC Sonobi, Inc. STATinMED, LLC Revolving Loan First Lien Second Lien 208,333.3333 Series A Preferred units 203,124.9999 Common units Revolving Loan First Lien 6,308.2584 Class A common units Revolving Loan First Lien 3,364 Class A-2 Units 1,100 Class A-1 units 16,084 Class A units First Lien First Lien - Incremental 9,374,510.2 Class B Common Units 904,903.31 Class W Units 500,000 Class A Common units First Lien Delayed Draw Term Loan 4,718.62 Class A Preferred Units 39,097.96 Class B Preferred Units — 5,143 5,208 — — — 14,625 — 575 15,051 — — — — — — — — 7,288 122 — — 833 — — — — (25) 14,429 631 2 1,132 202 66 — 191 191 — — — 7,479 121 4,838 1,400 (833) (53) — — — — — — — (145) — — — (13,081) (191) — — — (191) — — — — 4,780 3,104 — — — — — 575 14,125 — — 1,905 10,588 — — — 2,960 — — — — 34 393 — — — 9 982 — 81 1,883 — — — — — — — — 699 6 — — 156 — 5,143 3,594 — — — 14,552 773 555 14,524 694 161 422 — — — — 1,749 7,288 122 — — — — — — — — — — — — — (211) — — 416 490 — — 25 123 142 (22) (588) 492 95 (1,483) 2,513 — (6,107) 6,107 — (1,211) — 1 — — — — — — (1,071) 3,767 (1,400) — Table of Contents Portfolio Company Type of Investment (1) Student Resource Center LLC First Lien 10,502,487.46 Preferred units 2,000,000 Preferred units Total Affiliate Investments Total Control & Affiliate Investments $ $ March 31, 2023 Principal Amount - Debt Investments 8,889 — Amount of Interest or Dividends Credited in Income (2) 195 — Fair Value at March 31, 2022 — — Gross Additions (3) 8,727 5,845 Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at March 31, 2023 — — — — (7) — 8,720 5,845 — 162,930 $ — 14,859 $ — 131,879 $ — 99,235 $ — (37,998) — (10,625) $ — 6,014 $ — 188,505 162,930 $ 22,196 $ 189,482 $ 104,035 $ (37,998) $ (10,625) $ (5,133) $ 239,761 (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. 157 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding the required disclosure. We completed an evaluation under the supervision and with participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2023, our disclosure controls and procedures were effective to provide the reasonable assurance described above. We note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in the 2013 Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of March 31, 2023. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Limitations on Controls Because of its inherent limitations, management does not expect that our disclosure controls and our internal controls over financial reporting will prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. Any control system, no matter how well designed and operated, is based upon certain assumptions and can only provide reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to errors or fraud will not occur or that all control issues and instances of fraud, if any within the Company, have been detected. 158 Table of Contents Item 9B. Other Information FEES AND EXPENSES The following table is intended to assist you in understanding the costs and expenses you will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever there is a reference to fees or expenses paid by “you,” “us” or “CSWC,” or that “we” will pay fees or expenses, you will indirectly bear such fees or expenses as investors in us. Shareholder Transaction Expenses: Sales load (as a percentage of offering price) Offering expenses (as a percentage of offering price) Dividend reinvestment plan expenses Total shareholder transaction expenses (as a percentage of offering price) Annual Expenses (as a percentage of net assets attributable to common stock for the fiscal year ended March 31, 2023): Operating expenses Interest payments on borrowed funds Income tax provision Acquired fund fees and expenses Total annual expenses — % (1) — % (2) — % (3) — % 3.62 % (4) 7.54 % (5) 0.06 % (6) 1.52 % (7) 12.74 % In the event that our securities are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load. In the event that we conduct an offering of our securities, a corresponding prospectus supplement will disclose the estimated offering expenses. (1) (2) (3) The expenses of administering our dividend reinvestment plan (“DRIP”) are included in operating expenses. The DRIP does not allow shareholders to sell shares through the DRIP. If a shareholder wishes to sell shares they would be required to select a broker of their choice and pay any fees or other costs associated with the sale. (5) (4) Operating expenses in this table represent the estimated annual operating expenses of CSWC and its consolidated subsidiaries based on actual operating expenses for the year ended March 31, 2023. We do not have an investment adviser and are internally managed by our executive officers under the supervision of our Board of Directors. As a result, we do not pay investment advisory fees, but instead we pay the operating costs associated with employing investment management professionals including, without limitation, compensation expenses related to salaries, discretionary bonuses and restricted stock grants. Interest payments on borrowed funds represents our estimated annual interest payments based on actual interest rate terms under our Credit Facility and our anticipated drawdowns from our Credit Facility, our actual interest rate terms under the SBA Debentures and our anticipated drawdowns of the SBA Debentures, the 4.50% Notes due 2026 (the "January 2026 Notes") and the 3.375% Notes due 2026 (the "October 2026 Notes"). As of March 31, 2023, we had $235.0 million outstanding under our Credit Facility, $120.0 million outstanding under the SBA Debentures, $140.0 million in aggregate principal of our January 2026 Notes outstanding and $150.0 million in aggregate principal of our October 2026 Notes outstanding. Any future issuances of debt securities will be made at the discretion of management and our board of directors after evaluating the investment opportunities and economic situation of the Company and the market as a whole. Income tax provision relates to the accrual of (a) deferred and current tax provision (benefit) for U.S. federal income taxes and (b) excise, state and other taxes. Deferred taxes are non-cash in nature and may vary significantly from period to period. We are required to include deferred taxes in calculating our annual expenses even though deferred taxes are not currently payable or receivable. Income tax provision represents the estimated annual income tax expense of CSWC and its consolidated subsidiaries based on actual income tax expense for the year ended March 31, 2023. (6) (7) Acquired fund fees and expenses represent the estimated indirect expense incurred due to our investment in I-45 SLF LLC, a joint venture with Main Street Capital Corporation, based upon the actual amount incurred for the fiscal year ended March 31, 2023. Example The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we would have no additional leverage and that our annual operating expenses would remain at the levels set forth in the table above. You would pay the following expenses on a $1,000 investment, assuming 5.0% annual return $ 127 $ 353 $ 545 $ 910 1 Year 3 Years 5 Years 10 Years The example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. In addition, while 159 Table of Contents the example assumes reinvestment of all dividends at NAV, participants in our DRIP will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the average purchase price of all shares of common stock purchased by the administrator of the DRIP in the event that shares are purchased in the open market to satisfy the share requirements of the DRIP, which may be at, above or below NAV. See "Business - Dividend Reinvestment Plan” included in Item I of Part I of this Annual Report on Form 10-K for additional information regarding our DRIP. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 160 Table of Contents Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this Item 10 will be contained in the definitive proxy statement relating to our 2023 annual meeting of shareholders to be filed with the SEC no later than 120 days after the close of our fiscal year ended March 31, 2023, and is incorporated herein by reference. Item 11. Executive Compensation The information required by this Item 11 will be contained in the definitive proxy statement relating to our 2023 annual meeting of shareholders to be filed with the SEC no later than 120 days after the close of our fiscal year ended March 31, 2023, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters The information required by this Item 12 will be contained in the definitive proxy statement relating to our 2023 annual meeting of shareholders to be filed with the SEC no later than 120 days after the close of our fiscal year ended March 31, 2023, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 will be contained in the definitive proxy statement relating to our 2023 annual meeting of shareholders under the headings of “Certain Relationships and Related Transactions” and “Corporate Governance” to be filed with the Securities and Exchange Commission no later than 120 days after the close of our fiscal year ended March 31, 2023, and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this Item 14 will be contained in the definitive proxy statement relating to our 2023 annual meeting of shareholders under the heading of “Ratification and Appointment of Independent Registered Public Accounting Firm for the Year Ended March 31, 2023” to be filed with the Securities and Exchange Commission no later than 120 days after the close of our fiscal year ended March 31, 2023, and is incorporated herein by reference. 161 Table of Contents Item 15. Exhibits, Financial Statement Schedules The following documents are filed or incorporated by reference as part of this Annual Report: 1. Consolidated Financial Statements PART IV Report of Independent Registered Public Accounting Firm Consolidated Statements of Assets and Liabilities as of March 31, 2023 and 2022 Consolidated Statements of Operations for Years Ended March 31, 2023, 2022 and 2021 Consolidated Statements of Changes in Net Assets for Years Ended March 31, 2023, 2022 and 2021 Consolidated Statements of Cash Flows for Years Ended March 31, 2023, 2022 and 2021 Consolidated Schedules of Investments as of March 31, 2023 and 2022 Notes to Consolidated Financial Statements 2. Consolidated Financial Statement Schedule Schedule of Investments in and Advances to Affiliates for the Year Ended March 31, 2023 3. Exhibits Page 68 70 71 72 73 74 105 Page 154 Exhibit No. 3.1 Description 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 (File No. 333-220385) filed on September 8, 2017). 3.2 3.3 3.4 4.1 4.2 4.3 4.4 4.5 4.6 Certificate of Amendment to the Articles of Incorporation, dated August 1, 2019 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K (File No. 814-00061) filed on August 1, 2019). Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q (File No. 814-00061) filed on November 7, 2017). Amendment to Second Amended and Restated Bylaws of Capital Southwest Corporation (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K (File No. 814-00061) filed April 25, 2019). Specimen of Common Stock certificate (incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K (File No. 811-01056) filed on June 14, 2002). 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 (File No. 333-220385) filed on October 23, 2017). 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 (File No. 814-00061) filed on December 29, 2020). Form of Global Note with respect to the 4.50% Notes due 2026 (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K (File No. 814- 00061) filed on December 29, 2020). 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 (File No. 814-00061) filed on August 27, 2021). Form of Global Note with respect to the 3.375% Notes due 2026 (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K (File No. 814- 00061) filed on August 27, 2021). 162 Table of Contents Exhibit No. 4.7 Description Form of Capital Southwest SBIC I, LP SBIC debentures guaranteed by the Small Business Administration (incorporated by reference to Exhibit (f) to Registration Statement on Form N-2 (File No. 333-259455) filed on September 10, 2021). 4.8 4.9 10.1+ 10.2+ 10.3+ 10.4+ 10.5+ 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ 10.14 10.15 10.16 Dividend Reinvestment Plan (incorporated by reference Exhibit (e) to Registration Statement on Form N-2 (File No. 333-220385) filed on September 8, 2017). Description of Capital Southwest Corporation's Securities Registered pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.8 to Annual Report on Form 10-K (File No. 814-00061) filed on June 2, 2021). Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q (File No. 814-00061) filed on November 7, 2017). Retirement Plan for Employees of Capital Southwest Corporation and its Affiliates as amended and restated effective April 1, 2011 (incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K (File No. 814-00061) filed on June 1, 2012). Amendment One to Retirement Plan for Employees of Capital Southwest Corporation and its Affiliates as amended and restated effective April 1, 2011 (incorporated by reference to Exhibit 10.16 to Annual Report on Form 10-K (File No. 814-00061) filed on May 31, 2013). Amendment Four to Retirement Plan for Employees of Capital Southwest Corporation and its Affiliates as amended and restated effective April 1, 2011 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 814-00061) filed on August 6, 2015). Capital Southwest Corporation Amended and Restated 2010 Restricted Stock Award Plan (incorporated by reference to Exhibit 99.1 to Form S-8 (File No. 333-227117) filed on August 30, 2018). Form of Restricted Stock Award Agreement under the 2010 Restricted Stock Award Plan, as amended (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q (File No. 814-00061) filed on November 7, 2014). Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (incorporated by reference to Exhibit 4.5 to Form S-8 (File No. 333-258899) filed on August 28, 2021). Form of Restricted Stock Award Agreement under the Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (incorporated by reference to Exhibit 4.6 to Form S-8 (File No. 333-258899) filed on August 28. 2021). Form of Amended and Restated Cash Incentive Award Agreement (Executive Compensation Plan) (incorporated by reference to Exhibit 10.13 to Quarterly Report on Form 10-Q (File No. 814-00061) filed on November 9, 2015). Amended and Restated Employee Matters Agreement, dated September 4, 2015, between the Company and CSW Industrials, Inc. (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 814-00061) filed on September 14, 2015). Form of Amended and Restated Non-Qualified Stock Option Agreement (Executive Compensation Plan – CSWC Employee Form) (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q (File No. 814-00061) filed on November 9, 2015). Form of Restricted Stock Agreement under the 2010 Restricted Stock Award Plan (CSWC Employee Form) (incorporated by reference to Exhibit 10.9 to Quarterly Report on Form 10-Q (File No. 814-00061) filed on November 9, 2015). Form of Amended and Restated Restricted Stock Award (Executive Compensation Plan – CSWC Employee Form) (incorporated by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q (File No. 814-00061) filed on November 9, 2015). Second Amended and Restated Limited Liability Company Operating Agreement of I-45 SLF LLC, dated March 11, 2021 (incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K (File No. 814-00061) filed March 12, 2021). Amended and Restated Guarantee, Pledge and Security Agreement dated as of December 21, 2018 among Capital Southwest Corporation, as Borrower, the Subsidiary Guarantors party hereto, ING Capital LLC, as Revolving Administrative Agent for the Revolving Lenders, each Financing Agent and Designated Indebtedness Holder party hereto and ING Capital, LLC, as Collateral Agent (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 814-00061) filed on December 21, 2018). Second Amended and Restated Senior Secured Revolving Credit Agreement dated as of August 9, 2021 among Capital Southwest Corporation, as Borrower, the Lenders party hereto, ING Capital LLC, as Administrative Agent, Arranger and Bookrunner and Texas Capital Bank, N.A., as Documentation Agent (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 814-00061) filed on August 9, 2021). 163 Table of Contents Exhibit No. Description 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 14* 21.1* 23.1* 23.2* Limited Consent and Amendment No. 1 to Second Amended and Restated Senior Secured Revolving Credit Agreement, dated as of September 10, 2021, by and among Capital Southwest Corporation, as Borrower, Capital Southwest Equity Investments, Inc., as Subsidiary Guarantor, the lenders party thereto, and ING Capital LLC, as Administrative Agent (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 814-00061) filed on September 10, 2021). Amendment No. 2 to the Second Amended and Restated Senior Secured Revolving Credit Agreement, dated as of May 11, 2022, by and among Capital Southwest Corporation, as Borrower, the guarantor party thereto, the lenders from time to time party thereto and ING Capital LLC, as Administrative Agent, and Texas Capital Bank, as Documentation Agent (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 814-00061) filed on May 12, 2022). Master Reimbursement Agreement, dated as of May 9, 2018, by and between Capital Southwest Corporation, as Borrower, and ING Capital LLC, as Issuer (incorporated by reference to Exhibit 10.40 to Annual Report on Form 10-K (File No. 814-00061) filed on June 5, 2018). Amended and Restated Administration Agreement, dated March 9, 2017, between the Company and Capital Southwest Management Corporation (incorporated by reference to Exhibit (k)(3) to Registration Statement on Form N-2 (File No. 333-220385) filed on September 8, 2017). Custody Agreement, dated August 30, 2016, between the Company and U.S. Bank National Association (incorporated by reference to Exhibit (j)(1) to Registration Statement on Form N-2 (File No. 333-220385) filed on September 8, 2017). Custody Control Agreement, dated August 30, 2016, between the Company, ING Capital LLC and U.S. Bank National Association (incorporated by reference to Exhibit (j)(2) to Registration Statement on Form N-2 (File No. 333-220385) filed on September 8, 2017). Document Custody Agreement, dated August 30, 2016, between the Company, ING Capital LLC and U.S. Bank National Association (incorporated by reference to Exhibit (j)(3) to Registration Statement on Form N-2 (File No. 333-220385) filed on September 8, 2017). Form of Third Amended and Restated Equity Distribution Agreement, dated May 26, 2021, 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 (File No. 814-00061) filed on May 26, 2021). Form of Second Amendment, dated November 2, 2021, to Third Amended and 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 (File No. 814- 00061) filed on November 2, 2021). Form of Third Amendment, dated August 2, 2022, to Third Amended and Restated Equity Distribution Agreement, dated May 26, 2021, 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 August 2, 2022). Form of Amended and Restated Equity Distribution Agreement, dated May 26, 2021, between the Company and each of JMP Securities LLC and B. Riley FBR, Inc., respectively (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 814-00061) filed on May 26, 2021). 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 (File No. 814-00061) filed on November 2, 2021). Form of Third Amendment, dated August 2, 2022, to Amended and Restated Equity Distribution Agreement, dated May 26, 2021, 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 August 2, 2022). Incremental Commitment and Assumption Agreement dated November 16, 2022 among the Company, as borrower, ING Capital LLC, as Administrative Agent, the Increasing Lenders Party thereto, as Increasing Lenders and the Assuming Lenders Party thereto, as Assuming Lenders (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 16, 2022). Code of Ethics. List of subsidiaries of the Company. Consent of Independent Registered Public Accounting Firm – RSM US LLP (relating to the Company Consolidated Financial Statements). Consent of Independent Auditor – RSM US LLP (relating to I-45 SLF LLC). 164 Table of Contents Exhibit No. 31.1* Description Certification of President and Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. 31.2* 32.1*^ 32.2*^ 99.1* 99.2* 99.3 Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. Certification of President and Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code. Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code. Audited Consolidated Financial Statements of I-45 SLF LLC as of March 31, 2023 and 2022 and for the years ended March 31, 2023, 2022 and 2021. Report of RSM US LLP on Senior Securities Table Report of Grant Thornton on Senior Securities Table for the year ended March 31, 2017 (Incorporated by reference to Exhibit (n)(6) to Registration Statement on Form N-2 (File No. 333-232492) filed on July 1, 2019). * Filed herewith. + Indicates management contract or compensatory plan or arrangement. ^ The certifications attached as Exhibit 32.1 and 32.2 accompany this Annual Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and 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 Annual Report, irrespective of any general incorporation language contained in any such filing. 165 Table of Contents Item 16. Form 10-K Summary None. 166 Table of Contents Pursuant to the requirements of Section 13 or 15(d) of 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. SIGNATURES Date: May 23, 2023 Signature /s/ David R. Brooks David R. Brooks /s/ Christine S. Battist Christine S. Battist /s/ Jack D. Furst Jack D. Furst /s/ Ramona Rogers-Windsor Ramona Rogers-Windsor /s/ William R. Thomas William R. Thomas /s/ Bowen S. Diehl Bowen S. Diehl /s/ Michael S. Sarner Michael S. Sarner CAPITAL SOUTHWEST CORPORATION By: /s/ Bowen S. Diehl Bowen S. Diehl President and Chief Executive Officer Title Chairman of the Board Director Director Director Director Date May 23, 2023 May 23, 2023 May 23, 2023 May 23, 2023 May 23, 2023 President and Chief Executive Officer May 23, 2023 Chief Financial Officer (Chief Financial/Accounting Officer) May 23, 2023 167 Exhibit 14 CAPITAL SOUTHWEST CORPORATION BACKGROUND CODE OF ETHICS PURSUANT TO RULE 17J-1 This Code of Ethics has been adopted by the Board of Directors of Capital Southwest Corporation (the "Company") in accordance with Rule 17j- 1(c) under the Investment Company Act of 1940 (the “Act”). Rule 17j-1 (the “Rule”) generally prohibits fraudulent or manipulative practices by access persons of investment companies, including business development companies, including with respect to purchases or sales of securities held or to be acquired by such companies. The purpose of this Code of Ethics is to reflect the following: (1) the duty at all times to place the interests of shareholders of the Company first; (2) the requirement that all personal securities transactions be conducted consistent with the Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual’s position of trust and responsibility; and (3) the fundamental standard that Company personnel should not take inappropriate advantage of their position. Rule 17j-1(b) provides that it is unlawful for any Affiliated Person (as defined in the Act) or principal underwriter for a registered investment company or any Affiliated Person of an investment adviser or principal underwriter for a registered investment company in connection with the purchase or sale, directly or indirectly, by such person of a security held or the be acquired, as defined in this section, by such registered investment company: a. To employ any device, scheme or artifice to defraud such registered investment company; a. To make to such registered investment company any untrue statement of a material fact or omit to state to such registered investment company any material fact necessary in order to make the statements, in light of the circumstances under which they are made, not misleading; a. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any such registered investment company; or b. To engage in any manipulative practice with respect to such registered investment company. Section 59 of the Act makes these provisions applicable to business development companies. Rule 17j-1 (c) requires the Company adopt a code of ethics containing provisions reasonably necessary to prevent its “Access Persons” (as defined below) from engaging in any of the conduct referred to above. APPLICATION This Code of Ethics applies to the “Access Persons” of the Company. Currently, this includes each employee, officer and director of the Company. Each Access Person must receive, read, acknowledge receipt of, make certain reports under, periodically certify compliance with and retain this Code of Ethics. ADMINISTRATION This Code of Ethics is administered by the Company’s Chief Compliance Officer and any questions should be directed to that individual. DEFINITIONS For purposes of this Code of Ethics, the following definitions shall apply: (a) "Access Person" means any director, officer, general partner or Advisory Person of the Company. The term includes any entity or account in which an Access Person (together with immediate family members) has a 25% or greater beneficial interest or where multiple Access Persons have a 50% or greater beneficial interest. (b) "Advisory Person" of the Company means (1) any employee of the Company or of any company in a control relationship to the Company who, in connection with his regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by the Company, or whose functions related to the making of any recommendations with respect to such purchases or sales; and (2) any other natural person in a control relationship to the Company who obtains information reasonably contemporaneously concerning any recommendation made to the Company with regard to the purchase or sale of Covered Securities. (c) "Affiliated Person" means, in reference to the Company, (1) any person owning or holding with the power to vote 5% or more of the outstanding voting securities of the Company or of which the Company owns or holds with power to vote 5% or more of the outstanding voting securities, (2) any director, officer or employee of the Company or (3) any person controlling, controlled by or under common control with the Company. (d) A Covered Security is "Being Considered for Purchase or Sale" when: (1) A decision has been made to accomplish the purchase or sale of a security by the Company and such purchase or sale has not been completed; (2) Any Access Person has proposed or recommended the purchase or sale of a security by the Company and such proposal or recommendation is still under consideration; or (3) Any Access Person is seriously considering or has discussed with one or more Access Persons the proposed purchase or sale of a security by the Company and such proposed purchase or sale is still under consideration; provided, however, any security which is being reviewed as part of a general industry survey or other broad monitoring of the securities markets and which has not become a probable target for purchase or sale by the Company is not deemed as "Being Considered for Purchase or Sale." (e) “Beneficial Ownership,” “Beneficially Own,” and derivations thereof, mean that you directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, have or share in the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in a security. Without limiting the foregoing, you are presumed to have Beneficial Ownership in all of the following, as applicable: (1) securities held by members of your immediate family sharing the same household with you, although the presumption of Beneficial Ownership may be rebutted; (2) your interest in securities held by a trust, which may include both trustees with investment control and, in some instances, trust beneficiaries; (3) your right to acquire securities through the exercise or conversion of any derivative security, whether or not presently exercisable; (4) your proportionate interest as a general partner in the portfolio securities held by any general or limited partnership; (5) certain performance-related fees other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; and (6) any right you may have to dividends that is separated or separable from the underlying securities. Otherwise, the right to dividends alone shall not represent Beneficial Ownership in the securities. You are not deemed to have Beneficial Ownership in the portfolio securities held by a corporation or similar entity in which you own securities if you are not a controlling shareholder of the entity and you do not have or share investment control over the entity’s portfolio. (f) "Chief Compliance Officer" means the individual appointed to that position by the Board of Directors; provided that, for purposes of determinations under this Code of Ethics, in the absence of the Chief Compliance Officer, either the Chief Operating Officer or the Chief Financial Officer may be treated as the Chief Compliance Officer and that, for purposes of determinations regarding the Chief Compliance Officer, one of such other individuals shall be treated as the Chief Compliance Officer. (g) "Control" means the power to exercise a controlling influence over the management or policies of a company; however, control does not include such power arising solely as the result of an official position with such company. (h) “Covered Security” means a security as defined in Section 2(a)(36) of the Act. A Covered Security does not include direct obligations of the Government of the United States; banker’s acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and shares issued by open-end funds. (i) "Independent Director" means a director of the Company who is not an “interested person” of the Company within the meaning of Section 2(a) (19) of the Act. A director is not deemed an interested person of the Company solely by reason of his being a member of the Board of Directors or an owner of less than 5% of the voting securities of the Company. (j) "Insider Trading" generally means trading in a security on the basis of Material Non-Public Information in violation of a duty to the marketplace, the issuer, the person’s employer or client or the like. Passing Material Non-Public Information to another person in violation of such a duty may also be treated as Insider Trading. The circumstances in which such a duty exists are not easily defined. An Access Person of the Company who has Material Non-Public Information about a security should assume that he or she has such a duty unless the Chief Compliance Officer makes a contrary determination. (k) "Interested Persons" of the Company means any Affiliated Person of the Company, any such Affiliated Person’s immediate family member, any legal counsel or partner or employee thereof that has performed legal services for the Company during the preceding two fiscal years, any person or associated person or direct or indirect shareholders therein that has performed securities transactions for, or loaned money or property to, the Company during the preceding six months, or anyone the SEC determines to have a material professional relationship with the Company or its chief executive officer, or any interested person of any investment adviser or principal underwriter of the Company. However, the term does not include any person solely by reason of his being a director of the Company or his ownership or anyone the SEC deems to have a material professional relationship of less than 5% of the voting securities issued by the Company. (l) "Material Non-Public Information" is information that is both material and non-public. For this purpose, information is considered material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to act. If the information has influenced a person’s investment decision, it would be very likely to be considered material. In addition, information that, when disclosed, is likely to have a direct effect on the stock’s price should be treated as material. Examples include information concerning impending mergers, sales of subsidiaries, significant revenue or earnings swings, dividend changes, impending securities offerings, awards of patents, technological developments, impending product announcements, impending financial news and other major corporate events. Information is non-public when it has not been disseminated in a manner making it available to investors generally. Information is public once it has been publicly disseminated, such as when it is reported in widely disseminated news services and /or publications, and investors have had a reasonable time to react to the information. Once the information has become public, it may be traded on freely. (m) "Purchase or Sale of a Covered Security" includes, among other things, the purchase or sale of an option to purchase or sell a Covered Security or entering into a contract such as a swap the value or payout of which varies with the value of such Covered Security. (n) "Security Held or To Be Acquired" by the Company means any Covered Security which, within the most recent 15 days (i) is or has been held by the Company, or (ii) is being or has been considered by the Company for purchase. A Covered Security includes any option to purchase or sell, and any security convertible into or exchangeable for a Covered Security. COMPLIANCE WITH RULE 17J-1 Affiliated Persons of the Company and others subject to paragraph (a) of the attached Rule 17j-1 shall comply with the requirements of paragraph (a) of the Rule in connection with the purchase or sale, directly or indirectly, by such person of any Security Held or To Be Acquired by the Company. Every Access Person of the Company shall comply with the applicable reporting requirements of paragraph (d) of the Rule. PRIOR APPROVAL REQUIREMENTS Except as permitted by the Exempted Transaction provisions or with prior approval from the Chief Compliance Officer in the Star Compliance system, no Advisory Person shall purchase, directly or indirectly, any Covered Securities in which he or she by reason of such transaction acquires any direct or indirect Beneficial Ownership pursuant to an initial public offering or any private offering. Note that the term Advisory Person generally does not include Independent Directors, who may accordingly generally acquire securities in initial public offerings and private offerings without prior written approval. Advisory Persons shall report its securities holdings in the Star Compliance system. Pre-clearances will be effective for three business days, subject to termination at any time by the Chief Compliance Officer. The Chief Compliance Officer shall maintain a record of each pre-clearance approval or disapproval, and the reasons underlying the decision, for at least five years after the end of the fiscal year in which the approval is granted. In determining whether such prior approval shall be granted, the Chief Compliance Officer shall take into account whether the opportunity to purchase such Covered Securities is being offered to such Advisory Person because of his or her position with the Company, and whether the opportunity to purchase such Covered Security should be reserved for the Company. RESTRICTIONS ON PERSONAL INVESTING ACTIVITY a. No Access Person shall reveal to any other person (except in the normal course of his duties on behalf of the Company) any information regarding Covered Securities being considered for purchase or sale by the Company. a. No Access Person shall engage in Insider Trading whether for his own benefit or the benefit of the Company or others. a. No Access Person shall make or participate in the formation of recommendations concerning the purchase or sale by the Company of any Covered Security if such Access Person has Beneficial Ownership of any Covered Securities of the same issuer or has any other business relationship with such issuer, without disclosing to the Chief Compliance Officer any interest such Access Person has in such Covered Securities or issuer. a. No Access Person of the Company shall participate in any Covered Securities transaction on a joint basis with the Company without the prior written approval of the Chief Compliance Officer. a. No Access Person may sell short any security issued by the Company or by a portfolio company or take a short equivalent position in any related security. PROHIBITED TRANSACTIONS BY ACCESS PERSONS (a) No Access Person shall purchase, directly or indirectly, any security in which, by reason of such transaction, he would acquire any direct or indirect beneficial ownership, if to his knowledge, any security of the same issuer: (1) Is Being Considered for Purchase (as defined in 1(c) above) by the Company; (2) Is being purchased by the Company; (3) Is being sold by the Company; (4) Has been sold by the Company within the most recent 15 days; or (5) Is owned by the Company and any security of such issuer which would be purchased by such Access Person would be restricted as to resale under applicable securities laws. (b) No Access Person shall sell, directly or indirectly, any security in which he has any direct or indirect beneficial ownership, if to his knowledge any security of the same issuer: (1) Is Being Considered for Sale (as defined in 1(c) above) by the Company; (2) Is being sold by the Company; (3) Is being purchased by the Company; (4) Has been purchased by the Company within the most recent 15 days; or (5) Is being registered or is to be registered by the issuer for sale under applicable securities laws pursuant to a request made to the issuer by or on behalf of the Company. EXEMPTED TRANSACTIONS The prohibited transaction provisions of the Code of Ethics shall not apply to: a. Purchases or sales effected in any account in which the Access Person does not have direct or indirect Beneficial Ownership of the holdings of such account (such as open-end mutual funds). a. Purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control. a. Purchases or sales which are non-volitional on the part of the Access Person (such as a merger). a. Purchases which are part of an automatic dividend reinvestment plan. a. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer. a. Sale of shares pursuant to a 10b5-1 trading plan approved by the Chief Compliance Officer. REPORTING (a) Pursuant to paragraph (d)(1) of the Rule, every Access Person shall report to the Chief Compliance Officer of the Company the following: (1) Initial Holding Reports No later than 10 days of being designated an Access Person shall make a written report to the Chief Compliance Officer containing: (i) each Covered Security in which he or she has any direct or indirect Beneficial Ownership, (ii) the name of the broker, dealer or bank with whom he or she maintains an account in which any Covered Securities were held for his or her direct or indirect benefit, and (iii) the date that the report is submitted. (2) Quarterly Transactions Reports No later than 30 days after the end of each calendar quarter each Access Person shall make a written report to the Chief Compliance Officer of all transactions in any Covered Security occurring in the quarter by which he or she has any direct or indirect Beneficial Ownership. Such report must contain the following information with respect to each reportable transaction: (i) date and nature of the transaction (purchase, sale or any other type of acquisition or disposition), (ii) title, interest rate and maturity date (if applicable), number of shares or principal amount of each Covered Securities and the price at which the transaction was effected, (iii) name of broker, dealer, bank or other similar intermediary through which the transaction was effected, and (iv) the date that the report is submitted. If an Access Person has opened a brokerage account during the quarter, such report shall also identify the name of the broker, dealer or bank and the date the account was established. The broker through which the transaction was effected shall be directed by the Access Person to supply the Chief Compliance Officer, on a timely basis, duplicate confirmations and monthly brokerage statements for all Covered Securities accounts. The Access Person need not make a quarterly transaction report if the report would duplicate information contained in the broker trade confirmations or account statements received by the Company with respect to the Access Person in the time period required by this Policy, if all of the information required by the Policy is contained in the broker trade confirmations or account statements. (3) Annual Holding Reports No later than 45 days after the calendar year-end each Access Person shall make a written report to the Chief Compliance Officer containing: (i) the title, number of shares and principal amount of each Covered Security in which he or she has any direct or indirect Beneficial Ownership, (ii) the name of any broker, dealer or bank with whom he or she maintains an account in which any Covered Securities are held for his or her direct or indirect benefit, and (iii) the date that the report is submitted. (4) Annual Certifications Each Access Person must annually certify that such person has read this Code of Ethics, understands its requirements regarding such person and his immediate family and has complied with such requirements throughout the period during which such person was an Access Person during the previous year. Such certification shall be submitted to the Chief Compliance Officer within 20 days after the receipt of the certification request from the Company. (5) Company Reports No less frequently than annually, the Company must furnish to the Board of Directors and the Board of Directors must consider, a written report that: (i) describes any issues arising under the Code of Ethics or procedures since the last report to the Board of Directors, including but not limited to, information about material violations of the code or procedures and sanctions imposed in response to the material violations; and (ii) certifies that the Company has adopted procedures reasonable necessary to prevent Access Persons from violating the Code. (6) Disclaimer of Beneficial Ownership Any report required under this Code of Ethics may contain a statement that the report shall not be construed as an admission by the person submitting such duplicate confirmation or account statement or making such report that he or she has any direct or indirect Beneficial Ownership in the Covered Securities to which the report relates. (7) Review of Reports The reports, certifications, duplicate confirmations and account statements required to be submitted under this Code of Ethics shall be delivered to the Chief Compliance Officer. The Chief Compliance Officer shall review such reports, duplicate confirmations and account statements to determine whether any transactions recorded therein appear to constitute a violation of the Code of Ethics. Before making any determination that a violation has been committed by any Access Person, such Access Person shall be given an opportunity to supply additional explanatory material. (8) The Chief Compliance Officer shall maintain copies of the reports, confirmations and account statements as required by Rule 17j-1(f). The Chief Compliance Officer will be responsible for maintaining the following records at the Company’s principal place of business: a. A copy of all codes of ethics adopted by the Company, and its affiliates, as the case may be, pursuant to Rule 17j-1 that have been in effect at any time during the past five (5) years; a. A record of each violation of such codes of ethics and of any action taken as a result of such violation for at least five (5) years after the end of the fiscal year in which the violation occurs; a. A copy of each report made by an Access Person for at least two (2) years after the end of the fiscal year in which the report is made, and for an additional three (3) years in a place that need not be easily accessible; a. A copy of each report made by the Chief Compliance Officer to the Board for two (2) years from the end of the fiscal year of the Company in which such report is made or issued and for an additional three (3) years in a place that need not be easily accessible; b. A list of all persons who are, or within the past five (5) years have been, required to make reports pursuant to this Code of Ethics, or who are or were responsible for reviewing such reports; a. A copy of each annual report describing issues arising under the Code of Ethics and certifying the implementation of adequate enforcement provisions for at least two (2) years after the end of the fiscal year in which it is made, and for an additional three (3) years in a place that need not be easily accessible; and a. A record of any decision, and the reasons supporting the decision, to approve the acquisition by Investment Personnel of securities in an Initial Public Offering or Limited Offering for at least five (5) years after the end of the fiscal year in which the approval is granted. (9) Confidentiality All reports of security transactions, duplicate confirmations, account statements and any other information filed with the Company pursuant to the this Code of Ethics shall be treated as confidential, but are subject to review as provided herein and representatives of the SEC. (b) Notwithstanding the foregoing, pursuant to paragraph (d)(2) of the Rule, a director who is not an Interested Person shall not be required to make such reports outlined in (a)(1), (2) and (3) above, unless with respect to a quarterly transaction report the director knew or should have known that the Company purchased or sold (or was considering purchasing or selling) a Covered Security in the 15 days before or after the director’s transaction. (c) Any Access Person who proposes or recommends that the Company purchase or sell the securities of any issuer in which such Access Person also has any investment holding (including a short sale position) shall simultaneously disclose to the Company's president (or in the case of the Company's president, disclose to the Company's Board of Directors) a complete description of his holdings of any such Covered Securities including the amounts and type of Covered Securities owned by the Access Person and the acquisition dates and prices of such Covered Securities. (d) The Company shall identify and notify all Access Persons who are under a duty to make reports to it pursuant to this Code. SURVEILLANCE (a) The Chief Compliance Officer of the Company shall review all reports made by Access Persons (other than the President) pursuant to this Code (dating and initialing each reviewed report). The President of the Company shall review all reports made by the Chief Compliance Officer pursuant to this Code (dating and initialing each reviewed report.) (b) Prior to the consummation of any transaction in which the Company proposes to participate, the President or any Vice President of the Company shall make reasonable inquiry necessary to ensure that such transaction conforms to the requirements of Section 17 or Section 57 (whichever is applicable) of the Act with respect to the possible involvement in activities covered by the rules under Section 17(a) and Rule 17(d)-1 of persons described in subsections (b) and (e) of Section 57. A memorandum confirming the results of such inquiry shall be executed by the President or any Vice President and filed with the closing documents for each transaction. ENFORCEMENT Upon discovering a violation of this Code of Ethics, the Board of Directors of the Company shall impose such sanctions as it deems appropriate, including, among other things, a reprimand, a letter of censure, the suspension or termination of employment of the violator, and the initiation of legal action to recover damages sustained by the Company. All material violations of this Code of Ethics and any sanctions imposed with respect thereto shall be reported periodically to the Board of Directors of the Company. EXEMPTIVE PROCEDURE The Chief Compliance Officer and the President of the Company (collectively, the “Waiver and Exemption Committee”) may jointly grant exemptions from the requirements in this Code of Ethics in appropriate circumstances. In addition, violations of the provisions regarding personal trading will presumptively be subject to being reversed in the case of a violative purchase, and to disgorgement of any profit realized from the position by payment of the profit to any client disadvantaged by the transaction, or to a charitable organization, as determined by the Waiver and Exemption Committee, unless the violator establishes to the satisfaction of the Waiver and Exemption Committee that under the particular circumstances disgorgement would be an unreasonable remedy for the violation. AMENDMENT This Code of Ethics may not be amended or modified except in a written form that is specifically approved by the Board of Directors, including a majority of the Independent Directors. This Code of Ethics was adopted and approved by the Board of Directors, including a majority of the Independent Directors on January 26, 2022. CAPITAL SOUTHWEST CORPORATION List of Subsidiaries Exhibit 21.1 Name of Subsidiary State of Incorporation I-45 SLF LLC Capital Southwest Equity Investments, Inc. Capital Southwest SBIC I, LP Capital Southwest SBIC I GP, LLC Delaware Delaware Delaware Delaware Consent of Independent Registered Public Accounting Firm Exhibit 23.1 We consent to the incorporation by reference in the Registration Statement on Form N-2 (File No. 333-259455) (the Registration Statement on Form N-2) and in the Registration Statements on Form S-8 (File Nos. 333-258899 and 333-266518) of Capital Southwest Corporation and its subsidiaries (collectively, the Company) of our report dated May 23, 2023, relating to the consolidated financial statements, and the Schedule of Investments In and Advances to Affiliates for the year ended March 31, 2023 listed in Schedule 12-14 attached as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 2023 (the Form 10-K). We also consent to the incorporation by reference in the Registration Statement on Form N-2 of our report dated May 23, 2023, relating to the senior securities table, appearing in Part II, Item 5 of the Form 10-K of the Company, which is attached as an exhibit to the Form 10-K. We also consent to the references to us under the headings “Senior Securities” in the Form 10-K. /s/ RSM US LLP Chicago, Illinois May 23, 2023 CONSENT OF INDEPENDENT AUDITOR Exhibit 23.2 We consent to the incorporation by reference in the Registration Statement on Form N-2 (File No. 333-259455) and in the Registration Statements on Forms S-8 (File Nos. 333-258899 and 333-266518) of Capital Southwest Corporation of our report dated May 12, 2023, relating to the consolidated financial statements of I-45 SLF LLC and its subsidiary, included as an exhibit to this Annual Report on Form 10-K of Capital Southwest Corporation for the year ended March 31, 2023. /s/ RSM US LLP Chicago, Illinois May 23, 2023 CERTIFICATIONS Exhibit 31.1 I, Bowen S. Diehl, certify that: 1 I have reviewed this annual report on Form 10-K of Capital Southwest Corporation (the “registrant”); 2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4 The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5 The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 23, 2023 By: /s/ Bowen S. Diehl Bowen S. Diehl President and Chief Executive Officer CERTIFICATIONS Exhibit 31.2 I, Michael S. Sarner, certify that: 1 I have reviewed this annual report on Form 10-K of Capital Southwest Corporation (the “registrant”); 2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4 The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5 The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: May 23, 2023 By: /s/ Michael S. Sarner Michael S. Sarner Chief Financial Officer Certification of the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1 I, Bowen S. Diehl, President and Chief Executive Officer of Capital Southwest Corporation, certify that, to my knowledge: 1. The Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission on May 23, 2023 (“accompanied report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the accompanied report fairly presents, in all material respects, the consolidated financial condition and results of operations of Capital Southwest Corporation. Date: May 23, 2023 By: /s/ Bowen S. Diehl Bowen S. Diehl President and Chief Executive Officer Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.2 I, Michael S. Sarner, Chief Financial Officer of Capital Southwest Corporation, certify that, to my knowledge: 1. The Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission on May 23, 2023 (“accompanied report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the accompanied report fairly presents, in all material respects, the consolidated financial condition and results of operations of Capital Southwest Corporation. Date: May 23, 2023 By: /s/ Michael S. Sarner Michael S. Sarner Chief Financial Officer Exhibit 99.1 I-45 SLF LLC and Subsidiary Consolidated Financial Statements and Independent Auditor’s Report As of March 31, 2023 and 2022 and for the years ended March 31, 2023, 2022 and 2021 Table of Contents Independent Auditor's Report Consolidated Statements of Assets, Liabilities and Members' Equity Consolidated Schedules of Investments Consolidated Statements of Operations Consolidated Statements of Changes in Members' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 1 3 4 11 12 13 14 Independent Auditor's Report Board of Managers I-45 SLF LLC Opinion We have audited the consolidated financial statements of I-45 SLF LLC and its subsidiary (the Company), which comprise the consolidated statements of assets, liabilities and members’ equity, including the consolidated schedules of investments, as of March 31, 2023 and 2022, the related consolidated statements of operations, changes in members’ equity and cash flows for each of the three years in the period ended March 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of their operations, changes in members’ equity and their cash flows for each of the three years in the period ended March 31, 2023 in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. 1 In performing an audit in accordance with GAAS, we: • • Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. • • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. /s/ RSM US LLP Chicago, Illinois May 12, 2023 2 I-45 SLF LLC and Subsidiary Consolidated Statements of Assets, Liabilities and Members’ Equity Assets Investments, at fair value (cost of $169,874,371 and $187,713,768, respectively) Cash and cash equivalents Due from broker Deferred financing costs (net of accumulated amortization of $4,821,668 and $3,784,559, respectively) Interest receivable Other assets Liabilities and Members' Equity Liabilities Credit facility Distributions payable Interest payable Accrued expenses and other liabilities Total liabilities Commitments and contingencies (Note 9) Members' equity $ $ $ March 31, 2023 2022 143,712,034 $ 6,478,105 1,037,570 414,844 1,145,252 875 152,788,680 $ 176,704,213 9,948,554 123,016 1,451,953 850,342 65,972 189,144,050 86,000,000 $ 2,425,586 87,236 161,022 88,673,844 114,500,000 2,374,444 66,878 154,621 117,095,943 64,114,836 72,048,107 $ 152,788,680 $ 189,144,050 See accompanying notes to consolidated financial statements. 3 I-45 SLF LLC and Subsidiary Consolidated Schedules of Investments March 31, 2023 Maturity Date 6/25/2025 Current 2 Interest Rate 18.00% PIK $ 2,238,544 $ 2,238,544 $ 2,160,195 Principal Amount Fair Value Cost Percentage of Members' Equity 3.37 % 6/25/2025 18.00% PIK 60,154 59,202 58,049 0.09 % — — 1,449,126 580,964 0.91 % — L+5.75% (Floor 1.00%) P+5.50% (Floor 2.00%) P+5.50% (Floor 2.00%) L+5.00% (Floor 1.00%) L+5.00% (Floor 1.00%) SOFR+5.00% SOFR+6.25% (Floor 1.00%) SOFR+5.50% (Floor 0.75%) L+6.75% (Floor 1.00%) SOFR+5.25% SOFR+5.75% (Floor 1.00%) — 482,412 193,401 0.30 % 6,057,693 5,974,923 5,633,654 8.79 % 984,823 978,229 50,472 0.08 % 5,597,579 5,565,782 286,877 0.45 % 123,289 118,442 123,288 0.19 % 3,157,397 3,113,130 3,157,396 4.92 % 6,439,966 6,311,392 6,049,544 9.44 % 4,484,926 4,429,822 4,260,680 6.65 % 2,605,639 2,584,336 2,501,182 3.90 % 6,672,580 6,575,342 6,672,581 10.41 % 6,769,244 6,743,151 6,396,920 9.98 % 4,735,577 4,678,138 4,683,486 7.30 % 6 Portfolio Company AAC New Holdco Inc. Industry Healthcare services Investment 1 Type First Lien Delayed Draw Term 4 Loan 304,075 shares common stock Warrants (Expiration - December 11, 2025) — — ADS Tactical, Inc. American Teleconferencing 5 Services, Ltd. Aerospace & defense First Lien 3/19/2026 Telecommunications Revolving Loan 4/7/2023 Burning Glass Intermediate Holding Company, Inc. Software & IT services Revolving 3 Loan 6/10/2028 First Lien 6/8/2023 7 Corel, Inc. Emerald Technologies (U.S.) Acquisitionco, Inc. Evergreen AcqCo 1 LP Evergreen North America Acquisitions, LLC Geo Parent Corporation Infogain Corporation Software & IT services Technology products & components Consumer products & retail Industrial services Building & infrastructure products Software & IT services First Lien 6/10/2028 First Lien 7/2/2026 First Lien 12/29/2027 First Lien 4/26/2028 First Lien 8/13/2026 First Lien 12/19/2025 First Lien 7/28/2028 4 I-45 SLF LLC and Subsidiary Consolidated Schedules of Investments March 31, 2023 6 Portfolio Company Industry Investment 1 Type Maturity Date Integro Parent Inc. Intermedia Holdings, Inc. Inventus Power, Inc. INW Manufacturing, LLC Isagenix International, 5 LLC KORE Wireless Group Inc. Business services Software & IT services Technology products & components Food, agriculture, & beverage Consumer products & retail First Lien 5/8/2023 First Lien 7/21/2025 First Lien 3/29/2024 First Lien 3/25/2027 First Lien 6/14/2025 Telecommunications First Lien 12/20/2024 Lab Logistics, LLC Lash OpCo, LLC Healthcare services Consumer products & retail First Lien 9/25/2023 First Lien 3/18/2026 Lift Brands, Inc. Consumer services Tranche A Tranche B Tranche C 1,051 shares common stock 6/29/2025 6/29/2025 6/29/2025 Current 2 Interest Rate SOFR+12.25% PIK (Floor 1.00%) L+6.00% (Floor 1.00%) SOFR +5.00% (Floor 1.00%) L+5.75% (Floor 0.75%) L+7.75% (Floor 1.00%) SOFR+5.50% SOFR+7.25% (Floor 1.00%) L+7.00% (Floor 1.00%) SOFR+7.50% (Floor 1.00%) 9.50% PIK — Principal Amount Cost Fair Value Percentage of Members' Equity 368,811 368,810 346,695 0.54 % 6,607,500 6,561,763 5,087,775 7.94 % 6,860,000 6,835,569 6,791,399 10.59 % 2,775,000 2,712,583 2,391,120 3.73 % 1,650,209 1,640,577 561,070 0.88 % 5,596,801 5,582,240 5,316,962 8.29 % 10,049,775 10,016,805 9,929,178 15.49 % 6,112,587 5,998,755 5,868,085 9.15 % 2,476,833 601,606 564,693 2,476,832 601,632 564,693 2,427,296 547,461 513,870 3.79 % 0.85 % 0.80 % — — — 748,600 552,953 0.86 % Lightbox Intermediate, L.P. LOGIX Holdings Company, LLC Mills Fleet Farm Group LLC National Credit Care, LLC Software & IT services First Lien 5/9/2026 Telecommunications First Lien Consumer products & retail 12/23/2024 10/24/2024 First Lien First Lien - Term Loan A 12/23/2026 First Lien - Term Loan B 12/23/2026 Consumer services NBG Acquisition, Inc. Wholesale 5 First Lien 4/26/2024 NinjaTrader, Inc. Financial services First Lien 12/18/2024 5 L+5.00% L+5.75% (Floor 1.00%) L+6.25% (Floor 1.00%) L+6.50% (Floor 1.00%) L+7.50% (Floor 1.00%) L+5.50% (Floor 1.00%) L+6.25% (Floor 1.00%) 6,876,393 6,831,428 6,635,720 10.35 % 4,443,350 4,431,262 3,637,991 5.67 % 4,490,700 4,462,209 4,400,885 6.86 % 2,159,091 2,125,317 2,122,171 3.31 % 2,159,091 2,125,121 2,122,170 3.31 % 2,606,250 2,592,630 78,187 0.12 % 5,000,000 4,939,218 5,000,000 7.80 % I-45 SLF LLC and Subsidiary Consolidated Schedules of Investments March 31, 2023 6 Portfolio Company Research Now Group, Inc. Retail Services WIS Corporation Industry Investment 1 Type Maturity Date Business services First Lien 12/20/2024 Business services First Lien 5/20/2025 SIB Holdings, LLC Business services First Lien 10/29/2026 Stellant Midco, LLC Tacala, LLC Aerospace & defense First Lien Consumer products & retail First Lien 10/2/2028 2/5/2027 TEAM Services Group, LLC Healthcare services First Lien 12/20/2027 Second Lien 2/4/2028 U.S. TelePacific Corp. Veregy Consolidated, Inc. Vida Capital, Inc. Wahoo Fitness 5 Acquisition, LLC YS Garments, LLC Total Investments Telecommunications First Lien Environmental services Financial services Consumer products & retail Consumer products & retail First Lien First Lien First Lien First Lien 5/1/2026 11/3/2027 10/1/2026 8/14/2028 8/9/2026 Current 2 Interest Rate L+5.50% (Floor 1.00%) L+7.75% (Floor 1.00%) L+6.25% (Floor 1.00%) SOFR+5.50% (Floor 0.75%) L+3.50% (Floor 0.75%) L+7.50% (Floor 0.75%) L+5.00% (Floor 1.00%) SOFR+1.00%, 7.25% PIK (Floor 1.00%) L+6.00% (Floor 1.00%) L+6.00% SOFR+5.75% (Floor 1.00%) L+7.50% (Floor 1.00%) Principal Amount Cost Fair Value Percentage of Members' Equity 5,873,577 5,836,826 4,504,770 7.03 % 2,826,812 2,793,391 2,742,007 4.28 % 2,928,750 2,884,429 2,840,888 4.43 % 2,265,500 2,246,704 2,172,048 3.39 % 989,583 949,481 973,913 1.52 % 6,000,000 5,958,064 5,501,280 8.58 % 6,619,754 6,582,130 6,454,260 10.07 % 5,635,000 5,634,999 1,479,187 2.31 % 1,955,000 3,265,000 1,950,885 3,236,194 1,683,255 2,407,937 2.63 % 3.76 % 4,875,000 4,751,309 2,071,876 3.23 % 4,156,593 4,131,944 3,740,936 $169,874,371 $ 143,712,034 5.83 % 224.15 % (1) Corporate bank loans and common stock and warrants represent 222.1% and 2.1%, respectively, of Members' Equity as of March 31, 2023. (2) The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”), Secured Overnight Financing Rate ("SOFR") or Prime (“P”) which reset daily, monthly, quarterly, or semiannually. For each, the Company has provided the spread over LIBOR, SOFR or Prime and the current interest rate in effect at March 31, 2023. Certain investments are subject to an interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest. SOFR based contracts may include a credit spread adjustment (the "Adjustment") that is charged in addition to the stated spread. The Adjustment is applied when the SOFR rate, plus the Adjustment, exceeds the stated floor rate, as applicable. As of March 31, 2023, SOFR based contracts in the portfolio had Adjustments ranging from 0.10% to 0.26161%. (3) The investment has approximately $246.6 thousand in an unfunded revolver commitment as of March 31, 2023. (4) The investment has approximately $43.8 thousand in an unfunded delayed draw commitment as of March 31, 2023. (5) (6) All portfolio companies are domiciled in the United States, unless otherwise noted. (7) The company is domiciled in Canada. Investment was on non-accrual status as of March 31, 2023, meaning the Company has ceased to recognize interest income on the investment. See accompanying notes to consolidated financial statements. 6 I-45 SLF LLC and Subsidiary Consolidated Schedules of Investments March 31, 2022 6 Portfolio Company Industry Investment 1 Type Maturity Date AAC New Holdco Inc. Healthcare services First Lien 304,075 shares common stock Warrants (Expiration - December 11, 2025) 6/25/2025 — — ADS Tactical, Inc. American Teleconferencing 5 Services, Ltd. Aerospace & defense First Lien 3/19/2026 Telecommunications Revolving Loan 6/30/2022 First Lien 6/8/2023 ATX Networks (Toronto) 7 Corporation Technology products & components Burning Glass Intermediate Holding Company, Inc. Software & IT services First Lien Senior Subordinated Debt 196 Class A units Revolving 3 Loan 9/1/2026 — 6/10/2028 7 Corel, Inc. Software & IT services Emerald Technologies (U.S.) Acquisitionco, Inc. Technology products & components First Lien First Lien 6/10/2028 7/2/2026 First Lien 12/29/2027 Evergreen AcqCo 1 LP Evergreen North America Acquisitions, LLC Geo Parent Corporation Consumer products & retail First Lien 4/26/2028 Industrial services Building & infrastructure products First Lien 8/13/2026 Current 2 Interest Rate 10.00%, Principal Amount Cost Fair Value 8.00% PIK $ 1,899,255 $ 1,899,255 $ 1,832,781 Percentage of Members' Equity 2.54 % — — 1,449,127 1,449,127 2.01 % — L+5.75% (Floor 1.00%) P+5.50% (Floor 2.00%) P+5.50% (Floor 2.00%) L+7.50%, (Floor 1.00%) — 482,412 482,412 0.67 % 6,394,231 6,283,162 6,133,122 8.51 % 1,027,491 1,020,896 63,855 0.09 % 5,597,579 5,565,782 307,867 0.43 % 2,616,688 2,610,076 2,498,937 3.47 % — L+5.00% (Floor 1.00%) L+5.00% (Floor 1.00%) L+5.00% SOFR +6.25% (Floor 1.00%) L+5.50% (Floor 0.75%) L+6.75% (Floor 1.00%) — — — — % 73,973 67,463 67,463 0.09 % 3,189,452 6,802,781 3,139,669 6,649,975 3,189,452 6,804,924 4.43 % 9.44 % 3,125,000 3,063,410 3,078,125 4.27 % 4,179,000 4,142,649 4,158,105 5.77 % 6,740,323 6,622,570 6,740,323 9.36 % 9/1/2028 10.00% PIK 1,080,726 1,080,726 729,490 1.01 % First Lien 12/19/2025 L+5.25% 6,839,744 6,809,224 6,805,545 9.45 % 7 I-45 SLF LLC and Subsidiary Consolidated Schedules of Investments March 31, 2022 6 Portfolio Company Industry Investment 1 Type Maturity Date GS Operating, LLC Distribution First Lien 1/3/2028 Infogain Corporation Software & IT services First Lien 7/28/2028 InfoGroup Inc. Software & IT services First Lien 4/3/2023 Integro Parent Inc. Business services First Lien 10/28/2022 Intermedia Holdings, Inc. Software & IT services First Lien 7/21/2025 Inventus Power, Inc. INW Manufacturing, LLC Isagenix International, LLC KORE Wireless Group Inc. Technology products & components Food, agriculture, & beverage First Lien 3/29/2024 First Lien 3/25/2027 Consumer products & retail First Lien 6/14/2025 Telecommunications First Lien 12/20/2024 Lab Logistics, LLC Healthcare services First Lien 9/25/2023 Lash OpCo, LLC Consumer products & retail First Lien 3/18/2026 Lift Brands, Inc. Consumer services Delayed Draw Term 4 Loan Tranche A Tranche B Tranche C 1,051 shares common stock 3/18/2026 6/29/2025 6/29/2025 6/29/2025 Current 2 Interest Rate SOFR +6.00% (Floor 0.75%) L+5.75% (Floor 1.00%) L+5.00% (Floor 1.00%) L+5.75% (Floor 1.00%) L+6.00% (Floor 1.00%) SOFR +5.00% (Floor 1.00%) L+5.75% (Floor 0.75%) L+5.75% (Floor 1.00%) L+5.50% L+7.25% (Floor 1.00%) L+7.00% (Floor 1.00%) L+7.00% (Floor 1.00%) L+7.50% (Floor 1.00%) 9.50% PIK — Principal Amount Cost Fair Value Percentage of Members' Equity 4,987,500 4,891,052 4,987,500 6.92 % 4,783,654 4,718,780 4,769,303 6.62 % 2,850,000 2,845,252 2,703,938 3.75 % 3,217,460 3,208,400 3,043,187 4.22 % 5,676,508 5,658,733 5,638,192 7.83 % 6,930,000 6,883,970 6,791,400 9.43 % 2,925,000 2,867,256 2,866,500 3.98 % 1,684,740 1,677,192 1,087,558 1.51 % 4,657,831 4,638,860 4,640,364 6.44 % 6,242,038 6,212,419 6,242,038 8.66 % 4,987,500 4,880,990 4,877,775 6.77 % 1,186,957 1,151,855 1,160,843 1.61 % 2,502,042 583,177 564,693 2,502,042 583,177 564,693 2,251,838 437,383 423,519 3.13 % 0.61 % 0.59 % — — — 748,600 748,600 1.04 % Lightbox Intermediate, L.P. LOGIX Holdings Company, LLC Mills Fleet Farm Group LLC Software & IT services First Lien 5/9/2026 Telecommunications First Lien 12/23/2024 Consumer products & retail First Lien 10/24/2024 L+5.00% L+5.75% (Floor 1.00%) L+6.25% (Floor 1.00%) 4,947,836 4,913,508 4,873,619 6.76 % 5,826,004 5,807,333 5,491,009 7.62 % 4,623,125 4,583,904 4,623,125 6.42 % 8 I-45 SLF LLC and Subsidiary Consolidated Schedules of Investments March 31, 2022 Maturity Date Current 2 Interest Rate Principal Amount Cost Fair Value Percentage of Members' Equity 12/23/2026 L+6.50% (Floor 1.00%) 2,500,000 2,452,711 2,482,500 3.45 % 6 Portfolio Company Industry National Credit Care, LLC Consumer services First Lien - Term Loan B Investment 1 Type First Lien - Term Loan A First Lien - Term Loan B 12/23/2026 NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 NinjaTrader, Inc. NorthStar Group Services, Inc. Research Now Group, Inc. Retail Services WIS Corporation Financial services First Lien 12/18/2024 Environmental services First Lien 11/9/2026 Business services First Lien 12/20/2024 Business services First Lien 5/20/2025 SIB Holdings, LLC Business services First Lien 10/29/2026 Stellant Midco, LLC Aerospace & defense First Lien 10/2/2028 Tacala, LLC TEAM Services Group, LLC Consumer products & retail Second Lien 2/7/2028 Healthcare services First Lien 12/20/2027 TestEquity, LLC Capital equipment First Lien First Lien - Term Loan B 4/28/2022 4/28/2022 UniTek Global Services, Inc. Telecommunications First Lien 8/20/2024 U.S. TelePacific Corp. Veregy Consolidated, Inc. Vida Capital, Inc. Wahoo Fitness Acquisition, LLC Telecommunications First Lien 5/1/2026 Environmental services Financial services First Lien First Lien 11/3/2027 10/1/2026 Consumer products & retail First Lien 8/14/2028 9 L+7.50% (Floor 1.00%) L+5.50% (Floor 1.00%) L+6.25% (Floor 1.00%) L+5.50% (Floor 1.00%) L+5.50% (Floor 1.00%) L+7.75% (Floor 1.00%) L+6.00% (Floor 1.00%) L+5.50% (Floor 0.75%) L+7.50% (Floor 0.75%) L+5.00% (Floor 1.00%) L+6.25% (Floor 1.00%) L+6.25% (Floor 1.00%) L+5.50%, 2.00% PIK (Floor 1.00%) L+1.00%, 7.25% PIK (Floor 1.00%) L+6.00% (Floor 1.00%) L+6.00% L+5.75% (Floor 1.00%) 2,500,000 2,452,711 2,482,500 3.45 % 2,662,500 2,646,932 1,807,172 2.51 % 5,000,000 4,908,403 5,000,000 6.94 % 2,961,290 2,947,702 2,950,185 4.09 % 4,935,567 4,935,567 4,861,015 6.75 % 2,958,524 2,912,186 2,914,146 4.04 % 3,000,000 2,945,060 2,958,000 4.11 % 2,288,500 2,267,212 2,254,173 3.13 % 5,000,000 4,991,330 4,943,750 6.86 % 6,687,303 6,643,981 6,637,148 9.21 % 3,804,805 3,804,239 3,804,805 5.28 % 941,707 941,561 941,707 1.31 % 2,814,048 2,802,007 2,626,913 3.65 % 5,239,140 5,239,140 3,714,550 5.16 % 1,975,000 3,565,000 1,970,150 3,530,511 1,935,500 3,282,777 2.69 % 4.56 % 4,968,750 4,833,270 4,869,375 6.76 % I-45 SLF LLC and Subsidiary Consolidated Schedules of Investments March 31, 2022 6 Portfolio Company Industry Investment 1 Type Maturity Date YS Garments, LLC Consumer products & retail First Lien 8/9/2024 Current 2 Interest Rate L+5.50% (Floor 1.00%) Principal Amount Cost Fair Value Percentage of Members' Equity 4,281,594 4,264,683 4,238,778 5.88 % Total Investments $187,713,768 $176,704,213 245.26 % (1) Corporate bank loans and common stock and warrants represent 241.5% and 3.7%, respectively, of Members' Equity as of March 31, 2022. (2) The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”), Secured Overnight Financing Rate ("SOFR") or Prime (“P”)) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR, SOFR or Prime and the current interest rate in effect at March 31, 2022. Certain investments are subject to an interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest. (3) The investment has approximately $0.3 million in an unfunded revolver commitment as of March 31, 2022. (4) The investment has approximately $0.8 million in an unfunded delayed draw commitment as of March 31, 2022. (5) Investment was on non-accrual status as of March 31, 2022, meaning the Company has ceased to recognize interest income on the investment. The current interest rate and terms disclosed on investments on non-accrual reflect the terms at the time of placement on non-accrual status. (6) All portfolio companies are domiciled in the United States, unless otherwise noted. (7) The company is domiciled in Canada. See accompanying notes to consolidated financial statements. 10 I-45 SLF LLC and Subsidiary Consolidated Statements of Operations 2023 Years Ended March 31, 2022 2021 $ 16,537,219 $ — 376,940 16,914,159 7,302,023 100,130 139,949 7,542,102 9,372,057 12,614,627 $ 6,049 183,154 12,803,830 3,819,893 125,298 220,781 4,165,972 8,637,858 13,503,215 — 426,418 13,929,633 4,236,991 118,416 209,783 4,565,190 9,364,443 Investment income Interest income Dividend income Fees and other income Total investment income Expenses Interest expense Administrative fee Professional fees and other Total expenses Net investment income Realized and unrealized gain (loss) on investments Net realized gain (loss) on investments Net change in unrealized (depreciation) appreciation on investments Net (loss) gain on investments 1,223,803 (15,152,771) (13,928,968) 1,047,337 (4,569,244) (3,521,907) (15,312,952) 30,467,391 15,154,439 Net (decrease) increase in members' equity resulting from operations $ (4,556,911) $ 5,115,951 $ 24,518,882 See accompanying notes to consolidated financial statements. 11 I-45 SLF LLC and Subsidiary Consolidated Statements of Changes in Members' Equity Members' equity beginning balance $ Contributions Distributions Net increase in members' equity resulting from operations: Net investment income Net realized gain (loss) on investments Net change in unrealized (depreciation) appreciation on investments Net (decrease) increase in members' equity resulting from operations 2023 Years Ended March 31, 2022 2021 72,048,107 $ 6,000,000 (9,376,360) 68,671,747 71,573,341 $ 4,000,000 (8,641,185) 66,932,156 9,372,057 1,223,803 (15,152,771) (4,556,911) 8,637,858 1,047,337 (4,569,244) 5,115,951 49,779,446 16,000,000 (18,724,987) 47,054,459 9,364,443 (15,312,952) 30,467,391 24,518,882 Members' equity ending balance $ 64,114,836 $ 72,048,107 $ 71,573,341 See accompanying notes to consolidated financial statements. 12 I-45 SLF LLC and Subsidiary Consolidated Statements of Cash Flows Cash flows from operating activities Net (decrease) increase in members' equity resulting from operations Adjustments to reconcile net increase (decrease) in members' equity resulting from operations to net cash provided by (used in) operating activities: Net realized (gain) loss on investments Net change in unrealized depreciation (appreciation) on investments Amortization of premiums and discounts on investments Amortization of deferred financing costs Purchases of investments Proceeds from sales and repayments of debt investments Proceeds from sales and return of capital of equity investments Payment-in-kind interest and dividends Changes in operating assets and liabilities: Due from broker Interest receivable Other Assets Payable for securities purchased Interest payable Accrued expenses and other liabilities Net cash provided by (used in) operating activities Cash flows from financing activities Borrowings under credit facility Repayments of credit facility Deferred financing costs paid Capital contributions Distributions Net cash (used in) provided by financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosure of cash flow information Cash paid during the period for interest Supplemental disclosure of noncash financing activities Distributions payable 2023 Years Ended March 31, 2022 2021 $ (4,556,911) $ 5,115,951 $ 24,518,882 (1,203,361) 15,152,771 (443,918) 1,037,109 (16,450,381) 35,875,329 1,173,049 (1,111,310) (914,554) (294,910) 65,097 — 20,358 6,401 28,354,769 14,500,000 (43,000,000) — 6,000,000 (9,325,218) (31,825,218) (1,047,337) 4,569,244 (393,573) 820,017 (75,778,732) 57,552,349 3,601,813 (856,791) 29,433 (297,380) (10,500) (13,071,599) 27,675 (17,074) (19,756,504) 56,000,000 (32,500,000) (26,715) 4,000,000 (8,186,826) 19,286,459 (3,470,449) 9,948,554 6,478,105 $ (470,045) 10,418,599 9,948,554 $ 15,312,952 (30,467,391) (502,920) 934,097 (40,196,036) 62,539,176 — (177,092) (114,142) 523,388 (36,981) 13,071,599 (56,300) 46,401 45,395,633 18,000,000 (52,000,000) (1,102,765) 16,000,000 (19,613,373) (38,716,138) 6,679,495 3,739,104 10,418,599 5,871,220 $ 2,983,211 $ 3,357,055 2,425,586 $ 2,374,444 $ 1,920,085 $ $ $ See accompanying notes to consolidated financial statements. 13 I-45 SLF LLC and Subsidiary Notes to Consolidated Financial Statements 1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION I-45 SLF LLC and Subsidiary (the “Company”) was organized as a Delaware limited liability company on September 3, 2015 by the filing of a certificate of formation (the “Certificate”) with the Office of the Secretary of State of the State of Delaware under and pursuant to the Delaware Limited Liability Company Act (the “Act”). The Company is a joint venture between Main Street Capital Corporation and Capital Southwest Corporation. Capital Southwest Corporation owns 80.0% of the Company and has a current profits interest of 78.25%, while Main Street Capital Corporation owns 20.0% and has a current profits interest of 21.75%. The initial equity capital commitment to the Company totaled $85 million, consisting of $68 million from Capital Southwest Corporation and $17 million from Main Street Capital Corporation. On April 30, 2020, each of Capital Southwest Corporation and Main Street Capital Corporation made an additional equity capital commitment of $12.8 million and $3.2 million, respectively, which resulted in a total equity capital commitment to the Company of $80.8 million and $20.2 million, respectively. On March 25, 2021, the Company declared a return of capital dividend to its members in the amount of $10 million. On January 19, 2023, the Company called $6.0 million in equity capital from its members. As of March 31, 2023, total funded equity capital totaled $101.0 million, consisting of $80.8 million from Capital Southwest Corporation and $20.2 million from Main Street Capital Corporation. The Company's Board of Managers makes all investment and operational decisions for the fund, and consists of equal representation from Capital Southwest Corporation and Main Street Capital Corporation. On March 11, 2021, Capital Southwest Corporation and Main Street Capital Corporation entered into the Second Amended and Restated Limited Liability Company Operating Agreement (the "Amendment"), which increased Capital Southwest Corporation's profits interest from (a) 75.6% to (b) an amount equal to: (i) 76.26250% as of the date of the Amendment through the quarter ended March 31, 2021; (ii) 76.9250% for the quarter ending June 30, 2021; (iii) 77.58750% for the quarter ending September 30, 2021; and (iv) 78.250% for the quarter ending December 31, 2021 and periods thereafter. On September 18, 2015, the Company’s wholly-owned and consolidated subsidiary, I-45 SPV LLC (the “SPV”) was organized as a Delaware limited liability company by the filing of a certificate of formation with the Office of the Secretary of State of the State of Delaware. The Company is the sole equity member of the SPV. All intercompany balances and transactions have been eliminated in consolidation. The registered agent and office of the Company required by the Act to be maintained in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The principal office of the Company shall be located at such place within or without the State of Delaware, and the Company shall maintain such records, as the Members shall determine from time to time. BASIS OF PRESENTATION The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). The Company is an investment company and follows the accounting and reporting guidance in FASB Topic 946 - Financial Services - Investment Companies (“ASC Topic 946”). 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 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS Investment transactions are accounted for on a trade-date basis. Premiums and discounts are amortized over the lives of the respective debt securities using the effective interest method. Investments that are held by the Company are stated at fair value in accordance with ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC Topic 820”). 14 Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the year net of recoveries and realized gains or losses from in-kind redemptions. Net change in unrealized appreciation or depreciation reflects the net change in the fair value of the investment portfolio 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. In the normal course of business, the Company maintains its cash and cash equivalent balances in financial institutions, which at times may exceed federally insured limits. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financial institutions and does not anticipate any losses from these counterparties. DEFERRED FINANCING COSTS Deferred financing costs include commitment fees and other costs related to the Company’s credit facility (the “Credit Facility”, as discussed further in Note 4). These costs have been capitalized and are amortized into interest expense over the term of the individual instrument. INTEREST INCOME Interest income is recorded as earned on the accrual basis and includes amortization of premiums or accretion of discounts. In accordance with the Company’s valuation policy, accrued interest receivables are evaluated periodically for collectability. When the Company does not expect the debtor to be able to service all of its debt or other obligations, the Company 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 ability to service debt or other obligations, it will be restored to accrual basis. As of March 31, 2023, the Company had four investments on non-accrual status, which represented approximately 2.1% of the total investment portfolio's fair value and approximately 9.1% of its cost. As of March 31, 2022, the Company had one investment on non-accrual status, which represented 0.2% of the total investment portfolio's fair value and approximately 3.5% of its cost. EXPENSES Unless otherwise voluntarily or contractually assumed by the Board of Managers or another party, the Company bears all expenses incurred in its business including, but not limited to, the following: all costs and expenses related to investment transactions and positions for the Company, legal fees, accounting, auditing and tax preparation fees, recordkeeping and custodial fees, costs of computing the Company’s members’ equity, research expenses, costs of registration expenses, all costs with respect to communications with members, and other types of expenses as may be approved from time to time. INCOME TAXES The Company is organized and operates as a limited liability company and is not subject to income taxes as a separate entity. Such taxes are the responsibility of the individual members. Accordingly, no provision for income taxes has been made in the Company’s financial statements. Investments in foreign securities may result in foreign taxes being withheld by the issuer of such securities. For the current open tax year and for all major jurisdictions, management of the Company has evaluated the tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions will “more-likely-than-not” be sustained by the Company upon challenge by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold and that would result in a tax benefit or expense to the Company would be recorded as a tax benefit or expense in the current year. For each of the three tax years ended December 31, 2022, 2021 and 2020 the Company determined that it did not have any uncertain tax positions. Generally, the Company is subject to income tax examinations by major taxing authorities during the three years ended December 31, 2019 through 2021. 15 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 certain lenders. Many of these agreements 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 and certain lenders 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. On December 21, 2022 the FASB issued ASU 2022-06 "Reference rate reform (Topic 848)—Deferral of the Sunset Date of Topic 848," which defers the sunset date of ASC 848 until December 31, 2023. ASU 2022-06 became effective upon issuance. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2024, except for hedging transactions as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company does not believe it will have a material impact on its consolidated financial statements or its disclosure and did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the year ended March 31, 2023. In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which was issued to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The new guidance is effective for interim and annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of the new standard on the Company's consolidated financial statements and related disclosures and does not believe it will have a material impact on its consolidated financial statements or its disclosure. 3. FAIR VALUE MEASUREMENTS ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s investments is determined as of the close of business at the end of each reporting period (“Valuation Date”) in conformity with the guidance on fair value measurements and disclosures under U.S. GAAP. The inputs used to determine the fair value of the Company’s investments are summarized in the three broad levels listed below: • • • Level 1- unadjusted quoted prices in active markets for identical investments Level 2- investments with other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) Level 3- investments with significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) The Company establishes valuation processes and procedures to ensure the valuation methodologies for investments categorized within Level 3 of the fair value hierarchy are fair, consistent, and verifiable. The Company designates the Board of Managers to oversee the entire valuation process of Level 3 investments. The Board of Managers is responsible for developing the Company’s valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies. Additionally, the Board of Managers is responsible for reviewing and approving the valuation determinations, as well as determining the levels of the fair value hierarchy in which the investments fall. The Board of Managers meets on a quarterly basis, or more frequently as needed, to determine the valuations of Level 3 investments. Valuations determined by the Board of Managers are required to be supported by market data, third-party pricing sources, industry accepted pricing models, counterparty prices, or other methods the Board of Managers deems to be appropriate, including the use of internal proprietary pricing models. The Company, along with the Board of Managers, periodically reviews the valuations of Level 3 investments, and if necessary, recalibrates its valuation procedures. Investments currently held by the Company are generally valued as follows: 16 Securities that are listed on a recognized exchange are valued at their last available public sales price. Securities that are listed on more than one national securities exchange are valued at the last quoted sales price on the primary exchange on which the security is listed. If a security was not traded on the primary exchange on the valuation date, such security is valued at the last quoted sales price on the next most active market, if the Board of Managers determines the price to be representative of fair value. Investments that are not listed on an exchange but are traded over-the-counter are generally valued using independent pricing services. These pricing services may use the broker quotes or models that consider such factors as issue type, coupon rate, maturity, rating, prepayment speed, yield, or prices of comparable quality, when pricing securities. In the case of investments not priced by independent pricing services, the Board of Managers will endeavor to obtain market maker quotes. For both long and short positions, the average of all “bid” and “asked” quotations is generally used. The fair value determination of the Company’s investments consists of a combination of observable inputs in non-active markets and unobservable inputs. The observable inputs are not always sufficient to determine the fair value of these investments. As a result, all investments currently held by the Company are categorized as Level 3 under ASC 820. The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s investments that are categorized within Level 3 of the fair value hierarchy as of March 31, 2023 and 2022: Type of Investment Fair Value at March 31, 2023 Valuation Technique Unobservable Input Range Corporate bank loans $ Common stock and warrants 79,760,373 62,624,344 1,327,317 Income Approach Income Approach Enterprise Value Waterfall Analysis Enterprise Value Waterfall Analysis Broker Quotes Discount Rate 3.0 - 98.4 8.2% - 16.7% Discount Rate 12.1% - 20.0% EBITDA Multiple 9.0x - 10.0x Type of Investment $ 143,712,034 Fair Value at March 31, 2022 Valuation Technique Unobservable Input Range Corporate bank loans $ Common stock and warrants 107,165,687 57,124,375 9,734,012 2,680,139 Income Approach Income Approach Market Approach Enterprise Value Waterfall Analysis Enterprise Value Waterfall Analysis Broker Quotes Discount Rate Exit Value 5.5 - 100.0 7.3% - 20.0% 100.0 - 100.0 Discount Rate 11.6% - 20.0% EBITDA Multiple 9.0x - 11.1x $ 176,704,213 The Board of Managers will evaluate the valuation hierarchy and make changes when necessary. The Company discloses transfers between levels based on valuations at the end of the reporting period. There were no transfers between levels for the years ended March 31, 2023 and 2022. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. 17 The following is a summary categorization, as of March 31, 2023, of the Company’s investments based on the level of inputs utilized in determining the value Level 1 Level 2 Level 3 Total $ — $ — — — $ — — — 142,384,717 $ 1,327,317 143,712,034 142,384,717 1,327,317 143,712,034 — 3,074,055 Cash equivalents - money market fund 3,074,055 The following is a summary categorization, as of March 31, 2022, of the Company’s investments based on the level of inputs utilized in determining the value $ 3,074,055 $ — $ 143,712,034 $ 146,786,089 of such investments: Investments (at fair value) Corporate bank loans Common stock and warrants Total investments of such investments: Investments (at fair value) Corporate bank loans Common stock and warrants Total investments Level 1 Level 2 Level 3 Total $ — $ — — — $ — — — 174,024,074 $ 2,680,139 176,704,213 174,024,074 2,680,139 176,704,213 — 1,549,246 Cash equivalents - money market fund 1,549,246 $ 1,549,246 $ — $ 176,704,213 $ 178,253,459 Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs. For the years ended March 31, 2023 and 2022, the Company purchased $16,450,381 and $75,778,732, respectively, of new investments of corporate bank loans classified as Level 3 investments in the fair value hierarchy. 4. CREDIT FACILITY The Company closed on a $75.0 million 5-year senior secured credit facility with Deutsche Bank AG (the “Credit Facility”) in the period ended March 31, 2016. The Company maintains the Credit Facility to provide additional liquidity to support its investment and operational activities. This facility includes an accordion feature which allows the Company to achieve leverage of up to 2x debt-to-equity. The Credit Facility initially bore interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 2.50%. During the year ended March 31, 2017, the Company increased credit facility 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 Credit Facility was amended to extend the maturity to July 2022 and to reduce the interest rate on borrowings to LIBOR plus 2.40%. In November 2019, the Credit Facility was further amended to extend the maturity to November 2024 and to reduce the interest rate on borrowings to LIBOR rate plus 2.25%. On April 30, 2020, the Credit Facility was amended to permanently reduce the Credit Facility amount through a prepayment of $15.0 million and to change the minimum utilization requirements. On March 25, 2021, the 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%. On March 30, 2023, the Credit Facility was further amended to permanently reduce the Credit Facility amount to $100.0 million in total debt commitments and replace LIBOR with Term SOFR as the reference interest rate. After giving effect to the amendment, the interest rate on borrowings is Term SOFR rate plus 2.41%. The Company pays an administrative agent fee of 0.25% per annum and unused fees of 0.35% per annum on the unused lender commitments under the Credit Facility. The Credit Facility is secured by a first lien on the assets of the 18 Company. The Credit Facility contains certain affirmative and negative covenants, including but not limited to maintenance of a borrowing base. At March 31, 2023 and 2022, the Company had $86.0 million and $114.5 million, respectively, in borrowings outstanding under the Credit Facility. The Company recognized interest expense related to the Credit Facility, including unused commitment fees, administrative agent fees and amortization of deferred loan costs, of approximately $7.3 million, $3.8 million, and $4.2 million respectively, for the years ended March 31, 2023, 2022, and 2021. The weighted average interest rate on the Credit Facility was 5.48% and 2.40%, respectively, for the years ended March 31, 2023 and 2022. Average borrowings for the years ended March 31, 2023 and 2022 were $104.2 million and $102.9 million, respectively. A summary of the Company's contractual payment obligations for the repayment of outstanding indebtedness at March 31, 2023 is as follows: Credit Facility $ — $ — $ 86,000 $ — $ — $ — $ 86,000 2024 2025 2026 2027 2028 Thereafter Total Years Ending March 31, 5. ALLOCATION OF PROFITS AND LOSSES For each fiscal year, profits or net losses of the Company are allocated among and credited to or debited against the capital accounts of the members as of the last day of each fiscal year in accordance with the Limited Liability Company Agreement (the “LLC Agreement”). Net profits or net losses are allocated after giving effect for any initial or additional applications for interests or any repurchases of interests. Net investment income, realized gains and losses, and unrealized gains or losses are allocated to the members pro rata in accordance with their profit percentages, as defined in the LLC Agreement. Net profits or net losses are measured as the net change in the value of the members’ equity in the Company, including any change in unrealized appreciation or depreciation of investments and income, net of expenses, and realized gains or losses during a fiscal year. Each quarter a cash distribution may be made to the members, which is generally equivalent to estimated net investment income. The distribution policy is subject to change by the Board of Managers based on business and market conditions at any time. Distributions are recorded on the declaration date and are generally paid to the members subsequent to each quarter end. 6. DUE FROM BROKERS The Company conducts business with brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances or securities, or clear security transactions on the Company’s behalf. The Company monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote. At March 31, 2023 and 2022, the balance in due from brokers is cash of approximately $1.0 million and $0.1 million, respectively. 7. ADMINISTRATION AGREEMENT In consideration for administrative, accounting, and recordkeeping services, the Company engaged US Bancorp Fund Services, LLC ("USBFS") for the years ended March 31, 2022 and March 31, 2021. Effective April 1, 2022, the Company terminated its administration agreement with USBFS and entered into an administration agreement with Capital Southwest Corporation (the "Administrator"). The Company paid USBFS a quarterly administration fee, which was calculated based on the quarter end invested assets. For the year ended March 31, 2022, the Company had incurred $125.3 thousand in administration fees, of which $31.6 thousand were payable at the end of the year. For the year ended March 31, 2021, the Company had incurred $118.4 thousand in administration fees, of which $28.5 thousand were payable at the end of the year. Effective April 1, 2022, the Company pays the Administrator an annual administration fee, which is set as the lesser of (a) $100 thousand and (b) the invested assets par value multiplied by six basis points. For the year ended March 31, 2023, the Company had incurred $100.1 thousand in administration fees, of which $25.0 thousand were payable at the end of the year. 19 USBFS is affiliated with a broker, U.S. Bank, through which the Company transacts operations. At March 31, 2023, cash and cash equivalents in the amount of $6.5 million are held with U.S. Bank. At March 31, 2022, cash and cash equivalents in the amount of $9.9 million are held by U.S. Bank. 8. RELATED PARTY TRANSACTIONS The Administrator is a member of the Company. The Administrator owns 80.0% of the Company and has a current profits interest of 78.25%. The administration agreement effective April 1, 2022 was approved by the Company's Board of Managers. As of March 31, 2023, the Company had dividends payable to the Administrator of $1.9 million, which was included in distributions payable on the Consolidated Statements of Assets, Liabilities and Members' Equity. 9. COMMITMENTS AND CONTINGENCIES The Company entered into various trades during the periods ended March 31, 2023 and 2022. As of March 31, 2023 there was an outstanding trade in the amount of approximately $0.7 million that remained unsettled. This amount is included in the balance of Due from Broker on the Consolidated Statements of Assets, Liabilities and Members' Equity. As of March 31, 2022, there were no unsettled trades. 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. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The following table lists the outstanding commitments as of March 31, 2023 and 2022: Portfolio Company AAC New Holdco Inc. Burning Glass Intermediate Holding Company, Inc. Lash OpCo, LLC Total unused commitments to extend financing Investment Type Delayed Draw Term Loan Revolving Loan Delayed Draw Term Loan March 31, 2023 March 31, 2022 43,814 $ 246,575 — 290,389 $ — 295,890 813,043 1,108,933 $ $ The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. The Company has no currently pending material legal proceedings to which it is a party or to which any of its assets is subject. 10. FINANCIAL HIGHLIGHTS Financial highlights are as follows: Net investment income to average members' equity Expenses to average members' equity (2) Internal Rate of Return, end of year (1) (1) 2023 Years Ended March 31, 2022 2021 14.46 % (11.64)% 8.06 % 11.77 % (5.68)% 9.85 % 13.42 % (6.54)% 10.25 % (1) (2) Ratios are calculated by dividing the indicated amount by average members' equity measured as of the end of each quarter during the period. The internal rate of return since inception ("IRR") of the members is computed based on the actual dates of cash inflows, outflows and the ending net assets at the end of the year of the members' equity account as of each measurement date. The IRR includes actual cash payments and does not include distributions declared but not yet paid. Financial highlights are calculated for the members’ class taken as a whole. An individual member’s return and ratios may vary. Financial highlights disclosed may not be indicative of future performance of the Company. 20 10. SUBSEQUENT EVENTS Management has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through May 12, 2023, the date the consolidated financial statements were available to be issued. 21 Report of Independent Registered Public Accounting Firm Exhibit 99.2 Board of Directors and Shareholders Capital Southwest Corporation and Subsidiaries Our audits of the consolidated financial statements referred to in our report dated May 23, 2023, appearing in Capital Southwest Corporation’s annual report on Form 10- K also included an audit of the senior securities table of Capital Southwest Corporation and Subsidiaries (collectively, the Company) as of March 31, 2023, included in Part II, Item 5 of the Company’s annual report on Form 10-K for the year ended March 31, 2023. This table is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits of the consolidated financial statements. In our opinion, the senior securities table, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ RSM US LLP Chicago, Illinois May 23, 2023 

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