What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-05-26 compared with 2020-06-02 · 181 added, 172 removed, 266 unchanged (57% of the section changed)

10 unchanged sentences

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, as well as first and second lien syndicated loans in UMM companies.

Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) between $3.0 million and $15.0 million, and our LMM investments generally range in size from $5.0 million to $25.0 million.

Our UMM investments generally include syndicated first and second lien loans in companies with EBITDA generally greater than $50.0 million, and our UMM investments typically range in size from $5.0 million to $15.0 million.

We primarily target senior debt and equity investments in LMM companies, as well as first and second lien loans in 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 $25.0 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 $15.0 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.

8 unchanged sentences

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.

Since the Share Distribution on September 30, 2015 through March 31, 2020 , our exited investments resulted in a weighted average internal rate of return to the Company of approximately 16.4% (based on original cash invested of approximately $227.0 million).

Since the Share Distribution on September 30, 2015 through March 31, 2021, our exited investments resulted in total proceeds received of approximately $383.5 million and a weighted average internal rate of return to the Company of approximately 15.5% (based on original cash invested of approximately $340.2 million).

Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero.

1 unchanged sentence

Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized.

Approximately 87.4% of these exited investments resulted in an aggregate cash flow realized internal rate of return to the Company of 10% or greater.

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 which 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, 2020 , 2019 and 2018 , the ratio of our annualized fourth quarter operating expenses, excluding interest expense, as a percentage of our quarterly average total assets was 2.37%, 2.81% and 3.36%, respectively.

For the years ended March 31, 2021, 2020 and 2019, the ratio of our total operating expenses, excluding interest expense, as a percentage of our annual average total assets was 2.42%, 2.76% and 3.04%, respectively.

Recent COVID-19 Developments

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets.

The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, imposed restricting travel, and temporarily closing many corporate offices, retail stores, restaurants, fitness clubs and manufacturing facilities and factories in affected jurisdictions.

Such actions are creating disruption in global supply chains and adversely impacting a number of industries.

The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets.

Given the fluidity of the situation, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position or cash flows at this time.

The global impact of the COVID-19 outbreak has been rapidly evolving and has led to, and for an unknown period of time will continue to lead to, disruptions in local, regional, national and global markets and economies affected thereby, including the United States.

The COVID-19 pandemic and restrictive measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the re-introduction of 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 interruptions and overall economic and financial market instability both globally and in the United States.

In addition, although the U.S.

Food and Drug Administration authorized vaccines for emergency use starting in December 2020, it is unclear how quickly the vaccines will be distributed nationwide and globally or when “herd immunity” will be achieved and the restrictions that were imposed to slow the spread of the virus will be lifted entirely and nationwide.

Even after the COVID-19 pandemic subsides, the U.S.

economy and most other major global economies may continue to experience a recession, and we anticipate our business and operations could be materially adversely affected by a prolonged recession in the United States and other major markets.

We have been closely monitoring, and will continue to monitor, the impact of the COVID-19 pandemic and its impact on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets.

Given the fluidity of the pandemic, we cannot estimate the long-term impact of COVID-19 on

our business, future results of operations, financial position or cash flows at this time.

Further, the operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments.

We believe our portfolio companies have taken immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related orders imposed by state and local governments, including developing liquidity plans supported by internal cash reserves, shareholder support, and, as appropriate, accessing their ability to participate in the recently enacted government Paycheck Protection Program.

The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its

We believe our portfolio companies have taken, and continue to take, immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related orders imposed by state and local governments, including developing liquidity plans supported by internal cash reserves, and shareholder support, and, as appropriate, accessing their ability to participate in the government Paycheck Protection Program, including the second draw Paycheck Protection Program loans.

and international authorities, including federal, state and local public health authorities.

Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.

We have evaluated subsequent events from March 31, 2020 through the filing date of this Annual Report on Form 10-K, June 2, 2020.

However, as the discussion in this Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the Company’s financial statements for the fiscal year ended March 31, 2020, the analysis contained herein may not fully account for impacts relating to the COVID-19 pandemic.

In that regard, for example, as of March 31, 2020, the Company valued its portfolio investments in conformity with U.S.

GAAP based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time.

Due to the overall volatility that the COVID-19 pandemic has caused during the months that followed our March 31, 2020 valuation, any valuations conducted now or in the future in conformity with U.S.

GAAP could result in a lower fair value of our portfolio.

The impact to our results going forward may depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the COVID-19 or treat its impact, all of which are beyond our control.

Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected at this time.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

23 unchanged sentences

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.

Discounts/premiums received to par on loans purchased are capitalized and accreted or amortized into income over the life of the loan.

In accordance with our valuation policy, accrued interest and dividend income is evaluated periodically 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 ability to service debt or other obligations, it will be restored to accrual basis.

As of March 31, 2020 , we had four investments on non-accrual status, which comprised of approximately 3.3% of our total investment portfolio's fair value and approximately 5.8% of its cost.

As of March 31, 2019 , we had one investment on non-accrual status, which represented approximately 1.6% of our total investment portfolio's fair value and approximately 1.9% of its cost.

If a loan or debt security’s status significantly

improves regarding ability to service debt or other obligations, it will be restored to accrual basis.

As of March 31, 2021, we did not have any investments on non-accrual status.

As of March 31, 2020, we had four investments on non-accrual status, which represented approximately 3.3% of our total investment portfolio's fair value and approximately 5.8% of its cost.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases , which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months.

The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases.

The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which affects narrow aspects of the guidance issued in the amendments in ASU 2016-02.

The new guidance is effective for annual periods beginning after December 15, 2018, and interim periods therein.

CSWC adopted ASU 2016-02 effective April 1, 2019.

Under ASC 842, Leases, ("ASC 842"), CSWC evaluates leases to determine if the leases are considered financing or operating leases.

The Company currently has one operating lease for office space for which the Company has recorded a right-of-use asset and lease liability for the operating lease obligation.

Non-lease components (maintenance, property tax, insurance and parking) are not included in the lease cost.

The lease expense is presented as a single lease cost that is amortized on a straight-line basis over the life of the lease.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820.

The key provisions include new, eliminated and modified disclosure requirements.

The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods therein.

Early application is permitted.

CSWC elected to early adopt ASU 2018-13 effective April 1, 2019.

No significant changes to the fair value disclosures were necessary in the notes to the consolidated financial statements in order to comply with ASU 2018-13.

In March 2019, the SEC issued Final Rule Release No.

33-10618, FAST Act Modernization and Simplification of Regulation S-K , which amends certain SEC disclosure requirements.

The amendments are intended to simplify certain disclosure requirements, improve readability and navigability of disclosure documents, and discourage repetition and disclosure of immaterial information.

The amendments are effective for all filings submitted on or after May 2, 2019.

The Company adopted the requisite amendments effective May 2, 2019.

As it pertains to the Company for this Annual Report on Form 10-K, there were no significant changes to the Company’s consolidated financial position or disclosures.

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 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 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.

The standard is effective as of March 12, 2020 through December 31, 2022 and the Company plans to apply the amendments in this update to account for contract modifications due to changes in reference rates.

The Company does not believe that it will have a material impact on its consolidated financial statements or its disclosures.

In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”).

The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act.

Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X.

The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company.

The Final Rules became effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date.

The Company applied the Final Rule and concluded it did not have a material impact on its consolidated financial statements.

In November 2020, the SEC issued a final rule that modernized and simplifies Management's Discussion and Analysis and certain financial disclosure requirements in Regulation S-K (the “Amendments”).

Specifically, the Amendments:

(i) eliminate Item 301 of Regulation S-K (Selected Financial Data);

(ii) simplify Item 302 of Regulation S-K (Supplementary Financial Information);

and (iii) amend certain aspects of Item 303 of Regulation S-K (Management's Discussion and Analysis of Financial Condition and Results of Operations).

The Amendments became effective on February 10, 2021 and compliance will be required for the registrants' fiscal year ending on or after August 9, 2021.

Early adoption of the Amendments is permitted on an item-by-item basis after the effective date;

however, a registrant must fully comply with each adopted item in its entirety.

The Company is currently evaluating the impact of the Amendments on its consolidated financial statements.

INVESTMENT PORTFOLIO COMPOSITION

Our LMM investments consist primarily of secured debt, equity warrants and direct equity investments in privately held, LMM companies based in the United States.

Our LMM portfolio companies generally have annual EBITDA between $3.0 million and $15.0 million, and our LMM investments typically range in size from $5.0 million to $25.0 million.

Our LMM investments consist primarily of secured debt, equity warrants and direct equity investments in privately held, LMM companies generally based in the United States.

Our LMM portfolio companies typically have annual EBITDA generally between $3.0 million and $20.0 million, and our LMM investments typically range in size from $5.0 million to $25.0 million.

The LMM debt investments are typically secured by either a first or second priority lien on the assets of the portfolio company, generally bear interest at floating rates, and generally have a term of between five and seven years from the original investment date.

5 unchanged sentences

As of March 31, 2020, we had investments in 46 portfolio companies with an aggregate cost of $599.2 million.

As of March 31, 2020 and 2019 , approximately $459.0 million , or 96.8% , and $348.2 million, or 94.7%, respectively, of our debt investment portfolio (at fair value) bore interest at floating rates, of which 97.6% and 87.8%, respectively, were subject

to contractual minimum interest rates.

As of March 31, 2021 and 2020, approximately $546.6 million, or 95.5%, and $459.0 million, or 96.8%, respectively, of our debt investment portfolio (at fair value) bore interest at floating rates, of which 100.0% and 97.6%, respectively, were subject to contractual minimum interest rates.

As of March 31, 2021 and 2020, the weighted average contractual minimum interest rate is 1.30% and 1.38%, respectively.

4 unchanged sentences

Number of portfolio companies 44 10

Fair value $ 554,199 $ 77,075

Cost $ 551,144 $ 79,613

% of portfolio at cost - debt 92.4 % 91.8 %

3 unchanged sentences

Weighted average EBITDA (c) $ 9,883 $ 69,988

Weighted average leverage through CSWC security (c)(d)

At March 31, 2020 , we had equity ownership in approximately 64.7% of our LMM investments.

The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2020 , including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status.

As of March 31, 2020 , there were four investments on non-accrual status.

Weighted average leverage through CSWC security (c)(d) 4.2x 4.0x

(a) At March 31, 2021, we had equity ownership in approximately 59.1% of our LMM investments and 30.0% of our UMM investments.

(b) The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2021, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status.

As of March 31, 2021, there were no investments on non-accrual status.

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.

Weighted average EBITDA metric is calculated using investment cost basis weighting.

For the year ended March 31, 2020 , two UMM portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

Includes CSWC debt investments only.

For the year ended March 31, 2021, two UMM portfolio companies and four LMM portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

(d) 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.

1 unchanged sentence

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, 2020 , two UMM portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

As of March 31, 2020

1 unchanged sentence

Number of portfolio companies 34 11

Fair value $ 437,142 $ 76,170

Cost $ 435,015 $ 96,172

% of portfolio at cost - debt 91.8 % 100.0 %

3 unchanged sentences

Weighted average EBITDA (c) $ 8,322 $ 74,143

Weighted average leverage through CSWC security (c)(d)

At March 31, 2019 , we had equity ownership in approximately 73.1% of our LMM investments.

The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2019 , including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status.

As of March 31, 2019 , there was one investment on non-accrual status.

Weighted average leverage through CSWC security (c)(d) 3.7x 4.2x

(a) At March 31, 2020, we had equity ownership in approximately 64.7% of our LMM investments.

(b) The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2020, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status.

As of March 31, 2020, there were four investments on non-accrual status.

Weighted-average annual effective yield 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.

Weighted average EBITDA metric is calculated using investment cost basis weighting.

For the quarter ended March 31, 2019 , one UMM portfolio company is excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

Includes CSWC debt investments only.

For the quarter ended March 31, 2020, two UMM portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

(d) Includes CSWC debt investments only.

1 unchanged sentence

Management uses this metric as a guide to evaluate relative risk of its position in each portfolio debt investment.

For the quarter ended March 31, 2019 , one UMM portfolio company is excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

For the quarter ended March 31, 2020, two UMM portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

Portfolio Asset Quality

4 unchanged sentences

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.

• Investment Rating 3 involves an investment performing below underwriting expectations and the trends and risk factors are generally neutral to negative.

The portfolio company or investment may be out of compliance with financial covenants and interest payments may be impaired, however principal payments are generally not past due.

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.

The COVID-19 pandemic has impacted our investment ratings as of March 31, 2020, causing downgrades of certain portfolio companies.

As the COVID-19 situation continues to evolve, we are maintaining close communications with our portfolio companies to proactively assess and manage potential risks across our debt investment portfolio.

As the COVID-19 pandemic continues to evolve, we are maintaining close communications with our portfolio companies to proactively assess and manage potential risks across our debt investment portfolio.

We have also increased oversight and analysis of credits in vulnerable industries in an attempt to improve loan performance and reduce credit risk.

1 unchanged sentence

As of March 31, 2021

Investments at

Percentage of

Investment Rating

Debt Portfolio

Investments at Percentage of

Investment Rating Fair Value Debt Portfolio

(dollars in thousands)

1 $ 58,466 10.2 %

2 461,239 80.6

Total $ 572,614 100.0 %

As of March 31, 2020

Investments at

Percentage of

Investment Rating

Debt Portfolio

Investments at Percentage of

Investment Rating Fair Value Debt Portfolio

(dollars in thousands)

1 $ 53,488 11.3 %

2 347,056 73.2

3 59,266 12.5

Total $ 474,333 100.0 %

Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected.

As of March 31, 2020 , we had four debt investments on non-accrual status, which comprised of approximately 3.3% of our total investment portfolio's fair value and approximately 5.8% of its cost.

As of March 31, 2019 , we had one investment on non-accrual status, which represents approximately 1.6% of our total investment portfolio's fair value and approximately 1.9% of its cost.

As of March 31, 2021, we did not have any investments on non-accrual status.

As of March 31, 2020, we had four debt investments on non-accrual status, which represents approximately 3.3% of our total investment portfolio's fair value and approximately 5.8% of its cost.

Investment Activity

During the year ended March 31, 2021, we made new debt investments in sixteen portfolio companies totaling $164.0 million, follow-on debt investments in fourteen portfolio companies totaling $26.3 million, and equity investments in four existing and seven new portfolio companies totaling $8.8 million.

We received contractual principal repayments totaling approximately $24.7 million and full prepayments of approximately $63.1 million.

We funded $7.5 million on revolving loans and received $11.0 million in repayments on revolving loans.

In addition, we received proceeds from sales of equity investments totaling $9.8 million.

During the year ended March 31, 2020, we made new debt investments in eleven portfolio companies totaling $155.7 million, follow-on debt investments in twelve portfolio companies totaling $33.8 million, and equity investments in two existing and four new portfolio companies totaling $5.6 million.

1 unchanged sentence

In addition, we received proceeds from sales of investments totaling $69.6 million.

During the year ended March 31, 2019 , we made new debt investments in thirteen portfolio companies totaling $173.7 million, follow-on debt investments in ten portfolio companies totaling $32.8 million, and equity investments in three existing and seven new portfolio companies totaling $19.9 million.

We also funded $3.2 million on our existing equity commitment to I-45 SLF LLC.

We received contractual principal repayments totaling approximately $10.3 million and full prepayments of approximately $36.1 million from eight portfolio companies.

In addition, we received proceeds from sales of investments totaling $63.3 million and recognized net realized gains on those sales totaling $20.4 million.

Total portfolio investment activity for the years ended March 31, 2021 and 2020 was as follows (in thousands):

Year ended March 31, 2020

First Lien Loans

Second Lien Loans

Subordinated Debt

Preferred & Common Equity & Warrants

Financial Instruments

Year ended March 31, 2021 First Lien Loans Second Lien Loans Subordinated Debt Preferred & Common Equity & Warrants Financial Instruments I-45 SLF LLC Total

Fair value, beginning of period $ 427,447 $ 37,139 $ 9,747 $ 38,979 $ — $ 39,760 $ 553,072

2 unchanged sentences

Principal repayments received (98,567) (250) — — — (8,000) (106,817)

Conversion of security from debt to equity (9,692) 778 — 8,914 — — —

PIK interest capitalized 5,919 899 1,062 — — — 7,880

Accretion of loan discounts 2,125 192 30 — — — 2,347

Realized gain

Realized (loss) gain (13,581) — — 6,549 (1,517) — (8,549)

Unrealized gain (loss) 13,273 (1,839) 179 5,263 1,517 12,598 30,991

2 unchanged sentences

Weighted average yield on total investments at end of period 10.22 %

Year ended March 31, 2019

First Lien Loans

Second Lien Loans

Subordinated Debt

Preferred & Common Equity & Warrants

Financial Instruments

Year ended March 31, 2020 First Lien Loans Second Lien Loans Subordinated Debt Preferred & Common Equity & Warrants Financial Instruments I-45 SLF LLC Total

Fair value, beginning of period $ 317,544 $ 35,896 $ 14,287 $ 90,601 $ — $ 65,743 $ 524,071

11 unchanged sentences

RESULTS OF OPERATIONS

The composite measure of our financial performance in the Consolidated Statements of Operations is captioned “Net increase (decrease) in net assets from operations” and consists of three elements.

The composite measure of our financial performance in the Consolidated Statements of Operations is captioned “Net increase (decrease) in net assets from operations” and consists of four elements.

The first is “Net investment income (loss),” which is the difference between income from interest, dividends and fees and our combined operating and interest expenses, net of applicable income taxes.

2 unchanged sentences

It should be noted that the “Net realized gain (loss) on investments before income tax” and “Net change in unrealized appreciation on investments, net of tax” are directly related in that when an appreciated portfolio security is sold to realize a gain, a corresponding decrease in net unrealized appreciation occurs by transferring the gain associated with the transaction from being “unrealized” to being “realized.” Conversely, when a loss is realized on a depreciated portfolio security, an increase in net unrealized appreciation occurs.

The fourth element is the “Realized losses on extinguishment of debt,” which is the difference between the principal amount due at maturity adjusted for any unamortized debt issuance costs at the time of the debt extinguishment.

Set forth below is a comparison of the results of operations for the years ended March 31, 2021 and 2020.

2 unchanged sentences

Comparison of years ended March 31, 2021 and March 31, 2020

Year ended March 31,

Year ended March 31, Net Change

2021 2020 Amount %

(in thousands)

5 unchanged sentences

Net investment income 31,671 28,232 3,439 12.2 %

Net realized gain on investments before income tax

Net unrealized (depreciation) appreciation on investments, net of tax

Net (decrease) increase in net assets from operations

Net realized (loss) gain on investments before income tax (8,536) 42,231 (50,767) (120.2) %

Net unrealized appreciation (depreciation) on investments, net of tax 28,755 (92,814) 121,569 131.0 %

Realized losses on extinguishment of debt (1,007) — (1,007) 100.0 %

Net increase (decrease) in net assets from operations $ 50,883 $ (22,351) $ 73,234 327.7 %

Investment Income

Total investment income consisted of interest income, management fees, dividend income and other income for each applicable period.

For the year ended March 31, 2020 , total investment income was $62.0 million , a $10.2 million , or 19.6% , increase over total investment income of $51.9 million for the year ended March 31, 2019 .

The increase was primarily due to a $9.6 million, or 26.0%, increase in interest income generated from our debt investments due to a 34.0% increase in the cost basis of debt investments held from $369.8 million to $495.5 million year-over-year.

Total investment income consisted of interest income, dividend income and other income for each applicable period.

For the year ended March 31, 2021, total investment income was $68.1 million, a $6.0 million, or 9.7%, increase as compared to total investment income of $62.0 million for the year ended March 31, 2020.

The increase was primarily due to a $9.4 million, or 20.0%, increase in interest income generated from our debt investments due to a 17.5% increase in the cost basis of debt investments held from $495.5 million to $582.2 million year-over-year, partially offset by a $4.0 million decrease in dividend income as a result of the sale of Media Recovery, Inc.

and a decrease in dividend income received from I-45 SLF.

We received fees and other income of $3.4 million and $2.6 million for the years ended March 31, 2021 and 2020, respectively.

The increase year-over-year primarily related to the transaction fee received for the sale of Media Recovery, Inc.

The increase year-over-year primarily related to prepayment fees and administrative fees received from portfolio companies.

Operating Expenses

2 unchanged sentences

For the year ended March 31, 2021, total interest expense was $17.9 million, an increase of $2.1 million, as compared to the total interest expense of $15.8 million for the year ended March 31, 2020.

The increase was primarily attributable to an increase of $34.9 million in average borrowings under our Credit Facility as well as the issuance of the October 2024 Notes during

the year ended March 31, 2020.

The increase was, in part, due to the amortization of $0.2 million of the remaining debt issuance costs associated with the Company's "At-the-Market" ("ATM") debt distribution agreement relating to the December 2022 Notes.

This increase of total interest expense was offset by a decrease in the weighted average interest rate on our Credit Facility from 5.41% to 4.82% due to the decrease in LIBOR rates during the twelve months ended March 31, 2020.

The increase was primarily attributable to the issuance of an additional $50 million in aggregate principal amount of the October 2024 Notes and the issuance of $140 million in aggregate principal amount of the January 2026 Notes, offset by a decrease due to the redemption of the December 2022 Notes and a decrease in the weighted average interest rate on our Credit Facility from 4.82% to 3.05% during the twelve months ended March 31, 2021.

Salaries, General and Administrative Expenses

For the year ended March 31, 2021, total employee compensation expense (including both cash and share-based compensation) was $10.7 million, a $0.5 million, or 5.3%, increase over total employee compensation expense of $10.2 million for the year ended March 31, 2020.

The increase was primarily due to the incremental compensation costs related to the restricted stock award modification and an increase in headcount, partially offset by a decrease in bonus compensation.

For the year ended March 31, 2020 , our total general and administrative expense was $5.7 million , an increase of $0.7 million as compared to the total general and administrative expense of $5.0 million for the year ended March 31, 2019 .

The increase was primarily due to the write off of deferred offering costs of approximately $0.5 million as well as an increase in audit and legal fees related to maintaining the Company's Equity ATM Program (as described below).

The increase was primarily due to an increase in accrued bonus compensation for the current year due to the Company's performance.

For the year ended March 31, 2021, our total general and administrative expense was $5.3 million, a decrease of $0.4 million as compared to the total general and administrative expense of $5.7 million for the year ended March 31, 2020.

The decrease was primarily due to the write off of deferred offering costs of approximately $0.5 million during the year ended March 31, 2020.

Net Investment Income

For the year ended March 31, 2020 , net investment income increased from the prior year by $4.5 million , or 19.1% , to $28.2 million as a result of a $10.2 million increase in total investment income, offset by a $1.0 million increase in income tax expense, $1.0 million increase in other operating expenses and a $3.7 million increase in interest expense.

For the year ended March 31, 2021, net investment income increased from the prior year by $3.4 million, or 12.2%, to $31.7 million as a result of a $6.0 million increase in total investment income, offset by a $2.1 million increase in interest expense and $0.4 million increase in income tax expense.

Increase in Net Assets from Operations

During the fiscal year ended March 31, 2021, we recognized net realized losses totaling $8.5 million, which consisted of losses of $12.7 million on the restructuring of three non-control/non-affiliate investment, $1.9 million on the repayment of one non-control/non-affiliate investment, $1.6 million on the sale of one affiliate equity investment and $1.5 million on the write-off of a financial instrument, partially offset by a gain of $8.2 million on the sale of one non-control/non-affiliate equity investment and gains on partial and full repayments of debt investments.

In addition, for the fiscal year ended March 31, 2021, we recorded net unrealized appreciation on investments, net of tax, totaling $28.8 million, consisting of net unrealized appreciation on our current portfolio of $15.2 million, which included unrealized gains of $12.6 million on I-45 SLF LLC and $6.8 million on equity investments, partially offset by unrealized losses on LMM debt investments of $3.2 million and UMM debt investments of $1.0 million.

These unrealized gains and losses were due to changes in fair value as of March 31, 2021 based on the overall EBITDA performance and cash flows of each investment as determined by our Board of Directors.

We also recorded the reversal of $15.8 million of net unrealized depreciation recognized in prior periods due to the realized losses noted above, and net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $2.2 million.

During the fiscal year ended March 31, 2020, we recognized gross realized gains totaling $45.7 million, which consisted of gains on the partial repayments and sale of debt investments of $1.6 million and the sale of Media Recovery, Inc.

5 unchanged sentences

of $5.3 million and ITA Holdings Group, LLC of $2.5 million, offset by unrealized losses on I-45 SLF LLC of $26.0 million, Delphi Intermediate Healthco, Inc.

of $5.1 million, SIMR, LLC of $4.8 million, AAC Holdings Inc.

million, SIMR, LLC of $4.8 million, AAC Holdings Inc.

of $4.5 million, AG Kings Holdings, Inc.

2 unchanged sentences

These unrealized gains and losses were due to changes in fair value as of March 31, 2020 based on the overall EBITDA performance and cash flows of each investment as determined by our Board of Directors.

During the fiscal year ended March 31, 2019, we recognized realized gains on investments before income tax totaling $20.9 million, which consisted of gains on the partial repayments of six non-control/non-affiliate debt investments, full repayments of seven non-control/non-affiliate debt investments and the sale of one control, one affiliate and one non-control/non-affiliate equity investment.

Realized gains on investments include a realized gain on the sale of TitanLiner, Inc.

of $18.6 million and a realized gain on the sale of Deepwater Corrosion Services of $1.7 million.

In addition, for the fiscal year ended March 31, 2019, we recorded net unrealized depreciation on investments, net of tax, totaling $11.5 million, consisting of net unrealized appreciation on our current portfolio of $2.6 million, the reversal of $14.3 million of net unrealized appreciation recognized in prior periods due to the realized gains noted above, and net unrealized appreciation related to deferred tax associated with the Taxable Subsidiary of $0.2 million.

Net unrealized appreciation on our current portfolio included unrealized gains on Media Recovery, Inc.

of $9.6 million, partially offset by unrealized losses on I-45 SLF LLC of $4.6 million and American Teleconferencing Services, Ltd.

of $2.9 million.

These unrealized gains and losses were due to changes in fair value as of March 31, 2019 based on the overall EBITDA performance and cash flows of each investment as determined by our Board of Directors.

Realized Losses on Extinguishment of Debt

During the fiscal year ended March 31, 2021, we recognized losses on extinguishment of debt of $1.0 million due to the redemption of the December 2022 Notes.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

4 unchanged sentences

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.

As the impact of COVID-19 continues to unfold, we will continually evaluate our overall liquidity position and take proactive steps to maintain that position based on the current circumstances.

As the impact of COVID-19 continues to evolve, we will continually evaluate our overall liquidity position and take proactive steps to maintain that position based on the current circumstances.

At March 31, 2021, the Company had cash and cash equivalents of approximately $31.6 million.

1 unchanged sentence

During that period, our operating activities used $68.3 million in cash, consisting primarily of new portfolio investments of $219.3 million, partially offset by $97.6 million of repayments received from debt investments in portfolio companies and $17.8 million of proceeds from sales of equity investments.

In addition, our financing activities increased cash by $51.8 million , consisting primarily of net borrowings under the Credit Facility of $13.0 million , proceeds from the issuance of the October 2024 Notes of $73.5 million and proceeds from the offering of our common stock of $26.1 million , partially offset by cash dividends paid in the amount of $50.3 million .

In addition, our financing activities increased cash by $86.1 million, consisting primarily of net repayments under the Credit Facility of $34.0 million, proceeds from the issuance of additional October 2024 Notes of $49.0 million, proceeds from the issuance of the January 2026 Notes of $138.6 million and proceeds from the offering of our common stock of $50.4 million, partially offset by the redemption of the December 2022 Notes of $77.1 million and cash dividends paid in the amount of $39.9 million.

At March 31, 2020, the Company had cash and cash equivalents of approximately $13.7 million.

1 unchanged sentence

During that period, our operating activities used $47.9 million in cash, consisting primarily of new portfolio investments of $196.6 million, partially offset by $67.8 million of repayments received from debt investments in portfolio companies and $56.0 million of proceeds from sales of equity investments.

In addition, our financing activities increased cash by $96.7 million , consisting primarily of net borrowings under the Credit Facility of $101.0 million , proceeds from the issuance of the December 2022 Notes of $19.5 million and proceeds from the offering of our common stock of $18.9 million , partially offset by cash dividends paid in the amount of $42.5 million .

In addition, our financing activities increased cash by $51.8 million, consisting primarily of net borrowings under the Credit Facility of $13.0 million, proceeds from the issuance of the October 2024 Notes of $73.5 million and proceeds from the offering of our common stock of $26.1 million, partially offset by cash dividends paid in the amount of $50.3 million.

Financing Transactions

4 unchanged sentences

In August 2016, CSWC entered into a senior secured credit facility (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Facility”) to provide additional liquidity to support its investment and operational activities, which included total commitments of $100 million.

The Credit Facility contained an accordion feature that allowed CSWC to increase the total commitments under the Credit Facility up to $150 million from new and existing lenders on the same terms and conditions as the existing commitments.

The Credit Facility contained an accordion feature that allowed CSWC to increase the total commitments under the Credit Facility up to $150 million from new and existing lenders on the

same terms and conditions as the existing commitments.

In August 2017, we increased our total commitments by $15 million through adding an additional lender using the accordion feature.

3 unchanged sentences

CSWC paid unused commitment fees of 0.50% to 1.50% per annum, based on utilization, on the unused lender commitments under the Credit Facility.

worth exceeds $325 million, (4) reduced unused commitment fees from a utilization-based grid of 0.50% to 1.5% down to a range of 0.50% to 1.0% per annum, and (5) extended the Credit Facility’s revolving period that ended on August 30, 2019 through November 16, 2020.

The Amendment (1) increased the total borrowing capacity under the Credit Facility to $180 million, with commitments from a diversified group of eight lenders, (2) increased the Credit Facility’s accordion feature that allows for an increase in total commitments of up to $250 million under the Credit Facility from new and existing lenders on the same terms and conditions as the existing commitments, (3) reduced the interest rate on borrowings from LIBOR plus 3.25% down to LIBOR plus 3.00%, with a further step-down to LIBOR plus 2.75% at the time the Company’s net worth exceeds $325 million, (4) reduced unused commitment fees from a utilization-based grid of 0.50% to 1.5% down to a range of 0.50% to 1.0% per annum, and (5) extended the Credit Facility’s revolving period that ended on August 30, 2019 through November 16, 2020.

Additionally, the final maturity of the Credit Facility was extended from August 30, 2020 to November 16, 2021.

7 unchanged sentences

(1) certain reporting requirements, (2) maintaining RIC and BDC status, (3) maintaining a minimum shareholders’ equity, (4) maintaining a minimum consolidated net worth, and (5) 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.

On May 23, 2019, CSWC entered into an Incremental Assumption Agreement that increased the total commitments under the accordion feature of the Credit Facility by $25 million, which increased total commitments from $270 million to $295 million.

On May 23, 2019, CSWC entered into an Incremental Assumption Agreement which increased the total commitments under the Credit Facility by $25 million.

The increase was executed under the accordion feature of the Credit Facility and increased total commitments from $270 million to $295 million.

On March 19, 2020, CSWC entered into an Incremental Assumption Agreement that increased the total commitments under the accordion feature of the Credit Facility by $30 million, which increased total commitments from $295 million to $325 million.

On December 10, 2020, CSWC entered into Amendment No.

1 to the Credit Agreement, which expanded the accordion feature from $350 million to $400 million.

In addition, on December 10, 2020, the Company entered into an Incremental Commitment Agreement that increased the total commitments under the Credit Agreement from $325 million to $340 million.

The Credit Facility 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 Facility, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests.

If the Company defaults on its obligations under the Credit Facility, the

lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests.

There are no changes to the covenants or the events of default in the Credit Facility as a result of the Amendment.

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 subsidiaries.

As of March 31, 2021, substantially all of the Company’s assets were pledged as collateral for the Credit Facility.

10 unchanged sentences

On June 11, 2018, the Company entered into an ATM debt distribution agreement, pursuant to which it may offer for sale, from time to time, up to $50 million in aggregate principal amount of December 2022 Notes through B.

Riley FBR, Inc., acting as its sales agent (the “2022 Notes Agent”).

Riley FBR, Inc., acting as its sales agent.

Sales of the December 2022 Notes may be made in negotiated transactions or transactions that are deemed to be "at the market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Global Select Market, or similar securities exchanges or sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.

The 2022 Notes Agent receives a commission from the Company equal to up to 2% of the gross sales of any December 2022 Notes sold through the 2022 Notes Agent under the debt distribution agreement.

The 2022 Notes Agent is not required to sell any specific principal amount of December 2022 Notes, but will use its commercially reasonable efforts consistent with its sales and trading practices to sell the December 2022 Notes.

The December 2022 Notes trade “flat,” which means that purchasers in the secondary market will not pay, and sellers will not receive, any accrued and unpaid interest on the December 2022 Notes that is not reflected in the trading price.

During the year ended March 31, 2020 , the Company did not sell any December 2022 Notes.

The Company has no current intention of issuing additional December 2022 Notes under this ATM debt distribution agreement.

Accordingly, during the three months ended June 30, 2019, the Company amortized $0.2 million of the remaining debt issuance costs associated with the ATM debt distribution agreement, which is included in interest expense in the Consolidated Statement of Operations for the year ended March 31, 2020.

All issuances of December 2022 Notes rank equally in right of payment and form a single series of notes.

As of March 31, 2020 , the carrying amount of the December 2022 Notes was $75.8 million on an aggregate principal amount of $77.1 million at a weighted average effective yield of 5.93%.

As of March 31, 2020 , the fair value of the December 2022 Notes was $67.9 million .

The fair value is based on the closing price of the security of The Nasdaq Global Select Market, which is a Level 1 input under ASC 820.

On September 29, 2020, the Company redeemed $20,000,000 in aggregate principal of the $77,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes.

On December 10, 2020, the Company redeemed $20,000,000 in aggregate principal of the $57,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes.

On January 21, 2021, the Company redeemed the remaining $37,136,175 in aggregate principal amount of issued and outstanding December 2022 Notes.

The December 2022 Notes were redeemed at 100% of their principal amount, plus the accrued and unpaid interest thereon, through, but excluding each of the redemption dates.

Accordingly, the Company recognized realized losses on extinguishment of debt, equal to the write-off of the related unamortized debt issuance costs, of $1.0 million during the year ended March 31, 2021.

The Company recognized interest expense related to the December 2022 Notes, including amortization of deferred issuance costs, of $3.5 million and $5.3 million for the years ended March 31, 2021 and 2020, respectively.

Average borrowings for the years ended March 31, 2021 and 2020 were $53.8 million and $77.1 million, respectively.

The indenture governing the December 2022 Notes contains certain covenants including but not limited to (i) a requirement that the Company comply with the asset coverage requirement of Section 61 of the 1940 Act as modified by Section 61(a) of the 1940 Act or any successor provisions thereto, after giving effect to any exemptive relief granted to the Company by the SEC, (ii) a requirement, subject to a limited exception, that the Company will not declare any cash dividend, or declare any other cash distribution, upon a class of its capital stock, or purchase any such capital stock, unless, in every such case, at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, the Company has the minimum asset coverage required pursuant to Section 61 of the 1940 Act or any successor provision thereto after deducting the amount of such dividend, distribution or purchase price, as the case may be, giving effect to any exemptive relief granted to the Company by the SEC and (iii) a requirement to provide financial information to the holders of the December 2022 Notes and the trustee under the indenture if the Company should no longer be subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, (the "Exchange Act").

The indenture and supplement relating to the December 2022 Notes also provides for customary events of default.

As of March 31, 2020 , the Company was in compliance with all covenants of the December 2022 Notes.

The December 2022 Notes had a weighted average effective yield of 5.93%.

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”).

On October 8, 2019, the Company issued an additional $10.0 million in aggregate principal amount of the October 2024 Notes (the "Additional October 2024 Notes" together with the Existing October 2024 Notes, the "October 2024 Notes").

The Additional October 2024 Notes are being treated as a single series with the Existing October 2024

Notes under the indenture and have the same terms as 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 are being treated as a single series with the Existing October 2024 Notes under the indenture and have the same terms as the Existing October 2024 Notes.

The October 2024 Notes mature on October 1, 2024 and may be redeemed 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 bear interest at a rate of 5.375% per year, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2020.

The October 2024 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.

The October 2024 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.

As of March 31, 2021, the carrying amount of the October 2024 Notes was $122.9 million on an aggregate principal amount of $125.0 million at a weighted average effective yield of 5.375%.

1 unchanged sentence

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 2024 Notes, including amortization of deferred issuance costs, of $2.2 million for the year ended March 31, 2020 .

Since the issuance of the October 2024 Notes, average borrowings were $74.4 million .

The indenture governing the October 2024 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, and to provide financial information to the holders of the October 2024 Notes and the trustee under the indenture if the Company is no longer subject to the reporting requirements under the Exchange Act.

The Company recognized interest expense related to the October 2024 Notes, including amortization of deferred issuance costs, of $6.3 million and $2.2 million, respectively, for the years ended March 31, 2021 and 2020.

For the year ended March 31, 2021, average borrowings were $106.1 million.

Since the issuance of the October 2024 Notes through March 31, 2020, average borrowings were $74.4 million.

The indenture governing the October 2024 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 2024 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 second supplemental indenture relating to the October 2024 Notes.

In addition, holders of the Notes can require the Company to repurchase some or all of the October 2024 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 second supplemental indenture relating to the October 2024 Notes.

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").

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 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, beginning on July 31, 2021.

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.

As of March 31, 2021, the carrying amount of the January 2026 Notes was $138.4 million on an aggregate principal amount of $140.0 million at a weighted average effective yield of 4.46%.

As of March 31, 2021, the fair value of the January 2026 Notes was $138.8 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 $1.2 million for the year ended March 31, 2021.

Since the issuance of the January 2026 Notes on December 29, 2020 through March 31, 2021, average borrowings were $99.5 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 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 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.

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 will allow SBIC I to obtain leverage by issuing SBA-guaranteed 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.

Current statutes and regulations permit SBIC I to borrow up to $175 million in SBA debentures.

Equity Capital Activities

In January 2016, our board of directors approved a share repurchase program authorizing us to repurchase up to $10 million in the aggregate of our outstanding common stock in the open market at certain thresholds below our net asset value per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act.

In January 2016, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $10 million of its outstanding 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 March 1, 2016, the Company entered into a share repurchase agreement, which became effective immediately and terminated on March 26, 2020 upon the Company's purchase of the aggregate gross dollar amount (inclusive of commission fees) of its common stock under the share repurchase program meeting the threshold set forth in the share repurchase agreement.

Accordingly, during the year ended March 31, 2021, the Company did not repurchase any shares of the Company's common stock under the share repurchase program.

During the year ended March 31, 2020, the Company repurchased a total of 794,180 shares at an average price of $11.57 per share, including commissions paid.

As of March 31, 2020 , we had repurchased a total of 840,543 shares of our common stock in the open market under the stock repurchase program, at an average price of $11.85, including commissions paid, and, as a result, the Company may repurchase up to an additional $43 thousand of its common stock under the share repurchase program.

Cumulative to date, we have repurchased a total of 804,632 shares of our common stock in the open market under the stock repurchase program, at an average price of $11.85, including commissions paid.

On March 4, 2019, the Company established an "at-the-market" offering (the "Equity ATM Program") 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.

4 unchanged sentences

Net proceeds were $82.2 million after commissions to the sales agents on shares sold.

As of March 31, 2021, the Company has $16.2 million available under the Equity ATM Program.

On August 1, 2019, after receiving the requisite shareholder approval, the Company filed an amendment to its Amended and Restated Articles of Incorporation to increase the amount of authorized shares of common stock from 25,000,000 to 40,000,000.

In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our shareholders, after consideration and application of our ability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next tax year, substantially all of our taxable income.

OFF-BALANCE SHEET ARRANGEMENTS

3 unchanged sentences

As of March 31, 2021, 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, 2020 and March 31, 2019, we had $3.4 million in letters of credit issued and outstanding under these commitments on behalf of the portfolio companies.

As of March 31, 2021 and 2020, we had $3.5 million and $3.4 million, respectively, 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, $3.4 million expire in May 2021.

Of these letters of credit, $3.1 million expire in May 2022 and $0.4 million expire in July 2021.

As of March 31, 2021 and March 31, 2020, 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.

6 unchanged sentences

(In thousands)

Contractual Obligations

Less than More Than

Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years

Operating lease obligations $ 248 $ 248 $ — $ — $ —

Credit Facility (1) 130,106 3,711 126,395 — —

December 2022 Notes (2)

October 2024 Notes (2) 151,875 6,719 13,437 131,719 —

January 2026 Notes (2) 172,043 6,843 12,600 152,600 —

Total $ 454,272 $ 17,521 $ 152,432 $ 284,319 $ —

(1) Amounts include interest payments calculated at an average rate of 3.05% of outstanding Credit Facility borrowings, which were $120.0 million as of March 31, 2021.

4 unchanged sentences

The payment date for the dividend is June 30, 2021.

On May 28, 2020, the Board of Directors declared a total dividend of $0.51 per share, comprised of a regular dividend of $0.41 and a supplemental dividend of $0.10, for the quarter ended September 30, 2020 .

The record date for the dividend is September 15, 2020 .

The payment date for the dividend is September 30, 2020 .

The Company has been closely monitoring the COVID-19 pandemic, its broader impact on the global economy and the more recent impacts on the U.S.

As of June 2, 2020, there is no indication of a reportable subsequent event impacting the Company’s financial statements for the year ended March 31, 2020.

The Company cannot predict the extent to which its financial condition and results of operations will be affected at this time.

The potential impact to our results will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19.

The Company continues to observe and respond to the evolving COVID-19 environment and its potential impact on areas across its business.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis