CAPITAL SOUTHWEST CORP 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Page Report of Independent Registered Public Accounting Firm 70 Consolidated Statements of Assets and Liabilities as of March 31, 2021 and 2020 72 Consolidated Statements of Operations for Years Ended March 31, 2021, 2020 and 2019 73 Consolidated Statements of Changes in Net Assets for Years Ended March 31, 2021, 2020 and 2019 74 Consolidated Statements of Cash Flows for Years Ended March 31, 2021, 2020 and 2019 75 Consolidated Schedules of Investments as of March 31, 2021 and 2020 76 Notes to Consolidated Financial Statements 95 69 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, 2021 and 2020, 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, 2021, 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, 2021 (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, 2021 and 2020, 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, 2021, 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 consolidated 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, 2021 and 2020, by correspondence with the custodians and/or brokers or the underlying investee. 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 matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of the fair value of investments using significant unobservable inputs and assumptions At March 31, 2021, the fair value of the Company’s investments categorized as Level 3 investments within the fair value hierarchy (Level 3 investments) totaled $688,432 thousand. Management determines, 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 consolidated financial statements. We identified the evaluation of the fair value of investments using significant unobservable inputs and assumptions as a critical audit matter. Auditing the fair value of the Company’s Level 3 investments is complex, as the unobservable inputs and assumptions used by the Company are highly judgmental and could have a significant effect on the fair value measurements of such investments. Changes in these techniques, inputs and assumptions could have a significant impact on the fair value of investments. 70 Table of Contents The primary procedures we performed to address this critical audit matter included the following, among others: • We obtained an understanding of the relevant controls related to the Company’s process to determine fair value of its Level 3 investments, including controls over the Company’s methods and selection of significant unobservable inputs. • We evaluated the appropriateness of the Company’s valuation methodologies used for Level 3 investments, such as the discounted cash flow or enterprise value, and management’s asset coverage analysis. We also tested whether assumptions used by management, including revenue or EBITDA multiples and discounts rates, were reasonable by comparing these inputs to market information obtained from external sources. • Valuation specialists, with specialized skill and knowledge, were involved in our testing. • We evaluated the reasonableness of any significant changes in valuation methodologies from the prior year-end. • 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 they 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 26, 2021 71 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (In thousands except share and per share data) March 31, March 31, 2021 2020 Assets Investments at fair value: Non-control/Non-affiliate investments (Cost: $540,556 and $436,463, respectively) $ 546,028 $ 421,280 Affiliate investments (Cost: $90,201 and $94,724, respectively) 85,246 92,032 Control investments (Cost: $72,800 and $68,000, respectively) 57,158 39,760 Total investments (Cost: $703,557 and $599,187, respectively) 688,432 553,072 Cash and cash equivalents 31,613 13,744 Receivables: Dividends and interest 10,533 10,389 Escrow 1,150 1,643 Other 171 51 Income tax receivable 155 147 Deferred tax asset — 1,402 Debt issuance costs (net of accumulated amortization of $3,582 and $2,720, respectively) 2,246 2,980 Other assets 1,284 1,531 Total assets $ 735,584 $ 584,959 Liabilities December 2022 Notes (Par value: $0 and $77,136, respectively) $ — $ 75,812 October 2024 Notes (Par value: $125,000 and $75,000, respectively) 122,879 73,484 January 2026 Notes (Par value: $140,000 and $0, respectively) 138,425 — Credit facility 120,000 154,000 Other liabilities 11,655 4,883 Accrued restoration plan liability 2,979 3,082 Income tax payable 50 513 Deferred income taxes 3,345 963 Total liabilities $ 399,333 $ 312,737 Commitments and contingencies (Note 11) Net Assets Common stock, $0.25 par value: authorized, 40,000,000 shares; issued, 23,344,836 shares at March 31, 2021 and 20,337,610 shares at March 31, 2020 $ 5,836 $ 5,085 Additional paid-in capital 356,447 310,846 Total distributable earnings (2,095) (19,772) Treasury stock - at cost, 2,339,512 shares (23,937) (23,937) Total net assets 336,251 272,222 Total liabilities and net assets $ 735,584 $ 584,959 Net asset value per share (21,005,324 shares outstanding at March 31, 2021 and 17,998,098 shares outstanding at March 31, 2020) $ 16.01 $ 15.13 The accompanying Notes are an integral part of these Consolidated Financial Statements. 72 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except share and per share data) Years Ended March 31, 2021 2020 2019 Investment income: Interest income: Non-control/Non-affiliate investments $ 47,148 $ 38,094 $ 28,716 Affiliate investments 9,144 8,559 7,143 Control investments — 265 1,406 Dividend income: Non-control/Non-affiliate investments 1,752 166 197 Affiliate investments 33 141 82 Control investments 6,609 12,136 12,648 Interest income from cash and cash equivalents 9 73 36 Fees and other income 3,367 2,605 1,653 Total investment income 68,062 62,039 51,881 Operating expenses: Compensation 7,756 7,310 7,715 Share-based compensation 2,944 2,853 2,271 Interest 17,941 15,836 12,178 Professional fees 2,193 2,029 1,737 Net pension expense 131 143 159 General and administrative 2,984 3,574 3,063 Total operating expenses 33,949 31,745 27,123 Income before taxes 34,113 30,294 24,758 Income tax expense 2,442 2,062 1,048 Net investment income $ 31,671 $ 28,232 $ 23,710 Realized (loss) gain Non-control/Non-affiliate investments $ (6,908) $ 1,335 $ 2,124 Affiliate investments (1,628) 57 77 Control investments — 44,300 18,653 Taxes on deemed distribution of long-term capital gains — (3,461) — Total net realized (loss) gain on investments, net of tax (8,536) 42,231 20,854 Net unrealized appreciation (depreciation) on investments Non-control/Non-affiliate investments 21,218 (14,250) (934) Affiliate investments (2,825) (4,320) 1,109 Control investments 12,598 (73,561) (11,859) Income tax (provision) benefit (2,236) (683) 178 Total net unrealized appreciation (depreciation) on investments, net of tax 28,755 (92,814) (11,506) Net realized and unrealized gains (losses) on investments 20,219 (50,583) 9,348 Realized losses on extinguishment of debt (1,007) — — Net increase (decrease) in net assets from operations $ 50,883 $ (22,351) $ 33,058 Pre-tax net investment income per share - basic and diluted $ 1.79 $ 1.68 $ 1.48 Net investment income per share - basic and diluted $ 1.66 $ 1.57 $ 1.42 Net increase (decrease) in net assets from operations - basic and diluted $ 2.67 $ (1.24) $ 2.45 Weighted average shares outstanding – basic 19,060,131 17,999,836 16,727,254 Weighted average shares outstanding – diluted 19,060,131 17,999,836 16,734,369 The accompanying Notes are an integral part of these Consolidated Financial Statements. 73 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (In thousands) Years Ended March 31, 2021 2020 2019 Operations: Net investment income $ 31,671 $ 28,232 $ 23,710 Net realized (loss) gain on investments (8,536) 45,692 20,854 Taxes on deemed distribution of long-term capital gains — (3,461) — Net unrealized appreciation (depreciation) on investments, net of tax 28,755 (92,814) (11,506) Realized losses on extinguishment of debt (1,007) — — Net increase (decrease) in net assets from operations 50,883 (22,351) 33,058 Dividends to shareholders (39,945) (50,343) (38,010) Capital share transactions: Change in restoration plan liability (7) (91) (185) Issuance of common stock 50,393 25,819 18,744 Exercise of employee stock options — — 2,169 Share-based compensation expense 2,944 2,853 2,271 Common stock withheld for payroll taxes upon vesting of restricted stock (239) (419) (187) Repurchase of common stock — (9,209) (185) Increase (decrease) in net assets 64,029 (53,741) 17,675 Net assets, beginning of year 272,222 325,963 308,288 Net assets, end of year $ 336,251 $ 272,222 $ 325,963 The accompanying Notes are an integral part of these Consolidated Financial Statements. 74 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended March 31, 2021 2020 2019 Cash flows from operating activities Net increase (decrease) in net assets from operations $ 50,883 $ (22,351) $ 33,058 Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities: Purchases and originations of investments (219,349) (196,606) (229,598) Proceeds from sales and repayments of debt investments in portfolio companies 97,589 67,794 74,669 Proceeds from sales and return of capital of equity investments in portfolio companies 17,841 55,960 33,928 Payment of accreted original issue discounts 1,228 788 524 Depreciation and amortization 1,967 2,405 1,393 Net pension benefit (110) (82) (51) Realized loss (gain) on investments before income tax 8,549 (46,084) (20,854) Realized losses on extinguishment of debt 1,007 — — Taxes payable on deemed distribution of long-term capital gains — 3,461 — Net unrealized (appreciation) depreciation on investments (30,991) 92,131 11,684 Accretion of discounts on investments (2,347) (1,938) (1,390) Payment-in-kind interest and dividends (7,880) (2,079) (681) Stock option and restricted awards expense 2,944 2,853 2,271 Deferred income taxes 3,784 1,368 53 Changes in other assets and liabilities: Increase in dividend and interest receivable (144) (1,137) (3,850) Decrease in escrow receivables 493 111 310 (Increase) decrease in tax receivable (8) 36 (74) (Increase) decrease in other receivables (119) 910 (797) Decrease (increase) in other assets 95 (644) 4,236 Increase (decrease) in other liabilities 6,779 (543) (695) Increase (decrease) in payable for unsettled transaction — (1,158) 1,158 Decrease in taxes payable (463) (3,142) — Net cash used in operating activities (68,252) (47,947) (94,706) Cash flows from financing activities Proceeds from common stock offering 50,410 26,084 18,891 Equity offering costs paid — (105) (127) Borrowings under credit facility 182,000 132,000 146,000 Repayments of credit facility (216,000) (119,000) (45,000) Debt issuance costs paid (540) (742) (1,827) Proceeds from issuance of December 2022 Notes — — 19,524 Proceeds from issuance of October 2024 Notes 49,000 73,500 — Proceeds from issuance of January 2026 Notes 138,571 — — Redemption of December 2022 Notes (77,136) — — Dividends to shareholders (39,945) (50,343) (42,535) Proceeds from exercise of employee stock options — — 2,169 Common stock withheld for payroll taxes upon vesting of restricted stock (239) (418) (187) Repurchase of common stock — (9,209) (185) Net cash provided by financing activities 86,121 51,767 96,723 Net increase in cash and cash equivalents 17,869 3,820 2,017 Cash and cash equivalents at beginning of year 13,744 9,924 7,907 Cash and cash equivalents at end of year $ 31,613 $ 13,744 $ 9,924 Supplemental cash flow disclosures: Cash paid for income taxes $ 1,464 $ 4,524 $ 802 Cash paid for interest 11,738 13,944 10,912 The accompanying Notes are an integral part of these Consolidated Financial Statements. 75 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 Non-control/Non-affiliate Investments 5 AAC NEW HOLDCO INC. First Lien Healthcare services 10.00%, 8.00% PIK 12/11/2020 6/25/2025 $ 7,981 $ 7,981 $ 7,941 374,543 shares common stock — 12/11/2020 — — 1,785 1,785 Warrants (Expiration - December 11, 2025) — 12/11/2020 — — 2,198 2,198 11,964 11,924 ACCELERATION PARTNERS, LLC 8,13 First Lien Media, marketing & entertainment L+8.21% (Floor 1.00%)/Q, Current Coupon 9.21% 12/1/2020 12/1/2025 8,750 8,500 8,750 Delayed Draw Term Loan 10 L+8.21% (Floor 1.00%)/Q, Current Coupon 9.21% 12/1/2020 12/1/2025 2,965 2,889 2,965 1,000 Preferred Units 9 — 12/1/2020 — — 1,000 1,000 1,000 Class A Common Units 9 — 12/1/2020 — — — — 12,389 12,715 ACE GATHERING, INC. Second Lien 15 Energy services (midstream) L+10.50% (Floor 2.00%)/Q, Current Coupon 12.50% 12/13/2018 12/13/2023 9,438 9,319 8,975 ADAMS PUBLISHING GROUP, LLC First Lien Media, marketing & entertainment L+7.00% (Floor 1.75%)/Q, Current Coupon 8.75% 7/2/2018 7/2/2023 9,920 9,795 9,920 ALLIANCE SPORTS GROUP, L.P. Senior subordinated debt Consumer products & retail 14.00% PIK 8/1/2017 2/1/2023 11,134 11,043 10,989 Unsecured convertible note 6.00% PIK 7/15/2020 9/30/2024 173 173 173 3.88% preferred membership interest — 8/1/2017 — — 2,500 2,500 13,716 13,662 ALLOVER MEDIA, LLC Revolving Loan 10 Media, marketing & entertainment L+8.50% (Floor 1.00%) 3/10/2021 3/10/2026 — (39) — First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% 3/10/2021 3/10/2026 13,000 12,742 12,742 12,703 12,742 76 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 AMERICAN NUTS OPERATIONS LLC 13 First Lien - Term Loan Food, agriculture and beverage L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 4/10/2018 4/10/2023 17,019 16,856 17,019 First Lien - Term Loan C 10 L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 12/21/2018 4/10/2023 1,804 1,785 1,804 3,000,000 units of Class A common stock 9 — 4/10/2018 — — 3,000 2,752 21,641 21,575 AMERICAN TELECONFERENCING SERVICES, LTD. (DBA PREMIERE GLOBAL SERVICES, INC.) First Lien Telecommunications L+6.50% (Floor 1.00%)/Q, Current Coupon 7.50% 9/21/2016 6/8/2023 5,915 5,865 3,141 Second Lien 0.5%, L+9.00% PIK (Floor 1.00%)/Q, Current Coupon 10.50% 11/3/2016 6/6/2024 2,341 2,317 55 8,182 3,196 AMWARE FULFILLMENT LLC First Lien Distribution L+9.00% (Floor 1.00%)/M, Current Coupon 10.00% 7/29/2016 12/31/2021 17,407 17,315 17,407 ASC ORTHO MANAGEMENT COMPANY, LLC 13 Revolving Loan Healthcare services L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 8/31/2018 8/31/2023 1,500 1,485 1,410 First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 8/31/2018 8/31/2023 8,854 8,756 8,322 Second Lien 13.25% PIK 8/31/2018 12/1/2023 4,237 4,191 3,822 2,042 Common Units 9 — 8/31/2018 — — 750 356 15,182 13,910 BINSWANGER HOLDING CORP. First Lien Distribution L+8.50% (Floor 1.00%)/M, Current Coupon 9.50% 3/9/2017 3/9/2022 10,942 10,890 10,942 900,000 shares of common stock — 3/9/2017 — — 900 924 11,790 11,866 77 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 BLASCHAK COAL CORP. Second Lien Term Loan 15 Commodities & mining L+13.00%, 1.00% PIK (Floor 1.00%)/Q, Current Coupon 15.00% 7/30/2018 7/30/2023 8,712 8,617 8,233 Second Lien- Term Loan B 15 L+13.00%, 1.00% PIK (Floor 1.00%)/Q, Current Coupon 15.00% 3/30/2020 7/30/2023 2,016 1,986 1,905 10,603 10,138 BROAD SKY NETWORKS LLC 13 Revolving Loan 10 Telecommunications L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 12/11/2020 12/11/2025 500 453 496 First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 12/11/2020 12/11/2025 15,000 14,715 14,880 1,000,000 Series A Preferred units 9 — 12/11/2020 — — 1,000 1,000 16,168 16,376 CALIFORNIA PIZZA KITCHEN, INC. First Lien Restaurants L+10.00% (Floor 1.50%)/Q, Current Coupon 11.50% 11/23/2020 11/23/2024 669 652 668 First Lien Rolled Up 1.00%, L+11.00% PIK (Floor 1.50%)/Q, Current Coupon 13.50% 11/23/2020 11/23/2024 741 739 737 Second Lien 1.00%, L+12.50% PIK (Floor 1.50%)/Q, Current Coupon 15.00% 11/23/2020 5/23/2025 814 814 796 48,423 shares of common stock — 11/23/2020 — — 1,317 1,317 3,522 3,518 CAPITAL PAWN HOLDINGS, LLC First Lien Consumer products & retail L+7.25% (Floor 1.00%)/Q, Current Coupon 8.25% 12/21/2017 7/8/2023 8,854 8,840 8,854 CHEMISTRY RX HOLDINGS, LLC First Lien Specialty chemicals L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 3/15/2021 3/13/2026 8,000 7,841 7,841 78 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 CITYVET, INC. 13 Delayed Draw Term Loan 10 Healthcare services L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 3/5/2021 3/5/2026 3,250 3,053 3,053 271,739 Class A units 9 — 3/5/2021 — — 500 500 3,553 3,553 CLICKBOOTH.COM, LLC Revolving Loan 10 Media, marketing & entertainment L+8.50% (Floor 1.00%) 12/5/2017 1/31/2025 — (5) — First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% 12/5/2017 1/31/2025 18,525 18,308 18,525 18,303 18,525 DANFORTH ADVISORS, LLC 13 875 Class A equity units 9 Business services — 9/28/2018 — — 875 2,855 DRIVEN, INC. First Lien Business services L+8.00% (Floor 2.00%)/Q, Current Coupon 10.00% 6/28/2019 6/28/2024 5,820 5,737 5,878 DUNN PAPER, INC. Second Lien Paper & forest products L+8.75% (Floor 1.00%)/M, Current Coupon 9.75% 9/28/2016 8/26/2023 3,000 2,974 3,000 ELECTRONIC TRANSACTION CONSULTANTS LLC 13 Revolving Loan 10 Software & IT services L+7.50% (Floor 1.00%) 7/24/2020 7/24/2025 — (56) — First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 8.50% 7/24/2020 7/24/2025 10,000 9,845 9,840 1,000 Class A units 9 — 7/24/2020 — — 1,000 1,000 10,789 10,840 ESCP DTFS, INC. First Lien - Term Loan A Industrial services L+6.50% (Floor 1.75%)/Q, Current Coupon 8.25% 1/31/2020 1/31/2025 5,350 5,269 4,986 First Lien - Term Loan B L+8.50% (Floor 1.75%)/Q, Current Coupon 10.25% 1/31/2020 1/31/2025 5,350 5,270 4,986 Delayed Draw Term Loan B1 L+6.50% (Floor 1.75%)/Q, Current Coupon 8.25% 1/31/2020 1/31/2025 500 491 466 Delayed Draw Term Loan B2 L+8.50% (Floor 1.75%)/Q, Current Coupon 10.25% 1/31/2020 1/31/2025 500 491 466 11,521 10,904 79 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 FAST SANDWICH, LLC Revolving Loan 10 Restaurants L+9.00% (Floor 1.00%) 5/24/2018 5/23/2023 — (32) — First Lien L+9.00% (Floor 1.00%)/Q,Current Coupon 10.00% 5/24/2018 5/23/2023 3,359 3,332 3,023 3,300 3,023 FLIP ELECTRONICS, LLC 8,13 First Lien Technology products & components L+8.05% (Floor 1.00%)/M, Current Coupon 9.05% 1/4/2021 1/2/2026 15,500 15,177 15,252 2,000,000 Common Units 9 — 1/4/2021 — — 2,000 2,285 17,177 17,537 GS OPERATING, LLC First Lien Distribution L+6.50%(Floor 1.50%)/M, Current Coupon 8.00% 3/6/2020 2/24/2025 7,920 7,791 7,920 IAN, EVAN, & ALEXANDER CORPORATION (DBA EVERWATCH) Revolving Loan 10 Aerospace & defense L+8.50% (Floor 1.00%) 7/31/2020 7/31/2025 — (34) — First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 9.50% 7/31/2020 7/31/2025 9,668 9,493 9,668 9,459 9,668 ICS DISTRIBUTION, LLC 8 First Lien Industrial services L+8.48% (Floor 2.00%)/Q, Current Coupon 10.48% 10/31/2019 10/31/2024 20,500 20,121 20,275 JVMC HOLDINGS CORP. First Lien Financial services L+7.75% (Floor 1.00%)/M, Current Coupon 8.75% 2/28/2019 2/28/2024 7,047 7,000 6,850 KLEIN HERSH, LLC Revolving Loan 10 Business services L+8.00% (Floor 0.75%) 11/13/2020 11/13/2025 — (17) — First Lien L+8.00% (Floor 0.75%)/S, Current Coupon 8.75% 11/13/2020 11/13/2025 14,813 14,534 14,813 14,517 14,813 KMS, LLC 17 First Lien 15 Distribution L+6.00% (Floor 1.00%)/Q, Current Coupon 7.00% 1/5/2021 11/23/2025 16,000 15,923 15,968 LANDPOINT HOLDCO, INC. First Lien Business services L+11.00%(Floor 1.00%)/Q, Current Coupon 12.00% 12/30/2019 12/30/2024 18,840 18,540 17,239 80 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 LGM PHARMA, LLC 13 First Lien Healthcare products L+8.50% (Floor 1.00%)/M, Current Coupon 9.50% 11/15/2017 11/15/2023 11,424 11,315 11,424 Delayed Draw Term Loan L+10.00% (Floor 1.00%)/Q, Current Coupon 11.00% 7/24/2020 11/15/2023 2,488 2,448 2,487 142,278.89 units of Class A common stock 9 — 11/15/2017 — — 1,600 2,309 15,363 16,220 LIGHTING RETROFIT INTERNATIONAL, LLC (DBA ENVOCORE) First Lien Environmental services 7.50%, L+1.50% PIK (Floor 2.00%)/Q, Current Coupon 11.00% 6/30/2017 6/30/2022 14,027 13,984 12,021 25,603 shares of Series C preferred stock 8/13/2018 — — 25 — 396,825 shares of Series B preferred stock — 6/30/2017 — — 500 — 14,509 12,021 MAKO STEEL LP Revolving Loan 10 Business services L+7.25% (Floor (0.75%)/Q, Current Coupon 8.00% 03/15/2021 03/13/2026 660 623 647 First Lien L+7.25% (Floor (0.75%)/Q, Current Coupon 8.00% 03/15/2021 03/13/2026 8,113 7,952 7,952 8,575 8,599 NINJATRADER, INC. 13 Revolving Loan 10 Financial services L+6.75% (Floor 1.50%) 12/18/2019 12/18/2024 — (6) — First Lien L+6.75% (Floor 1.50%)/Q, Current Coupon 8.25% 12/18/2019 12/18/2024 19,250 18,784 19,250 Delayed Draw Term Loan 10 L+6.75% (Floor 1.50%)/Q 12/31/2020 12/18/2024 — (36) — 2,000,000 Preferred Units 9 — 12/18/2019 — — 2,000 6,223 20,742 25,473 RESEARCH NOW GROUP, INC. Second Lien Business services L+9.50% (Floor 1.00%)/M, Current Coupon 10.50% 12/8/2017 12/20/2025 10,500 9,980 10,132 ROSELAND MANAGEMENT, LLC Revolving Loan 10 Healthcare services L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 500 482 500 81 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 First Lien L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 14,270 14,108 14,270 13,811 Class A Units — 11/9/2018 — — 1,381 1,720 15,971 16,490 RTIC SUBSIDIARY HOLDINGS, LLC Revolving Loan 10 Consumer products & retail L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% 9/1/2020 9/1/2025 329 317 329 First Lien L+7.75% (Floor 1.25%)/Q, Current Coupon 9.00% 9/1/2020 9/1/2025 7,135 7,054 7,135 7,371 7,464 SCRIP, INC. 8 First Lien Healthcare products L+9.68% (Floor 2.00%)/M, Current Coupon 11.68% 3/21/2019 3/21/2024 16,750 16,422 16,750 100 shares of common stock — 3/21/2019 — — 1,000 967 17,422 17,717 TAX ADVISORS GROUP, LLC 13 143.3 Class A units 9 Financial services — 6/23/2017 — — 541 1,539 TRAFERA, LLC (FKA TRINITY 3, LLC) 13 First Lien 15 Technology products & components L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 9/30/2020 9/30/2025 9,975 9,838 9,975 896.43 Class A units 9 — 11/15/2019 — — 1,205 3,204 11,043 13,179 USA DEBUSK, LLC First Lien Industrial services L+5.75% (Floor 1.00%)/M, Current Coupon 6.75% 2/25/2020 10/22/2024 7,900 7,782 7,892 VISTAR MEDIA INC. First Lien Media, marketing & entertainment L+7.50%, 2.50% PIK (Floor 2.00%)/M, Current Coupon 12.00% 2/17/2017 4/3/2023 11,481 10,920 11,481 171,617 shares of Series A preferred stock — 4/3/2019 — — 1,874 3,904 Warrants (Expiration - April 3, 2029) — 4/3/2019 — — 620 1,853 13,414 17,238 VTX HOLDINGS, INC. 8 First Lien Software & IT services L+9.00% (Floor 2.00%)/Q, Current Coupon 11.00% 7/23/2019 7/23/2024 21,575 21,181 21,575 1,397,707 Series A Preferred units — 7/23/2019 — — 1,398 1,654 82 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 22,579 23,229 ZENFOLIO INC. Revolving Loan Business services L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 7/17/2017 7/17/2023 2,000 1,992 1,820 First Lien L+9.00% (Floor 1.00%)/Q, Current Coupon 10.00% 7/17/2017 7/17/2023 14,888 14,722 13,548 16,714 15,368 Total Non-control/Non-affiliate Investments $ 540,556 $ 546,028 Affiliate Investments 6 CENTRAL MEDICAL SUPPLY LLC 13 Revolving Loan 10 Healthcare services L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 $ 300 $ 275 $ 276 First Lien L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 7,500 7,371 6,908 Delayed Draw Capex Term Loan 10 L+9.00% (Floor 1.75%)/Q, Current Coupon 10.75% 5/22/2020 5/22/2025 100 75 92 875,000 Preferred Units 9 — 5/22/2020 — — 875 641 8,596 7,917 CHANDLER SIGNS, LLC 13 1,500,000 units of Class A-1 common stock 9 Business services — 1/4/2016 — — 1,500 1,343 DELPHI BEHAVIORAL HEALTH GROUP, LLC First Lien Healthcare services L+9.50% (Floor 1.00%)/M, Current Coupon 10.50% 4/8/2020 4/7/2023 1,414 1,414 1,398 First Lien L+7.50% (Floor 1.00%)/M, Current Coupon 8.50% 4/8/2020 4/7/2023 1,580 1,580 1,500 1,681.04 Common Units — 4/8/2020 — — 3,615 3,615 6,609 6,513 83 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 DYNAMIC COMMUNITIES, LLC 13 Revolving Loan 10 Business services L+3.75%, 7.75% PIK (Floor 1.00%) 7/17/2018 7/17/2023 — (2) — First Lien L+3.75%, 7.75% PIK (Floor 1.00%)/Q, Current Coupon 12.50% 7/17/2018 7/17/2023 11,061 10,950 9,966 Senior subordinated debt 25% PIK 12/4/2020 1/16/2024 372 372 372 2,000,000 Preferred Units 9 — 7/17/2018 — — 2,000 1,274 13,320 11,612 GRAMMATECH, INC. Revolving Loan 10 Software & IT services L+7.50% (Floor 2.00%) 11/1/2019 11/1/2024 — (31) — First Lien L+7.50% (Floor 2.00%)/Q, Current Coupon 9.50% 11/1/2019 11/1/2024 11,500 11,346 11,420 1,000 Class A units — 11/1/2019 — — 1,000 1,208 12,315 12,628 ITA HOLDINGS GROUP, LLC 13 Revolving Loan 10 Transportation & logistics L+9.00% (Floor 1.00%) 2/14/2018 2/14/2023 — (23) — First Lien - Term Loan L+7.00% (Floor 1.00%)/Q, Current Coupon 8.00% 2/14/2018 2/14/2023 10,071 9,996 10,061 First Lien - Term B Loan L+10.00% (Floor 1.00%)/Q, Current Coupon 11.00% 6/5/2018 2/14/2023 5,036 4,984 5,101 First Lien - PIK Note A 10.00% PIK 3/29/2019 2/14/2023 2,678 2,282 2,630 First Lien - PIK Note B 10.00% PIK 3/29/2019 2/14/2023 106 106 103 Warrants (Expiration - March 29, 2029) 9 — 3/29/2019 — — 538 2,968 9.25% Class A Membership Interest 9 — 2/14/2018 — — 1,500 2,532 19,383 23,395 SIMR, LLC First Lien Healthcare services L+17.00% PIK (Floor 2.00%)/M, Current Coupon 19.00% 9/7/2018 9/7/2023 13,661 13,527 12,103 9,374,510.2 Class B Common Units — 9/7/2018 — — 6,107 — 19,634 12,103 84 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2021 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2 Industry Rate 3 Date 14 Maturity Principal Cost 16 Value 4 SONOBI, INC. 13 First Lien Media, marketing, & entertainment L+8.00% (Floor 1.00%)/Q, Current Coupon 9.00% 9/17/2020 9/16/2025 8,500 8,344 8,500 500,000 Class A Common Units 9 — 9/17/2020 — — 500 1,235 8,844 9,735 Total Affiliate Investments $ 90,201 $ 85,246 Control Investments 7 I-45 SLF LLC 9,11 80% LLC equity interest Multi-sector holdings — 10/20/2015 — — $ 72,800 $ 57,158 Total Control Investments $ 72,800 $ 57,158 TOTAL INVESTMENTS 12 $ 703,557 $ 688,432 1 All debt investments are income-producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted. 2 All of the Company’s investments, unless otherwise noted, are pledged as collateral for the Company’s senior secured credit facility. 3 The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily (D), monthly (M), quarterly (Q), or semiannually (S). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31, 2021. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest. 4 The Company's investment portfolio is comprised entirely of privately held debt and equity securities for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not 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. 5 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, 2021, approximately 79.3% 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 162.4%. 6 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, 2021, approximately 12.4% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 25.3%. 7 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, 2021, approximately 8.3% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 17.0%. 8 The investment is structured as a first lien last out term loan. 85 Table of Contents 9 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, 2021, approximately 12.6% of the Company's assets are non-qualifying assets. 10 The investment has an unfunded commitment as of March 31, 2021. Refer to Note 11 - Commitments and Contingencies for further discussion. 11 Income producing through dividends or distributions. 12 As of March 31, 2021, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $40.2 million; cumulative gross unrealized depreciation for federal income tax purposes is $27.3 million. Cumulative net unrealized appreciation is $12.9 million, based on a tax cost of $700.9 million. 13 Our investments in Acceleration Partners preferred and common units, American Nuts Operations LLC Class A common stock, ASC Ortho Management Company, LLC common units, Broad Sky Networks LLC Series A Preferred units, CityVet, Inc. Class A units, Danforth Advisors, LLC common units, Electronic Transaction Consultants LLC Class A units, Flip Electronics, LLC common units, LGM Pharma, LLC Class A common stock, NinjaTrader, LLC preferred units, Tax Advisors Group, LLC Class A units, Trafera, LLC Class A units, Central Medical Supply LLC Preferred units, Chandler Signs, LP Class A-1 common stock, Dynamic Communities, LLC Preferred units, ITA Holdings Group, LLC membership interest and Sonobi, Inc. Class A common units are held through a wholly-owned taxable subsidiary of the Company. 14 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, 2021 represented 204.7% of the Company's net assets or 93.6% of the Company's total assets, are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act. 15 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. 16 Represents amortized cost. Negative cost in this column represents the original issue discount of certain undrawn revolvers and delayed draw term loans. 17 The investment is structured as a first lien first out term loan. 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, 2021 is included in Note 16. Significant Subsidiaries. The accompanying Notes are an integral part of these Consolidated Financial Statements. 86 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2020 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2,14 Industry Rate 3 Date 14 Maturity Principal Cost Value 4 Non-control/Non-affiliate Investments 5 AAC HOLDINGS, INC. First Lien - Priming Healthcare services P +13.50% (Floor 1.00%)/Q, Current Coupon 16.75% 3/21/2019 4/15/2020 $ 1,968 $ 1,969 $ 1,968 First Lien 16 L+6.75% (Floor 1.00%)/Q, 4.00% PIK, Current Coupon 13.33% 6/28/2017 6/30/2023 9,079 8,915 3,977 10,884 5,945 ACE GATHERING, INC. Second Lien 15 Energy services (midstream) L+8.50% (Floor 2.00%)/Q, Current Coupon 10.50% 12/13/2018 12/13/2023 9,688 9,532 9,445 ADAMS PUBLISHING GROUP, LLC First Lien Media, marketing & entertainment L+7.50% (Floor 1.75%)/Q, Current Coupon 9.29% 7/2/2018 7/2/2023 10,730 10,572 10,312 Delayed Draw Term Loan L+7.50% (Floor 1.75%)/Q, Current Coupon 9.25% 7/2/2018 7/2/2023 344 320 330 10,892 10,642 AG KINGS HOLDINGS INC. 8,16 First Lien Food, agriculture & beverage L+10.02% (Floor 1.00%)/M, Current Coupon 12.69% 8/4/2016 8/8/2021 9,308 9,194 5,445 ALLIANCE SPORTS GROUP, L.P. Senior subordinated debt Consumer products & retail 11.00% 8/1/2017 2/1/2023 10,100 9,980 9,747 3.88% preferred membership interest — 8/1/2017 — — 2,500 2,335 12,480 12,082 AMERICAN NUTS OPERATIONS LLC 13 First Lien - Term Loan Food, agriculture and beverage L+9.50% (Floor 1.00%)/Q, Current Coupon 11.41% 4/10/2018 4/10/2023 17,194 16,963 16,884 First Lien - Term Loan C 10 L+9.50% (Floor 1.00%)/Q, Current Coupon 11.41% 12/21/2018 4/10/2023 1,804 1,781 1,771 3,000,000 units of Class A common stock 9 — 4/10/2018 — — 3,000 1,523 21,744 20,178 AMERICAN TELECONFERENCING SERVICES, LTD. (DBA PREMIERE GLOBAL SERVICES, INC.) First Lien Telecommunications L+6.50% (Floor 1.00%)/Q, Current Coupon 8.24% 9/21/2016 6/8/2023 5,926 5,856 3,348 Second Lien 0.5%, L+9.00% PIK (Floor 1.00%)/Q, Current Coupon 11.35% 11/3/2016 6/6/2024 2,111 2,072 792 7,928 4,140 87 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2020 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2,14 Industry Rate 3 Date 14 Maturity Principal Cost Value 4 AMWARE FULFILLMENT LLC First Lien Distribution L+9.50% (Floor 1.00%)/M, Current Coupon 10.95% 7/29/2016 12/31/2020 12,027 11,988 11,991 ASC ORTHO MANAGEMENT COMPANY, LLC 13 Revolving Loan Healthcare services L+7.50% (Floor 1.00%)/Q, Current Coupon 8.70% 8/31/2018 8/31/2023 1,500 1,480 1,425 First Lien L+7.50% (Floor 1.00%)/Q, Current Coupon 9.41% 8/31/2018 8/31/2023 9,028 8,894 8,577 Second Lien 13.25% PIK 8/31/2018 12/1/2023 3,709 3,649 3,275 2,042 Common Units 9 — 8/31/2018 — — 750 356 14,773 13,633 BINSWANGER HOLDING CORP. First Lien Distribution L+8.50% (Floor 1.00%)/M, Current Coupon 9.96% 3/9/2017 3/9/2022 11,604 11,500 11,163 900,000 shares of common stock — 3/9/2017 — — 900 636 12,400 11,799 BLASCHAK COAL CORP. Second Lien Term Loan 15 Commodities & mining L+11.00%/Q, (Floor 1.00%) 1.00% PIK, Current Coupon 13.91% 7/30/2018 7/30/2023 8,624 8,497 8,451 Second Lien- Term Loan B 15 L+11.00%/Q, (Floor 1.00%) 1.00% PIK, Current Coupon 13.43% 3/30/2020 7/30/2023 2,000 1,960 1,960 10,457 10,411 CALIFORNIA PIZZA KITCHEN, INC. 16 First Lien Restaurants L+6.00% (Floor 1.00%)/M, Current Coupon 7.62% 8/19/2016 8/23/2022 4,825 4,802 2,441 CAPITAL PAWN HOLDINGS, LLC First Lien Consumer products & retail L+9.50%/Q, Current Coupon 11.41% 12/21/2017 7/8/2020 11,097 11,068 11,075 CLICKBOOTH.COM, LLC Revolving Loan Media, marketing & entertainment L+8.50% (Floor 1.00%)/Q, Current Coupon 9.5% 12/5/2017 1/31/2025 1,086 1,080 1,086 First Lien L+8.50% (Floor 1.00%)/Q, Current Coupon 10.41% 12/5/2017 1/31/2025 19,000 18,739 19,000 19,819 20,086 88 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2020 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2,14 Industry Rate 3 Date 14 Maturity Principal Cost Value 4 DANFORTH ADVISORS, LLC 13 Revolving Loan 10 Business services L+7.25% (Floor 2.00%)/Q, Current Coupon 9.25% 9/28/2018 9/28/2023 500 486 500 First Lien L+7.25% (Floor 2.00%)/Q, Current Coupon 9.25% 9/28/2018 9/28/2023 7,250 7,141 7,250 875 Class A equity units 9 — 9/28/2018 — — 875 1,445 8,502 9,195 DELPHI INTERMEDIATE HEALTHCO, LLC 16 Revolving Loan Healthcare services L+9.50% (Floor 1.00%)/Q, Current Coupon 11.97% 10/2/2019 10/3/2022 1,223 1,223 1,223 First Lien L+9.50% (Floor 1.00%)/Q, Current Coupon 11.20% 11/3/2017 10/3/2022 10,605 10,533 5,101 11,756 6,324 DRIVEN, INC. First Lien Business Services L+8.00% (Floor 2.00%)/Q, Current Coupon 10.00% 6/28/2019 6/28/2024 11,940 11,730 11,940 DUNN PAPER, INC. Second Lien Paper & forest products L+8.75% (Floor 1.00%)/M, Current Coupon 9.75% 9/28/2016 8/26/2023 3,000 2,965 3,000 ENVIRONMENTAL PEST SERVICE MANAGEMENT COMPANY, LLC First Lien Consumer services L+7.00%(Floor 1.00%)/Q, Current Coupon 8.91% 6/22/2018 6/22/2023 15,292 15,103 15,292 Delayed Draw Term Loan 10 L+7.00%(Floor 1.00%)/Q, Current Coupon 8.91% 6/22/2018 6/22/2023 6,110 6,015 6,111 21,118 21,403 ESCP DTFS, INC. First Lien - Term Loan A Industrial services L+6.50%(Floor 1.75%)/Q, Current Coupon 8.27% 1/31/2020 1/31/2025 5,350 5,253 5,253 First Lien - Term Loan B L+8.50%(Floor 1.75%)/Q, Current Coupon 10.27% 1/31/2020 1/31/2025 5,350 5,253 5,253 Delayed Draw Term Loan A1 10 L+6.50%(Floor 1.75%) 1/31/2020 1/31/2025 — (10) — Delayed Draw Term Loan A2 10 L+8.50%(Floor 1.75%) 1/31/2020 1/31/2025 — (10) — Delayed Draw Term Loan B1 10 L+6.50%(Floor 1.75%) 1/31/2020 1/31/2025 — (3) — Delayed Draw Term Loan B2 10 L+8.50%(Floor 1.75%) 1/31/2020 1/31/2025 — (3) — 10,480 10,506 89 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2020 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2,14 Industry Rate 3 Date 14 Maturity Principal Cost Value 4 FAST SANDWICH, LLC Revolving Loan 10 Restaurants L+9.00% (Floor 1.00%)/Q, 5.0% PIK 5/24/2018 5/23/2023 — (43) — First Lien L+9.00% (Floor 1.00%)/Q, 5.0% PIK,Current Coupon 15.91% 5/24/2018 5/23/2023 3,393 3,354 3,179 3,311 3,179 GS OPERATING, LLC First Lien Distribution L+6.50%(Floor 1.50%)/M, Current Coupon 8.00% 3/6/2020 2/24/2025 8,000 7,842 7,842 ICS DISTRIBUTION, LLC 8 First Lien Industrial services L+8.21%(Floor 2.00%)/Q, Current Coupon 10.21% 10/31/2019 10/29/2024 18,000 17,617 17,617 IENERGIZER LIMITED First Lien 9 Business services L+6.00%(Floor 1.00%)/M, Current Coupon 7.00% 4/17/2019 4/17/2024 12,000 11,899 12,000 JVMC HOLDINGS CORP. First Lien Financial services L+6.50% (Floor 1.00%)/M, Current Coupon 7.50% 2/28/2019 2/28/2024 8,183 8,115 8,183 LANDPOINT HOLDCO, INC. First Lien Business Services L+7.00%(Floor 1.00%)/Q, Current Coupon 8.96% 12/30/2019 12/30/2024 19,500 19,128 19,110 LGM PHARMA, LLC 13 First Lien Healthcare products L+8.50% (Floor 1.00%)/M, Current Coupon 10.02% 11/15/2017 11/15/2022 11,541 11,400 11,472 110,000 units of Class A common stock 9 — 11/15/2017 — — 1,100 821 12,500 12,293 LIGHTING RETROFIT INTERNATIONAL, LLC (DBA ENVOCORE) First Lien Environmental services 6%, L+3.00% PIK (Floor 2.00%)/Q, Current Coupon 11.00% 6/30/2017 6/30/2022 13,439 13,364 12,149 25,603 shares of Series C preferred stock — 8/13/2018 — — 25 — 396,825 shares of Series B preferred stock — 6/30/2017 — — 500 — 13,889 12,149 MEDIA RECOVERY, INC. Earnout Industrial Products — 11/25/2019 — — 1,517 — 90 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2020 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2,14 Industry Rate 3 Date 14 Maturity Principal Cost Value 4 NINJATRADER, INC. 13 Revolving Loan 10 Financial Services L+6.00% (Floor 1.50%)/Q, Current Coupon 7.90% 12/18/2019 12/18/2024 1,100 1,093 1,100 First Lien L+6.00% (Floor 1.50%)/Q, Current Coupon 7.90% 12/18/2019 12/18/2024 18,250 17,902 18,250 2,000,000 Preferred Units 9 — 12/18/2019 — — 2,000 2,000 20,995 21,350 RESEARCH NOW GROUP, INC. Second Lien Business services L+9.50% (Floor 1.00%)/M, Current Coupon 11.26% 12/8/2017 12/20/2025 10,500 9,904 10,217 SCRIP INC. 8 First Lien Healthcare products L+9.86% (Floor 2.00%)/M, Current Coupon 11.86% 3/21/2019 3/21/2024 16,750 16,332 16,482 100 shares of common stock — 3/21/2019 — — 1,000 1,000 17,332 17,482 TAX ADVISORS GROUP, LLC 13 143.3 Class A units 9 Financial services — 6/23/2017 — — 541 1,053 TRINITY 3, LLC 13 First Lien Technology products & components L+7.50% (Floor 1.50%)/Q, Current Coupon 9.41% 11/15/2019 11/15/2024 14,161 13,894 14,048 562.5 Class A units 9 — 11/15/2019 — — 563 563 14,457 14,611 TINUITI INC. 1,114 Preferred Units Media, marketing & entertainment — 2/1/2017 — — 1,114 3,100 1,443 Common Units — 2/1/2017 — — 277 1,756 1,391 4,856 USA DEBUSK, LLC First Lien Industrial Services L+5.75% (Floor 1.00%)/M, Current Coupon 6.75% 2/25/2020 10/22/2024 7,980 7,833 7,833 VISTAR MEDIA INC. First Lien Media, marketing & entertainment L+7.5% (Floor 2.00%)/M, Current Coupon 9.5% 2/17/2017 4/3/2023 11,416 10,605 11,416 171,617 shares of Series A preferred stock — 4/3/2019 — — 1,874 4,776 Warrants (Expiration - April 3, 2029) — 4/3/2019 — — 620 2,718 13,099 18,910 91 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2020 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2,14 Industry Rate 3 Date 14 Maturity Principal Cost Value 4 VTX HOLDINGS, INC. 8 First Lien Software & IT services L+8.87% (Floor 2.00%)/Q, Current Coupon 10.87% 7/23/2019 7/23/2024 20,075 19,581 19,914 1,000,000 series A Preferred units — 7/23/2019 — — 1,000 1,000 20,581 20,914 Total Non-control/Non-affiliate Investments $ 436,463 $ 421,280 Affiliate Investments 6 CHANDLER SIGNS, LLC 13 1,500,000 units of Class A-1 common stock 9 Business services — 1/4/2016 — $ — $ 1,500 $ 3,110 DYNAMIC COMMUNITIES, LLC 13 Revolving Loan 10 Business services L+8.00% (Floor 1.00%) 7/17/2018 7/17/2023 — (3) — First Lien L+8.00% (Floor 1.00%)/M, Current Coupon 9.00% 7/17/2018 7/17/2023 10,780 10,625 9,928 2,000,000 Preferred Units 9 — 7/17/2018 — — 2,000 1,850 12,622 11,778 GRAMMATECH, INC. Revolving Loan Software & IT services L+7.50% (Floor 2.00%)/Q, Current Coupon 9.50% 11/1/2019 11/1/2024 2,500 2,460 2,460 First Lien L+7.50% (Floor 2.00%)/Q, Current Coupon 9.50% 11/1/2019 11/1/2024 11,500 11,312 11,316 1000 Class A units — 11/1/2019 — — 1,000 1,000 14,772 14,776 ITA HOLDINGS GROUP, LLC 13 Revolving Loan 10 Transportation & logistics L+9.00% (Floor 1.00%) 2/14/2018 2/14/2023 — (31) — First Lien - Term Loan L+8.00% (Floor 1.00%)/Q, Current Coupon 9.91% 2/14/2018 2/14/2023 10,030 9,910 9,900 First Lien - Term B Loan L+11.00% (Floor 1.00%)/Q, Current Coupon 12.91% 6/5/2018 2/14/2023 5,015 4,940 5,136 First Lien - PIK Note A 10.00% PIK 3/29/2019 2/14/2023 2,425 1,950 2,233 First Lien - PIK Note B 10.00% PIK 3/29/2019 2/14/2023 96 96 88 Warrants (Expiration - March 29, 2029) 9 — 3/29/2019 — — 538 2,762 92 Table of Contents CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS March 31, 2020 Current Type of Interest Acquisition Fair Portfolio Company 1 Investment 2,14 Industry Rate 3 Date 14 Maturity Principal Cost Value 4 9.25% Class A Membership Interest 9 — 2/14/2018 — — 1,500 2,099 18,903 22,218 ROSELAND MANAGEMENT, LLC Revolving Loan 10 Healthcare services L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 500 475 500 First Lien L+7.00% (Floor 2.00%)/Q, Current Coupon 9.00% 11/9/2018 11/9/2023 10,369 10,228 10,369 10,000 Class A Units — 11/9/2018 — — 1,000 1,334 11,703 12,203 SIMR, LLC First Lien Healthcare services L+10.00% (Floor 2.00%)/M, 7.00% PIK, Current Coupon 19.00% 9/7/2018 9/7/2023 11,693 11,522 11,190 9,374,510.2 Class B Common Units — 9/7/2018 — — 6,107 1,742 17,629 12,932 ZENFOLIO INC. Revolving Loan Business services L+9.00% (Floor 1.00%)/Q, Current Coupon 10.34% 7/17/2017 7/17/2022 2,000 1,991 1,888 First Lien L+9.00% (Floor 1.00%)/Q, Current Coupon 10.91% 7/17/2017 7/17/2022 13,906 13,704 13,127 190 shares of common stock — 7/17/2017 — — 1,900 — 17,595 15,015 Total Affiliate Investments $ 94,724 $ 92,032 Control Investments 7 I-45 SLF LLC 9,11 80% LLC equity interest Multi-sector holdings — 10/20/2015 — — $ 68,000 $ 39,760 Total Control Investments $ 68,000 $ 39,760 TOTAL INVESTMENTS 12 $ 599,187 $ 553,072 1 All debt investments are income-producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted. 2 All of the Company’s investments, unless otherwise noted, are pledged as collateral for the Company’s senior secured credit facility 93 Table of Contents 3 The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily (D), monthly (M), quarterly (Q), or semiannually (S). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31, 2020. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest. 4 The Company's investment portfolio is comprised entirely of privately held debt and equity securities for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not 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. 5 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, 2020, approximately 76.2% 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 154.8%. 6 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, 2020, approximately 16.6% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 33.8%. 7 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, 2020, approximately 7.2% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 14.6%. 8 The investment is structured as a first lien last out term loan. 9 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, 2020, approximately 11.9% of the Company's assets are non-qualifying assets. 10 The investment has an unfunded commitment as of March 31, 2020. Refer to Note 11 - Commitments and Contingencies for further discussion. 11 Income producing through dividends or distributions. 12 As of March 31, 2020, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $19.3 million; cumulative gross unrealized depreciation for federal income tax purposes is $63.4 million. Cumulative net unrealized depreciation is $44.1 million, based on a tax cost of $597.7 million. 13 Our investment in ASC Ortho Management Company, LLC common units, Danforth Advisors, LLC Class A units, American Nuts Operations LLC Class A common stock, LGM Pharma, LLC Class A common stock, NinjaTrader, LLC preferred units, Trinity 3, LLC Class A units, Tax Advisors Group, LLC Class A units, Chandler Signs, LLC Class A-1 common stock, Dynamic Communities, LLC Preferred units, and ITA Holdings Group, LLC Class A membership interest are held through a wholly-owned taxable subsidiary of the Company. 14 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 are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act. 15 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. 16 Investment was on non-accrual status as of March 31, 2020, 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. 17 Negative cost in this column represents the original issue discount of certain undrawn revolvers and delayed draw term loans. 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, 2020 is included in Note 16. Significant Subsidiaries. The accompanying Notes are an integral part of these Consolidated Financial Statements. 94 Table of Contents Notes to Consolidated Financial Statements 1. ORGANIZATION AND BASIS OF PRESENTATION References in this Annual Report on Form 10-K 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. Our common stock currently trades on The Nasdaq Global Select Market under the ticker symbol “CSWC.” CSWC was organized as a Texas corporation on April 19, 1961. On March 30, 1988, CSWC elected to be regulated as a business development company (“BDC”) under the 1940 Act. In order to comply with the 1940 Act requirements for a BDC, we must, among other things, generally invest at least 70% of our assets in eligible portfolio companies and limit the amount of leverage we incur. We have elected, and intend to qualify annually, to be treated 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 corporate-level U.S. federal income tax on any ordinary income or capital gains that we distribute to our shareholders as dividends. To continue to maintain our RIC treatment, we must meet specified source-of-income and asset diversification requirements and 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. 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 and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income. 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. CSWC also 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 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. 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 target senior debt investments and equity investments in lower middle market ("LMM") companies, as well as 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 $25.0 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 $15.0 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. 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. SBIC I will have an investment strategy substantially similar to ours and make similar types of investments in accordance with SBA regulations. SBIC I and its general partner will be consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it will be included in the consolidated financial statements. 95 Table of Contents 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 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 our total assets in qualifying assets. As of March 31, 2021, the Company has 87.4% of our 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. (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. (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"). 96 Table of Contents 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 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. This quarter we satisfied all RIC requirements and have 7.5% 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. 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, 2021 and 2020, cash balances totaling $30.4 million and $12.6 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 CSWC's wholly-owned Taxable Subsidiary. Prior to the merger of CSMC into CSWC, we consolidated the results of CSWC’s wholly-owned management company, CSMC. 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. 97 Table of Contents 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, 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. 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 year ended March 31, 2021, approximately 3.5% 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. For the year ended March 31, 2020, approximately 3.1% 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 payment-in-kind (“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, 2021 and 2020, we have not written off any accrued and uncollected PIK interest from prior periods. For the year ended March 31, 2021, we did not have any investments for which we stopped accruing PIK interest. For the year ended March 31, 2020, we had two investments for which we stopped accruing PIK interest. For the years ended March 31, 2021 and 2020, approximately 10.7% and 3.5%, respectively, of CSWC’s total investment income was attributable to non-cash PIK interest income. Warrants In connection with the Company's debt investments, the Company will sometimes 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 and its unsecured notes (as discussed further in Note 5). 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 are a direct deduction from the related debt liability and amortized into interest expense over the term of the December 2022 Notes (as defined below), the October 2024 Notes (as defined below) and the January 2026 Notes (as defined below). Deferred Offering Costs Deferred offering costs include registration expenses related to shelf registration statements 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 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. 98 Table of Contents 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 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 one year. 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 leases do 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 corporate federal income taxes 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-level 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 corporate-level U.S. federal income tax paid 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. CSMC, a former wholly-owned subsidiary of CSWC, was not a RIC and was required to pay taxes at the corporate rate of 21%. Effective December 31, 2020, CSMC merged with and into CSWC and, as a result, the calendar year ended December 31, 2020 is the last year in which the Company will incur tax expense or benefit related to CSMC. For tax purposes, CSMC had elected to be treated as a taxable entity, and therefore CSMC was not consolidated for tax purposes and was taxed at normal corporate tax rates based on taxable income and, as a result of its activities, may generate income tax expense or benefit. The taxable income, or loss, of CSMC may differ from its book income, or loss, due to temporary book and tax timing differences and permanent differences. This income tax expense, or benefit, if any, and the related tax assets and liabilities, are reflected in our consolidated financial statements. 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 income tax expense 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 expense, 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 99 Table of Contents 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 meet the recognition of measurement criteria of ASC 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 expense. No interest or penalties expense was recorded during the years ended March 31, 2021, 2020 and 2019. 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 stock-based compensation using the fair value method, as prescribed by ASC Topic 718, Compensation – Stock Compensation . Accordingly, we recognize stock-based compensation cost on a straight-line basis for all share-based payments awards granted to employees. For restricted stock awards, we measure the grant date 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. On October 26, 2010, we received an exemptive order from the SEC permitting us to issue restricted stock to our executive officers and certain key employees (the “Original Order”). On August 22, 2017, we received an exemptive order that supersedes the Original Order (the “Exemptive Order”) and, in addition to the relief granted under the Original Order, allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant to the 2010 Restricted Stock Award Plan (the “2010 Plan”). The right to grant restricted stock awards under the 2010 Plan will terminate ten years after the date that the 2010 Plan was approved by the Company’s shareholders, which is July 18, 2021. In connection with the termination of the 2010 Plan, the Company’s Board of Directors of Company approved the Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (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. In connection therewith, on March 29, 2021, we filed an exemptive application with the SEC that would supersede the Exemptive Order (the “Superseding Exemptive 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, on March 29, 2021, we filed an exemptive application with the SEC (the “Non-Employee Director Plan Exemptive Order”) to permit the Company to (i) issue restricted stock as part of the compensation package for non-employee directors of the Board of Directors (the “Non-Employee Directors”) under the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Award Plan (the “Non-Employee Director Plan”), and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the Non-Employee Directors to satisfy tax withholding obligations relating to the vesting of restricted stock pursuant to the Non-Employee Director Plan. There can be no assurance if and when the Company will receive the Superseding Exemptive Order or the Non-Employee Director Plan Exemptive Order. The terms of the Superseding Exemptive Order and the Non-Employee Director Plan Exemptive Order, if received, is expected to be substantially similar to the Exemptive Order. Each of the 2021 Employee Plan and the Non-Employee Director Plan will also be subject to shareholder approval upon receipt of the Superseding Exemptive Order and the Non-Employee Director Plan Exemptive Order, respectively. At the years ended March 31, 2021 and 2020, there was no adjustment made for the dilutive effect of stock-based awards as there are no options to acquire shares of common stock outstanding. At the year ended March 31, 2019, weighted-average basic shares were adjusted for the diluted effect of stock-based awards of 7,115. 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, are generally 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. 100 Table of Contents 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 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 and 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. 101 Table of Contents 3. INVESTMENTS The following tables show the composition of the investment portfolio, at cost and fair value (with corresponding percentage of total portfolio investments), as of March 31, 2021 and 2020: Percentage of Percentage of Fair Total Portfolio Percentage of Total Portfolio Value at Fair Value Net Assets Cost at Cost (dollars in thousands) March 31, 2021: First lien loans 1 $ 524,161 76.1 % 155.9 % $ 530,366 75.4 % Second lien loans 2 36,919 5.4 11.0 40,198 5.7 Subordinated debt 11,534 1.7 3.4 11,588 1.6 Preferred equity 22,608 3.3 6.7 15,378 2.2 Common equity & warrants 36,052 5.2 10.7 33,227 4.7 I-45 SLF LLC 3 57,158 8.3 17.0 72,800 10.4 $ 688,432 100.0 % 204.7 % $ 703,557 100.0 % March 31, 2020: First lien loans 1 $ 427,447 77.3 % 157.0 % $ 446,925 74.6 % Second lien loans 2 37,139 6.7 13.6 38,580 6.4 Subordinated debt 9,747 1.8 3.6 9,980 1.7 Preferred equity 16,624 3.0 6.1 12,576 2.1 Common equity & warrants 22,355 4.0 8.2 21,609 3.6 Financial instruments 4 — — — 1,517 0.3 I-45 SLF LLC 3 39,760 7.2 14.6 68,000 11.3 $ 553,072 100.0 % 203.1 % $ 599,187 100.0 % 1 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, 2021 and 2020, the fair value of the first lien last out loans are $85.6 million and $59.5 million, respectively. 2 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, 2021 and 2020, the fair value of the split lien term loans included in first lien loans is $25.9 million and $0, respectively. As of March 31, 2021 and 2020, the fair value of the split lien term loans included in second lien loans is $19.1 million and $19.9 million, respectively. 3 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 16 for further discussion. 4 Included in financial instruments is the earnout received in connection with the sale of Media Recovery, Inc. 102 Table of Contents The following tables show the composition of the investment portfolio by industry, at cost and fair value (with corresponding percentage of total portfolio investments), as of March 31, 2021 and 2020: Percentage of Percentage of Total Portfolio Percentage of Total Portfolio Fair Value at Fair Value Net Assets Cost at Cost (dollars in thousands) March 31, 2021: Business Services $ 87,839 12.8 % 26.1 % $ 89,758 12.8 % Media, Marketing, & Entertainment 80,876 11.7 24.1 75,447 10.7 Healthcare Services 72,411 10.5 21.5 81,509 11.6 I-45 SLF LLC 1 57,158 8.3 17.0 72,800 10.3 Distribution 53,160 7.7 15.8 52,819 7.5 Software & IT Services 46,696 6.8 13.9 45,683 6.5 Industrial Services 39,071 5.7 11.6 39,424 5.6 Healthcare Products 33,937 4.9 10.1 32,785 4.7 Financial Services 33,861 4.9 10.1 28,283 4.0 Technology Products & Components 30,716 4.5 9.1 28,220 4.0 Consumer Products & Retail 29,980 4.4 8.9 29,927 4.2 Transportation & Logistics 23,395 3.4 7.0 19,383 2.8 Food, Agriculture & Beverage 21,575 3.1 6.4 21,641 3.1 Telecommunications 19,572 2.8 5.8 24,350 3.5 Environmental Services 12,021 1.7 3.6 14,510 2.1 Commodities & Mining 10,138 1.5 3.0 10,603 1.5 Aerospace & Defense 9,668 1.4 2.9 9,459 1.3 Energy Services (Midstream) 8,975 1.3 2.7 9,319 1.3 Specialty Chemicals 7,841 1.1 2.3 7,841 1.1 Restaurants 6,542 1.1 1.9 6,822 1.0 Paper & Forest Products 3,000 0.4 0.9 2,974 0.4 $ 688,432 100.0 % 204.7 % $ 703,557 100.0 % 103 Table of Contents Percentage of Percentage of Total Portfolio Percentage of Total Portfolio Fair Value at Fair Value Net Assets Cost at Cost (dollars in thousands) March 31, 2020: Business Services $ 92,365 16.7 % 33.9 % $ 92,879 15.5 % Media, Marketing, & Entertainment 54,494 10.0 20.0 45,202 7.5 Healthcare Services 51,037 9.2 18.7 66,744 11.1 I-45 SLF LLC 1 39,760 7.2 14.6 68,000 11.3 Industrial Services 35,956 6.5 13.2 35,931 6.0 Software & IT Services 35,690 6.5 13.1 35,353 5.9 Distribution 31,632 5.7 11.6 32,229 5.5 Financial Services 30,586 5.5 11.2 29,651 4.9 Healthcare Products 29,775 5.4 10.9 29,832 5.0 Food, Agriculture & Beverage 25,624 4.6 9.4 30,937 5.2 Consumer Products and Retail 23,157 4.2 8.5 23,549 3.9 Transportation & Logistics 22,218 4.0 8.2 18,903 3.2 Consumer Services 21,403 3.9 7.9 21,118 3.5 Technology Products & Components 14,610 2.6 5.4 14,457 2.4 Environmental Services 12,148 2.2 4.5 13,889 2.3 Commodities & Mining 10,411 1.9 3.8 10,458 1.7 Energy Services (Midstream) 9,445 1.7 3.5 9,532 1.6 Restaurants 5,621 1.0 2.1 8,113 1.4 Telecommunications 4,140 0.7 1.5 7,928 1.3 Paper & Forest Products 3,000 0.5 1.1 2,965 0.5 Industrial Products — — — 1,517 0.3 $ 553,072 100.0 % 203.1 % $ 599,187 100.0 % 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 industry classifications, which are similar to those in which CSWC invests directly. See Note 16 for further discussion. 104 Table of Contents The following tables summarize the composition of the investment portfolio by geographic region of the United States, at cost and fair value (with corresponding percentage of total portfolio investments), as of March 31, 2021 and 2020: Percentage of Percentage of Total Portfolio Percentage of Total Portfolio Fair Value at Fair Value Net Assets Cost at Cost (dollars in thousands) March 31, 2021: Southwest $ 196,956 28.6 % 58.6 % $ 200,091 28.4 % Northeast 153,761 22.3 45.7 150,595 21.4 Southeast 120,168 17.5 35.7 125,317 17.8 West 90,910 13.2 27.0 87,363 12.5 Midwest 69,479 10.1 20.7 67,391 9.6 I-45 SLF LLC 1 57,158 8.3 17.0 72,800 10.3 $ 688,432 100.0 % 204.7 % $ 703,557 100.0 % March 31, 2020: Southwest $ 167,082 30.2 % 61.3 % $ 167,192 27.9 % Northeast 124,250 22.4 45.6 121,201 20.2 Southeast 107,541 19.4 39.5 122,547 20.5 West 58,985 10.7 21.7 65,135 10.9 Midwest 43,454 7.9 16.0 43,214 7.2 I-45 SLF LLC 1 39,760 7.2 14.6 68,000 11.3 International 12,000 2.2 4.4 11,898 2.0 $ 553,072 100.0 % 203.1 % $ 599,187 100.0 % 1 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital. 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 16 for further discussion. 105 Table of Contents 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 monthly review of each investment by our executive officers and investment teams. Valuations of each portfolio security are prepared quarterly by the finance department using updated financial and other operational information collected by the investment teams. Each investment valuation is then subject to review by the executive officers and investment teams. 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 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. 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 approving, 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, 2021 and 2020, 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 a valuation policy and process that is established by the management of CSWC with assistance from multiple third-party valuation advisors, which is subsequently 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 106 Table of Contents 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; • 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. 107 Table of Contents 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. 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. Option Pricing Model Method In certain situations, CSWC will acquire financial instruments which are most appropriately valued using an option pricing model. Typically, option pricing models will use the Black Scholes model methodology and attempt to replicate the features of the underlying derivative instrument. The significant Level 3 input to the Option Pricing Model is the assumed volatility of the underlying portfolio company cash flows. Other inputs into the model are the current price of the security, the strike price of the security, and the time to maturity. 108 Table of Contents The following fair value hierarchy tables set forth our investment portfolio by level as of March 31, 2021 and 2020 (in thousands): Fair Value Measurements at March 31, 2021 Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs Asset Category Total (Level 1) (Level 2) (Level 3) First lien loans $ 524,161 — — $ 524,161 Second lien loans 36,919 — — 36,919 Subordinated debt 11,534 — — 11,534 Preferred equity 22,608 — — 22,608 Common equity & warrants 36,052 — — 36,052 Investments measured at net asset value 1 57,158 — — — Total Investments $ 688,432 — — $ 631,274 Fair Value Measurements at March 31, 2020 Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs Asset Category 2 Total (Level 1) (Level 2) (Level 3) First lien loans $ 427,447 — — $ 427,447 Second lien loans 37,139 — — 37,139 Subordinated debt 9,747 — — 9,747 Preferred equity 16,624 — — 16,624 Common equity & warrants 22,355 — — 22,355 Investments measured at net asset value 1 39,760 — — — Total Investments $ 553,072 — — $ 513,312 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 net asset value per share at March 31, 2021 and 2020, 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. 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, 2021 and 2020. 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. 109 Table of Contents Fair Value at Significant Valuation March 31, 2021 Unobservable Weighted Type Technique (in thousands) Inputs Range Average First lien loans Income Approach $ 465,712 Discount Rate 6.3% - 28.8% 10.9% Third Party Broker Quote 53.1 - 99.9 87.9 Market Approach 58,449 Cost 93.9 - 98.0 97.6 Exit Value 100.0 - 101.0 100.2 Second lien loans Income Approach 36,864 Discount Rate 9.9% - 17.6% 14.4% Third Party Broker Quote 96.5 - 97.8 96.6 Market Approach 55 Exit Value 2.4 2.4 Subordinated debt Income Approach 11,534 Discount Rate 6.2% - 29.3% 13.4% Preferred equity Enterprise Value Waterfall Approach 22,608 EBITDA Multiple 6.9x - 10.8x 8.9x Discount Rate 12.7% - 22.4% 19.3% Common equity & warrants Enterprise Value Waterfall Approach 34,013 EBITDA Multiple 5.6x - 11.5x 8.1x Discount Rate 12.9% - 29.8% 20.0% Market Approach 2,039 Cost 100.0 100.0 Exit Value 284.4 284.4 Total Level 3 Investments $ 631,274 Fair Value at Significant Valuation March 31, 2020 Unobservable Weighted Type Technique (in thousands) Inputs Range Average First lien loans Income Approach $ 401,266 Discount Rate 7.0% - 52.5% 12.0% Third Party Broker Quote 43.8 - 56.5 49.9 Market Approach 26,181 Cost 98.0 - 98.2 98.1 Second lien loans Income Approach 37,139 Discount Rate 10.3% - 19.8% 12.7% Third Party Broker Quote 37.5 37.5 Subordinated debt Income Approach 9,747 Discount Rate 13.3% 13.3% Preferred equity Enterprise Value Waterfall Approach 16,624 EBITDA Multiple 7.4x - 11.4x 9.3x Discount Rate 17.2% - 22.9% 19.3% Common equity & warrants Enterprise Value Waterfall Approach 22,355 EBITDA Multiple 5.3x - 11.4x 8.2x Discount Rate 15.4% - 22.7% 19.2% Financial instruments Option Pricing Model — Assumed Volatility 2.0% 2.0% Total Level 3 Investments $ 513,312 Changes in Fair Value Levels 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 hierarchy to another. During the years ended March 31, 2021 and 2020, we had no transfers between levels. 110 Table of Contents The following table provides a summary of changes in the fair value of investments measured using Level 3 inputs during the years ended March 31, 2021 and 2020 (in thousands): Fair Value March 31, 2020 Realized & Unrealized Gains (Losses) Purchases of Investments 1 Repayments PIK Interest Capitalized Divestitures Conversion of Security Fair Value March 31, 2021 YTD Unrealized Appreciation (Depreciation) on Investments held at period end First lien loans $ 427,447 $ (308) $ 199,362 $ (98,567) $ 5,919 $ — $ (9,692) $ 524,161 $ (2,525) Second lien loans 37,139 (1,839) 192 (250) 899 — 778 36,919 (1,839) Subordinated debt 9,747 179 546 — 1,062 — — 11,534 179 Preferred equity 16,624 9,730 3,915 — — (7,661) — 22,608 5,169 Common equity & warrants 22,355 2,082 4,881 — — (2,180) 8,914 36,052 1,658 Total Investments $ 513,312 $ 9,844 $ 208,896 $ (98,817) $ 7,880 $ (9,841) $ — $ 631,274 $ 2,642 Fair Value March 31, 2019 Realized & Unrealized Gains (Losses) Purchases of Investments 1 Repayments PIK Interest Capitalized Divestitures Conversion of Security from Debt to Equity Fair Value March 31, 2020 YTD Unrealized Appreciation (Depreciation) on Investments held at period end First lien loans $ 317,544 $ (16,987) $ 189,293 $ (51,133) $ 1,360 $ (12,630) $ — $ 427,447 $ (17,370) Second lien loans 35,896 (1,279) 2,121 (250) 651 — — 37,139 (1,279) Subordinated debt 14,287 (30) 47 (4,569) 12 — — 9,747 (94) Preferred equity 17,936 555 4,563 — 55 (8,081) 1,596 16,624 1,000 Common equity & warrants 72,665 (784) 1,003 — — (48,933) (1,596) 22,355 2,291 Financial instruments — (1,517) 1,517 — — — — — (1,517) Total Investments $ 458,328 $ (20,042) $ 198,544 $ (55,952) $ 2,078 $ (69,644) $ — $ 513,312 $ (16,969) 1 Includes purchases of new investments, as well as discount accretion on existing investments. 5. BORROWINGS In accordance with the 1940 Act, with certain limitations, 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. As of March 31, 2021, the Company’s asset coverage was 187%. 111 Table of Contents The Company had the following borrowings outstanding as of March 31, 2021 and 2020 (amounts in thousands): March 31, 2021 March 31, 2020 Credit Facility $ 120,000 $ 154,000 December 2022 Notes — 77,136 Less: Unamortized debt issuance costs and debt discount — (1,324) Total December 2022 Notes — 75,812 October 2024 Notes 125,000 75,000 Less: Unamortized debt issuance costs and debt discount (2,121) (1,516) Total October 2024 Notes 122,879 73,484 January 2026 Notes 140,000 — Less: Unamortized debt issuance costs and debt discount (1,575) — Total January 2026 Notes 138,425 — Total Borrowings $ 381,304 $ 303,296 Credit Facility 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. In August 2017, we increased our total commitments by $15 million through adding an additional lender using the accordion feature. On November 16, 2017, CSWC entered into Amendment No. 1 (the “Amendment”) to its Credit Facility. Prior to the Amendment, borrowings under the Credit Facility accrued interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 3.25% with no LIBOR floor. 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. 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. On April 16, 2018 and May 11, 2018, CSWC entered into Incremental Assumption Agreements, which increased the total commitments under the Credit Facility by $20 million and $10 million, respectively. The increases were executed in accordance with the accordion feature of the Credit Facility, increasing total commitments from $180 million to $210 million. On December 21, 2018, CSWC entered into the Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement"), and a related Amended and Restated Guarantee, Pledge and Security Agreement, to amend and restate its Credit Facility. The Credit Agreement (1) increased the total commitments by $60 million from $210 million to an aggregate total of $270 million, provided by a diversified group of nine lenders, (2) increased the Credit Facility's accordion feature to $350 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 3.00% to LIBOR plus 2.50%, subject to certain conditions as outlined in the Credit Agreement, (4) reduced the minimum asset coverage with respect to senior securities representing indebtedness from 200% to 150% after the date on which such minimum asset coverage is permitted to be reduced by the Company under applicable law, and (5) extended the Credit Facility's revolving period from November 16, 2020 to December 21, 2022 and the final maturity was extended from November 16, 2021 to December 21, 2023. The Credit Agreement modified certain covenants in the Credit Facility, including: (1) to provide for a minimum senior coverage ratio of 2-to-1 (in addition to the asset coverage ratio noted below), (2) to increase the minimum obligors’ net 112 Table of Contents worth test from $160 million to $180 million, (3) to reduce the minimum consolidated interest coverage ratio from 2.50-to-1 to 2.25-to-1 as of the last day of any fiscal quarter, and (4) to provide for the fact that the Company will not declare or pay a dividend or distribution in cash or other property unless immediately prior to and after giving effect thereto the Company's asset coverage ratio exceeds 150% (and certain other conditions are satisfied). The Credit Facility also 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 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, 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. 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 subsidiary. As of March 31, 2021, substantially all of the Company’s assets were pledged as collateral for the Credit Facility. At March 31, 2021, CSWC had $120.0 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 $6.8 million and $8.3 million, respectively, for the years ended March 31, 2021 and 2020. The weighted average interest rate on the Credit Facility was 3.05% and 4.82%, respectively, for the years ended March 31, 2021 and 2020. Average borrowings for the years ended March 31, 2021 and 2020 were $166.0 million and $134.7 million, respectively. As of March 31, 2021 and 2020, CSWC was in compliance with all financial covenants under the Credit Facility. December 2022 Notes In December 2017, the Company issued $57.5 million in aggregate principal amount, including the underwriters’ full exercise of their option to purchase additional principal amounts to cover over-allotments, of 5.95% Notes due 2022 (the “December 2022 Notes”). The December 2022 Notes mature on December 15, 2022 and may be redeemed in whole or in part at any time, or from time to time, at the Company’s option on or after December 15, 2019. The December 2022 Notes bear interest at a rate of 5.95% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 2018. The December 2022 Notes are an unsecured obligation, 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. 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”). 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 113 Table of Contents 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. All issuances of December 2022 Notes rank equally in right of payment and form a single series of notes. 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 December 2022 Notes had a weighted average effective yield of 5.93%. 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 18(a)(1)(A) 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 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(a) 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, 2021, the Company was in compliance with all covenants of the December 2022 Notes. 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 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. 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%. As of March 31, 2021, the fair value of the October 2024 Notes was $122.9 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 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, 114 Table of Contents 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. 115 Table of Contents Contractual Payment Obligations A summary of the Company's contractual payment obligations for the repayment of outstanding indebtedness at March 31, 2021 is as follows: Years Ending March 31, 2022 2023 2024 2025 2026 Thereafter Total Credit Facility $ — $ — $ 120,000 $ — $ — $ — $ 120,000 October 2024 Notes — — — 125,000 — — 125,000 January 2026 Notes — — — — 140,000 — 140,000 Total $ — $ — $ 120,000 $ 125,000 $ 140,000 $ — $ 385,000 6. INCOME TAXES We have elected to be treated 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 long-term capital gains that is distributed to its shareholders, including “deemed distributions” as discussed below. As part of maintaining RIC tax treatment, undistributed taxable income, 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 filing of the U.S. federal income tax return for the applicable fiscal year or (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, 2020, 2019 and 2018, CSWC qualified for RIC tax treatment. We intend to meet the applicable qualifications to be taxed as a RIC in future periods. However, CSWC’s ability to meet certain portfolio diversification requirements of RICs in future years may not be controllable by CSWC. 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, 2021, CSWC declared regular dividends in the amount of $10.9 million, or $0.52 per share ($0.42 per share in regular dividends and $0.10 in supplemental dividends). During the tax year ended December 31, 2020, we declared total dividends of $38.5 million or $2.04 per share ($1.64 per share in regular dividends and $0.40 per share in supplemental dividends). We declared quarterly dividends of $0.51 per share in March 2020 ($0.41 per share in regular dividends and $0.10 per share in supplemental dividends), $0.51 per share ($0.41 per share in regular dividends and $0.10 per share in supplemental dividends) in June 2020, $0.51 per share ($0.41 per share in regular dividends and $0.10 per share in supplemental dividends) in September 2020, and $0.51 per share ($0.41 per share in regular dividends and $0.10 per share in supplemental dividends) in December 2020. For the tax year ended December 31, 2019, we declared total dividends of $49.2 million or $2.72 per share. We declared quarterly dividends of $0.48 per share ($0.38 per share in regular dividends and $0.10 per share in supplemental dividends) in March 2019, $0.49 per share ($0.39 per share in regular dividends and $0.10 per share in supplemental dividends) in June 2019, $0.50 per share ($0.40 per share in regular dividends and $0.10 per share in supplemental dividends) in September 2019, and $1.25 per share ($0.40 per share in regular dividends, $0.10 per share in supplemental dividends and $0.75 in special dividends) in December 2019. For the tax year ended December 31, 2018, we declared total dividends of $34.2 million, or $2.07 per share. We declared quarterly dividends of $0.28 per share in March 2018, $0.89 per share ($0.29 per share in regular dividends and $0.60 per share in supplemental dividends) in June 2018, $0.44 per share ($0.34 per share in regular dividends and $0.10 per share in supplemental dividends) in September 2018, and $0.46 per share ($0.36 per share in regular dividends and $0.10 per share in supplemental dividends) in December 2018. Book and tax basis differences relating to shareholder dividends and distributions 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 GAAP; accordingly, for the fiscal years ended March 31, 2021 and 2020, 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): 116 Table of Contents Year ended Year ended March 31, 2021 March 31, 2020 Additional capital $ (3,981) $ 10,808 Total distributable earnings $ 3,981 $ (10,808) The determination of the tax attributes of CSWC’s distributions is made after tax year end, based upon its taxable income for the full tax year and distributions paid for the full tax year. Therefore, the determination of tax attributes made on an interim basis for fiscal year end may not be representative of the actual tax attributes determined at tax year end. For tax purposes, the 2020 dividends totaled $2.04 per share and were comprised entirely of ordinary income. Included in ordinary income per share is approximately $0.167 per share of qualified dividend income. In addition, 91.74% of each of the ordinary distributions represent interest-related dividends and 8.26% of the ordinary distribution paid on March 31, 2020 represents short-term capital gains dividends. 93.80% 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. Of the qualified dividends of $3.0 million, 8.0% are eligible for the dividends received deduction. For tax purposes, the 2019 dividends totaled $2.72 per share and were comprised of (1) ordinary income totaling approximately $1.3033 per share and (2) long-term capital gains totaling approximately $1.4167 per share. Included in ordinary income per share is approximately $0.189 per share of qualified dividend income. In addition, 88.73% of each of the ordinary distributions represent interest-related dividends and 2.64% of the ordinary distribution paid on March 29, 2019 represents short-term capital gains dividends. 95.07% 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. Of the qualified dividends of $3.2 million, 14.5% are eligible for the dividends received deduction. Ordinary dividend distributions from a RIC do not qualify for the 20% maximum tax rate (plus a 3.8% Medicare surtax, if applicable) 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, 2020 and 2019 was as follows (amounts in thousands): Twelve Months Ended December 31, 2020 2019 Ordinary income $ 37,517 $ 22,405 Distributions of long term capital gains — 25,703 Distributions on tax basis 1 $ 37,517 $ 48,108 1 Includes only those distributions which reduce estimated taxable income. As of March 31, 2021, CSWC estimates that it has cumulative undistributed taxable income of approximately $19.3 million, or $0.92 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. 117 Table of Contents The following reconciles net increase (decrease) in net assets resulting from operations to estimated RIC distributable income for the years ended March 31, 2021, 2020 and 2019: Years ended March 31, 2021 2020 2019 Reconciliation of RIC Distributable Income 1 Net increase (decrease) in net assets resulting from operations $ 50,883 $ (22,351) $ 33,058 Net change in unrealized (appreciation) depreciation on investments (28,755) 92,814 11,506 (Expense/loss) income/gain recognized for tax on pass-through entities (11,000) 177 223 Realized gain (loss) recognized for tax 2,206 (2,302) 761 Capital loss carryover 2 17,924 — — Net operating loss - management company and taxable subsidiary (378) (587) (256) Non-deductible tax expense 1,066 4,572 881 Other book tax differences 870 (304) 98 Estimated distributable income before deductions for distributions $ 32,816 $ 72,019 $ 46,271 Distributions 3 : Ordinary $ 38,917 $ 23,540 $ 15,468 Capital gains — 25,703 21,625 Deemed distributions — 16,483 — Distributions payable 3 — — — Estimated annual RIC undistributed taxable income $ (6,101) $ 6,293 $ 9,178 1 The calculation of distributable income for each period is an estimate and will not be finally determined until the Company files its tax return each year. Final distributable income may be different than this estimate. 2 At March 31, 2021, the Company had short term capital loss carryforwards of $0.7 million and long term capital loss carryforwards of $17.2 million to offset future capital gains. These capital loss carryforwards are not subject to expiration. 3 Includes only those distributions which reduce estimated distributable income. As of March 31, 2021, 2020 and 2019, the components of estimated RIC accumulated earnings on a tax basis were as follows (amounts in thousands): Years ended March 31, Components of RIC Accumulated Earnings on a Tax Basis 1 2021 2020 2019 Undistributed ordinary income - tax basis $ 21,083 $ 25,766 $ 19,532 Undistributed net realized (loss) gain (17,924) 749 384 Unrealized (depreciation) appreciation on investments (766) (47,487) 45,724 Other temporary differences (663) — (917) Components of distributable earnings at year-end $ 1,730 $ (20,972) $ 64,723 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. A RIC may elect to retain all or a portion of its long-term capital gains by designating them as a “deemed distribution” to its shareholders and paying a federal tax on the long-term 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 year ended December 31, 2020, we distributed all long-term capital gains and therefore had no deemed distributions to our shareholders or federal taxes incurred related to such items. For the tax year ended December 31, 2019, we had net long-term capital gains of $42.2 million, of which $25.7 million was distributed to shareholders as capital gains dividends. We elected to retain net long-term capital gains of $16.5 million and designate the retained amount as a "deemed distribution" to our shareholders. As a result, we incurred federal taxes on the retained amount on behalf of our shareholders in the amount of $3.5 million for the tax year ended December 31, 2019. For the tax year ended December 31, 2018, we 118 Table of Contents distributed all long-term capital gains and therefore had no deemed distributions to our shareholders or federal taxes incurred related to such items. In addition, we have a wholly-owned taxable subsidiary, or the Taxable Subsidiary, which 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 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 corporate-level U.S. federal income taxes. 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 status and resultant tax advantages. The Taxable Subsidiary is not consolidated for U.S. federal income tax purposes and may generate income tax expense as a result of their ownership of the portfolio companies. This income tax expense, or benefit, and the related tax assets and liabilities, if any, are reflected in our Consolidated Statement of Operations. As of March 31, 2021, the cost of investments held at the RIC for U.S. federal income tax purposes was $681.9 million, with such investments having gross unrealized appreciation of $25.7 million and gross unrealized depreciation of $26.4 million, resulting in net unrealized depreciation of $0.7 million. As of March 31, 2021, the cost of investments held at the Taxable Subsidiary for U.S. federal income tax purposes was $18.9 million, with such investments having gross unrealized appreciation of $14.5 million and gross unrealized depreciation of $0.9 million, resulting in net unrealized appreciation of $13.6 million. On a consolidated basis, the total investment portfolio has net unrealized appreciation of $12.9 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 income tax expense 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 income tax expense 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 expense, or benefit, if any, and the related tax assets and liabilities, are reflected in our consolidated financial statements. CSMC recorded bonus accruals on a quarterly basis. Deferred taxes related to the changes in the restoration plan and bonus accruals are also recorded 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 such, the deferred tax asset was written off. As of March 31, 2020, CSMC had a deferred tax asset of approximately $1.4 million. As of March 31, 2021 and 2020, the Taxable Subsidiary had a deferred tax liability of $3.3 million and $1.0 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. 119 Table of Contents The following table sets forth the significant components of the deferred tax assets and liabilities as of March 31, 2021 and 2020 (amounts in thousands): Years ended 2021 2020 Deferred tax asset: Net operating loss carryforwards $ 224 $ — Compensation — 776 Pension liability — 647 Interest 173 — Other — (21) Total deferred tax asset 397 1,402 Deferred tax liabilities: Net unrealized appreciation on investments (2,931) (695) Net basis differences in portfolio investments (811) (268) Total deferred tax liabilities (3,742) (963) Total net deferred tax (liabilities) assets $ (3,345) $ 439 The income tax expense, or benefit, and the related tax assets and liabilities generated by CSWC, CSMC and the Taxable Subsidiary, if any, are reflected in CSWC’s consolidated financial statements. For the year ended March 31, 2021, we recognized total net income tax expense of $2.4 million, principally consisting of a $0.6 million accrual for a 4% U.S. federal excise tax on our estimated undistributed taxable income 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). For the year ended March 31, 2020, we recognized total net income tax expense of $2.1 million, principally consisting of a $1.1 million accrual for a 4% U.S. federal excise tax on our estimated undistributed taxable income, a provision for U.S. federal income taxes relating to CSMC of $0.7 million (of which $0.3 million is current expense and $0.4 million is deferred expense) and $0.3 million of deferred tax expense relating to the Taxable Subsidiary. The following table sets forth the significant components of the income tax expense as of March 31, 2021, 2020 and 2019 (amounts in thousands): Years ended March 31, Components of Income Tax Expense 2021 2020 2019 Statutory federal income tax $ — $ 270 $ 73 162(m) limitation 122 1,488 476 Excise tax 637 1,110 880 Write-off of deferred tax asset 1,837 — — Tax related to Taxable Subsidiary 50 315 (109) Prior year deferred tax true-up — — — Stock compensation benefits (207) (1,129) (280) Other 3 8 8 Total income tax expense $ 2,442 $ 2,062 $ 1,048 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, 2017 through 2019. 7. SHAREHOLDERS’ EQUITY On October 26, 2010, we received an exemptive order from the SEC permitting us to issue restricted stock to our executive officers and certain key employees, or the Original Order. On August 22, 2017, we received the Exemptive Order that supersedes the Original Order and in addition to the relief granted under the Original Order, allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant to the 2010 Restricted Stock Award Plan, or the 2010 Plan, and to pay the exercise price of options to purchase shares of our common stock granted pursuant to the 2009 Stock Incentive Plan, or the 2009 Plan. During the year ended March 31, 2021, the Company repurchased 15,309 120 Table of Contents shares at an aggregate cost of approximately $0.2 million and a weighted average price per share of $15.62 in connection with the vesting of restricted stock awards. During the year ended March 31, 2020, the Company repurchased 19,865 shares at an aggregate cost of approximately $0.4 million and a weighted average price per share of $21.04 in connection with the vesting of restricted stock awards. 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. 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. During the year ended March 31, 2021, the Company sold 2,810,541 shares of its common stock under the Equity ATM Program at a weighted-average price of $18.30 per share, raising $51.4 million of gross proceeds. Net proceeds were $50.4 million, after deducting commissions to the sales agents on shares sold. During the year ended March 31, 2020, the Company sold 1,231,432 shares of its common stock under the Equity ATM Program at a weighted-average price of $21.71 per share, raising $26.7 million of gross proceeds. Net proceeds were $26.2 million, after deducting commissions to the sales agents on shares sold. Cumulative to date, the Company has sold 4,305,629 shares of its common stock under the Equity ATM Program at a weighted-average price of $19.47, raising $83.8 million of gross proceeds. 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. Share Repurchase Program 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. 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. The following table summarizes the Company’s share repurchases under the program for the years ended March 31, 2021 and 2020: Year Ended March 31, Repurchases of Common Stock 2021 2020 Number of shares repurchased — 794,180 Cost of shares repurchased, including commissions $ — $ 9,209,154 Weighted average price per share $ — $ 11.57 Net asset value per share at quarter end prior to repurchase $ — $ 16.74 Weighted average discount to net asset value at quarter end prior to repurchase — % 30.9 % 8. EMPLOYEE STOCK BASED COMPENSATION PLANS Stock Awards Under the 2010 Restricted Stock Award 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. 121 Table of Contents On August 22, 2017, we received the Exemptive Order from the SEC that supersedes the Original Order and, in addition to the relief granted under the Original Order, allows the Company to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant to the 2010 Plan. The Third Amendment to the 2010 Plan, which became effective on August 22, 2017, reflects amendments relating to the Exemptive Order. On August 2, 2018, the Fourth Amendment to the 2010 Plan increased the number of shares of Company common stock available for issuance by 850,000 shares. The Fourth Amendment also includes revisions regarding change in control provisions, minimum vesting periods, incorporation of a clawback policy and other technical revisions. The following table summarizes the restricted stock available for issuance for the year ended March 31, 2021: Restricted stock available for issuance as of March 31, 2020 579,932 Additional restricted stock approved under the plan — Restricted stock granted during the year ended March 31, 2021 (239,574) Restricted stock forfeited during the year ended March 31, 2021 27,580 Restricted stock available for issuance as of March 31, 2021 367,938 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, 2021, 2020, and 2019, we recognized total share based compensation expense of $2.9 million, $2.9 million and $2.2 million, respectively, related to the restricted stock issued to our employees and officers. During the three months ended June 30, 2019, the Company modified restricted stock awards to accelerate vesting of the unvested awards as of the retirement date for one employee. The Company accounted for this as a modification of awards and recognized incremental compensation cost of $0.2 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, 2021, the total remaining unrecognized compensation expense related to non-vested restricted stock awards was $5.9 million, which will be amortized over the weighted-average vesting period of approximately 2.5 years. The following table summarizes the restricted stock outstanding as of March 31, 2021: Weighted Average Weighted Average Fair Value Per Remaining Vesting Restricted Stock Awards Number of Shares Share at grant date Term (in Years) Unvested at March 31, 2019 454,027 $ 17.33 2.8 Granted 97,845 21.11 3.6 Vested (172,136) 16.58 — Forfeited (20,150) 18.78 — Unvested at March 31, 2020 359,586 $ 18.64 2.4 Granted 239,574 15.18 3.2 Vested (141,804) 17.61 1.8 Forfeited (27,580) 18.63 — Unvested at March 31, 2021 429,776 $ 17.05 2.5 9. OTHER EMPLOYEE COMPENSATION We established a 401(k) plan (“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 122 Table of Contents 4.5% of the Internal Revenue Service’s annual maximum eligible compensation, all of which is fully vested immediately. During the years ended March 31, 2021, 2020 and 2019, we made matching contributions of approximately $0.2 million, $0.2 million, and $0.1 million, respectively. 10. RETIREMENT PLANS Until the Share Distribution, CSWC sponsored a qualified defined benefit pension plan that covered its employees and employees of certain of its controlled affiliates. In connection with the Share Distribution, we entered into an Employee Matters Agreement with CSWI on September 8, 2015, which was amended and restated on September 14, 2015. Under the Employee Matters Agreement, CSWC and CSMC withdrew as participating employers in the qualified defined benefit pension plan and CSWI became the Sponsoring Employer of the Qualified Retirement Plan and assumed all the liabilities, assets and future funding obligations for providing benefits for the covered Participants in the Qualified Retirement Plan. Additionally, CSWC sponsors an unfunded Retirement Restoration Plan, which is a nonqualified plan that provides for the payment, upon retirement, of the difference between the maximum annual payment permissible under the qualified retirement plan pursuant to federal limitations and the amount which would otherwise have been payable under the qualified plan. The Company retained all liabilities associated with benefits accrued under the Retirement Restoration Plan on behalf of individuals who remain employees of the Company or CSMC following September 30, 2015 or who terminated employment prior to September 30, 2015 with vested benefits under the Retirement Restoration 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, 2021, 2020 and 2019, as well as amounts recognized in our Consolidated Statements of Assets and Liabilities at March 31, 2021 and 2020 (amounts in thousands): Years ended March 31, 2021 2020 2019 Net pension cost Interest cost on projected benefit obligation $ 96 $ 111 $ 113 Net amortization 35 31 46 Net pension cost from restoration plan $ 131 $ 142 $ 159 Years ended March 31, 2021 2020 2019 Change in benefit obligation Benefit obligation at beginning of year $ 3,082 $ 3,073 $ 2,937 Interest cost 96 111 113 Actuarial loss 42 122 232 Benefits paid (241) (224) (209) Benefit obligation at end of year $ 2,979 $ 3,082 $ 3,073 Years ended March 31, 2021 2020 Amounts recognized in our Consolidated Statements of Assets and Liabilities Projected benefit obligation $ (2,979) $ (3,082) Net actuarial loss recognized as a component of equity 1,098 1,091 Total $ (1,881) $ (1,991) Accumulated benefit obligation $ (2,979) $ (3,082) The corridor approach is used to amortize the actuarial gains or losses based on 10% of the projected benefit obligation. The following assumptions were used in estimating the actuarial present value of the projected benefit obligations: Table of Contents Years ended March 31, 2021 2020 2019 Discount rate 2.75 % 3.25 % 3.75 % The following assumptions were used in estimating the net periodic (income)/expense: Years ended March 31, 2021 2020 2019 Discount rate 3.25 % 3.75 % 4.00 % Following are the expected benefit payments for the next five years and in the aggregate for the years 2027-2031 (amounts in thousands): 2022 2023 2024 2025 2026 2027-2031 Restoration Plan $ 245 $ 241 $ 236 $ 230 $ 224 $ 1,012 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. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. March 31, March 31, 2021 2020 Portfolio Company Investment Type (amounts in thousands) Acceleration Partners, LLC Delayed Draw Term Loan $ 216 $ — AllOver Media, LLC Revolving Loan 2,000 — American Nuts Operations LLC Term Loan C 384 384 Broad Sky Networks LLC Revolving Loan 2,000 — Central Medical Supply LLC Revolving Loan 1,200 — Central Medical Supply LLC Delayed Draw Capex Term Loan 1,400 — CityVet Inc. Delayed Draw Term Loan 6,750 — Clickbooth.com, LLC Revolving Loan 1,086 — Danforth Advisors, LLC Revolving Loan — 500 Dynamic Communities, LLC Revolving Loan 500 500 Electronic Transaction Consultants LLC Revolving Loan 3,704 — Environmental Pest Service Management Company, LLC Delayed Draw Term Loan — 525 ESCP DTFS Inc. Delayed Draw Term Loan — 5,250 Fast Sandwich, LLC Revolving Loan 3,100 4,150 GrammaTech, Inc. Revolving Loan 2,500 — Ian, Evan, & Alexander Corporation Revolving Loan 2,000 — ITA Holdings Group, LLC Revolving Loan 2,000 2,000 Klein Hersh, LLC Revolving Loan 938 — Mako Steel LP Revolving Loan 1,226 — NinjaTrader, LLC Revolving Loan 1,500 400 NinjaTrader, LLC Delayed Draw Term Loan 2,655 — Roseland Management, LLC Revolving Loan 1,500 1,500 RTIC Subsidiary Holdings LLC Revolving Loan 767 — Total unused commitments to extend financing $ 37,426 $ 15,209 124 Table of Contents As of March 31, 2021, 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, 2021 and 2020, the Company had $3.5 million and $3.4 million, respectively, 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, $3.1 million expire in May 2022 and $0.4 million expire in July 2021. As of March 31, 2021 and 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. Effective April 1, 2019, ASC 842 required that a lessee to evaluate its leases to determine whether they should be classified as operating or financing leases. The Company identified one operating lease for its office space. The lease commenced on October 1, 2014 and expires February 28, 2022. As CSWC classified this lease as an operating lease prior to implementation, ASC 842 indicates that a right-of-use asset and lease liability should be recorded based on the effective date. CSWC adopted ASC 842 effective April 1, 2019 and recorded a right-of-use asset and a lease liability as of that date. After this date, the Company has recorded lease expense on a straight-line basis, consistent with the accounting treatment for lease expense prior to the adoption of ASC 842. Total lease expense incurred for each of the three years ended March 31, 2021, 2020 and 2019 was $0.2 million. As of March 31, 2021, the asset related to the operating lease was $0.2 million and the lease liability was $0.2 million. As of March 31, 2021, the remaining lease term was 0.8 years and the discount rate was 2.69%. The following table shows future minimum payments under the Company's operating lease as of March 31, 2021 (in thousands): Year ending March 31, Rent Commitment 2022 $ 248 2023 — 2024 — 2025 — 2026 — Thereafter — Total $ 248 In March 2021, the Company executed an agreement to lease new office space, which is expected to commence during the third quarter of fiscal year 2022. The office space will be approximately 13,373 square feet. This lease will be classified as an operating lease and has a term of approximately 10 years. Contingencies 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. We have no currently pending material legal proceedings to which we are part or to which any of our assets is subject. 125 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, 2021 and 2020 (in thousands except per share amounts): First Second Third Fourth 2021 Quarter Quarter Quarter Quarter Total Net investment income $ 6,819 $ 8,319 $ 8,517 $ 8,016 $ 31,671 Net realized (loss) gain on investments, net of tax (5,547) (1,279) (127) (1,583) (8,536) Net change in unrealized appreciation (depreciation) on investments, net of tax 7,605 9,636 7,271 4,243 28,755 Realized losses on extinguishment of debt — (286) (262) (459) (1,007) Net increase in net assets from operations 8,877 16,390 15,399 10,217 50,883 Pre-tax net investment income per share 0.40 0.44 0.52 0.44 1.79 Net investment income per share 0.38 0.45 0.45 0.39 1.66 Net increase (decrease) in net assets from operations per share 0.49 0.88 0.80 0.50 2.67 First Second Third Fourth 2020 Quarter Quarter Quarter Quarter Total Net investment income $ 7,360 $ 6,815 $ 7,114 $ 6,943 $ 28,232 Net realized gain (loss) on investments 1,217 283 40,818 (87) 42,231 Net change in unrealized depreciation on investments, net of tax (1,864) (4,369) (54,765) (31,816) (92,814) Net increase (decrease) in net assets from operations 6,713 2,729 (6,833) (24,960) (22,351) Pre-tax net investment income per share 0.44 0.42 0.44 0.40 1.68 Net investment income per share 0.42 0.38 0.39 0.37 1.57 Net increase (decrease) in net assets from operations per share 0.38 0.15 (0.38) (1.34) (1.24) 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 provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also 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 the year ended March 31, 2021, we did not receive any management fees from our portfolio companies. During the years ended March 31, 2020 and 2019, we received management and other fees from certain of our portfolio companies totaling $0.2 million and $0.3 million, respectively, which were recognized as fees and other income on the Consolidated Statements of Operations. During the year ended March 31, 2020, we received a transaction fee of $1.2 million in connection with the sale of Media Recovery, Inc. Additionally, as of March 31, 2021 and 2020, we had dividends receivable from I-45 SLF LLC of $1.5 million and $2.1 million, respectively, which were included in dividends and interest receivables on the Consolidated Statements of Assets and Liabilities. 14. SUBSEQUENT EVENTS On April 21, 2021, the Board of Directors declared a total dividend of $0.53 per share, comprised of a regular dividend of $0.43 and a supplemental dividend of $0.10, for the quarter ended June 30, 2021. The record date for the dividend is June 15, 2021. The payment date for the dividend is June 30, 2021. 126 Table of Contents 15. SELECTED PER SHARE DATA AND RATIOS The following presents a summary of the selected per share data for the years ended March 31, 2017 through 2021 (in thousands except per share amounts): Years Ended March 31, Per Share Data: 2021 2020 2019 2018 2017 Investment income 1 $ 3.57 $ 3.45 $ 3.10 $ 2.18 $ 1.48 Operating expenses 1 (1.78) (1.76) (1.62) (1.16) (0.87) Income taxes 1 (0.13) (0.12) (0.06) (0.01) (0.11) Net investment income 1 1.66 1.57 1.42 1.01 0.50 Net realized (loss) gain, net of tax 1 (0.45) 2.35 1.24 0.10 0.50 Net change in unrealized appreciation (depreciation) on investments, net of tax 1 1.51 (5.16) (0.68) 1.34 0.49 Realized losses on extinguishment of debt 1 (0.05) — — — — Total increase (decrease) from investment operations 2.67 (1.24) 1.98 2.45 1.49 Dividends to shareholders (2.05) (2.75) (2.27) (0.99) (0.79) Spin-off Compensation Plan distribution, net of tax — — — (0.03) (0.08) Exercise of employee stock options 2 — — (0.12) 0.01 (0.09) (Issuance) forfeiture of restricted stock 3 (0.16) (0.06) (0.23) (0.18) (0.15) Accretive (dilutive) effect of share issuances and repurchases 0.30 0.45 0.06 (0.04) — Share based compensation expense 0.14 0.16 0.13 0.11 0.08 Common stock withheld for payroll taxes upon vesting of restricted stock — — (0.01) (0.01) — Repurchase of common stock — 0.15 — — — Net change in pension plan funded status — (0.01) (0.01) (0.05) — Other 4 (0.02) (0.19) 0.01 0.01 — Increase (decrease) in net asset value 0.88 (3.49) (0.46) 1.28 0.46 Net asset value Beginning of year 15.13 18.62 19.08 17.80 17.34 End of year $ 16.01 $ 15.13 $ 18.62 $ 19.08 $ 17.80 Ratios and Supplemental Data Ratio of operating expenses to average net assets 11.51 % 9.87 % 8.61 % 6.35 % 4.95 % Ratio of net investment income to average net assets 10.74 % 8.77 % 7.53 % 5.51 % 2.83 % Portfolio turnover 18.81 % 22.76 % 23.38 % 25.42 % 23.57 % Total investment return 5 118.56 % (37.52) % 38.34 % 6.61 % 27.88 % Total return based on change in NAV 6 19.37 % (3.97) % 9.49 % 12.75 % 7.21 % Per share market value at end of year $ 22.16 $ 11.42 $ 21.04 $ 17.02 $ 16.91 Weighted-average basic shares outstanding 19,060 18,000 16,727 16,074 15,825 Weighted-average fully diluted shares outstanding 19,060 18,000 16,734 16,139 15,877 Common shares outstanding at end of year 21,005 17,998 17,503 16,162 16,011 1 Based on weighted-average basic shares outstanding for the period. 2 Net decrease is due to the exercise of employee stock options at prices less than beginning of period net asset value. 3 Reflects impact of the different share amounts as a result of issuance or forfeiture of restricted stock during the period. 4 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. 5 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. 6 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. 127 Table of Contents 16. 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 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, 2021, total funded equity capital totaled $91.0 million, consisting of $72.8 million from CSWC and $18.2 million from Main Street. CSWC owns 80% of I-45 SLF LLC and has a profits interest of 76.2625% as of March 31, 2021, while Main Street owns 20% and currently has a profits interest of 23.7375% as of March 31, 2021. 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. 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) 76.26250% as of the date of the Amendment through the quarter ended March 31, 2021; (ii) 76.9250% for quarter ended June 30, 2021; (iii) 77.58750% for the quarter ended September 30, 2021; and (iv) 78.250% for the quarter ended December 31, 2021 and periods thereafter. As of March 31, 2021 and 2020, I-45 SLF LLC had total assets of $177.8 million and $177.8 million, respectively. I-45 SLF LLC had approximately $164.4 million and $170.9 million of credit investments at fair value as of March 31, 2021 and 2020, respectively. The portfolio companies in I-45 SLF LLC are in industries similar to those in which CSWC may invest directly. As of March 31, 2021, approximately $13.1 million of the credit investments were unsettled trades. As of March 31, 2020, none of the credit investments were unsettled trades. For the years ended March 31, 2021 and 2020, I-45 SLF LLC declared total dividends of $18.7 million, $10 million of which was the return of capital dividend described above, and $12.7 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 and to reduce 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 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%. Under the I-45 credit facility, $91.0 million has been drawn as of March 31, 2021. 128 Table of Contents At March 31, 2021, our investment in I-45 SLF LLC exceeded the 10% threshold in at least one of the tests under Rule 4-08(g) and exceeded the 20% threshold in at least one of the tests under Rule 3-09 of Regulation S-X. Accordingly, we have included as an exhibit to our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 the financial statements of I-45 SLF LLC. Below is certain summarized financial information for I-45 SLF LLC as of March 31, 2021 and 2020 and for the years ended March 31, 2021, 2020 and 2019 (amounts in thousands): March 31, 2021 March 31, 2020 Selected Balance Sheet Information: Investments, at fair value (cost $170,791 and $207,768) $ 164,351 $ 170,860 Cash and cash equivalents 10,419 3,739 Due from broker 152 38 Deferred financing costs 2,301 2,095 Interest receivable 553 1,076 Total assets $ 177,776 $ 177,808 Senior credit facility payable $ 91,000 $ 125,000 Payable for unsettled transactions 13,072 — Other liabilities 2,131 3,029 Total liabilities $ 106,203 $ 128,029 Members’ equity 71,573 49,779 Total liabilities and net assets $ 177,776 $ 177,808 Years Ended March 31, 2021 2020 2019 Selected Statement of Operations Information: Total revenues $ 13,930 $ 20,300 $ 21,397 Total expenses (4,565) (8,045) (8,759) Net investment income 9,365 12,255 12,638 Net unrealized appreciation (depreciation) 30,467 (32,394) (6,647) Net realized (losses) gains (15,313) 603 400 Net increase (decrease) in members’ equity resulting from operations $ 24,519 $ (19,536) $ 6,391 129 Table of Contents Below is a listing of the individual loans in I-45 SLF LLC’s portfolio as of March 31, 2021 and 2020: I-45 SLF LLC Loan Portfolio as of March 31, 2021 Portfolio Company Industry Investment Type Maturity Date Current Interest Rate 1 Principal Cost 2 Fair Value 3 AAC New Holdco Inc. Healthcare services First Lien 6/25/2025 10.00%, 8.00% PIK $ 1,752 $ 1,752 $ 1,743 304,075 shares common stock — — — 1,449 1,449 Warrants (Expiration - December 11, 2025) — — — 482 482 ADS Tactical Aerospace & defense First Lien 3/19/2026 L+5.75% (Floor 1.00%) 6,731 6,596 6,697 American Teleconferencing Services, Ltd. Telecommunications First Lien 6/8/2023 L+6.50% (Floor 1.00%) 6,759 6,698 3,590 ATX Canada Acquisitionco Inc. Technology products & components First Lien 12/31/2023 L+6.25%, 1.50% PIK (Floor 1.00%) 4,464 4,462 4,084 California Pizza Kitchen, Inc. Restaurants First Lien 11/23/2024 L+10.00% (Floor 1.50%) 937 913 936 First Lien Rolled Up 11/23/2024 1.00%, L+11.00% PIK (Floor 1.50%) 1,039 1,035 1,033 Second Lien 5/23/2025 1.00%, L+12.50% PIK (Floor 1.50%) 1,141 1,141 1,115 67,841 shares common stock — — — 1,845 1,845 Corel Software & IT services First Lien 7/2/2026 L+5.00% 7,030 6,834 7,008 Geo Parent Corporation Building & infrastructure products First Lien 12/19/2025 L+5.25% 4,900 4,867 4,888 Go Wireless Holdings, Inc. Consumer products & retail First Lien 12/22/2024 L+6.50% (Floor 1.00%) 6,848 6,816 6,839 Hunter Defense Technologies, Inc. Aerospace & defense First Lien 3/29/2023 L+6.00% (Floor 1.00%) 6,122 6,049 6,091 InfoGroup Inc. Software & IT services First Lien 4/3/2023 L+5.00% (Floor 1.00%) 2,880 2,870 2,741 Integro Parent Inc. Business services First Lien 10/28/2022 L+5.75% (Floor 1.00%) 3,253 3,226 3,201 Intermedia Holdings, Inc. Software & IT services First Lien 7/21/2025 L+6.00% (Floor 1.00%) 5,735 5,712 5,748 Inventus Power, Inc. Technology Products & Components First Lien 3/29/2024 L+5.00% (Floor 1.00%) 7,000 6,930 6,930 Isagenix International, LLC Consumer products & retail First Lien 6/14/2025 L+5.75% (Floor 1.00%) 1,823 1,812 1,376 130 Table of Contents Portfolio Company Industry Investment Type Maturity Date Current Interest Rate 1 Principal Cost 2 Fair Value 3 KORE Wireless Group Inc. Telecommunications First Lien 12/20/2024 L+5.50% 4,706 4,680 4,700 Lab Logistics, LLC Healthcare services First Lien 9/25/2023 L+7.25% (Floor 1.00%) 6,305 6,255 6,305 Lift Brands, Inc. Consumer services Tranche A 6/29/2025 L+7.5% (Floor 1.00%) 2,521 2,521 2,370 Tranche B 6/29/2025 9.50% PIK 531 531 424 Tranche C 6/29/2025 — 565 565 452 1,051 shares common stock — — — 749 749 Lightbox Intermediate, L.P. Software & IT services First Lien 5/9/2026 L+5.00% 3,453 3,418 3,419 LOGIX Holdings Company, LLC Telecommunications First Lien 12/23/2024 L+5.75% (Floor 1.00%) 5,890 5,863 5,683 Lulu's Fashion Lounge, LLC Consumer products & retail First Lien 8/26/2022 L+7.00%, 2.50% PIK (Floor 1.00%) 3,686 3,633 3,152 Mills Fleet Farm Group LLC Consumer products & retail First Lien 10/24/2024 L+6.00% (Floor 1.00%) 4,625 4,570 4,533 NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 L+5.50% (Floor 1.00%) 2,738 2,714 2,468 Novetta Solutions, LLC Software & IT services First Lien 10/17/2022 L+5.00% (Floor 1.00%) 4,845 4,795 4,836 PaySimple, Inc. Software & IT services Delayed Draw Term Loan 8/23/2025 L+5.50% 1,369 1,346 1,365 First Lien 8/23/2025 L+5.50% 4,220 4,174 4,209 Pet Supermarket, Inc. Consumer products & retail First Lien 7/5/2022 L+5.50% (Floor 1.00%) 4,760 4,750 4,641 PT Network, LLC Healthcare products First Lien 11/30/2023 L+5.50%, 2.00% PIK (Floor 1.00%) 4,465 4,465 4,465 Research Now Group, Inc. Business Services First Lien 12/20/2025 L+5.50% (Floor 1.00%) 4,987 4,987 4,950 Signify Health, LLC Healthcare services First Lien 12/23/2024 L+4.50% (Floor 1.00%) 5,044 5,017 5,064 Tacala, LLC Consumer products & retail Second Lien 2/7/2028 L+7.50% (Floor 0.75%) 5,000 4,989 5,002 TestEquity, LLC Capital equipment First Lien 4/28/2022 L+6.25% (Floor 1.00%) 3,816 3,808 3,358 First Lien - Term Loan B 4/28/2022 L+6.25% (Floor 1.00%) 949 947 835 TGP Holdings III LLC Durable consumer goods Second Lien 9/25/2025 L+8.50% (Floor 1.00%) 2,500 2,479 2,483 Time Manufacturing Acquisition Capital equipment First Lien 2/3/2023 L+5.00% (Floor 1.00%) 5,802 5,785 5,824 131 Table of Contents Portfolio Company Industry Investment Type Maturity Date Current Interest Rate 1 Principal Cost 2 Fair Value 3 UniTek Global Services, Inc. Telecommunications First Lien 8/20/2024 L+5.50%, 1.00% PIK (Floor 1.00%) 2,736 2,721 2,480 U.S. TelePacific Corp. Telecommunications First Lien 5/2/2023 L+5.50% (Floor 1.00%) 5,200 5,172 4,829 Vida Capital, Inc. Financial services First Lien 10/1/2026 L+6.00% 3,805 3,760 3,672 YS Garments, LLC Consumer products & retail First Lien 8/9/2024 L+6.00% (Floor 1.00%) 4,634 4,608 4,287 Total Investments $ 170,791 $ 164,351 1 Represents the interest rate as of March 31, 2021. 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”) or Prime (“Prime”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime in effect at March 31, 2021. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest. 2 Represents amortized cost. 3 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 the Joint Venture. It is not included in the Company’s Board of Directors’ valuation process described elsewhere herein. 132 Table of Contents I-45 SLF LLC Loan Portfolio as of March 31, 2020 Portfolio Company Industry Investment Type Maturity Date Current Interest Rate 1 Principal Cost Fair Value 2 AAC Holdings, Inc. Healthcare services First Lien - Priming Facility 3/31/2020 P+13.50% (Floor 1.00%) $ 1,598 $ 1,598 $ 1,598 First Lien 5 6/30/2023 L+ 6.75% (Floor 1.00%), 4.00% PIK 7,371 7,264 3,225 ADS Tactical Aerospace & defense First Lien 7/26/2023 L+6.25% (Floor 0.75%) 4,948 4,928 4,735 ALKU, LLC Business services First Lien 7/29/2026 L+5.50% (Floor 1.00%) 3,000 2,972 2,820 American Teleconferencing Services, Ltd. Telecommunications First Lien 6/8/2023 L+6.50% (Floor 1.00%) 6,771 6,623 3,825 ATX Canada Acquisitionco Inc. Technology products & components First Lien 6/11/2021 L+7.00% (Floor 1.00%), 1.0% PIK 4,573 4,561 3,796 California Pizza Kitchen, Inc. 5 Restaurants First Lien 8/23/2022 L+6.00% (Floor 1.00%) 6,760 6,741 3,418 Corel Software & IT services First Lien 7/2/2026 L+5.00% 4,969 4,720 4,410 Geo Parent Corporation Building & infrastructure products First Lien 12/19/2025 L+5.25% 4,950 4,909 4,678 Go Wireless Holdings, Inc. Consumer products & retail First Lien 12/22/2024 L+6.50% (Floor 1.00%) 6,213 6,170 5,042 Hunter Defense Technologies, Inc. Aerospace & defense First Lien 3/29/2023 L+7.00% (Floor 1.00%) 5,856 5,772 5,870 Imagine! Print Solutions, LLC Media, marketing & entertainment Second Lien 6/21/2023 L+8.75% (Floor 1.00%) 3,000 2,976 413 InfoGroup Inc. Software & IT services First Lien 4/3/2023 L+5.00% (Floor 1.00%) 2,910 2,895 2,610 Integro Parent Inc. Business services First Lien 10/31/2022 L+5.75% (Floor 1.00%) 3,301 3,256 3,252 Intermedia Holdings, Inc. Software & IT services First Lien 7/21/2025 L+6.00% (Floor 1.00%) 5,794 5,765 5,301 Isagenix International, LLC Consumer products & retail First Lien 6/14/2025 L+5.75% (Floor 1.00%) 1,953 1,939 728 JAB Wireless, Inc. Telecommunications First Lien 5/2/2023 L+8.00% (Floor 1.00%) 7,840 7,791 7,703 KORE Wireless Group Inc. Telecommunications First Lien 12/20/2024 L+5.50% 4,754 4,721 4,398 Lab Logistics, LLC Healthcare services First Lien 9/25/2023 L+6.50% (Floor 1.00%) 5,402 5,361 4,971 Lift Brands, Inc. Consumer services First Lien 4/16/2023 L+7.00% (Floor 1.00%), 1.0% PIK 4,810 4,785 3,689 133 Table of Contents Portfolio Company Industry Investment Type Maturity Date Current Interest Rate 1 Principal Cost Fair Value 2 Lightbox Intermediate, L.P. Software & IT services First Lien 5/9/2026 L+5.00% 2,978 2,938 2,933 LOGIX Holdings Company, LLC Telecommunications First Lien 12/23/2024 L+5.75% (Floor 1.00%) 5,953 5,918 4,911 LSF9 Atlantis Holdings, LLC Telecommunications First Lien 5/1/2023 L+6.00% (Floor 1.00%) 6,519 6,485 5,382 Lulu's Fashion Lounge, LLC Consumer products & retail First Lien 8/26/2022 L+9.00% (Floor 1.00%) 3,778 3,707 3,231 Mills Fleet Farm Group LLC Consumer products & retail First Lien 10/24/2024 L+6.25% (Floor 1.00%), 0.75% PIK 4,958 4,883 4,214 NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 L+5.50% (Floor 1.00%) 2,813 2,780 1,598 Nomad Buyer, Inc. Healthcare services First Lien 8/1/2025 L+5.00% 2,955 2,819 2,748 Novetta Solutions, LLC Software & IT services First Lien 10/17/2022 L+5.00% (Floor 1.00%) 4,896 4,813 4,365 PaySimple - Delayed Draw 3 Software & IT services First Lien 8/23/2025 L+5.50% 934 920 850 PaySimple, Inc. Software & IT services First Lien 8/23/2025 L+5.50% 4,263 4,206 3,879 Peraton Corp. (fka MHVC Acquisition Corp.) Aerospace & defense First Lien 4/29/2024 L+5.25% (Floor 1.00%) 6,329 6,310 5,918 Pet Supermarket, Inc. Consumer products & retail First Lien 7/5/2022 L+5.50% (Floor 1.00%) 4,810 4,792 4,425 PT Network, LLC Healthcare products First Lien 11/30/2023 L+5.50% (Floor 1.00%), 2.0% PIK 4,418 4,418 4,024 Signify Health, LLC Healthcare services First Lien 12/23/2024 L+4.50% (Floor 1.00%) 5,096 5,061 4,281 Tacala, LLC Consumer products & retail Second Lien 2/7/2028 L+7.50% 4,500 4,492 3,521 TestEquity, LLC Capital equipment First Lien 4/28/2022 L+5.50% (Floor 1.00%) 3,816 3,800 3,186 TestEquity, LLC - Term Loan B Capital equipment First Lien 4/28/2022 L+5.50% 959 955 801 TGP Holdings III LLC Durable consumer goods Second Lien 9/25/2025 L+8.50% (Floor 1.00%) 2,500 2,474 1,838 The Hoover Group, Inc. Energy services (midstream) First Lien 1/28/2021 L+7.25% (Floor 1.00%) 6,370 6,306 5,892 Time Manufacturing Acquisition Capital equipment First Lien 2/3/2023 L+5.00% (Floor 1.00%) 4,848 4,825 4,436 UniTek Global Services, Inc. Telecommunications First Lien 8/26/2024 L+5.50% (Floor 1.00%), 1.0% PIK 2,970 2,949 2,687 U.S. TelePacific Corp. Telecommunications First Lien 5/2/2023 L+6.00% (Floor 1.00%) 5,200 5,158 4,056 134 Table of Contents Portfolio Company Industry Investment Type Maturity Date Current Interest Rate 1 Principal Cost Fair Value 2 Vida Capital, Inc. Financial services First Lien 10/1/2026 L+6.00% 3,965 3,910 3,668 VIP Cinema Holdings, Inc. Hotel, gaming & leisure First Lien - Superiority DIP 5 5/20/2020 L+8.00% 719 708 129 First Lien 5 3/1/2023 P+7.00% (Floor 1.00%) 4,375 4,364 788 Wireless Vision Holdings, LLC 4 Telecommunications First Lien 9/29/2022 L+8.91% (Floor 1.00%), 1.0% PIK 7,327 7,253 6,264 YS Garments, LLC Consumer products & retail First Lien 8/9/2024 P+6.00% 4,813 4,777 4,355 Total Investments $ 207,768 $ 170,860 1 Represents the interest rate as of March 31, 2020. 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”) or Prime (“Prime”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime in effect at March 31, 2020. Certain investments are subject to a LIBOR or Prime interest rate floor. 2 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 the Joint Venture. It is not included in the Company’s Board of Directors’ valuation process described elsewhere herein. 3 The investment has approximately $0.5 million in an unfunded delayed draw commitment as of March 31, 2020. 4 The investment is structured as a first lien last out term loan and may earn interest in addition to the stated rate. 5 Investment was on non-accrual as of March 31, 2020, meaning the Company has ceased to recognize interest income on the investment. 135 Table of Contents SCHEDULE 12-14 Schedule of Investments in and Advances to Affiliates (In thousands) Portfolio Company Type of Investment (1) Amount of Interest or Dividends Credited in Income (2) Fair Value at March 31, 2020 Gross Additions (3) Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at March 31, 2021 Control Investments I-45 SLF LLC 80% LLC equity interest $ 6,609 $ 39,760 $ 12,800 $ (8,000) $ — $ 12,598 $ 57,158 Total Control Investments $ 6,609 $ 39,760 $ 12,800 $ (8,000) $ — $ 12,598 $ 57,158 Affiliate Investments Central Medical Supply LLC Revolving loan $ 23 $ — $ 275 $ — $ — $ 1 $ 276 First lien 612 — 7,371 — — (463) 6,908 Delayed Draw Term Loan 16 — 75 — — 17 92 875,000 Preferred Units — — 875 — — (234) 641 Chandler Signs, LLC 1,500,000 units of Class A-1 common stock — 3,110 — — — (1,767) 1,343 Delphi Behavioral Health Group, LLC First lien 163 — 1,414 — — (16) 1,398 First lien 153 — 1,581 — — (81) 1,500 1,681.04 Common Units — — 3,615 — — — 3,615 Dynamic Communities, LLC Revolving loan 4 — 1 — — (1) — First lien 1,235 9,928 465 (140) — (287) 9,966 Senior subordinated debt 29 — 372 — — — 372 2,000,000 Preferred units — 1,850 — — — (576) 1,274 GrammaTech, Inc. Revolving loan 200 2,460 9 (2,500) — 31 — First lien 1,142 11,316 35 — — 69 11,420 1,000 Class A Units — 1,000 — — — 208 1,208 136 Table of Contents Portfolio Company Type of Investment (1) Amount of Interest or Dividends Credited in Income (2) Fair Value at March 31, 2020 Gross Additions (3) Gross Reductions (4) Amount of Realized Gain/(Loss) (5) Amount of Unrealized Gain/(Loss) Fair Value at March 31, 2021 ITA Holdings Group, LLC Revolving loan 66 — 2,207 (2,200) — (7) — First lien - Term Loan 965 9,900 86 — — 75 10,061 First lien - Term B Loan 636 5,136 43 — — (78) 5,101 First Lien - PIK Note A 337 2,233 333 — — 64 2,630 First Lien - PIK Note B 10 88 9 — — 6 103 Warrants — 2,762 — — — 206 2,968 9.25% Class A membership interest 33 2,099 — — — 433 2,532 Roseland Management, LLC Revolving loan 15 500 2 (500) — (2) — First lien 244 10,369 7 (10,368) — (8) — 10,000 Class A Units — 1,334 — (1,334) — — — SIMR, LLC First lien 2,410 11,190 2,005 — — (1,092) 12,103 9,374,510.2 Class B Common units — 1,742 — — — (1,742) — Sonobi, Inc. First lien 447 — 8,344 — — 156 8,500 500,000 Class A Common Units — — 500 — — 735 1,235 Zenfolio Inc. Revolving loan 53 1,888 1 (1,844) — (45) — First lien 384 13,127 21 (12,821) — (327) — 190 shares of common stock — — — (272) (1,628) 1,900 — Total Affiliate Investments $ 9,177 $ 92,032 $ 29,646 $ (31,979) $ (1,628) $ (2,825) $ 85,246 Total Control & Affiliate Investments $ 15,786 $ 131,792 $ 42,446 $ (39,979) $ (1,628) $ 9,773 $ 142,404 This schedule should be read in conjunction with our Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to Consolidated Financial Statements. (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 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. 137 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.