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Item 7. Management’s Discussion and Analysis

2022-05-24 compared with 2021-05-26 · 169 added, 186 removed, 261 unchanged (58% of the section changed)

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We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline.

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

We primarily target senior debt and equity investments in LMM companies, and opportunistically target first and second lien loans in UMM companies.

Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) generally between $3.0 million and $20.0 million, and our LMM investments generally range in size from $5.0 million to $35.0 million.

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Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing investment and portfolio management professionals.

We believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio.

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

We believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and

privately held investment firms which are externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio.

For the years ended March 31, 2022, 2021 and 2020, the ratio of our last twelve months ("LTM") operating expenses, excluding interest expense, as a percentage of our LTM average total assets was 2.20%, 2.42% and 2.76%, respectively.

Recent COVID-19 Developments

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

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

The COVID-19 pandemic and restrictive measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the re-introduction of business shutdowns, cancellations of events and restrictions on travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States.

In addition, although the U.S.

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

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

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

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

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

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

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

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

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

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

The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including guidance from U.S.

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

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

We believe our portfolio companies have taken, and continue to take, immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related restrictions imposed by state and local governments and other private businesses, including developing liquidity plans supported by internal cash reserves, and shareholder support.

The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, cancellations of events and restrictions on travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain disruptions, labor difficulties and shortages, commodity inflation and elements of economic and financial market instability in the United States and globally.

Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

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When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due.

If a loan or debt security’s status significantly

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

If a loan or debt security’s status significantly improves regarding ability to service debt or other obligations, it will be restored to accrual basis.

As of March 31, 2022, we had three investments on non-accrual status, which represent approximately 1.5% of our total investment portfolio's fair value and approximately 2.6% of its cost.

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

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

Recently Issued Accounting Standards

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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.

The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and under our Credit Facility (as described in Note 5) and the I-45 SLF LLC credit facility (as described in Note 13).

Many of these agreements (including the credit agreements relating to the Credit Facility and the I-45 credit facility) include an alternative successor rate or language for choosing an alternative successor rate when LIBOR reference is no longer considered to be appropriate.

With respect to other agreements, the Company intends to work with its portfolio companies 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.

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

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

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

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

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

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

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

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

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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.

The Company adopted the Amendments for the year ended March 31, 2022 and there were no material changes to the consolidated financial statement or its disclosures.

INVESTMENT PORTFOLIO COMPOSITION

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

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

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

Our UMM investments consist of direct investments in or secondary purchases of interest-bearing debt securities in privately held companies based in the United States that are generally larger in size than the LMM companies included in our portfolio with EBITDA generally greater than $20.0 million.

Our UMM investments typically range in size from $5.0 million to $15.0 million.

Our UMM debt investments are generally secured by ether a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date.

The total value of our investment portfolio was $936.6 million as of March 31, 2022, as compared to $688.4 million as of March 31, 2021.

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As of March 31, 2021, we had investments in 55 portfolio companies with an aggregate cost of $703.6 million.

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

As of March 31, 2022 and 2021, approximately $772.7 million, or 97.3%, and $546.6 million, or 95.5%, respectively, of our debt investment portfolio (at fair value) bore interest at floating rates, of which 100.0% were subject to contractual minimum interest rates.

As of March 31, 2022 and 2021, the weighted average contractual minimum interest rate is 1.08% and 1.30%, respectively.

As of March 31, 2022 and 2021, approximately $21.1 million, or 2.7%, and $26.0 million, or 4.5%, respectively, of our debt investment portfolio (at fair value) bore interest at fixed rates.

The following tables provide a summary of our investments in LMM and UMM companies as of March 31, 2021 and 2020 (excluding our investment in I-45 SLF LLC):

As of March 31, 2021

The following tables provide a summary of our investments in portfolio companies as of March 31, 2022 and 2021 (excluding our investment in I-45 SLF LLC):

March 31, 2022 March 31, 2021

(dollars in thousands)

Number of portfolio companies 44 10

Number of portfolio companies (a) 72 54

Fair value $ 879,011 $ 631,274

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% of debt investments at cost secured by first lien 84.2 % 83.0 %

Weighted average annual effective yield (b)(c) 10.8 % 10.3 %

Weighted average annual effective yield (b) 9.3 % 10.8 %

Weighted average EBITDA (c) $ 20,889 $ 16,960

Weighted average leverage through CSWC security (c)(d) 4.0x 4.1x

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

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

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

(a) At March 31, 2022 and 2021, we had equity ownership in approximately 56.9% and 53.7%, respectively, of our investments.

(b) The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2022 and 2021, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status.

As of March 31, 2022, there were three investments on non-accrual status.

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

Weighted-average annual effective yield is not a return to shareholders and is higher than what an investor in shares in our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor.

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

(d) Includes CSWC debt investments only.

Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’s position, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA.

Weighted average leverage is calculated using investment cost basis weighting.

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

As of March 31, 2020

(dollars in thousands)

Number of portfolio companies 34 11

Fair value $ 437,142 $ 76,170

Cost $ 435,015 $ 96,172

% of portfolio at cost - debt 91.8 % 100.0 %

% of portfolio at cost - equity 8.2 % —

% of debt investments at cost secured by first lien 84.1 % 84.5 %

Weighted average annual effective yield (b)(c) 11.2 % 6.6 %

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

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

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

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

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

Weighted-average annual effective yield is higher than what an investor in shares in our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor.

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

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

For the year ended March 31, 2022, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

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

(d) Includes CSWC debt investments only.

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

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

For the year ended March 31, 2022, three portfolio companies are excluded from this calculation due to a reported debt to adjusted EBITDA ratio that was not meaningful.

For the year ended March 31, 2021, six portfolio companies are excluded from this calculation.

Portfolio Asset Quality

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• Investment Rating 2 indicates the investment is performing as expected at the time of underwriting and the trends and risk factors are generally favorable to neutral.

All new loans are initially rated 2.

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

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Interest and principal payments on our investment are likely to be impaired.

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

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

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

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

The following table shows the distribution of our debt portfolio investments on the 1 to 4 investment rating scale at fair value as of March 31, 2022 and 2021:

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2 461,239 80.6

3 59,266 12.5

Total $ 572,614 100.0 %

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As of March 31, 2022, we had three debt investments on non-accrual status, which represents approximately 1.5% of our total investment portfolio's fair value and approximately 2.6% of its cost.

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

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

Investment Activity

During the year ended March 31, 2022, we made new debt investments in 34 portfolio companies totaling $412.2 million, follow-on debt investments in fourteen portfolio companies totaling $46.2 million, and equity investments in 15 new and six existing portfolio companies totaling $15.0 million.

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

We received contractual principal repayments totaling approximately $16.0 million and full prepayments of approximately $241.2 million.

We funded $22.6 million on revolving loans and received $9.1 million in repayments on revolving loans.

In addition, we received proceeds from sales of equity investments totaling $11.9 million.

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

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

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

We received contractual principal repayments totaling approximately $22.8 million and full prepayments of approximately $33.1 million from four portfolio companies.

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

Total portfolio investment activity for the years ended March 31, 2022 and 2021 was as follows (in thousands):

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Principal repayments received (247,538) (7,223) (11,521) — — — (266,282)

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

Conversion of security (4,683) 5,208 — (525) — — —

PIK interest capitalized 2,455 1,217 518 — — — 4,190

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

Conversion of security from debt to equity — — — — — — —

Conversion of security (9,692) 778 — 8,914 — — —

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

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

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

The second element is “Net realized gain (loss) on investments before income tax,” which is the difference between the proceeds received from the disposition of portfolio securities and their stated cost.

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

The second element is “Net realized gain (loss) on investments, net of tax,” which is the difference between the proceeds received from the disposition of portfolio securities and their stated cost.

The third element is the “Net change in unrealized appreciation on investments, net of tax” which is the net change in the market or fair value of our investment portfolio, compared with stated cost.

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

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

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

The fourth element is the “Realized loss on extinguishment of debt,” which is the difference between the principal amount due at maturity adjusted for any unamortized debt issuance costs and any "make-whole" premium payable at the time of the debt extinguishment.

Set forth below is a comparison of the results of operations for the years ended March 31, 2022 and 2021.

For the comparison of the results of operations for the years ended March 31, 2020 and 2019, see the Company's Annual Report on Form 10-K for the year ended March 31, 2020, which was filed with the SEC on June 2, 2020, located within Part II, Item 7.

For the comparison of the results of operations for the years ended March 31, 2021 and 2020, see the Company's Annual Report on Form 10-K for the year ended March 31, 2021, which was filed with the SEC on May 26, 2021, located within Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference herein.

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Income before taxes 43,302 34,113 9,189 26.9 %

Income tax expense 2,442 2,062 380 18.4 %

Income tax provision 615 2,442 (1,827) (74.8) %

Net investment income 42,687 31,671 11,016 34.8 %

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

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

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

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

Net realized gain (loss) on investments, net of tax 5,834 (8,536) 14,370 168.3 %

Net unrealized appreciation on investments, net of tax 11,467 28,755 (17,288) (60.1) %

Realized loss on extinguishment of debt (17,087) (1,007) (16,080) 1,596.8 %

Realized loss on disposal of fixed assets (86) — (86) 100.0 %

Net increase in net assets from operations $ 42,815 $ 50,883 $ (8,068) (15.9) %

Investment Income

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

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

For the year ended March 31, 2022, total investment income was $82.2 million, a $14.2 million, or 20.8%, increase as compared to total investment income of $68.1 million for the year ended March 31, 2021.

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

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

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

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

The increase was primarily due to a $12.2 million, or 21.6%, increase in interest income generated from our debt investments, which was a result of a 37.8% increase in the cost basis of debt investments held from $582.2 million to $802.3 million year-over-year, and an increase of $2.1 million in prepayment fees received in the current year.

Operating Expenses

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For the year ended March 31, 2022, total interest expense was $19.9 million, an increase of $2.0 million, as compared to the total interest expense of $17.9 million for the year ended March 31, 2021.

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

The increase was primarily attributable to an increase in average borrowings outstanding, partially offset by a decrease in the weighted average interest rate on our total debt to 3.58% from 4.41% for the years ended March 31, 2022 and 2021, respectively.

The decrease in the weighted average interest rate on our total debt was primarily due to the full redemption of the $140 million in aggregate principal amount of the October 2024 Notes, which had an interest rate of 5.375%, and the issuance of the $150 million in aggregate principal amount of the October 2026 Notes, which have an interest rate of 3.375%.

Salaries, General and Administrative Expenses

For the year ended March 31, 2022, total employee compensation expense (including both cash and share-based compensation) was $12.4 million, a $1.7 million, or 16.1%, increase over total employee compensation expense of $10.7 million for the year ended March 31, 2021.

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

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

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

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

For the year ended March 31, 2022, our total general and administrative expense was $6.6 million, an increase of $1.3 million as compared to the total general and administrative expense of $5.3 million for the year ended March 31, 2021.

The increase was primarily due to an increase in director compensation and the addition of a new independent board member.

In addition, the increase was attributable to increased costs related to insurance, valuation and employee recruiting during the current year.

Net Investment Income

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

Increase in Net Assets from Operations

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

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

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

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

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

of $44.1 million.

With respect to the sale of Media Recovery, Inc., we elected to retain $16.5 million of long-term capital gains and to designate the retained amount as "deemed distributions" to our shareholders.

As a result, we incurred $3.5 million of federal taxes on such retained amount on behalf of shareholders, which is recognized as a realized loss in the twelve months ended March 31, 2020, resulting in a total net realized gain on investments of $42.2 million.

In addition, for the fiscal year ended March 31, 2020, we recorded net unrealized depreciation on investments, net of tax, totaling $92.8 million, consisting of net unrealized depreciation on our current portfolio of $42.9 million, the reversal of $49.2 million of net unrealized appreciation recognized in prior periods due to the realized gains noted above, and net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $0.7 million.

Net unrealized depreciation on our current portfolio included unrealized gains on Vistar Media, Inc.

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

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

of $4.5 million, AG Kings Holdings, Inc.

of $2.9 million, and California Pizza Kitchen, Inc.

of $2.2 million.

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

For the year ended March 31, 2022, net investment income increased from the prior year by $11.0 million, or 34.8%, to $42.7 million as a result of a $14.2 million increase in total investment income and a $1.8 million decrease in income tax provision, offset by a $2.0 million increase in interest expense.

Net Realized and Unrealized Gains (Losses) on Investments

During the fiscal year ended March 31, 2022, we recognized net realized and unrealized gains totaling $17.3 million, which primarily consisted of net realized and unrealized gains on equity investments of $24.0 million, partially offset by net realized and unrealized losses on I-45 SLF LLC of $2.8 million and on debt investments of $0.5 million.

These realized and unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment, as well as exits of investments.

We also recorded an income tax provision related to realized gains on investments of $1.4 million and net unrealized depreciation related to deferred tax of $2.0 million associated with the Taxable Subsidiary.

During the fiscal year ended March 31, 2021, we recognized net realized and unrealized gains totaling $20.2 million, which primarily consisted of net realized and unrealized gains on I-45 SLF LLC of $12.6 million and on equity investments of $11.8 million, partially offset by realized and unrealized losses on debt investments of $2.0 million.

These realized and unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment, as well as exits of investments.

We also recorded net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $2.2 million.

Realized Losses on Extinguishment of Debt

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

During the fiscal years ended March 31, 2022 and 2021, we recognized losses on extinguishment of debt of $17.1 million and $1.0 million, respectively, due to the full redemption of the October 2024 Notes and the December 2022 Notes, respectively.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources are generated primarily from cash flows from operations, the net proceeds of public offerings of debt and equity securities and advances from the Credit Facility.

Our liquidity and capital resources are generated primarily from cash flows from operations, the net proceeds of public offerings of debt and equity securities, advances from the Credit Facility, and our continued access to SBA Debentures.

Management believes that the Company’s cash and cash equivalents, cash available from investments, and commitments under the Credit Facility are adequate to meet its needs for the next twelve months.

We anticipate that we will continue to fund our investment activities through existing cash and cash equivalents, cash flows generated through our ongoing operating activities, utilization of available borrowings under our Credit Facility and future issuances of debt and equity on terms we believe are favorable to the Company and our shareholders.

Our primary uses of funds will be investments in portfolio companies and operating expenses.

Due to the diverse capital sources available to us at this time, we believe we have adequate liquidity to support our near-term capital requirements.

Due to the diverse capital sources available to us at

this time, we believe we have adequate liquidity to support our near-term capital requirements.

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

This “Financial Liquidity and Capital Resources” section should be read in conjunction with “Recent COVID-19 Developments” above, as well as with the notes of our consolidated financial statements.

At March 31, 2022, the Company had cash and cash equivalents of approximately $11.4 million.

For the year ended March 31, 2021, we experienced a net increase in cash and cash equivalents in the amount of $17.9 million.

For the year ended March 31, 2022, we experienced a net decrease in cash and cash equivalents in the amount of $20.2 million.

During that period, our operating activities used $182.7 million in cash, consisting primarily of new portfolio investments of $499.2 million, partially offset by $259.2 million of repayments received from debt investments in portfolio companies and $11.9 million of proceeds from sales of equity investments.

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

In addition, our financing activities increased cash by $164.5 million, consisting primarily of net borrowings under the Credit Facility of $85.0 million, net proceeds from the issuance of the October 2026 Notes of $146.4 million, net proceeds from the issuance of SBA Debentures of $39.0 million and net proceeds from the offering of our common stock of $98.1 million, partially offset by the redemption of the October 2024 Notes of $125.0 million and cash dividends paid in the amount of $58.6 million.

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

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

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

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

Financing Transactions

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.

The Board of Directors also approved a resolution that limits the Company’s issuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, which became effective April 25, 2019.

On August 11, 2021, we received an exemptive order from the SEC to permit us to exclude the senior securities issued by SBIC I or any future SBIC subsidiary of the Company from the definition of senior securities in the asset coverage requirement applicable to the Company under the 1940 Act.

As of March 31, 2022, the Company’s asset coverage was 193%.

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 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 contains an accordion feature that allows CSWC to increase the total commitments under the Credit Facility up to $400 million from new and existing lenders on the same terms and conditions as the existing commitments.

On August 9, 2021, CSWC entered into the Second Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement").

Prior to the Credit Agreement, (1) borrowings under the Credit Facility accrued interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 2.50% with no LIBOR floor, and (2) the total borrowing capacity was $340 million with commitments from a diversified group of eleven lenders.

The Credit Agreement (1) decreased the total borrowing capacity under the Credit Facility to $335 million with commitments from a diversified group of ten lenders, (2) reduced the interest rate on borrowings to LIBOR plus 2.15% with no LIBOR floor and removed conditions related thereto as previously set forth in the Amended and Restated Senior Secured Revolving Credit Agreement, and (3) extended the end of the Credit Facility's revolver period from December 21, 2022 to August 9, 2025 and extended the final maturity from December 21, 2023 to August 9, 2026.

The Credit Agreement also modified certain covenants in the Credit Facility, including, among other things, to increase the minimum obligors’ net worth test from $180 million to $200 million.

CSWC pays unused commitment fees of 0.50% to 1.00% per annum, based on utilization, on the unused lender commitments under the Credit Facility.

The Credit Facility contains certain affirmative and negative covenants, including but

not limited to:

(1) certain reporting requirements, (2) maintaining RIC and BDC status, (3) maintaining a minimum senior coverage ratio of 2 to 1, (4) maintaining a minimum shareholders’ equity, (5) maintaining a minimum consolidated net worth, (6) maintaining a regulatory asset coverage of not less than 150%, (7) maintaining an interest coverage ratio of at least 2.25 to 1.0, and (8) at any time the outstanding advances exceed 90% of the borrowing base, maintaining a minimum liquidity of not less than 10% of the covered debt amount.

The Credit 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.

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.

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.

As of March 31, 2022, substantially all of the Company’s assets were pledged as collateral for the Credit Facility, except for assets held in SBIC I.

At March 31, 2022, CSWC had $205.0 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.

CSWC recognized interest expense related to the Credit Facility, including unused commitment fees and amortization of deferred loan costs of $6.2 million, $6.8 million and $8.3 million respectively, for the years ended March 31, 2022, 2021 and 2020.

The weighted average interest rate on the Credit Facility was 2.50% and 3.05%, respectively, for the years ended March 31, 2022 and 2021.

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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.

The December 2022 Notes bore interest at a rate of 5.95% per year.

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.

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 Company issued an additional $19.6 million in aggregate principal amount of the December 2022 Notes under this agreement.

All issuances of December 2022 Notes ranked 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.

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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.

Accordingly, the Company recognized a realized loss on extinguishment of debt, equal to the write-off of the related unamortized debt issuance costs, of $1.0 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.

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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.

The Additional October 2024 Notes and the New Notes were treated as a single series with the Existing October 2024 Notes under the indenture and had the same terms as the Existing October 2024 Notes.

The maturity date of the October 2024 Notes was October 1, 2024 and were redeemable in whole or in part at any time prior to July 1, 2024, at par plus a “make-whole” premium, and thereafter at par.

The October 2024 Notes bore interest at a rate of 5.375% per year.

On September 24, 2021, the Company redeemed $125,000,000 in aggregate principal amount of the issued and outstanding October 2024 Notes.

The October 2024 Notes were redeemed at 100% of their principal amount, plus (i) the accrued and unpaid interest thereon, through, but excluding the redemption date, and (ii) a "make-whole" premium.

Accordingly, the Company recognized a realized loss on extinguishment of debt, equal to the write-off of the related unamortized debt issuance costs of $1.8 million and the "make-whole" premium of $15.2 million during the three months ended September 30, 2021.

The Company recognized interest expense related to the October 2024 Notes, including amortization of deferred issuance costs, of $3.6 million, $6.3 million and $2.2 million, respectively, for the years ended March 31, 2022, 2021 and 2020.

From April 1, 2021 through September 24, 2021 (the redemption date of the October 2024 Notes), average borrowings were $125.0 million.

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

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

The indenture governing the October 2024 Notes contains certain covenants, including certain covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not the Company continues to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to the Company by the SEC, to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, after giving effect to any exemptive relief granted to the Company by the SEC and subject to certain other exceptions, and to provide financial information to the holders of the October 2024 Notes and the trustee under the indenture if the Company is no longer subject to the reporting requirements under the Exchange Act.

These covenants are subject to important limitations and exceptions that are described in the indenture and the second supplemental indenture relating to the October 2024 Notes.

In addition, holders of the Notes can require the Company to repurchase some or all of the October 2024 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the second supplemental indenture relating to the October 2024 Notes.

The October 2024 Notes had a weighted average effective yield of 5.375%.

January 2026 Notes

In December 2020, the Company issued $75.0 million in aggregate principal amount of 4.50% Notes due 2026 (the "Existing January 2026 Notes").

The Existing January 2026 Notes were issued at par.

In February 2021, the Company issued an additional $65.0 million in aggregate principal amount of the January 2026 Notes (the "Additional January 2026 Notes" together with the Existing January 2026 Notes, the "January 2026 Notes").

The Additional January 2026 Notes were issued at a price of 102.11% of the aggregate principal amount of the Additional January 2026 Notes, resulting in a yield-to-maturity of approximately 4.0% at issuance.

The Additional January 2026 Notes are treated as a single series with the Existing January 2026 Notes under the indenture and had the same terms as the Existing January 2026 Notes.

The January 2026 Notes mature on January 31, 2026 and may be redeemed in whole or in part at any time prior to October 31, 2025, at par plus a "make-whole" premium, and thereafter at par.

The January 2026 Notes bear interest at a rate of 4.50% per year, payable semi-annually on January 31 and July 31 of each year, 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.

The January 2026 Notes bear interest at a rate of 4.50% per year, payable semi-annually on January 31 and July 31 of each year.

The January 2026 Notes are the direct unsecured obligations of the Company and rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility and the SBA Debentures.

As of March 31, 2022, the carrying amount of the January 2026 Notes was $138.7 million on an aggregate principal amount of $140.0 million at a weighted average effective yield of 4.46%.

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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.

The Company recognized interest expense related to the January 2026 Notes, including amortization of deferred issuance costs, of $6.7 million and $1.2 million, respectively, for the years ended March 31, 2022 and 2021.

For the year ended March 31, 2022, average borrowings were $140.0 million.

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.

In addition, holders of the January 2026 Notes can require the Company to repurchase some or all of the January 2026 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the third supplemental indenture relating to the January 2026 Notes.

October 2026 Notes

In August 2021, the Company issued $100.0 million in aggregate principal amount of 3.375% Notes due 2026 (the "Existing October 2026 Notes").

The Existing October 2026 Notes were issued at a price of 99.418% of the aggregate principal amount of the Existing October 2026 Notes, resulting in a yield-to-maturity of 3.5%.

In November 2021, the Company issued an additional $50.0 million in aggregate principal amount of the October 2026 Notes (the "Additional October 2026 Notes"

together with the Existing October 2026 Notes, the "October 2026 Notes").

The Additional October 2026 Notes were issued at a price of 99.993% of the aggregate principal amount, resulting in a yield-to-maturity of approximately 3.375% at issuance.

The Additional October 2026 Notes are treated as a single series with the Existing October 2026 Notes under the indenture and had the same terms as the Existing October 2026 Notes.

The October 2026 Notes mature on October 1, 2026 and may be redeemed in whole or in part at any time prior to July 1, 2026, at par plus a "make-whole" premium, and thereafter at par.

The October 2026 Notes bear interest at a rate of 3.375% per year, payable semi-annually in arrears on April 1 and October 1 of each year.

The October 2026 Notes are the direct unsecured obligations of the Company and rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of our existing and future secured indebtedness, including borrowings under our Credit Facility and the SBA Debentures.

As of March 31, 2022, the carrying amount of the October 2026 Notes was $146.5 million on an aggregate principal amount of $150.0 million at a weighted average effective yield of 3.5%.

As of March 31, 2022, the fair value of the October 2026 Notes was $139.1 million.

This is a Level 3 fair value measurement under ASC 820 based on a valuation model using a discounted cash flow analysis.

The Company recognized interest expense related to the October 2026 Notes, including amortization of deferred issuance costs, of $3.1 million for the year ended March 31, 2022.

Since the issuance of the October 2026 Notes on August 27, 2021 through March 31, 2022, average borrowings were $132.9 million.

The indenture governing the October 2026 Notes contains certain covenants, including certain covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not the Company continues to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to the Company by the SEC, to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, after giving effect to any exemptive relief granted to the Company by the SEC and subject to certain other exceptions, and to provide financial information to the holders of the October 2026 Notes and the trustee under the indenture if the Company is no longer subject to the reporting requirements under the Exchange Act.

These covenants are subject to important limitations and exceptions that are described in the indenture and the fourth supplemental indenture relating to the October 2026 Notes.

In addition, holders of the October 2026 Notes can require the Company to repurchase some or all of the October 2026 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the fourth supplemental indenture relating to the October 2026 Notes.

SBA Debentures

On April 20, 2021, SBIC I received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended.

The license will allow SBIC I to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA.

The license allows SBIC I to obtain leverage by issuing SBA Debentures, subject to the issuance of a leverage commitment by the SBA.

SBA Debentures are loans issued to an SBIC which have interest payable semi-annually and a ten-year maturity.

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Treasury Notes with ten-year maturities.

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

Interest on SBA Debentures is payable semi-annually on March 1 and September 1.

Current statutes and regulations permit SBIC I to borrow up to $175 million in SBA Debentures with at least $87.5 million in regulatory capital (as defined in the SBA regulations).

On May 25, 2021, SBIC I received a leverage commitment from the SBA in the amount of $40.0 million to be issued on or prior to September 30, 2025.

On January 28, 2022, SBIC I received an additional leverage commitment in the amount of $40.0 million to be issued on or prior to September 30, 2026.

As of March 31, 2022, SBIC I had regulatory capital of $40.0 million and approved and unused SBA Debenture commitments of $40.0 million.

The SBA may limit the amount that may be drawn each year under these commitments, and each issuance of leverage is conditioned on the Company’s full compliance, as determined by the SBA, with the terms and conditions set forth in the SBA regulations.

As of March 31, 2022, the carrying amount of SBA Debentures was $38.4 million on an aggregate principal amount of $40.0 million.

As of March 31, 2022, the fair value of the SBA Debentures was $38.6 million.

The fair value of the SBA Debentures is estimated by discounting the remaining payments using current market rates for similar instruments and considering such factors as the legal maturity date and the ability of market participants to prepay the SBA Debentures, which are Level 3 inputs under ASC Topic 820.

The Company recognized interest expense and related fees related to SBA Debentures of $0.3 million for the year ended March 31, 2022.

The weighted average interest rate on the SBA Debentures was 1.30% for the year ended March 31, 2022.

For the year ended March 31, 2022, average borrowings were $17.0 million.

As of March 31, 2022, the Company's issued and outstanding SBA Debentures mature as follows:

Pooling Date Maturity Date Fixed Interest Rate March 31, 2022

9/22/21 9/1/2031 1.575 % $ 15,000,000

3/23/22 3/1/2032 3.209 % 25,000,000

(1) The SBA has two scheduled pooling dates for SBA Debentures (in March and in September).

Certain SBA Debentures funded during the reporting periods may not be pooled until the subsequent pooling date.

Equity Capital Activities

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.

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 shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act.

On March 1, 2016, the Company entered into a share repurchase agreement, which became effective immediately and terminated on March 26, 2020 upon the Company's purchase of the aggregate gross dollar amount (inclusive of commission fees) of its common stock under the share repurchase program meeting the threshold set forth in the share repurchase agreement.

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

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

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

On March 4, 2019, the Company established an "at-the-market" offering (the "Equity ATM Program") which the Company may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $50,000,000.

On July 28, 2021, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $20 million of its outstanding shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act.

On August 31, 2021, the Company entered into a share repurchase agreement, which became effective immediately, and the Company will cease purchasing its common stock under the share repurchase program upon the earlier of, among other things:

(1) the date on which the aggregate purchase price for all shares equals $20 million including, without limitation, all applicable fees, costs and expenses;

or (2) upon written notice by the Company to the broker that the share repurchase agreement is terminated.

During the year ended March 31, 2022, the Company did not repurchase any shares under the share repurchase program.

Cumulative to date, we have repurchased a total of 840,543 shares of our common stock in the open market under a share repurchase program, at an average price of $11.85, including commissions paid.

On March 4, 2019, the Company established an "at-the-market" offering (the "Equity ATM Program"), pursuant to which the Company may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $50,000,000.

On February 4, 2020, the Company (i) increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $100,000,000 from $50,000,000 and (ii) added two additional sales agents to the Equity ATM Program.

On May 26, 2021, the Company (i) increased the maximum amount of shares of its common stock to be sold through the Equity ATM Program to $250,000,000 from $100,000,000 and (ii) reduced the commission paid to the sales agents for the Equity ATM Program to 1.5% from 2.0% of the gross sales price of shares of the Company's common stock sold through the sales agents pursuant to the Equity ATM Program on and after May 26, 2021.

During the year ended March 31, 2022, the Company sold 3,872,031 shares of its common stock under the Equity ATM Program at a weighted-average price of $25.73 per share, raising $99.6 million of gross proceeds.

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These instruments may include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet.

Because commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Additionally, our commitment to fund delayed draw term loans is generally triggered upon

the satisfaction of certain pre-negotiated terms and conditions, such as meeting certain financial performance hurdles or financial covenants, which may limit a borrower's ability to draw on such delayed draw term loans.

At March 31, 2022 and 2021, we had a total of approximately $134.3 million and $45.4 million, respectively, in currently unfunded commitments (as discussed in Note 11 to the Consolidated Financial Statements).

2 unchanged sentences

For the letters of credit issued and outstanding, we would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations.

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

Of these letters of credit, $0.3 million expire in August 2022, $0.4 million expire in February 2023, $0.2 million expire in April 2023, and $3.1 million expire in May 2023.

As of March 31, 2022 and March 31, 2021, 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.

10 unchanged sentences

Credit Facility (1) 225,972 4,811 9,636 211,525 —

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

January 2026 Notes (2) 165,200 6,300 12,600 146,300 —

October 2026 Notes (2) 175,791 5,541 12,656 157,594 —

Total $ 571,393 $ 16,819 $ 35,714 $ 516,282 $ 2,578

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RECENT DEVELOPMENTS

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.

On April 21, 2021, the Board of Directors declared a quarterly dividend of $0.48 per share and a special dividend of $0.15 per share for the quarter ended June 30, 2022.

The record date for the dividend is June 15, 2022.

The payment date for the dividend is June 30, 2022.

On May 11, 2022, CSWC entered into Amendment No.

2 (the "Amendment") to the Credit Agreement.

The Amendment changed the benchmark interest rate from LIBOR to Term SOFR.

In addition, on May 11, 2022, CSWC entered into an Incremental Commitment Agreement, pursuant to which the total commitments under the Credit Agreement increased from $335 million to $380 million.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis