CAPITAL SOUTHWEST CORP 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Statements we make in the following discussion which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the headings “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in Part I of this report. OVERVIEW We are an internally managed closed-end, non-diversified investment company that has been elected to be regulated as a BDC under the 1940 Act. We specialize in providing customized debt and equity financing to LMM companies and debt capital to UMM companies in a broad range of investment segments located primarily in the United States. Our investment objective is to produce attractive risk-adjusted returns by generating current income from our debt investments and capital appreciation from our equity and equity related investments. Our investment strategy is to partner with business owners, management teams and financial sponsors to provide flexible financing solutions to fund growth, changes of control, or other corporate events. We invest primarily in senior debt securities, secured by security interests in portfolio company assets. We also invest in equity interests in our portfolio companies alongside our debt securities. We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline. We primarily target senior debt and equity investments in LMM companies, and opportunistically target first and second lien loans in UMM companies. Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) generally between $3.0 million and $20.0 million, and our LMM investments generally range in size from $5.0 million to $35.0 million. Our UMM investments generally include first and second lien loans in companies with EBITDA generally greater than $20.0 million, and our UMM investments typically range in size from $5.0 million to $20.0 million. We seek to fill the financing gap for LMM companies, which, historically, have had more limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a LMM company’s capital structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options. Providing customized financing solutions is important to LMM companies. We generally seek to partner directly with financial sponsors, entrepreneurs, management teams and business owners in making our investments. Our LMM debt investments typically include senior loans with a first lien on the assets of the portfolio company. Our LMM debt investments typically have a term of between five and seven years from the original investment date. We also often seek to invest in the equity securities of our LMM portfolio companies. Our investments in UMM companies primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privately held companies that are generally larger in size than the LMM companies included in our portfolio. Our UMM debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date. Since the Share Distribution on September 30, 2015 through March 31, 2022, our exited investments resulted in total proceeds received of approximately $694.4 million and a weighted average internal rate of return to the Company of approximately 14.4% (based on original cash invested of approximately $639.2 million). Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related to investments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized. 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 51 Table of Contents 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 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 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 The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods covered by the consolidated financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an on-going basis, we evaluate our estimates, including those related to the matters below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows. Valuation of Investments The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our investment portfolio and the related amounts of unrealized appreciation and depreciation. As of March 31, 2022 and 2021, our investment portfolio at fair value represented approximately 96.2% and 93.6% of our total assets, respectively. We are required to report our investments at fair value. We follow the provisions of ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. See Note 4 — “Fair Value Measurements” in the notes to consolidated financial statements for a detailed discussion of our investment portfolio valuation process and procedures. Due to the inherent uncertainty in the valuation process, our determination of fair value for our investment portfolio may differ materially from the values that would have been determined had a ready market for the securities actually existed. In addition, changes in the market environment, portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair value of each individual investment and record changes in fair value as unrealized appreciation or depreciation. Our Board of Directors is responsible for determining, in good faith, the fair value for our investment portfolio and our valuation procedures, consistent with 1940 Act requirements. Our Board of Directors believes that our investment portfolio as of March 31, 2022 and 2021 reflects fair value as of those dates based on the markets in which we operate and other conditions in existence on those reporting dates. Revenue Recognition 52 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. In accordance with our valuation policy, accrued interest and dividend income is evaluated periodically for collectability. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding ability to service debt or other obligations, it will be restored to accrual basis. As of March 31, 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. Recently Issued Accounting Standards In March 2020, the FASB issued ASU 2020-04, "Reference rate reform (Topic 848)—Facilitation of the effects of reference rate reform on financial reporting." The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and 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. The standard is effective as of March 12, 2020 through December 31, 2022 and the Company plans to apply the amendments in this update to account for contract modifications due to changes in reference rates. The Company does not believe that it will have a material impact on its consolidated financial statements or its disclosures. In 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 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 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. As of March 31, 2022, we had investments in 73 portfolio companies with an aggregate cost of $938.3 million. As of March 31, 2021, we had investments in 55 portfolio companies with an aggregate cost of $703.6 million. 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. 53 Table of Contents 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 (a) 72 54 Fair value $ 879,011 $ 631,274 Cost $ 862,303 $ 630,757 % of portfolio at cost - debt 90.3 % 90.7 % % of portfolio at cost - equity 9.7 % 9.3 % % of debt investments at cost secured by first lien 84.2 % 83.0 % 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, 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. (c) Includes CSWC debt investments only. 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. Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’s position, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA. Weighted average leverage is calculated using investment cost basis weighting. Management uses this metric as a guide to evaluate relative risk of its position in each portfolio debt investment. For the year ended March 31, 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 We utilize an internally developed investment rating system to rate the performance and monitor the expected level of returns for each debt investment in our portfolio. The investment rating system takes into account both quantitative and qualitative factors of the portfolio company and the investments held therein, including each investment’s expected level of returns and the collectability of our debt investments, comparisons to competitors and other industry participants and the portfolio company’s future outlook. The ratings are not intended to reflect the performance or expected level of returns of our equity investments. • Investment Rating 1 represents the least amount of risk in our portfolio. The investment is performing materially above underwriting expectations and the trends and risk factors are generally favorable. The investment generally has a higher probability of being prepaid in part or in full. • Investment Rating 2 indicates the investment is performing as expected at the time of underwriting and the trends and risk factors are generally favorable to neutral. All new loans are initially rated 2. • Investment Rating 3 involves an investment performing below underwriting expectations and the trends and risk factors are generally neutral to negative. The investment may be out of compliance with financial covenants and interest payments may be impaired, however principal payments are generally not past due. • Investment Rating 4 indicates that the investment is performing materially below underwriting expectations, the trends and risk factors are generally negative and the risk of the investment has increased substantially. Interest and principal payments on our investment are likely to be impaired. 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. 54 Table of Contents 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: As of March 31, 2022 Debt Investments at Percentage of Investment Rating Fair Value Debt Portfolio (dollars in thousands) 1 $ 124,192 15.6 % 2 632,675 79.7 3 36,648 4.6 4 319 0.1 Total $ 793,834 100.0 % As of March 31, 2021 Debt Investments at Percentage of Investment Rating Fair Value Debt Portfolio (dollars in thousands) 1 $ 58,466 10.2 % 2 461,239 80.6 3 52,909 9.2 4 — — Total $ 572,614 100.0 % Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. As of March 31, 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. 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. We received contractual principal repayments totaling approximately $24.7 million and full prepayments of approximately $63.1 million. We funded $7.5 million on revolving loans and received $11.0 million in repayments on revolving loans. In addition, we received proceeds from sales of equity investments totaling $9.8 million. 55 Table of Contents Total portfolio investment activity for the years ended March 31, 2022 and 2021 was as follows (in thousands): Year ended March 31, 2022 First Lien Loans Second Lien Loans Subordinated Debt Preferred & Common Equity & Warrants Financial Instruments I-45 SLF LLC Total Fair value, beginning of period $ 524,161 $ 36,919 $ 11,534 $ 58,660 $ — $ 57,158 $ 688,432 New investments 462,032 18,669 318 14,999 — 3,200 499,218 Proceeds from sales of investments — (53) — (11,881) — — (11,934) Principal repayments received (247,538) (7,223) (11,521) — — — (266,282) Conversion of security (4,683) 5,208 — (525) — — — PIK interest capitalized 2,455 1,217 518 — — — 4,190 Accretion of loan discounts 2,726 233 46 — — — 3,005 Realized (loss) gain (67) (2,274) 46 8,845 — — 6,550 Unrealized gain (loss) 786 (51) 376 15,079 — (2,755) 13,435 Fair value, end of period $ 739,872 $ 52,645 $ 1,317 $ 85,177 $ — $ 57,603 $ 936,614 Weighted average yield on debt investments at end of period 9.30 % Weighted average yield on total investments at end of period 9.01 % Year ended March 31, 2021 First Lien Loans Second Lien Loans Subordinated Debt Preferred & Common Equity & Warrants Financial Instruments I-45 SLF LLC Total Fair value, beginning of period $ 427,447 $ 37,139 $ 9,747 $ 38,979 $ — $ 39,760 $ 553,072 New investments 197,237 — 516 8,796 — 12,800 219,349 Proceeds from sales of investments — — — (9,841) — — (9,841) Principal repayments received (98,567) (250) — — — (8,000) (106,817) Conversion of security (9,692) 778 — 8,914 — — — PIK interest capitalized 5,919 899 1,062 — — — 7,880 Accretion of loan discounts 2,125 192 30 — — — 2,347 Realized gain (13,581) — — 6,549 (1,517) — (8,549) Unrealized gain (loss) 13,273 (1,839) 179 5,263 1,517 12,598 30,991 Fair value, end of period $ 524,161 $ 36,919 $ 11,534 $ 58,660 $ — $ 57,158 $ 688,432 Weighted average yield on debt investments at end of period 10.76 % Weighted average yield on total investments at end of period 10.22 % 56 Table of Contents RESULTS OF OPERATIONS The composite measure of our financial performance in the Consolidated Statements of Operations is captioned “Net increase (decrease) in net assets from operations” and consists of four elements. The first is “Net investment income,” which is the difference between income from interest, dividends and fees and our combined operating and interest expenses, net of applicable income taxes. The second element is “Net realized 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, 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, 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. Comparison of years ended March 31, 2022 and March 31, 2021 Year ended March 31, Net Change 2022 2021 Amount % (in thousands) Total investment income $ 82,215 $ 68,062 $ 14,153 20.8 % Interest expense (19,924) (17,941) (1,983) 11.1 % Other operating expenses (18,989) (16,008) (2,981) 18.6 % Income before taxes 43,302 34,113 9,189 26.9 % Income tax provision 615 2,442 (1,827) (74.8) % Net investment income 42,687 31,671 11,016 34.8 % 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, 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 $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 Due to the nature of our business, the majority of our operating expenses are related to interest and fees on our borrowings, employee compensation (including both cash and share-based compensation), and general and administrative expenses. 57 Table of Contents Interest and Fees on our Borrowings 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 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 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, 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 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, 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 (including the Equity ATM Program, as described below). Our primary uses of funds will be investments in portfolio companies and operating expenses. Due to the diverse capital sources available to us at 58 Table of Contents 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. Cash Flows At March 31, 2022, the Company had cash and cash equivalents of approximately $11.4 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 $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. For the year ended March 31, 2021, we experienced a net increase in cash and cash equivalents in the amount of $17.9 million. 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 $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 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. 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 59 Table of Contents 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. 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, 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 $6.2 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. Average borrowings for the years ended March 31, 2022 and 2021 were $173.5 million and $166.0 million, respectively. As of March 31, 2022 and 2021, 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 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. 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. 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 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. 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%. October 2024 Notes In September 2019, the Company issued $65.0 million in aggregate principal amount of 5.375% Notes due 2024 (the “Existing October 2024 Notes”). In October 2019, the Company issued an additional $10.0 million in aggregate principal amount of the October 2024 Notes (the "Additional October 2024 Notes"). In August 2020, the Company issued an additional $50.0 million in aggregate principal amount of the October 2024 Notes (the "New Notes" together with the Existing October 2024 Notes and the Additional October 2024 Notes, the "October 2024 Notes"). The Additional October 2024 Notes and the New Notes were treated as a single series with the Existing October 2024 Notes under the indenture and had the same terms as the Existing October 2024 Notes. The maturity date of the October 2024 Notes was October 1, 2024 and were redeemable in whole or in part at any time prior to July 1, 2024, at par plus a “make-whole” premium, and thereafter at par. The October 2024 Notes bore interest at a rate of 5.375% per year. 60 Table of Contents 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. 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. 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%. As of March 31, 2022, the fair value of the January 2026 Notes was $129.2 million. This is a Level 3 fair value measurement under ASC 820 based on a valuation model using a discounted cash flow analysis. The Company recognized interest expense related to the 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"). These covenants are subject to important limitations and exceptions that are described in the indenture and the third supplemental indenture relating to the January 2026 Notes. In addition, holders of the January 2026 Notes can require the Company to repurchase some or all of the January 2026 Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest to, but not including, the repurchase date upon the occurrence of a “Change of Control Repurchase Event,” as defined in the third supplemental indenture relating to the January 2026 Notes. October 2026 Notes In August 2021, the Company issued $100.0 million in aggregate principal amount of 3.375% Notes due 2026 (the "Existing October 2026 Notes"). The Existing October 2026 Notes were issued at a price of 99.418% of the aggregate principal amount of the Existing October 2026 Notes, resulting in a yield-to-maturity of 3.5%. In November 2021, the Company issued an additional $50.0 million in aggregate principal amount of the October 2026 Notes (the "Additional October 2026 Notes" 61 Table of Contents 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 allows SBIC I to obtain leverage by issuing SBA Debentures, subject to the issuance of a leverage commitment by the SBA. SBA Debentures are loans issued to an SBIC which have interest payable semi-annually and a ten-year maturity. The interest rate is fixed shortly after issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities. Interest on SBA Debentures is payable semi-annually on March 1 and September 1. Current statutes and regulations permit SBIC I to borrow up to $175 million in SBA Debentures with at least $87.5 million in regulatory capital (as defined in the SBA regulations). On May 25, 2021, SBIC I received a leverage commitment from the SBA in the amount of $40.0 million to be issued on or prior to September 30, 2025. On January 28, 2022, SBIC I received an additional leverage commitment in the amount of $40.0 million to be issued on or prior to September 30, 2026. 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: 62 Table of Contents 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 $ 40,000,000 (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 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. 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. Net proceeds were $98.1 million, after deducting commissions to the sales agents on shares sold. Cumulative to date, the Company has sold 8,177,660 shares of its common stock under the Equity ATM Program at a weighted-average price of $22.44, raising $183.5 million of gross proceeds. Net proceeds were $180.3 million after commissions to the sales agents on shares sold. As of March 31, 2022, the Company has $66.5 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. OFF-BALANCE SHEET ARRANGEMENTS We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. Because commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Additionally, our commitment to fund delayed draw term loans is generally triggered upon 63 Table of Contents 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). As of March 31, 2022, the total unfunded commitments included commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. As of March 31, 2022 and 2021, we had $4.0 million and $3.5 million, respectively, in letters of credit issued and outstanding under these commitments on behalf of the portfolio companies. For the letters of credit issued and outstanding, we would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. Of these letters of credit, $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. The Company believes its assets will provide adequate coverage to satisfy these unfunded commitments. As of March 31, 2022, the Company had cash and cash equivalents of $11.4 million and $126.3 million in available borrowings under the Credit Facility. Contractual Obligations As shown below, we had the following contractual obligations as of March 31, 2022. For information on our unfunded investment commitments, see Note 11 of the Notes to Consolidated Financial Statements. Payments Due By Period (In thousands) Less than More Than Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years Operating lease obligations $ 4,430 $ 167 $ 822 $ 863 $ 2,578 Credit Facility (1) 225,972 4,811 9,636 211,525 — 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 (1) Amounts include interest payments calculated at an average rate of 2.50% of outstanding Credit Facility borrowings, which were $205.0 million as of March 31, 2022. (2) Includes interest payments. 64 Table of Contents RECENT DEVELOPMENTS 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.