OVERVIEW

We are an internally managed closed-end, non-diversified management investment 
company that has elected to be regulated as a BDC under the 1940 Act. We 
specialize in providing customized debt and equity financing to LMM companies 
and debt capital to UMM companies in a broad range of investment segments 
located primarily in the United States. Our investment objective is to produce 
attractive risk-adjusted returns by generating current income from our debt 
investments and capital appreciation from our equity and equity related 
investments. Our investment strategy is to partner with business owners, 
management teams and financial sponsors to provide flexible financing solutions 
to fund growth, changes of control, or other corporate events. We invest 
primarily in senior debt securities, secured by security interests in portfolio 
company assets, and in secured and unsecured subordinated debt securities. 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 target senior debt, subordinated debt, and 
equity investments in LMM companies, as well as first and second lien 
syndicated loans in UMM companies. Our target LMM companies typically have 
annual EBITDA between $3.0 million and $15.0 million, and our LMM investments 
generally range in size from $5.0 million to $25.0 million. Our UMM investments 
generally include syndicated first and second lien loans in companies with 
EBITDA generally greater than $50.0 million, and our UMM investments typically 
range in size from $5.0 million to $15.0 million.

We 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, as well as subordinated debt which may 
either be secured or unsecured subordinated loans. Our LMM debt investments 
typically have a term of between five and seven years from the original 
investment date. We also often seek to invest in the equity securities of our 
LMM portfolio companies.

Our investments in UMM companies primarily consist of direct investments in or 
secondary purchases of interest bearing debt securities in privately held 
companies that are generally larger in size than the LMM companies included in 
our portfolio. Our UMM debt investments are generally secured by either a first 
or second priority lien on the assets of the portfolio company and typically 
have an expected duration of between three and seven years from the original 
investment date.

Because we are internally managed, we do not pay any external investment 
advisory fees, but instead directly incur the operating costs associated with 
employing investment and portfolio management professionals. We believe that 
our internally managed structure provides us with a beneficial operating 
expense structure when compared to other publicly traded and privately held 
investment firms that are externally managed, and our internally managed 
structure allows us the opportunity to leverage our non-interest operating 
expenses as we grow our investment portfolio. For the nine months ended 
December 31, 2019 and 2018, the ratio of our annualized third quarter operating 
expenses, excluding interest expense, as a percentage of our quarterly average 
total assets was 2.68% and 2.88%, respectively.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The preparation of our consolidated financial statements in accordance with 
U.S. GAAP requires management to make certain estimates and assumptions that 
affect the reported amounts of assets and liabilities at the date of the 
consolidated financial statements and the reported amounts of revenues and 
expenses for the periods covered by the consolidated financial statements. We 
have identified investment valuation and revenue recognition as our most 
critical accounting estimates. On an 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 
December 31, 2019 and March 31, 2019, our investment portfolio at fair value 
represented approximately 93.2% and 95.0%, respectively, of our total assets. 
We are required to report our investments at fair value. We follow the 
provisions of Accounting Standards Codification, or ASC 820, Fair Value 
Measurements and Disclosures ("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 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 of our investments and our valuation procedures, consistent with the 1940 
Act requirements. Our Board of Directors believes that our investment portfolio 
as of December 31, 2019 and March 31, 2019 reflects the fair value as of those 
dates based on the markets in which we operate and other conditions in 
existence on those reporting dates.

Revenue Recognition

Interest and Dividend Income

Interest and dividend income is recorded on an accrual basis to the extent 
amounts are expected to be collected. Dividend income is recognized on the date 
dividends are declared by the portfolio company or at the point an obligation 
exists for the portfolio company to make a distribution. Discounts/premiums 
received to par on loans purchased are capitalized and accreted or amortized 
into income over the life of the loan using the effective interest method. In 
accordance with our valuation policy, accrued interest and dividend income is 
evaluated quarterly for collectability. When we do not expect the debtor to be 
able to service all of its debt or other obligations, we will generally 
establish a reserve against interest income receivable, thereby placing the 
loan or debt security on non-accrual status, and cease to recognize interest 
income on that loan or debt security until the borrower has demonstrated the 
ability and intent to pay contractual amounts due. If a loan or debt security’s 
status significantly improves regarding its ability to service debt or other 
obligations, it will be restored to accrual basis. As of December 31, 2019, we 
had three investments on non-accrual status, which represent approximately 3.3% 
of our total investment portfolio's fair value and approximately 5.0% of its 
cost. As of March 31, 2019, we had one investment on non-accrual status, which 
represents approximately 1.6% of our total investment portfolio's fair value 
and approximately 1.9% of its cost.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees 
to recognize on the balance sheet a right-of-use asset, representing its right 
to use the underlying asset for the lease term, and a lease liability for all 
leases with terms greater than 12 months. The guidance also requires 
qualitative and quantitative disclosures designed to assess the amount, timing, 
and uncertainty of cash flows arising from leases. The standard requires the 
use of a modified retrospective transition approach, which includes a number of 
optional practical expedients that entities may elect to apply. In July 2018, 
the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, 
which affects narrow aspects of the guidance issued in the amendments in ASU 
2016-02. The new guidance is effective for annual periods beginning after 
December 15, 2018, and interim periods therein. CSWC adopted ASU 2016-02 
effective April 1, 2019. Under ASC 842, CSWC evaluates leases to determine if 
the leases are considered financing or operating leases. The Company currently 
has one operating lease for office space for which the Company has recorded a 
right-of-use asset and lease liability for the operating lease obligation. 
Non-lease components (maintenance, property tax, insurance and parking) are not 
included in the lease cost. The lease expense is presented as a single lease 
cost that is amortized on a straight-line basis over the life of the lease.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 
820): Disclosure Framework - Changes to the Disclosure Requirements for Fair 
Value Measurement, which changes the fair value measurement disclosure 
requirements of ASC 820. The key provisions include new, eliminated and 
modified disclosure requirements. The new guidance is effective for fiscal 
years beginning after December 15, 2019, including interim periods therein. 
Early application is permitted. CSWC is currently evaluating the impact the 
adoption of this new accounting standard will have on its consolidated 
financial statements, but the impact of the adoption is not expected to be 
material.

In March 2019, the SEC issued Final Rule Release No. 33-10618, FAST Act 
Modernization and Simplification of Regulation S-K, which amends certain SEC 
disclosure requirements. The amendments are intended to simplify certain 
disclosure requirements, improve readability and navigability of disclosure 
documents, and discourage repetition and disclosure of immaterial information. 
The amendments are effective for all filings submitted on or after May 2, 2019. 
The Company adopted the requisite amendments effective May 2, 2019. As it 
pertains to the Company for this Form 10-Q, there were no significant changes 
to the Company’s consolidated financial position or disclosures.

INVESTMENT PORTFOLIO COMPOSITION

Our LMM investments consist of secured debt, subordinated debt, equity warrants 
and direct equity investments in privately held, LMM companies based in the 
United States. Our LMM portfolio companies generally have annual EBITDA between 
$3.0 million and $15.0 million, and our LMM investments typically range in size 
from $5.0 million to $25.0 million. 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 $50.0 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 $558.6 million as of December 
31, 2019, as compared to $524.1 million as of March 31, 2019. As of December 
31, 2019, we had investments in 44 portfolio companies with an aggregate cost 
of $572.7 million. As of March 31, 2019, we had investments in 37 portfolio 
companies with an aggregate cost of $478.1 million.

As of December 31, 2019 and March 31, 2019, approximately $440.6 million, or 
96.6%, and $348.2 million, or 94.7%, respectively, of our debt investment 
portfolio (at fair value) bore interest at floating rates, of which 90.7% and 
87.8%, respectively, were subject to contractual minimum interest rates. As of 
December 31, 2019 and March 31, 2019, approximately $15.5 million, or 3.4%, and 
$19.5 million, or 5.3%, respectively, of our debt investment portfolio (at fair 
value) bore interest at fixed rates.


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.

•

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

•

Investment Rating 3 involves an investment performing below underwriting 
expectations and the trends and risk factors are generally neutral to negative. 
The portfolio company or investment may be out of compliance with financial 
covenants and interest payments may be impaired, however principal payments are 
generally not past due.

•

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.

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 December 31, 2019, we had three debt investments on non-accrual status, 
which represent approximately 3.3% of our total investment portfolio's fair 
value and approximately 5.0% of its cost. As of March 31, 2019, we had one 
investment on non-accrual status, which represents approximately 1.6% of our 
total investment portfolio's fair value and approximately 1.9% of its cost.

Investment Activity

During the nine months ended December 31, 2019, we made new debt investments in 
eight portfolio companies totaling $127.0 million, follow-on debt investments 
in eight portfolio companies totaling $20.3 million, and equity investments in 
two existing and four new portfolio companies totaling $5.6 million. We also 
received, in connection with the sale of Media Recovery, Inc., an earnout with 
a current fair value of $1.5 million, which is included in financial 
instruments. We received contractual principal repayments totaling 
approximately $19.7 million and full prepayments of approximately $32.0 million 
from three portfolio companies. In addition, we received proceeds from sales of 
investments totaling $57.0 million.

During the nine months ended December 31, 2018, we made new debt investments in 
11 portfolio companies totaling $148.4 million, follow-on debt investments in 
seven portfolio companies totaling $29.8 million, and equity investments in 
three existing and six new portfolio company totaling $18.9 million. We 
received contractual principal repayments totaling approximately $7.5 million 
and full prepayments of approximately $29.1 million from seven portfolio 
companies. In addition, we received proceeds from sales of investments totaling 
$63.3 million and recognized realized gains on those sales totaling $20.4 
million.


RESULTS OF OPERATIONS

The composite measure of our financial performance in the Consolidated 
Statements of Operations is captioned “Net increase in net assets from 
operations” and consists of three 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 on investments before income 
tax,” which is the difference between the proceeds received from the 
disposition of portfolio securities and their stated cost. The third element is 
the “Net unrealized (depreciation) appreciation on investments, net of tax,” 
which is the net change in the market or fair value of our investment 
portfolio, compared with stated cost. It should be noted that the “Net realized 
gain on investments before income tax” and “Net unrealized (depreciation) 
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.

Comparison of three months ended December 31, 2019 and December 31, 2018

Investment Income

Total investment income consisted of interest income, management fees, dividend 
income and other income for each applicable period. For the three months ended 
December 31, 2019, we reported investment income of $16.0 million, a $2.1 
million, or 15.2%, increase as compared to the three months ended December 31, 
2018. The increase was primarily due to a $1.6 million, or 16.1%, increase in 
interest income from our debt investments, which was a result of a 33.5% 
increase in the cost basis of our debt investments from $351.2 million to 
$469.0 million year over 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.

Interest and Fees on our Borrowings

For the three months ended December 31, 2019, our total interest expense was 
$4.1 million, an increase of $0.8 million as compared to the total interest 
expense of $3.3 million for the three months ended December 31, 2018. The 
increase was primarily attributable to the addition of the October 2024 Notes. 
This increase was offset by a decrease of $7.5 million in average borrowings on 
our Credit Facility, as well as a decrease in the weighted average interest 
rate on our Credit Facility from 5.59% to 4.67% during the three months ended 
December 31, 2018 and during the three months ended December 31, 2019, 
respectively.

Salaries, General and Administrative Expenses

For the three months ended December 31, 2019, our total employee compensation 
expense (including both cash and share-based compensation) increased by $0.1 
million, or 4.2%, as compared to the total employee compensation expense for 
the three months ended December 31, 2018. The increase is primarily due to an 
increase in share-based compensation and employee headcount. For the three 
months ended December 31, 2019, our total general and administrative expense 
was $1.2 million, an increase of $0.1 million or 9.6%, as compared to the total 
general and administrative expense of $1.1 million for the three months ended 
December 31, 2018. The increase was primarily due to an increase in employee 
recruiting costs in connection with the hiring of new employees.

Net Investment Income

For the three months ended December 31, 2019, income before taxes increased by 
$1.1 million, or 16.2%. Net investment income increased from the prior year 
period by $0.4 million, or 6.6%, to $7.1 million as a result of a $2.1 million 
increase in total investment income, offset by a $0.7 million increase in 
income tax expense and a $0.8 million increase in interest expense.

Increase in Net Assets from Operations

During the three months ended December 31, 2019, we recognized net realized 
gains totaling $40.8 million, which consisted of gains on the full repayment of 
one affiliate investment, partial repayments on one non-control/non-affiliate 
investment and one affiliate investment and the sale of one control equity 
investment. We elected to retain $16.5 million of net long-term capital gains 
and to designate the retained amount as a "deemed distribution" to our 
shareholders. We incurred $3.5 million of federal taxes on such retained amount 
on behalf of our shareholders for the three months ended December 31, 2019, 
which is included in net realized gain on investments.

In addition, during the three months ended December 31, 2019, we recorded net 
unrealized depreciation on our current portfolio of $6.3 million, the reversal 
of $48.3 million of net unrealized appreciation recognized in prior periods due 
to realized gains described above, and net unrealized depreciation related to 
deferred tax associated with the Taxable Subsidiary of $0.2 million, totaling 
$54.8 million of net unrealized depreciation on investments. Net unrealized 
depreciation on our current portfolio included unrealized gains on Tinuiti Inc. 
of $1.3 million, Vistar Media Inc. of $2.1 million and American Nuts Operations 
LLC of $1.4 million, offset by unrealized losses on I-45 SLF LLC of $3.6 
million, Delphi Intermediate Healthco, LLC of $3.3 million and AG Kings 
Holdings Inc. of $1.0 million. These unrealized gains and losses were due to 
changes in fair value based on the overall EBITDA performance and cash flows of 
each investment.

During the three months ended December 31, 2018, we recognized realized gains 
totaling $1.9 million, which consisted of gains on the full repayments of one 
control and two non-control/non-affiliate investments and the sale of one 
non-control/non-affiliate equity investment.

In addition, during the three months ended December 31, 2018, we recorded net 
depreciation on our current portfolio of $2.4 million, the reversal of $2.0 
million of net unrealized appreciation recognized in prior periods due to 
realized gains described above, and net unrealized appreciation related to 
deferred tax associated with the Taxable Subsidiary of $0.2 million, which 
totaled $4.2 million of net unrealized depreciation on investments. Net 
unrealized depreciation on our current portfolio included unrealized losses on 
I-45 SLF LLC of $3.2 million, American Nuts Operations LLC of $1.3 million and 
Zenfolio Inc. of $1.2 million, offset by unrealized gains on Media Recovery, 
Inc. of $4.3 million and Dynamic Communities, LLC of $0.9 million. These 
unrealized gains and losses were due to changes in fair value based on the 
overall EBITDA performance and cash flows of each investment.


Investment Income

Total investment income consisted of interest income, management fees, dividend 
income and other income for each applicable period. For the nine months ended 
December 31, 2019, we reported investment income of $47.0 million, a $9.4 
million, or 25.1%, increase as compared to the nine months ended December 31, 
2018. The increase was primarily due to a $7.3 million, or 27.2%, increase in 
interest income from our debt investments, which resulted from a 33.5% increase 
in the cost basis of our debt investments from $351.2 million to $469.0 million 
year over 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.

Interest and Fees on our Borrowings

For the nine months ended December 31, 2019, our total interest expense was 
$11.7 million, an increase of $2.8 million as compared to the total interest 
expense of $8.8 million for the nine months ended December 31, 2018. The 
increase was primarily attributable to an increase of $11.0 million in average 
borrowings on our Credit Facility and an increase of $9.3 million in average 
borrowings related to the December 2022 Notes outstanding during the nine 
months ended December 31, 2019 as compared to the nine months ended December 
31, 2018, as well as the addition of the October 2024 Notes during the nine 
months ended December 31, 2019. The increase also included the amortization of 
$0.2 million of the remaining debt issuance costs associated with the ATM debt 
distribution agreement. This increase was offset by a decrease in the weighted 
average interest rate on our Credit Facility from 5.41% to 4.96% during the 
nine months ended December 31, 2018 and during the nine months ended December 
31, 2019, respectively.

Salaries, General and Administrative Expenses

For the nine months ended December 31, 2019, our total employee compensation 
expense (including both cash and share-based compensation) was $8.0 million, an 
increase of $0.6 million or 7.1%, as compared to the total employee 
compensation expense of $7.4 million for the nine months ended December 31, 
2018. The increase was primarily due to the incremental compensation costs 
related to the restricted stock award modification and an increase in 
headcount. For the nine months ended December 31, 2019, our total general and 
administrative expense was $4.4 million, an increase of $0.7 million or 18.7%, 
as compared to the total general and administrative expense of $3.7 million for 
the nine months ended December 31, 2018. The increase was primarily due to the 
write off of deferred offering costs of approximately $0.5 million related to 
our previous registration statement on Form N-2 during the quarter ended 
September 30, 2019 and an increase in employee recruiting costs in connection 
with the hiring of new employees.

Net Investment Income

For the nine months ended December 31, 2019, income before taxes increased by 
$5.4 million, or 30.5%. Net investment income increased from the prior year 
period by $4.5 million, or 26.4%, to $21.3 million as a result of a $9.4 
million increase in total investment income, offset by a $0.9 million increase 
in income tax expense and a $2.8 million increase in interest expense.

Increase in Net Assets from Operations

During the nine months ended December 31, 2019, we recognized realized gains 
totaling $42.3 million, which consisted of gains on the full repayment of one 
non-control/non-affiliate, one affiliate investment and one control investment, 
partial repayments on nine non-control/non-affiliate investments and three 
affiliate investments and the sale of one control equity investment. We elected 
to retain $16.5 million of net long-term capital gains and to designate the 
retained amount as a "deemed distribution" to our shareholders. We incurred 
$3.5 million of federal taxes on such retained amount on behalf of our 
shareholders for the nine months ended December 31, 2019, which is included in 
net realized gain on investments.

In addition, during the nine months ended December 31, 2019, we recorded net 
unrealized depreciation on our current portfolio of $10.9 million, the reversal 
of $49.3 million of net unrealized appreciation recognized in prior periods due 
to realized gains described above, and net unrealized depreciation related to 
deferred tax associated with the Taxable Subsidiary of $0.8 million, totaling 
$61.0 million of net unrealized depreciation on investments. Net unrealized 
depreciation on our current portfolio included unrealized gains on Vistar Media 
Inc. of $5.4 million, ITA Holdings Group, LLC of $2.6 million, and Tinuiti Inc. 
of $1.6 million, offset by unrealized losses on I-45 SLF LLC of $7.4 million, 
Delphi Intermediate Healthco, LLC of $3.9 million, SIMR, LLC of $3.2 million, 
AAC Holdings, Inc. of $2.5 million and AG Kings Holdings Inc. of $2.4 million. 
These unrealized gains and losses were due to changes in fair value based on 
the overall EBITDA performance and cash flows of each investment.

During the nine months ended December 31, 2018, we recognized realized gains 
totaling $20.8 million, which consisted of gains on the partial repayments of 
four non-control/non-affiliate investments, full repayments of six 
non-control/non-affiliate investments and the sale of one control, one 
affiliate and one non-control/non-affiliate investment.

In addition, during the nine months ended December 31, 2018, we recorded net 
unrealized appreciation on our current portfolio of $1.4 million, the reversal 
of $14.2 million of net unrealized appreciation recognized in prior periods due 
to realized gains described above, and net unrealized appreciation related to 
deferred tax associated with the Taxable Subsidiary of $0.5 million, which 
totaled $15.1 million of net unrealized depreciation on investments. Net 
unrealized depreciation on our current portfolio included unrealized losses on 
I-45 SLF LLC of $4.0 million, American Nuts Operations LLC of $1.6 million and 
Zenfolio Inc. of $1.6 million, offset by unrealized gains on Media Recovery, 
Inc. of $6.0 million and Dynamic Communities, LLC of $0.9 million. These 
unrealized gains and losses were due to changes in fair value based on the 
overall EBITDA performance and cash flows of each investment.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

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.

Cash Flows

For the nine months ended December 31, 2019, we experienced a net increase in 
cash and cash equivalents in the amount of $13.0 million. During that period, 
our operating activities used $24.2 million in cash, consisting primarily of 
new portfolio investments of $154.4 million, partially offset by $51.0 million 
from sales and repayments received from debt investments in portfolio companies 
and $56.0 million from sales and return of capital of equity investments in 
portfolio companies. In addition, our financing activities increased cash by 
$37.2 million, consisting primarily of proceeds from the October 2024 Notes of 
$73.5 million, as well as the Equity ATM Program of $22.5 million, partially 
offset by net repayments on our Credit Facility of $17.0 million and cash 
dividends paid in the amount of $40.9 million. At December 31, 2019, the 
Company had cash and cash equivalents of approximately $23.0 million.

For the nine months ended December 31, 2018, we experienced a net increase in 
cash and cash equivalents in the amount of $2.9 million. During that period, 
our operating activities used $77.6 million in cash, consisting primarily of 
new portfolio investments of $197.1 million, partially offset by $65.0 million 
of sales and repayments received from debt investments in portfolio companies 
and $33.9 million from sales and return of capital of equity investments in 
portfolio companies. In addition, our financing activities increased cash by 
$80.4 million, consisting primarily of proceeds from net borrowings under the 
Credit Facility of $87.0 million and proceeds from the December 2022 Notes of 
$18.1 million, partially offset by cash dividends paid in the amount of $34.2 
million. At December 31, 2018, the Company had cash and cash equivalents of 
approximately $10.8 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. As of 
December 31, 2019, the Company’s asset coverage was 213%.

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.

The Credit Facility also contains customary events of default, including, 
without limitation, nonpayment, misrepresentation of representations and 
warranties in a material respect, breach of covenant, bankruptcy, and change of 
control, with customary cure and notice provisions. If the Company defaults on 
its obligations under the Credit Facility, the lenders may have the right to 
foreclose upon and sell, or otherwise transfer, the collateral subject to their 
security interests. There are no changes to the covenants or the events of 
default in the Credit Facility as a result of the Amendment.

The Credit Facility is secured by (1) substantially all of the present and 
future property and assets of the Company and the guarantors and (2) 100% of 
the equity interests in the Company’s wholly-owned subsidiaries. As of December 
31, 2019, substantially all of the Company’s assets were pledged as collateral 
for the Credit Facility.

At December 31, 2019, CSWC had $124.0 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 $1.7 million and $6.3 million, respectively, for the three and nine 
months ended December 31, 2019. For the three and nine months ended December 
31, 2018, CSWC recognized interest expense of $2.0 million and $5.2 million, 
respectively. The weighted average interest rate on the Credit Facility was 
4.67% and 4.96%, respectively, for the three and nine months ended December 31, 
2019. For the three and nine months ended December 31, 2018, the weighted 
average interest rate on the Credit Facility was 5.59% and 5.41%, respectively. 
Average borrowings for the three and nine months ended December 31, 2019 were 
$106.5 million and $102.9 million, respectively. For the three and nine months 
ended December 31, 2018, average borrowings were $114.0 million and $91.9 
million, respectively. As of December 31, 2019, CSWC was in compliance with all 
financial covenants under the Credit Facility.

December 2022 Notes

In December 2017, the Company issued $57.5 million in aggregate principal 
amount, including the underwriters’ full exercise of their option to purchase 
additional principal amounts to cover over-allotments, of 5.95% Notes due 2022 
(the “December 2022 Notes”). The December 2022 Notes mature on December 15, 
2022 and may be redeemed in whole or in part at any time, or from time to time, 
at the Company’s option on or after December 15, 2019. The December 2022 Notes 
bear interest at a rate of 5.95% per year, payable quarterly on March 15, June 
15, September 15 and December 15 of each year, beginning on March 15, 2018. The 
December 2022 Notes are an unsecured obligation, rank pari passu with our other 
outstanding and future unsecured unsubordinated indebtedness and are 
effectively subordinated to all of our existing and future secured 
indebtedness, including borrowings under our Credit Facility.

On June 11, 2018, the Company entered into an "At-The-Market" ("ATM") debt 
distribution agreement, pursuant to which it may offer for sale, from time to 
time, up to $50 million in aggregate principal amount of December 2022 Notes 
through B. Riley FBR, Inc., acting as its sales agent (the “2022 Notes Agent”). 
Sales of the December 2022 Notes may be made in negotiated transactions or 
transactions that are deemed to be "at the market offerings" as defined in Rule 
415 under the Securities Act of 1933, as amended, including sales made directly 
on The Nasdaq Global Select Market, or similar securities exchanges or sales 
made through a market maker other than on an exchange at prices related to 
prevailing market prices or at negotiated prices.

The 2022 Notes Agent receives a commission from the Company equal to up to 2% 
of the gross sales of any December 2022 Notes sold through the 2022 Notes Agent 
under the debt distribution agreement. The 2022 Notes Agent is not required to 
sell any specific principal amount of December 2022 Notes, but will use its 
commercially reasonable efforts consistent with its sales and trading practices 
to sell the December 2022 Notes. The December 2022 Notes trade “flat,” which 
means that purchasers in the secondary market will not pay, and sellers will 
not receive, any accrued and unpaid interest on the December 2022 Notes that is 
not reflected in the trading price.

During the nine months ended December 31, 2019, the Company did not sell any 
December 2022 Notes. The Company has no current intention of issuing additional 
December 2022 Notes under this ATM debt distribution agreement. Therefore, 
during the three months ended June 30, 2019, the Company amortized $0.2 million 
of the remaining debt issuance costs associated with the ATM debt distribution 
agreement, which is included in interest expense in the Consolidated Statement 
of Operations.

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

As of December 31, 2019, the carrying amount of the December 2022 Notes was 
$75.7 million on an aggregate principal amount of $77.1 million at a weighted 
average effective yield of 5.93%. As of December 31, 2019, the fair value of 
the December 2022 Notes was $80.6 million. The fair value is based on the 
closing price of the security on The Nasdaq Global Select Market, which is a 
Level 1 input under ASC 820. The Company recognized interest expense related to 
the December 2022 Notes, including amortization of deferred issuance costs of 
$1.3 million and $4.1 million, respectively, for the three and nine months 
ended December 31, 2019. For the three and nine months ended December 31, 2018, 
the Company recognized interest expense of $1.3 million and $3.5 million, 
respectively. Average borrowings for both the three and nine months ended 
December 31, 2019 were $77.1 million. For the three and nine months ended 
December 31, 2018, average borrowings were $77.0 million and $67.8 million, 
respectively.

The indenture governing the December 2022 Notes contains certain covenants 
including but not limited to (i) a requirement that the Company comply with the 
asset coverage requirement of Section 61 of the 1940 Act or any successor 
provisions thereto, after giving effect to any exemptive relief granted to the 
Company by the SEC, (ii) a requirement, subject to limited exception, that the 
Company will not declare any cash dividend, or declare any other cash 
distribution, upon a class of its capital stock, or purchase any such capital 
stock, unless, in every such case, at the time of the declaration of any such 
dividend or distribution, or at the time of any such purchase, the Company has 
the minimum asset coverage required pursuant to Section 61 of the 1940 Act, or 
any successor provision thereto, after deducting the amount of such dividend, 
distribution or purchase price, as the case may be, giving effect to any 
exemptive relief granted to the Company by the SEC and (iii) a requirement to 
provide financial information to the holders of the December 2022 Notes and the 
trustee under the indenture if the Company should no longer be subject to the 
reporting requirements under the Securities Exchange Act of 1934, as amended, 
(the "Exchange Act"). The indenture and supplement relating to the December 
2022 Notes also provides for customary events of default. As of December 31, 
2019, the Company was in compliance with all covenants of the December 2022 
Notes.

October 2024 Notes

In September 2019, the Company issued $65.0 million in aggregate principal 
amount of 5.375% Notes due 2024 (the “Existing October 2024 Notes”). On October 
8, 2019, the Company issued an additional $10.0 million in aggregate principal 
amount of the October 2024 Notes (the "Additional October 2024 Notes" together 
with the Existing October 2024 Notes, the "October 2024 Notes"). The Additional 
October 2024 Notes are being treated as a single series with the Existing 
October 2024 Notes under the indenture and have the same terms as the Existing 
October 2024 Notes. 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 December 31, 2019, the carrying amount of the October 2024 Notes was 
$73.4 million on an aggregate principal amount of $75.0 million at a weighted 
average effective yield of 5.375%. As of December 31, 2019, the fair value of 
the October 2024 Notes was $74.7 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 $1.1 million 
and $1.2 million for the three and nine months ended December 31, 2019, 
respectively. Since the issuance of the October 2024 Notes, average borrowings 
were $73.9 million.

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

Equity Capital Activities

In January 2016, our board of directors approved a share repurchase program 
authorizing us to repurchase up to $10 million in the aggregate of our 
outstanding common stock in the open market at certain thresholds below our net 
asset value per share, in accordance with Rules 10b-18 under the Exchange Act. 
During the nine months ended December 31, 2019, the Company did not repurchase 
any shares of the Company's common stock under the share repurchase program. 
Cumulative to date, we have repurchased a total of 46,363 shares of our common 
stock in the open market under the stock repurchase program, at an average 
price of $16.67, including commissions paid, leaving approximately $9.2 million 
available for additional repurchases under the program.

On March 4, 2019, the Company entered into separate equity distribution 
agreements with certain sales agents pursuant to which we may offer and sell, 
from time to time, shares of our common stock having an aggregate offering 
price of up to $50,000,000 (the "Equity ATM Program"). During the three months 
ended December 31, 2019, the Company sold 623,111 shares of its common stock 
under the Equity ATM Program at a weighted-average price of $22.07 per share, 
raising $13.8 million of gross proceeds. Net proceeds were $13.5 million after 
commissions to the sales agents on shares sold. During the nine months ended 
December 31, 2019, the Company sold 1,049,932 shares of its common stock under 
the Equity ATM Program at a weighted-average price of $21.90 per share, raising 
$23.0 million of gross proceeds. Net proceeds were $22.5 million after 
commissions to the sales agents on shares sold. Cumulative to date, the Company 
has sold 1,313,588 shares of its common stock under the Equity ATM Program at a 
weighted-average price of $21.81, raising $28.7 million of gross proceeds. Net 
proceeds were $28.1 million after commissions to the sales agents on shares 
sold.

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.

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.

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


OFF-BALANCE SHEET ARRANGEMENTS

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.

At December 31, 2019 and March 31, 2019, we had a total of approximately $20.4 
million and $17.7 million, respectively, in currently unfunded commitments (as 
discussed in Note 10 to the Consolidated Financial Statements). Included within 
the total unfunded commitments as of December 31, 2019 were commitments to 
issue letters of credit through a financial intermediary on behalf of certain 
portfolio companies. As of December 31, 2019, we had $3.4 million in letters of 
credit issued and outstanding under these commitments on behalf of the 
portfolio companies. For the letters of credit issued and outstanding, we would 
be required to make payments to third parties if the portfolio companies were 
to default on their related payment obligations. Of these letters of credit, 
$3.4 million expire in May 2020. As of December 31, 2019, 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 
commitments. As of December 31, 2019, the Company had cash and cash equivalents 
of $23.0 million and $167.6 million in available borrowings under the Credit 
Facility.



Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risk. Market risk includes risk that arise from 
changes in interest rates, commodity prices, equity prices and other market 
changes that affect market sensitive instruments. The prices of securities held 
by us may decline in response to certain events, including those directly 
involving the companies in which we invest; conditions affecting the general 
economy; overall market changes; legislative reform; local, regional, national 
or global political, social or economic instability; and interest rate 
fluctuations.

Interest Rate Risk

We are subject to interest rate risk. Interest rate risk is defined as the 
sensitivity of our current and future earnings to interest rate volatility, 
variability of spread relationships, the difference in re-pricing internals 
between our assets and

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liabilities and the effect that interest rates may have on our cash flows. 
Changes in the general level of interest rates can affect our net interest 
income, which is the difference between the interest income earned on interest 
earning assets and our interest expense incurred in connection with our 
interest-bearing liabilities. Changes in interest rates can also affect, among 
other things, our ability to acquire and originate loans and securities and the 
value of our investment portfolio. Our net investment income is affected by 
fluctuations in various interest rates including LIBOR and prime rates. 
However, the interest rates on our December 2022 and October 2024 Notes are 
fixed for the life of such debt. Our risk management systems and procedures are 
designed to identify and analyze our risk, to set appropriate policies and 
limits and to continually monitor these risks. We regularly measure exposure to 
interest rate risk and determine whether or not any hedging transactions are 
necessary to mitigate exposure to changes in interest rates. As of December 31, 
2019, we were not a party to any hedging arrangements.

As of December 31, 2019, approximately 96.6% of our debt investment portfolio 
(at fair value) bore interest at floating rates, 90.7% of which were subject to 
contractual minimum interest rates. A hypothetical 100 basis point increase in 
interest rates could increase our net investment income by a maximum of $3.5 
million, or $0.19 per share, on an annual basis. A hypothetical 100 basis point 
decrease in interest rates could decrease our net investment income by a 
maximum of $1.9 million, or $0.11 per share, on an annual basis. Our Credit 
Facility bears interest on a per annum basis equal to the applicable LIBOR rate 
plus 2.50%. We pay unused commitment fees of 0.50% to 1.00% per annum, based on 
utilization.

Although we believe that the foregoing analysis is indicative of our 
sensitivity to interest rate changes, it does not adjust for potential changes 
in the credit market, credit quality, size and composition of the assets in our 
portfolio. It also does not adjust for other business developments, including 
future borrowings that could affect the net increase in net assets resulting 
from operations, or net income. It also does not assume any repayments from 
borrowers. Accordingly, no assurances can be given that actual results would 
not differ materially from the statement above.

Because we currently borrow, and plan to borrow in the future, money to make 
investments, our net investment income is dependent upon the difference between 
the rate at which we borrow funds and the rate at which we invest the funds 
borrowed. Accordingly, there can be no assurance that a significant change in 
interest rates will not have a material adverse effect on our net investment 
income. In periods of rising interest rates, our cost of funds would increase, 
which could reduce our net investment income if there is not a corresponding 
increase in interest income generated by our investment portfolio.

Legal Proceedings

We may, from time to time, be involved in litigation arising out of our 
operations in the normal course of business or otherwise. Furthermore, third 
parties may try to seek to impose liability on us in connection with the 
activities of our portfolio companies. We have no currently pending material 
legal proceedings to which we are party or to which any of our assets is 
subject.