CSWC

MKT CAP $1.4BP/E 12.4DIV YIELD —FCF YIELD -21.39%REV TTM —NET INCOME $110.7M +32.6%NET DEBT $1.2B52W 19.97 – 25.57SEC XBRL · TTM TO Invalid Date

How CSWC rewrote its risk factors

10-K ITEM 1A · FY2025 → FY2026

Text kept

64%

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151

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+1,216

words, now 22,647

New in FY2026

The risks and uncertainties described below could materially adversely affect our business, financial condition and results of operations.
Our inability to develop or maintain these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business. • All of our assets are subject to security interests under our Corporate Credit Facility and our SPV Credit Facility, except for assets held by the SBIC Subsidiaries, and if we default on our obligations under the Corporate Credit Facility or the SPV Credit Facility, we may suffer adverse consequences, including foreclosure on our assets. • In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, that, if not complied with, could accelerate our repayment obligations under the Corporate Credit Facility and/or the SPV Credit Facility, and thereby materially and adversely affect our liquidity, financial condition, results of operations and ability to pay distributions. • Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us. • A failure on our part to maintain our status as a BDC would significantly reduce our operating flexibility. • We will be subject to U.S. federal income tax imposed at corporate rates on our earnings if we are unable to qualify as a RIC under subchapter M of the Code. • Our portfolio investments generally are not publicly traded.
An extended disruption in the capital markets and the credit markets could negatively affect our business. • Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies, which may, in turn, impact the valuation of such portfolio companies. • We operate in a highly competitive market for investment opportunities. • Our success depends on attracting and retaining qualified personnel in a competitive environment. • Our investments in portfolio companies involve a number of significant risks. • Each SBIC Subsidiary has an SBIC license and is subject to SBA regulations, and any failure to comply with SBA regulations could have an adverse effect on our operations. • We are exposed to risks associated with changes in interest rates. • The lack of liquidity in our investments may adversely affect our business. • Defaults by our portfolio companies could harm our operating results. • We generally will not control our portfolio companies. • Investing in shares of our common stock may involve an above average degree of risk. • Shares of closed-end investment companies, including BDCs, may trade at a discount to their NAV. • The Notes are unsecured and therefore are effectively subordinated to any existing and future secured indebtedness, including indebtedness under our Corporate Credit Facility. • The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries, including the SBA-guaranteed debentures and the SPV Credit Facility. • We may not have the ability to raise the funds necessary to settle conversions of the 2029 Convertible Notes in cash or to repurchase the 2029 Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the 2029 Convertible Notes. • If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants that, if not complied with, could accelerate our repayment obligations under the Corporate Credit Facility and/or the SPV Credit Facility, and thereby materially and adversely affect our liquidity, financial condition, results of operations and ability to pay distributions.
As of March 31, 2026, the Corporate Credit Facility provides us with a revolving credit line of up to $510.0 million of which $245.0 million was drawn.
As of March 31, 2026, the SPV Credit Facility provides us with total commitments of $200.0 million of which $ 100.0 million was drawn.
As of March 31, 2026, we had $245.0 million borrowings outstanding out of $510 million of total commitments under our Corporate Credit Facility.
As of March 31, 2026, we had $ 100.0 million borrowings outstanding out of the $200 million of total commitments under our SPV Credit Facility.
As of March 31, 2026, the carrying amount of the 2029 Convertible Notes was $224.6 million.
As of March 31, 2026, the carrying amount of the September 2030 Notes was $344.0 million.
The September 2030 Notes mature on September 18, 2030 and may be redeemed in whole or in part at any time prior to August 18, 2030, at par plus a "make-whole" premium, and thereafter at par.
The September 2030 Notes bear interest at a rate of 5.950% per year, payable semi-annually on March 18 and September 18 of each year.
The September 2030 Notes are the direct unsecured obligations of the Company, rank pari passu with the Company's other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of the Company's or its subsidiaries' existing and future secured indebtedness, including borrowings under the Corporate Credit Facility, the SPV Credit Facility and the SBA Debentures.
Assumed Return on Our Portfolio (1) (net of expenses) (10.0)% (5.0)% 0.0% 5.0% 10.0% Corresponding net return to common shareholder (2) ( 28.51 )% ( 17.74 )% ( 6.98 )% 3.79 % 14.56 % (1) Assumes $2,177.5 million in total assets, $1,148.0 million in debt principal outstanding, $1,011.0 million in net assets and a weighted-average interest rate of 6.00% on our indebtedness based on our financial data available on March 31, 2026.
(2) In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our March 31, 2026 total assets of at least 3.24%.
As of March 31, 2026, 91.9 % of our total assets consisted of qualifying assets.
We will be subject to U.S. federal income tax imposed at corporate rates on our earnings if we are unable to qualify as a RIC under subchapter M of the Code .
We have elected, and intend to qualify annually as a RIC under subchapter M of the Code.
No assurance can be given that we will be able to qualify for and maintain RIC tax treatment.
To qualify as a RIC, we must meet certain requirements, including source-of-income, asset diversification and distribution requirements: • The annual distribution requirement applicable to RICs generally is satisfied if we timely distribute (or are deemed to distribute) to our shareholders on an annual basis at least 90% of our "investment company taxable income," which is generally our net ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses, if any.
We will be subject to U.S. federal income tax imposed at corporate rates on any income that we do not timely distribute.
In addition, we may be subject to a nondeductible 4% U.S. federal excise tax on certain undistributed income and gain unless we distribute (or are deemed to distribute) each calendar year at least the sum of (i) 98% of our net ordinary income for each calendar year, (ii) 98.2% of the amount by which our capital gain exceeds our capital loss (adjusted for certain ordinary losses) for the calendar year ended December 31, and (iii) certain undistributed amounts from previous years on which we paid no U.S. federal income tax.
To the extent we use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and may be subject to financial covenants under loan and credit agreements, each of which could, under certain circumstances, restrict us from making annual distributions necessary to satisfy these distribution requirements and receive RIC tax treatment.
If we are unable to obtain cash needed to pay such annual distributions from other sources, or choose or are required to retain a portion of our taxable income or gains, we may fail to qualify as a RIC and, thus, may be subject to U.S. federal income tax imposed at corporate rates on our entire taxable income without regard to any distributions made by us. • The source-of-income requirement will be satisfied if we obtain at least 90% of our annual income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships” (as defined in the Code), or other income derived from the business of investing in stocks or securities. • The asset diversification requirement will be satisfied if we diversify our holdings so that at the end of each quarter of our taxable year: (1) at least 50% of the value of our assets must consist of cash, cash items (including receivables), U.S.
Government securities, securities of other RICs, and other securities, if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and (2) no more than 25% of the value of our assets may be invested in (i) the securities, other than U.S.
Government securities or securities of other RICs, of one issuer, (ii) the securities, other than the securities of other RICs, of two or more issuers that are controlled by us and which are determined under applicable Treasury regulations, to be engaged in the same or similar or related trades or businesses, or (iii) the securities of certain “qualified publicly traded partnerships.” Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC tax treatment.
Because most of our investments are in private or thinly traded public companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and may result in substantial losses.
If we fail to qualify for or maintain RIC tax treatment for any reason, and certain cure provisions are not applicable, we will become subject to U.S. federal income tax imposed at corporate rates on all of our taxable income (including our net capital gains).
The resulting taxes could substantially reduce our net assets, the amount of income available for distributions to our shareholders, and the amount of funds available for new investments.
Such a failure would have a material adverse effect on us and our shareholders.
An extended disruption in the capital markets and the credit markets could negatively affect our business.
Such disruptions could materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and results of operations.
Uncertainty with respect to, among other things, inflationary pressures, elevated interest rates, U.S. and foreign trade, economic and other policies, including with respect to tariffs and trade barriers, geopolitical tensions, including the ongoing conflict between Russia and Ukraine, the ongoing turmoil and political unrest in the Middle East and South America, and immigration and work permit policies, and the effect of this volatility has materially impacted and could continue to materially impact our market risks.
We anticipate our portfolio companies' business would be materially and adversely affected by a prolonged economic downturn or recession in the United States and other major markets.
A severe disruption in the global financial markets, deterioration in credit and financing conditions, elevated interest rates, uncertainty regarding U.S. government spending and deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations.
Past economic downturns or recessions have had a significant negative impact on the operating performance and fair value of LMM companies.
Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our shareholders and our independent directors.
U.S. inflation rates have fluctuated in recent periods, and remain well above historical levels over the past several decades.
Ongoing inflationary pressures have increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our portfolio companies' operations.
While the current U.S. presidential administration has signaled a reduced emphasis on regulation with respect to the financial services industry, the ultimate impact of any deregulatory efforts remains uncertain.

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Gone since FY2025

The risks and uncertainties described below could materially adversely affect our business, financial conditions and results of operations.
Our inability to maintain or develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business. • All of our assets are subject to security interests under our Corporate Credit Facility and our SPV Credit Facility, except for assets held by the SBIC Subsidiaries, and if we default on our obligations under the Corporate Credit Facility or the SPV Credit Facility, we may suffer adverse consequences, including foreclosure on our assets. • In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, that, if not complied with, could accelerate our repayment obligations under the Corporate Credit Facility and/or the SPV Credit Facility, and thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions. • Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us. • A failure on our part to maintain our status as a BDC would significantly reduce our operating flexibility. • We will become subject to U.S. federal income tax imposed at corporate rates if we are unable to qualify as a RIC under subchapter M of the Code. • Our portfolio investments generally are not publicly traded.
Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and results of operations. • Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies, which may, in turn, impact the valuation of such portfolio companies. • We operate in a highly competitive market for investment opportunities. • Our success depends on attracting and retaining qualified personnel in a competitive environment. • Our investments in portfolio companies involve a number of significant risks. • Each SBIC Subsidiary has an SBIC license and is subject to SBA regulations, and any failure to comply with SBA regulations could have an adverse effect on our operations. • We are exposed to risks associated with changes in interest rates. • The lack of liquidity in our investments may adversely affect our business. • Defaults by our portfolio companies could harm our operating results. • We generally will not control our portfolio companies. • Investing in shares of our common stock may involve an above average degree of risk. • Shares of closed-end investment companies, including BDCs, may trade at a discount to their NAV. • The Notes are unsecured and therefore are effectively subordinated to any existing and future secured indebtedness, including indebtedness under our Corporate Credit Facility. • The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries, including the SBA-guaranteed debentures and the SPV Credit Facility. • We may not be able to repurchase the October 2026 Notes upon a Change of Control Repurchase Event. • We may not have the ability to raise the funds necessary to settle conversions of the 2029 Convertible Notes in cash or to repurchase the 2029 Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the 2029 Convertible Notes. • If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, that, if not complied with, could accelerate our repayment obligations under the Corporate Credit Facility and/or the SPV Credit Facility, and thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.
As of March 31, 2025, the Corporate Credit Facility provides us with a revolving credit line of up to $485.0 million of which $235.0 million was drawn.
As of March 31, 2025, the SPV Credit Facility provides us with total commitments of $200.0 million of which $ 108.0 million was drawn.
As of March 31, 2025, we had $235.0 million borrowings outstanding out of $485 million of total commitments under our Corporate Credit Facility.
As of March 31, 2025, we had $ 108.0 million borrowings outstanding out of the $200 million of total commitments under our SPV Credit Facility.
As of March 31, 2025, the carrying amount of the October 2026 Notes was $ 148.8 million.
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 on April 1 and October 1 of each year.
The October 2026 Notes are the direct unsecured obligations of the Company, rank pari passu with the Company's other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of the Company's or its subsidiaries' existing and future secured indebtedness, including borrowings under the Corporate Credit Facility, the SPV Credit Facility and the SBA Debentures.
As of March 31, 2025, the carrying amount of the August 2028 Notes was $ 70.2 million.
The August 2028 Notes mature on August 1, 2028 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 August 1, 2025.
The August 2028 Notes bear interest at a rate of 7.75% per year, payable quarterly on February 1, May 1, August 1 and November 1 of each year.
The August 2028 Notes are the direct unsecured obligations of the Company, rank pari passu with the Company's other outstanding and future unsecured unsubordinated indebtedness and are effectively or structurally subordinated to all of the Company's and its subsidiaries' existing and future secured indebtedness, including borrowings under the Corporate Credit Facility, the SPV Credit Facility and the SBA Debentures.
The August 2028 Notes are listed on the Nasdaq Global Select Market under the trading symbol "CSWCZ." As of March 31, 2025, the carrying amount of the 2029 Convertible Notes was $223.1 million.
Assumed Return on Our Portfolio (1) (net of expenses) (10.0)% (5.0)% 0.0% 5.0% 10.0% Corresponding net return to common shareholder (2) ( 27.29 )% ( 16.64 )% ( 5.98 )% 4.67 % 15.32 % (1) Assumes $1,882.8 million in total assets, $969.9 million in debt principal outstanding, $883.6 million in net assets and a weighted-average interest rate of 5.28% on our indebtedness based on our financial data available on March 31, 2025.
(2) In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our March 31, 2025 total assets of at least 2.81%.
As of March 31, 2025, 90.0 % of our total assets consisted of qualifying assets.
We will become subject to U.S. federal income tax imposed at corporate rates if we are unable to qualify as a RIC under subchapter M of the Code .
We have elected, and intend to qualify annually, to be treated as a RIC under subchapter M of the Code.
No assurance can be given that we will be able to maintain our qualification as a RIC.
To qualify as a RIC, we must meet the following annual distribution, income source and asset diversification requirements: • The annual distribution requirement for a RIC is generally satisfied if we timely distribute (or are deemed to distribute) to our shareholders on an annual basis at least 90% of our net ordinary taxable income and realized short-term capital gains in excess of realized net long-term capital losses.
We will be subject to U.S. federal income tax, and possibly a 4% U.S. federal excise tax, on any income that we do not timely distribute to our shareholders.
Our U.S. federal income tax liability may be reduced to the extent that we make certain distributions during the following calendar year and satisfy other procedural requirements. • The source-of-income requirement is satisfied if we obtain at least 90% of our gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code), or the 90% Income Test. • The asset diversification requirement is satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year.
To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash items, U.S.
Government securities, securities of other RICs, and other securities, provided that such other securities will not include any securities of any one issuer, if our holdings of such issuer constitute more than 5% of the total value of our assets or if we hold more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”).
In addition, no more than 25% of the value of our assets can be invested in (i) the securities, other than U.S Government securities or securities of other RICs, of one issuer; (ii) the securities, other than securities of other RICs, of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses; or (iii) the securities of one or more “qualified publicly traded partnerships.” Failure to meet these requirements may result in us having to dispose of certain unqualified investments quickly in order to continue to qualify as a RIC.
If we fail to qualify as a RIC and, consequently, are subject to U.S. federal income tax, the resulting U.S. federal income tax liability could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.
The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that began in December 2019, the conflict between Russia and Ukraine that began in late February 2022, the ongoing war in the Middle East, and uncertainties regarding shifts in U.S. and foreign trade, economic and other policies, including with respect to treaties and tariffs.
Concerns over inflation, economic recession, interest rate volatility and fluctuations, and geopolitical tension have exacerbated market volatility.
We anticipate our and our portfolio companies' business would be materially and adversely affected by a prolonged economic downturn or recession in the United States and other major markets.
A severe disruption in the global financial markets, deterioration in credit and financing conditions, high interest rates, uncertainty regarding U.S. government spending and deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations.
Past economic downturns or recessions have had a significant negative impact on the operating performance and fair value of middle market companies.
Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our shareholders and our directors who are not "interested persons" (as such term is used under Section 2(a)(19) of the 1940 Act) of the Company, or independent directors.
Inflationary pressures have increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our portfolio companies' operations.
The Republican Party currently controls the Presidency, the Senate and the House of Representatives, which increases the likelihood that legislation may be adopted.
Any new or changed laws or regulations, as well as changes in the positions of regulatory agencies, which may lead to changes in the level of oversight in the financial service industry, could have a material adverse effect on our business, and we expect to see continued regulatory uncertainty in the near term.
The U.S. government has recently imposed, and may in the future increase, tariffs on specific countries and commodities.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2025 ↗, FY2026 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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