CAPITAL SOUTHWEST CORP - FORM 10-K - EX-99.1 - EXHIBIT 99.1

Attached files

file	filename
10-K - 10-K - CAPITAL SOUTHWEST CORP	cswc3312010-k.htm
EX-99.2 - EXHIBIT 99.2 - CAPITAL SOUTHWEST CORP	cswc33120ex992.htm
EX-32.2 - EXHIBIT 32.2 - CAPITAL SOUTHWEST CORP	cswc33120ex322.htm
EX-32.1 - EXHIBIT 32.1 - CAPITAL SOUTHWEST CORP	cswc33120ex321.htm
EX-31.2 - EXHIBIT 31.2 - CAPITAL SOUTHWEST CORP	cswc33120ex312.htm
EX-31.1 - EXHIBIT 31.1 - CAPITAL SOUTHWEST CORP	cswc33120ex311.htm
EX-23.2 - EXHIBIT 23.2 - CAPITAL SOUTHWEST CORP	cswc33120ex232.htm
EX-23.1 - EXHIBIT 23.1 - CAPITAL SOUTHWEST CORP	cswc33120ex231.htm
EX-21.1 - EXHIBIT 21.1 - CAPITAL SOUTHWEST CORP	cswc33120ex211.htm
EX-4.8 - EXHIBIT 4.8 - CAPITAL SOUTHWEST CORP	cswc33120ex48.htm

I-45 SLF LLC

Consolidated Financial Statements

and

Independent Auditor’s Report

As of March 31, 2020 and 2019 and for the years ended

March 31, 2020, 2019 and 2018

Table of Contents



	Page
Independent Auditor's Report	1
Consolidated Statements of Assets, Liabilities and Members' Equity	2
Consolidated Schedules of Investments	3
Consolidated Statements of Operations	9
Consolidated Statements of Changes in Members' Equity	10
Consolidated Statements of Cash Flows	12
Notes to Consolidated Financial Statements	13

Independent Auditor's Report

Board of Managers

I-45 SLF LLC and its subsidiary

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of I-45 SLF LLC and its subsidiary, which comprise the consolidated statements of assets, liabilities, and members’ equity, including the consolidated schedules of investments, as of March 31, 2020 and 2019, and the related consolidated statements of operations, changes in members’ equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of I-45 SLF LLC and its subsidiary as of March 31, 2020 and 2019, and the results of their operations, and their cash flows for the three years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ RSM US LLP

Chicago, Illinois

May 11, 2020

I-45 SLF LLC

Consolidated Statements of Assets, Liabilities

and Members’ Equity



	March 31,
	2020		2019
Assets

Investments, at fair value (cost $207,767,577 and $242,061,110, respectively)	$	170,859,875	$	237,547,371
Cash and cash equivalents	3,739,104		6,405,598
Due from broker	38,307		—
Deferred financing costs (net of accumulated amortization of $2,030,445 and $1,424,284, respectively)	2,095,078		1,615,246
Interest receivable	1,076,350		978,904

	$	177,808,714	$	246,547,119


Liabilities and Members' Equity

Liabilities
Credit facility	$	125,000,000	$	160,000,000
Payable for securities purchased	—		940,346
Distributions payable	2,808,471		3,254,800
Interest payable	95,503		157,142
Accrued expenses and other liabilities	125,294		193,709

Total liabilities	128,029,268		164,545,997

Commitments and contingencies (Note 8)

Members' equity	49,779,446		82,001,122

	$	177,808,714	$	246,547,119

See accompanying notes to consolidated financial statements.

I-45 SLF LLC

Consolidated Schedules of Investments

March 31, 2020



Description	Maturity Date	Current Interest Rate(1)	Principal Amount		Cost		Fair Value		Percentage of Members' Equity

Corporate Bank Loans
United States
Aerospace & Defense
ADS Tactical	7/26/2023	L+6.25% (Floor 0.75%)	$	4,947,537	$	4,928,495	$	4,734,793	9.51	%
Hunter Defense Technologies, Inc.	3/29/2023	L+7.00% (Floor 1.00%)	5,855,755		5,772,233		5,870,395		11.79	%
Peraton Corp. (fka MHVC Acquisition Corp.)	4/29/2024	L+5.25% (Floor 1.00%)	6,329,280		6,309,704		5,917,877		11.89	%
Building & Infrastructure Products
Geo Parent Corporation	12/19/2025	L+5.25%	4,950,000		4,909,365		4,677,750		9.40	%
Business Services
ALKU, LLC	7/29/2026	L+5.50% (Floor 1.00%)	3,000,000		2,971,923		2,820,000		5.66	%
Integro Parent Inc.	10/31/2022	L+5.75% (Floor 1.00%)	3,301,120		3,255,919		3,251,603		6.53	%
Capital Equipment
TestEquity, LLC	4/28/2022	L+5.50% (Floor 1.00%)	3,815,993		3,800,086		3,186,354		6.40	%
TestEquity, LLC - Term Loan B	4/28/2022	L+5.50%	959,034		954,854		800,793		1.61	%
Time Manufacturing Acquisition	2/3/2023	L+5.00% (Floor 1.00%)	4,847,569		4,825,207		4,435,525		8.91	%
Consumer Products & Retail
Go Wireless Holdings, Inc.	12/22/2024	L+6.50% (Floor 1.00%)	6,212,500		6,170,181		5,042,469		10.13	%
Isagenix International, LLC	6/14/2025	L+5.75% (Floor 1.00%)	1,953,321		1,938,866		727,612		1.46	%
Lulu's Fashion Lounge, LLC	8/26/2022	L+9.00% (Floor 1.00%)	3,778,409		3,706,876		3,230,539		6.49	%
Mills Fleet Farm Group LLC	10/24/2024	L+6.25% (Floor 1.00%), 0.75% PIK	4,957,991		4,882,891		4,214,293		8.47	%
Pet Supermarket, Inc.	7/5/2022	L+5.50% (Floor 1.00%)	4,810,070		4,791,909		4,425,265		8.89	%
Tacala, LLC - Second Lien	2/7/2028	L+7.50%	4,500,000		4,492,489		3,521,250		7.07	%
YS Garments, LLC	8/9/2024	P+6.00%	4,812,500		4,777,378		4,355,313		8.75	%
Consumer Services
Lift Brands, Inc.	4/16/2023	L+7.00% (Floor 1.00%), 1.0% PIK	4,810,104		4,784,674		3,689,292		7.41	%
Durable Consumer Goods
TGP Holdings III LLC - Second Lien	9/25/2025	L+8.50% (Floor 1.00%)	2,500,000		2,474,215		1,837,500		3.69	%
Energy Services (Midstream)

I-45 SLF LLC

Consolidated Schedules of Investments

March 31, 2020



Description	Maturity Date	Current Interest Rate(1)	Principal Amount	Cost	Fair Value	Percentage of Members' Equity
The Hoover Group, Inc.	1/28/2021	L+7.25% (Floor 1.00%)	6,369,996	6,306,165	5,892,246	11.84	%
Financial Services
Vida Capital, Inc.	10/1/2026	L+6.00%	3,965,000	3,909,608	3,667,625	7.37	%
Healthcare Services
AAC Holdings, Inc. (4)	6/30/2023	L+ 6.75% (Floor 1.00%), 4.00% PIK	7,370,773	7,264,031	3,224,713	6.48	%
AAC Holdings, Inc. - Priming Facility	3/31/2021	P+13.50% (Floor 1.00%)	1,597,752	1,597,752	1,597,752	3.21	%
Signify Health, LLC	12/23/2024	L+4.50% (Floor 1.00%)	5,096,000	5,061,228	4,280,640	8.60	%
Lab Logistics, LLC	9/25/2023	L+6.50% (Floor 1.00%)	5,401,756	5,360,681	4,971,150	9.99	%
PT Network, LLC	11/30/2023	L+5.50% (Floor 1.00%), 2.0% PIK	4,418,280	4,418,279	4,024,169	8.08	%
Nomad Buyer, Inc.	8/1/2025	L+5.00%	2,955,000	2,818,702	2,748,150	5.52	%
Hotel, Gaming & Leisure
VIP Cinema Holdings, Inc. (4)	3/1/2023	P+7% (Floor 1.00%)	4,375,000	4,364,343	787,500	1.58	%
VIP Cinema Holdings, Inc. - Superiority DIP (4)	5/20/2020	L+8.0%	719,367	707,617	129,486	0.26	%
Media, Marketing & Entertainment
Imagine! Print Solutions, LLC - Second Lien	6/21/2023	L+8.75% (Floor 1.00%)	3,000,000	2,975,680	412,500	0.83	%
Restaurants
California Pizza Kitchen, Inc. (4)	8/23/2022	L+6.00% (Floor 1.00%)	6,759,837	6,740,537	3,417,943	6.87	%
Software & IT Services
Corel	7/2/2026	L+5.00%	4,968,750	4,720,313	4,409,766	8.86	%
InfoGroup Inc.	4/3/2023	L+5.00% (Floor 1.00%)	2,910,000	2,895,349	2,610,270	5.24	%
Intermedia Holdings, Inc.	7/21/2025	L+6.00% (Floor 1.00%)	5,793,852	5,764,737	5,301,375	10.65	%
Lightbox Intermediate, L.P.	5/9/2026	L+5.00%	2,977,500	2,938,297	2,932,838	5.89	%
Novetta Solutions, LLC	10/17/2022	L+5.00% (Floor 1.00%)	4,895,734	4,813,041	4,364,841	8.77	%
PaySimple, Inc.	8/23/2025	L+5.50%	4,262,739	4,205,957	3,879,092	7.79	%
PaySimple - Delayed Draw (2)	8/23/2025	L+5.50%	933,880	919,845	849,831	1.71	%
Technology Products & Components
ATX Canada Acquisitionco Inc.	6/11/2021	L+7.00% (Floor 1.00%), 1.0% PIK	4,573,072	4,560,879	3,795,650	7.62	%

I-45 SLF LLC

Consolidated Schedules of Investments

March 31, 2020



Description	Maturity Date	Current Interest Rate(1)	Principal Amount	Cost		Fair Value		Percentage of Members' Equity
Telecommunications
American Teleconferencing Services, Ltd.	6/8/2023	L+6.50% (Floor 1.00%)	6,770,762	6,622,685		3,825,480		7.68	%
JAB Wireless, Inc.	5/2/2023	L+8.00% (Floor 1.00%)	7,840,000	7,791,185		7,702,800		15.47	%
KORE Wireless Group Inc.	12/20/2024	L+5.50%	4,754,117	4,720,532		4,397,558		8.83	%
LOGIX Holdings Company, LLC	12/23/2024	L+5.75% (Floor 1.00%)	5,953,001	5,917,748		4,911,226		9.87	%
LSF9 Atlantis Holdings, LLC	5/1/2023	L+6.00% (Floor 1.00%)	6,518,750	6,485,032		5,382,043		10.81	%
U.S. TelePacific Corp.	5/2/2023	L+6.00% (Floor 1.00%)	5,200,139	5,158,075		4,056,108		8.15	%
UniTek Global Services, Inc.	8/26/2024	L+5.50% (Floor 1.00%), 1.0% PIK	2,970,169	2,949,235		2,687,409		5.40	%
Wireless Vision Holdings, LLC (3)	9/29/2022	L+8.91% (Floor 1.00%), 1.0% PIK	7,326,695	7,252,903		6,263,591		12.58	%
Wholesale
NBG Acquisition, Inc.	4/26/2024	L+5.50% (Floor 1.00%)	2,812,500	2,779,876		1,597,500		3.21	%

Total Investments				$	207,767,577	$	170,859,875	343.23	%

(1)

The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31, 2020. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.


(2)	The investment has approximately $0.5 million in an unfunded delayed draw commitment as of March 31, 2020.


(3)	The investment is structured as a first lien last out term loan.


(4)	Investment was on non-accrual status as of March 31, 2020, meaning the Company has ceased to recognize interest income on the investment. The current interest rate and terms disclosed on investments on non-accrual reflect the terms at the time of placement on non-accrual status.

See accompanying notes to consolidated financial statements.

I-45 SLF LLC

Consolidated Schedules of Investments

March 31, 2019



Description	Maturity Date	Current Interest Rate(1)	Principal Amount		Cost		Fair Value		Percentage of Members' Equity

Corporate Bank Loans
United States
Aerospace & Defense
American Scaffold Holdings, Inc.	3/31/2022	L+6.50% (Floor 1.00%)	$	2,625,000	$	2,604,634	$	2,611,875	3.19	%
Hunter Defense Technologies, Inc.	3/29/2023	L+7.00% (Floor 1.00%)	6,256,250		6,149,119		6,256,250		7.63	%
Peraton Corp. (fka MHVC Acquisition Corp.)	4/29/2024	L+5.25% (Floor 1.00%)	6,394,363		6,369,724		6,170,560		7.52	%
Building & Infrastructure Products
Geo Parent Corporation	12/19/2025	L+5.50%	5,000,000		4,951,736		4,987,500		6.08	%
Business Services
iEnergizer Limited	5/1/2019	L+6.00% (Floor 1.25%)	7,307,444		7,300,086		7,307,444		8.91	%
Integro Parent Inc.	10/28/2022	L+5.75% (Floor 1.00%)	4,838,924		4,746,329		4,838,924		5.90	%
Capital Equipment
TestEquity, LLC	4/28/2022	L+5.50% (Floor 1.00%)	4,803,961		4,773,980		4,765,530		5.81	%
Time Manufacturing Acquisition	2/3/2023	L+5.00% (Floor 1.00%)	4,910,038		4,879,401		4,928,450		6.01	%
Consumer Products & Retail
Go Wireless Holdings, Inc.	12/22/2024	L+6.50% (Floor 1.00%)	6,562,500		6,508,367		6,439,453		7.85	%
Lulu's Fashion Lounge, LLC	8/26/2022	L+7.00% (Floor 1.00%)	4,034,090		3,940,388		3,913,068		4.77	%
Mills Fleet Farm Group LLC	10/24/2024	L+6.25% (Floor 1.00%)	4,987,500		4,894,986		4,987,500		6.08	%
Pet Supermarket, Inc.	7/5/2022	L+5.50% (Floor 1.00%)	4,859,916		4,833,425		4,762,717		5.81	%
Tacala, LLC - Second Lien	1/30/2026	L+7.00%	3,000,000		2,986,989		2,994,750		3.65	%
Turning Point Brands, Inc. - Second Lien	3/7/2024	L+7.00%	3,000,000		2,973,482		3,030,000		3.70	%
Consumer Services
CMN.com, LLC	11/3/2021	L+6.00% (Floor 1.00%)	9,431,480		9,347,289		9,431,480		11.50	%
Lift Brands, Inc.	4/16/2023	L+7.00% (Floor 1.00%)	4,950,000		4,898,080		4,742,100		5.78	%
Durable Consumer Goods
TGP Holdings III LLC - Second Lien	9/25/2025	L+8.50% (Floor 1.00%)	2,500,000		2,469,503		2,400,000		2.93	%
Energy Services (Midstream)
The Hoover Group, Inc.	1/28/2021	L+7.25% (Floor 1.00%)	6,436,593		6,335,553		6,243,495		7.61	%
Healthcare Products
Isagenix International, LLC	6/16/2025	L+5.75% (Floor 1.00%)	2,062,501		2,044,219		1,851,095		2.26	%

I-45 SLF LLC

Consolidated Schedules of Investments

March 31, 2019



Description	Maturity Date	Current Interest Rate(1)	Principal Amount	Cost	Fair Value	Percentage of Members' Equity
PT Network, LLC	11/30/2021	L+5.50% (Floor 1.00%)	4,369,332	4,369,332	4,125,086	5.03	%
Healthcare Services
AAC Holdings, Inc.	6/30/2023	L+ 6.75% (Floor 1.00%), 4.00% PIK	7,375,229	7,253,490	6,822,087	8.32	%
AAC Holdings, Inc.	3/31/2020	L+11.00% (Floor 1.00%)	949,844	940,346	959,343	1.17	%
Chloe Ox Parent, LLC (Censeo Health)	12/23/2024	L+4.50% (Floor 1.00%)	5,148,000	5,105,429	5,148,000	6.28	%
Nomad Buyer, Inc.	8/1/2025	L+5.00%	2,985,000	2,821,449	2,906,644	3.54	%
Hotel, Gaming & Leisure
VIP Cinema Holdings, Inc.	3/1/2023	L+6.00% (Floor 1.00%)	4,500,000	4,485,268	4,207,500	5.13	%
Industrial Products
Terra Millennium Corporation	10/31/2022	L+6.75% (Floor 1.00%)	7,526,019	7,478,308	7,488,389	9.13	%
Media, Marketing & Entertainment
Allen Media, LLC	8/30/2023	L+6.50% (Floor 1.00%)	5,642,857	5,496,176	5,480,625	6.68	%
Imagine! Print Solutions, LLC - Second Lien	6/21/2023	L+8.75% (Floor 1.00%)	3,000,000	2,968,111	2,700,000	3.29	%
New Media Holdings II LLC	7/14/2022	L+6.25% (Floor 1.00%)	9,311,991	9,298,489	9,277,071	11.31	%
Restaurants
California Pizza Kitchen, Inc.	8/23/2022	L+6.00% (Floor 1.00%)	6,829,887	6,802,221	6,616,487	8.07	%
Retail
YS Garments, LLC	8/9/2024	L+6.00% (Floor 1.00%)	4,937,500	4,893,176	4,869,609	5.94	%
Software & IT Services
Digital River, Inc.	2/12/2021	L+6.00% (Floor 1.00%)	8,002,967	7,997,848	7,802,893	9.52	%
InfoGroup Inc.	4/3/2023	L+5.00% (Floor 1.50%)	2,940,000	2,920,233	2,892,225	3.53	%
Intermedia Holdings, Inc.	7/21/2025	L+6.00% (Floor 1.00%)	3,847,499	3,812,532	3,857,137	4.70	%
New Era Technology, Inc.(2)	6/22/2023	L+6.50% (Floor 1.00%)	4,628,264	4,557,798	4,567,171	5.57	%
Novetta Solutions, LLC	10/17/2022	L+5.00% (Floor 1.00%)	4,946,868	4,830,392	4,857,206	5.92	%
Technology Products & Components
ATI Investment Sub, Inc.	6/22/2021	L+7.25% (Floor 1.00%)	1,817,558	1,795,449	1,691,420	2.06	%
ATX Canada Acquisitionco Inc.	6/11/2021	L+6.00% (Floor 1.00%)	4,688,923	4,665,710	4,454,477	5.43	%
Telecommunications
American Teleconferencing Services, Ltd.	12/8/2021	L+6.50% (Floor 1.00%)	6,881,388	6,641,473	4,515,911	5.51	%

I-45 SLF LLC

Consolidated Schedules of Investments

March 31, 2019



Description	Maturity Date	Current Interest Rate(1)	Principal Amount	Cost		Fair Value		Percentage of Members' Equity
JAB Wireless, Inc.	5/2/2023	L+8.00% (Floor 1.00%)	7,920,000	7,855,060		7,920,000		9.66	%
KORE Wireless Group Inc.	12/20/2024	L+5.50%	3,325,000	3,292,962		3,308,375		4.03	%
LOGIX Holdings Company, LLC	12/23/2024	L+5.75% (Floor 1.00%)	6,016,500	5,972,674		6,061,624		7.39	%
LSF9 Atlantis Holdings, LLC	5/1/2023	L+6.00% (Floor 1.00%)	6,693,750	6,647,863		6,246,106		7.62	%
Teleguam Holdings , LLC	7/25/2024	L+8.50% (Floor 1.00%)	2,000,000	1,969,537		2,012,500		2.45	%
U.S. TelePacific Corp.	5/2/2023	L+5.00% (Floor 1.00%)	6,844,420	6,777,409		6,660,510		8.12	%
UniTek Global Services, Inc.	8/20/2024	L+5.50% (Floor 1.00%)	2,985,000	2,959,958		2,958,135		3.61	%
Wireless Vision Holdings, LLC(3)	9/29/2022	L+8.50% (Floor 1.00%), 1.00% PIK	7,865,229	7,753,144		7,778,711		9.49	%
Transportation & Logistics
STL Parent Corp. (American Railcar)	12/5/2022	L+7.0%	3,975,000	3,846,305		3,855,750		4.70	%
Wholesale
NBG Acquisition, Inc.	4/26/2024	L+5.50% (Floor 1.00%)	2,887,500	2,845,678		2,844,188		3.47	%

Total Investments - (cost $242,061,110)				$	242,061,110	$	237,547,371	289.69	%


(1)	The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) which reset daily, monthly, quarterly, or semiannually. For each investment, the Company has provided the spread over LIBOR in effect at March 31, 2019. Certain investments are subject to a LIBOR interest rate floor.


(2)	The investment has approximately $0.3 million in an unfunded delayed draw commitment as of March 31, 2019.


(3)	The investment is structured as a first lien last out term loan and may earn interest in addition to the stated rate.

See accompanying notes to consolidated financial statements.

I-45 SLF LLC

Consolidated Statements of Operations



	Year ended March 31, 2020			Year ended March 31, 2019			Year Ended March 31, 2018
Investment income
Interest	$	19,885,861		$	20,808,110		$	16,732,879
Fees and other income	414,445			588,778			332,752

Total investment income	20,300,306			21,396,888			17,065,631


Expenses
Interest expense	7,684,904			8,369,602			6,254,444
Administrative fee	140,469			153,400			150,362
Professional fees and other	220,051			236,224			208,225

Total expenses	8,045,424			8,759,226			6,613,031


Net investment income	12,254,882			12,637,662			10,452,600


Realized and unrealized (loss) gain on investments
Net realized gain on investments	603,240			399,954			1,660,104
Net change in unrealized (depreciation) appreciation on investments	(32,393,964		)	(6,647,036		)	(614,866		)

Net (loss) gain on investments	(31,790,724		)	(6,247,082		)	1,045,238


Net (decrease) increase in members' equity resulting from operations	$	(19,535,842	)	$	6,390,580		$	11,497,838

See accompanying notes to consolidated financial statements.

I-45 SLF LLC

Consolidated Statements of Changes in Members' Equity



	Years Ended March 31,
	2020			2019			2018

Members' equity beginning balance	$	82,001,122		$	84,046,081		$	79,417,700
Contributions	—			4,000,000			5,000,000
Distributions	(12,685,834		)	(12,435,539		)	(11,869,457		)
	69,315,288			75,610,542			72,548,243

Net increase in members' equity resulting from operations:
Net investment income	12,254,882			12,637,662			10,452,600
Net realized gain on investments	603,240			399,954			1,660,104
Net change in unrealized appreciation (depreciation) on investments	(32,393,964		)	(6,647,036		)	(614,866		)

Net (decrease) increase in members' equity resulting from operations	(19,535,842		)	6,390,580			11,497,838


Members' equity ending balance	$	49,779,446		$	82,001,122		$	84,046,081

See accompanying notes to consolidated financial statements.

I-45 SLF LLC

Consolidated Statements of Cash Flows



	Years Ended March 31,
	2020			2019			2018
Cash flows from operating activities
Net (decrease) increase in members' equity resulting from operations	$	(19,535,842	)	$	6,390,580		$	11,497,838
Adjustments to reconcile net (decrease) increase in members' equity resulting from operations to net cash provided by (used in) operating activities:
Net realized gain on investments	(603,240		)	(399,954		)	(1,660,104		)
Net change in unrealized depreciation on investments	32,393,964			6,647,036			614,866
Amortization of premiums and discounts on investments	(638,807		)	(671,016		)	(710,236		)
Amortization of deferred financing costs	(479,832		)	496,799			487,503
Purchases of investments	(49,770,814		)	(95,262,272		)	(135,400,139		)
Proceeds from sales / paydowns of investments	85,306,393			72,945,680			116,591,458
Changes in operating assets and liabilities:
Due from broker	(38,307		)	329,987			1,402,513
Interest receivable	(97,446		)	(165,804		)	(338,769		)
Payable for securities purchased	(940,346		)	(2,272,472		)	(8,582,182		)
Interest payable	(61,639		)	55,067			41,883
Accrued expenses and other liabilities	(68,414		)	67,497			28,330

Net cash provided by (used in) operating activities	45,465,670			(11,838,872		)	(16,027,039		)

Cash flows from financing activities
Borrowings under credit facility	23,363,635			55,000,000			34,000,000
Repayments of credit facility	(58,363,636		)	(38,000,000		)	(13,000,000		)
Deferred financing costs paid	—			(1,500		)	(939,006		)
Capital contributions	—			4,000,000			5,000,000
Distributions	(13,132,163		)	(12,071,214		)	(11,809,424		)

Net cash (used in) provided by financing activities	(48,132,164		)	8,927,286			13,251,570

Net change in cash and cash equivalents	(2,666,494		)	(2,911,586		)	(2,775,469		)
Cash and cash equivalents, beginning of period	6,405,598			9,317,184			12,092,653
Cash and cash equivalents, end of period	$	3,739,104		$	6,405,598		$	9,317,184

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	7,129,754		$	7,797,256		$	5,705,952

Supplemental disclosure of noncash financing activities
Distributions payable	$	2,808,471		$	3,254,800		$	2,890,475

See accompanying notes to consolidated financial statements.

I-45 SLF LLC

Notes to Consolidated Financial Statements

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

I-45 SLF LLC (the “Company”) was organized as a Delaware limited liability company on September 3, 2015 by the filing of a certificate of formation (the “Certificate”) with the Office of the Secretary of State of the State of Delaware under and pursuant to the Delaware Limited Liability Company Act (the “Act”). The Company is a joint venture between Main Street Capital Corporation and Capital Southwest Corporation. Capital Southwest Corporation owns 80.0% of the Company and has a profits interest of 75.6%, while Main Street Capital Corporation owns 20.0% and has a profits interest of 24.4%. The initial equity capital commitment to I-45 SLF totaled $85 million, consisting of $68 million from Capital Southwest Corporation and $17 million from Main Street Capital Corporation, all of which was funded as of March 31, 2020 and March 31, 2019.

On September 18, 2015, the Company’s wholly-owned and consolidated subsidiary, I-45 SPV LLC (the “SPV”) was organized as a Delaware limited liability company by the filing of a certificate of formation with the Office of the Secretary of State of the State of Delaware. The Company is the sole equity member of the SPV. All intercompany balances and transactions have been eliminated in consolidation.

The registered agent and office of the Company required by the Act to be maintained in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The principal office of the Company shall be located at such place within or without the State of Delaware, and the Company shall maintain such records, as the Members shall determine from time to time.

BASIS OF PRESENTATION

The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). The Company is an investment company and follows the accounting and reporting guidance in FASB Topic 946 - Financial Services - Investment Companies (“ASC Topic 946”). Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS

Investment transactions are accounted for on a trade-date basis. Premiums and discounts are amortized over the lives of the respective debt securities using the effective interest method. Investments that are held by the Company are stated at fair value in accordance with ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC Topic 820”).

Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the year net of recoveries and realized gains or losses from in-kind redemptions. Net change in unrealized appreciation or depreciation reflects the net change in the fair value of the investment portfolio and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents, which consist of cash and highly liquid investments with an original maturity of three months or less at the date of purchase, are carried at cost, which approximates fair value.

In the normal course of business, the Company maintains its cash and cash equivalent balances in financial institutions, which at times may exceed federally insured limits. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financial institutions and does not anticipate any losses from these counterparties.

DEFERRED FINANCING COSTS

Deferred financing costs include commitment fees and other costs related to the Company’s credit facility (the “Credit Facility”, as discussed further in Note 4). These costs have been capitalized and are amortized into interest expense over the term of the individual instrument.

INTEREST INCOME

Interest income is recorded as earned on the accrual basis and includes amortization of premiums or accretion of discounts. In accordance with the Company’s valuation policy, accrued interest receivables are evaluated periodically for collectability. When the Company does not expect the debtor to be able to service all of its debt or other obligations, the Company 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 the ability to service debt or other obligations, it will be restored to accrual basis. As of March 31, 2020, the Company had two investments on non-accrual status. As of March 31, 2019, the Company did not have any investments on non-accrual status.

EXPENSES

Unless otherwise voluntarily or contractually assumed by the Board of Managers or another party, the Company bears all expenses incurred in its business including, but not limited to, the following: all costs and expenses related to investment transactions and positions for the Company, legal fees, accounting, auditing and tax preparation fees, recordkeeping and custodial fees, costs of computing the Company’s members’ equity, research expenses, costs of registration expenses, all costs with respect to communications with members, and other types of expenses as may be approved from time to time.

INCOME TAXES

The Company is organized and operates as a limited liability company and is not subject to income taxes as a separate entity. Such taxes are the responsibility of the individual members. Accordingly, no provision for income taxes has been made in the Company’s financial statements. Investments in foreign securities may result in foreign taxes being withheld by the issuer of such securities.

For the current open tax year and for all major jurisdictions, management of the Company has evaluated the tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions will “more-likely-than-not” be sustained by the Company upon challenge by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold and that would result in a tax benefit or expense to the Company would be recorded as a tax benefit or expense in the current year. For each of the three tax years ended December 31, 2019, 2018 and 2017 the Company determined that it did not have any uncertain tax positions. Generally, the Company is subject to income tax examinations by major taxing authorities during the three years prior to the periods covered by these financial statements.

RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which is intended to improve fair value and defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures' specific requirements, and adding relevant disclosure requirements. The amendments take effect for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company elected to early adopt ASU 2018-13 effective April 1, 2019 and applied it to all periods presented. Certain disclosure requirements were applied restrospectively and others were applied prospectively as required by the amendment. The adoption of this new accounting standard resulted in the removal of certain disclosures not required by a nonpublic entity.

3. FAIR VALUE MEASUREMENTS

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s investments is determined as of the close of business at the end of each reporting period (“Valuation Date”) in conformity with the guidance on fair value measurements and disclosures under U.S. GAAP.

The inputs used to determine the fair value of the Company’s investments are summarized in the three broad levels listed below:


•	Level 1- unadjusted quoted prices in active markets for identical investments


•	Level 2- investments with other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.)


•	Level 3- investments with significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The Company establishes valuation processes and procedures to ensure the valuation methodologies for investments categorized within Level 3 of the fair value hierarchy are fair, consistent, and verifiable. The Company designates the Board of Managers to oversee the entire valuation process of Level 3 investments. The Board of Managers is responsible for developing the Company’s valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies. Additionally, the Board of Managers is generally responsible for reviewing and approving the valuation determinations and any information provided by U.S. Bancorp Fund Services, LLC (the “Administrator”), as well as determining the levels of the fair value hierarchy in which the investments fall.

The Board of Managers meets on a quarterly basis, or more frequently as needed, to determine the valuations of Level 3 investments. Valuations determined by the Board of Managers are required to be supported by market data, third-party pricing sources, industry accepted pricing models, counterparty prices, or other methods the Board of Managers deems to be appropriate, including the use of internal proprietary pricing models. The Company, along with the Board of Managers, periodically reviews the valuations of Level 3 investments, and if necessary, recalibrates its valuation procedures.

Investments currently held by the Company are generally valued as follows:

Securities that are listed on a recognized exchange are valued at their last available public sales price. Securities that are listed on more than one national securities exchange are valued at the last quoted sales price on the primary exchange on which the security is listed. If a security was not traded on the primary exchange on the valuation date, such security is valued at the last quoted sales price on the next most active market, if the Board of Managers determines the price to be representative of fair value. Investments that are not listed on an exchange but are traded over-the-counter are generally valued using independent pricing services. These pricing services may use the broker quotes or models that consider such factors as issue type, coupon rate, maturity, rating, prepayment speed, yield, or prices of comparable quality, when pricing securities.

In the case of investments not priced by independent pricing services, the Board of Managers will endeavor to obtain market maker quotes. For both long and short positions, the average of all “bid” and “asked” quotations is generally used.

The fair value determination of the Company’s investments consists of a combination of observable inputs in non-active markets and unobservable inputs. The observable inputs are not always sufficient to determine the fair value of these investments. As a result, all investments currently held by the Company are categorized as Level 3 under ASC 820.

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s investments that are categorized within Level 3 of the fair value hierarchy as of March 31, 2020 and 2019:



Type of Investment	Fair Value at March 31, 2020		Valuation Technique	Unobservable Input	Range

Corporate bank loans	$	132,080,010	Income Approach	Broker Quotes	13.75 - 100.25
	38,779,865		Income Approach	Discount Rate	8.96% - 19.81%
	$	170,859,875



Type of Investment	Fair Value at March 31, 2019		Valuation Technique	Unobservable Input	Range	Weighted Average

Corporate bank loans	$	174,772,948	Income Approach	Broker Quotes	65.6 - 101.0	96.8
	40,237,232		Income Approach	Discount Rate	8.5% - 14.5%	10.8%
	22,537,191		Market Approach	Exit Value	100.0 - 101.0	100.0
	$	237,547,371

The Board of Managers will evaluate the valuation hierarchy and make changes when necessary. The Company discloses transfers between levels based on valuations at the end of the reporting period. There were no transfers between levels for the years ended March 31, 2020 and 2019. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.

The following is a summary categorization, as of March 31, 2020, of the Company’s investments based on the level of inputs utilized in determining the value of such investments:



	Level 1		Level 2		Level 3		Total
Investments (at fair value)
Corporate bank loans	$	—	$	—	$	170,859,875	$	170,859,875
Total investments	—		—		170,859,875		170,859,875

Cash equivalents - money market fund	2,572,876		—		—		2,572,876

	$	2,572,876	$	—	$	170,859,875	$	173,432,751

The following is a summary categorization, as of March 31, 2019, of the Company’s investments based on the level of inputs utilized in determining the value of such investments:



	Level 1		Level 2		Level 3		Total
Investments (at fair value)
Corporate bank loans	$	—	$	—	$	237,547,371	$	237,547,371
Total investments	—		—		237,547,371		237,547,371

Cash equivalents - money market fund	5,333,271		—		—		5,333,271

	$	5,333,271	$	—	$	237,547,371	$	242,880,642

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs. For the year ended March 31, 2020, the Company purchased $48,830,468 of new investments of corporate bank loans classified as Level 3 investments in the fair value hierarchy.

The following table represents additional information about Level 3 assets measured at fair value. Changes in Level 3 assets measured at fair value for the year ended March 31, 2019 were as follows:



	Level 3
	Beginning Balance		Purchases^(a)		Settlements			Change in Unrealized Appreciation^(b)			Realized Gains (Losses)^(c)		Ending Balance		Change in Unrealized Appreciation (Depreciation) on Investments Held at Period End
Investments (at fair value)
Corporate bank loans	$	220,806,845	$	135,311,691	$	(112,324,083	)	$	(6,647,036	)	$	399,954	$	237,547,371	$	(6,210,449	)

Total	$	220,806,845	$	135,311,691	$	(112,324,083	)	$	(6,647,036	)	$	399,954	$	237,547,371	$	(6,210,449	)

(a)Includes purchases of new investments, as well as discount accretion on investments.

(b)The change in unrealized appreciation is reflected in the net change in unrealized appreciation on investments in the

Consolidated Statements of Operations.

(c)Realized gains (losses) are included in the net realized gain on investments in the Consolidated Statements of Operations.

4. CREDIT FACILITY

The Company closed on a $75.0 million 5-year senior secured credit facility with Deutsche Bank AG (the “Credit Facility”) in the period ended March 31, 2016. This facility included an accordion feature which allows the Company to achieve leverage of up to 2x debt-to-equity. During the year ended March 31, 2017, the Company increased credit facility commitments outstanding by an additional $90.0 million by adding three additional lenders to the syndicate, bringing total debt commitments to $165.0 million. In July 2017, the Credit Facility was amended to extend the maturity to July 2022. In November 2019, the Credit Facility was amended to extend the maturity to November 2024. The Company maintains the Credit Facility to provide additional liquidity to support its investment and operational activities.

Prior to the amendment to the Credit Facility, borrowings under the Credit Facility bore interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 2.50%. Subsequent to the July 2017 and November 2019 amendments, borrowings bear interest on a per annum basis at a rate equal to 3 month LIBOR plus 2.40% and 2.25%, respectively. The Company pays an administrative agent fee of 0.25% per annum and unused fees of 0.40% per annum on the unused lender commitments under the Credit Facility. The Credit Facility is secured by a first lien on the assets of the Company. The Credit Facility contains certain affirmative and negative covenants, including but not limited to maintenance of a borrowing base. The Credit Facility is provided on a revolving basis through its final maturity date in November 2024.

At March 31, 2020 and 2019, the Company had $125.0 million and $160.0 million, respectively, in borrowings outstanding under the Credit Facility. The Company recognized interest expense related to the Credit Facility, including unused commitment fees, administrative agent fees and amortization of deferred loan costs, of approximately $7.7 million and $8.4 million, respectively, for the years ended March 31, 2020 and 2019. The weighted average interest rate on the Credit Facility was 4.61% and 4.96%, respectively, for the years ended March 31, 2020 and 2019. Average borrowings for the years ended March 31, 2020 and 2019 were $143.6 million and $148.4 million, respectively.

A summary of the Company's contractual payment obligations for the repayment of outstanding indebtedness at March 31, 2020 is as follows:



	Years Ending March 31,
	2021	2022	2023	2024	2025	Thereafter	Total
Credit Facility	—	—	—	—	125,000	—	125,000

5. ALLOCATION OF PROFITS AND LOSSES

For each fiscal year, profits or net losses of the Company are allocated among and credited to or debited against the capital accounts of the members as of the last day of each fiscal year in accordance with the Limited Liability Company Agreement (the “LLC Agreement”). Net profits or net losses are allocated after giving effect for any initial or additional applications for interests or any repurchases of interests. Net investment income, realized gains and losses, and unrealized gains or losses are allocated to the members pro rata in accordance with their profit percentages, as defined in the LLC Agreement. Net profits or net losses are measured as the net change in the value of the members’ equity in the Company, including any change in unrealized appreciation or depreciation of investments and income, net of expenses, and realized gains or losses during a fiscal year.

Each quarter a cash distribution may be made to the members, which is generally equivalent to estimated taxable income less non-cash revenue (such as original issue discount amortization or PIK interest). The estimated taxable income distributions are generally made up of taxable net investment income (excluding non-cash revenue) and realized gains and losses. Estimated taxable income and distributions made to the members therefore may be materially different than GAAP net investment income. The distribution policy is subject to change by the Board of Managers based on business and market conditions at any time.

6. DUE FROM BROKERS

The Company conducts business with brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances or securities, or clear security transactions on the Company’s behalf. The Company monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote. At March 31, 2020 and 2019, the balance in due from brokers is cash of approximately $38 thousand and $0, respectively.

7. ADMINISTRATION AGREEMENT

In consideration for administrative, accounting, and recordkeeping services, the Company pays the Administrator a quarterly administration fee. This fee is calculated based on the quarter end invested assets. For the year ended March 31, 2020, the Company had incurred $140 thousand in administration fees, of which $30 thousand were payable at the end of the year. For the year ended March 31, 2019, the Company had incurred $153 thousand in administration fees, of which $78 thousand were payable at the end of the year. For the period ended March 31, 2018, the Company had incurred $150 thousand in administration fees, of which $37 thousand were payable at the end of the year.

The Administrator is affiliated with a broker, U.S. Bank, through which the Company transacts operations. At March 31, 2020, cash and cash equivalents in the amount of $3.7 million are held with U.S. Bank. At March 31, 2019, cash and cash equivalents in the amount of $6.4 million are held by U.S. Bank.

8. COMMITMENTS AND CONTINGENCIES

The Company entered into various trades during the periods ended March 31, 2020 and 2019. As of March 31, 2020 and 2019, there were outstanding trades in the amount of approximately $0.0 million and $0.9 million, respectively, that remained unsettled. This is shown as payable for securities purchased on the Consolidated Statements of Assets, Liabilities and Members’ Equity.

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk, consisting primarily of unused commitments to extend financing to the Company’s portfolio companies. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The following table lists the outstanding commitments as of March 31, 2020 and 2019:




		March 31,		March 31,
Portfolio Company	Investment Type	2020		2019
New Era Technology, Inc.	Delayed Draw Term Loan	$	—	$	256,000
PaySimple, Inc.	Delayed Draw Term Loan	449,000		—
Total unused commitments to extend financing		$	449,000	$	256,000

The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. The Company has no currently pending material legal proceedings to which it is a party or to which any of its assets is subject.

9. FINANCIAL HIGHLIGHTS

Financial highlights are as follows:



	Year ended		Year ended		Year ended
	March 31, 2020		March 31, 2019		March 31, 2018
Net investment income to average members' equity⁽¹⁾	16.88	%	15.37	%	12.40	%
Expenses to average members' equity⁽¹⁾	(11.08	)%	(10.65	)%	(7.85	)%
Internal Rate of Return, end of year⁽²⁾	4.87	%	14.15	%	16.77	%


⁽¹⁾	Ratios are calculated by dividing the indicated amount by average members' equity measured as of the end of each quarter during the period.


⁽²⁾	The internal rate of return since inception ("IRR") of the members is computed based on the actual dates of cash inflows, outflows and the ending net assets at the end of the year of the members' equity account as of each measurement date. The IRR includes actual cash payments and does not include distributions declared but not yet paid.

Financial highlights are calculated for the members’ class taken as a whole. An individual member’s return and ratios may vary. Financial highlights disclosed may not be indicative of future performance of the Company.

10. SUBSEQUENT EVENTS

Management has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through May 11, 2020, the date the consolidated financial statements were available to be issued.

On April 30, 2020, the First Amendment to the Amended and Restated Limited Liability Company Operating Agreement of I-45 SLF LLC (the "Amendment") was entered into by Main Street Capital Corporation and Capital Southwest Corporation. The Amendment increases the total capital commitment of Main Street Corporation by $3.2 million to $20.2 million and the total capital commitment of Capital Southwest Corporation by $12.8 million to $80.8 million, which were funded as of the effective date. In addition, on April 30, 2020, the Credit Facility was amended to permanently reduce the facility amount through a prepayment of $15 million.

On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) as a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The Company has been closely monitoring the COVID-19 pandemic, its broader impact on the global economy and the more recent impacts on the U.S. economy. These events, leading up to March 31, 2020, were considered in the valuation of our investments. As of May 11, 2020, there is no indication of a reportable subsequent event impacting the Company’s financial statements for the year ended March 31, 2020. Nevertheless, COVID-19 presents material uncertainty and risks with respect to the operational and financial performance of the portfolio companies in which we make investments, which may in turn impact the valuation of our investments. The Company continues to observe and respond to the evolving COVID-19 environment and its potential impact on areas across its business.

Attached files

Stock widget

Investing forum

CAPITAL SOUTHWEST CORP Reports