Capital Southwest Corporation (NASDAQ:CSWC) Q3 2023 Earnings Call Transcript

Bowen Diehl: Yeah. I mean, I think 2023, if it plays out of any kind of recession, that I think the 2023 vintage could end up being an outstanding vintage. I mean that — and that would be consistent with past cycles, right? And so, especially in kind of the theoretical second half of a recession, right, where kind of the laundry has been — the dirty laundry has been aired and sponsors have liquidity that can negotiate relatively interesting valuations from a cycle perspective, sellers are a little bit more flexible in structure or what have you, and really end up structuring deals at valuation multiples and leverage multiples because you’re at a trough in EBITDA rate, so from a cycle perspective. So all people EBITDA goes up, which drives value, delevers. And so all those factors go in and make a recession year when you look back at past cycles, in my experience to end up being very attractive institutions.

Michael Sarner: And the only downside of that is these assets may spend to be less sticky, right? We’ve had to negotiate cost protection and extremely important on these companies where the leverage is so well in the LTV as well. So, we’d expect if things — if this recession is mild and/or if it passes, 2024 could be a high refinancing year.

Bowen Diehl: And that’s consistent with past cycles, too. I mean that’s a term that is that we’re pretty aggressive on holding the line on, but that’s a pushback term from sponsors, they want some relief or some lower prepayment penalties and that kind of thing. So, it’s a term that’s heavily negotiated deals right now, and that will be the case through the recession. And then clearly, coming out of a recession to Michael’s point, is to best leverage comes down, things normalize and then you want to kind of normalize the capital structure. So that ends up being less sticky debt investments to really interesting on the equity piece.

Robert Dodd : Got it. Got it. I appreciate the color. Thanks guys.

Bowen Diehl: Thanks Robert.

Operator: Thank you. And I would like to turn the conference back to Bowen Diehl for any closing remarks.

End of Q&A:

Bowen Diehl: Well, thank you everyone for joining us, and we always appreciate giving you update on the company. And thanks for all the questions, and we look forward to talking to you next quarter.

Operator: This concludes the conference call. Thank you for participating. You may now disconnect.