Item 1.01 Entry into a Material Definitive Agreement.
In connection with the previously announced public offering, on June 14, 2023, Capital Southwest Corporation (the “Company”) and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee (the “Trustee”), entered into a fifth supplemental indenture (the “Fifth Supplemental Indenture”) to the indenture, dated October 23, 2017, between the Company and the Trustee (the “Base Indenture” and together with the Fifth Supplemental Indenture, the “Indenture”). The Fifth Supplemental Indenture relates to the Company’s issuance and sale of $71,875,000 aggregate principal amount of the Company’s 7.75% Notes due 2028 (the “Notes” and the issuance and sale of the Notes, the “Offering”) (which includes the full exercise of the underwriter's option to purchase an additional $9,375,000 aggregate principal amount of the Notes to cover overallotments).
The Notes bear interest at a rate of 7.75% per year. The Notes will mature on August 1, 2028. The Company will pay interest on the Notes on February 1, May 1, August 1 and November 1 each year, beginning on August 1, 2023. The Company may redeem the Notes in whole or in part at any time, or from time to time on or after August 1, 2025, at the redemption price of par, plus accrued interest.
The Notes are the direct unsecured obligations of the Company and rank pari passu with all existing and future unsubordinated unsecured indebtedness issued by the Company, senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the Notes, effectively subordinated to all of the existing and future secured indebtedness issued by the Company (including indebtedness that is initially unsecured in respect of which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under the Company’s senior secured revolving credit facility (the “Credit Facility”), and structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries, including, without limitation, the debentures guaranteed by the U.S. Small Business Administration.
The Indenture 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 Investment Company Act of 1940, as amended (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 U.S. Securities and Exchange Commission (the “SEC”), to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, after giving effect to any exemptive relief granted to the Company by the SEC and subject to certain other exceptions, and to provide financial information to the holders of the Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended. These covenants are subject to important limitations and exceptions that are described in the Indenture.
The Notes were offered and sold in an offering registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form N-2 (File No. 333-259455), as supplemented by a preliminary prospectus supplement dated June 7, 2023, the pricing term sheet dated June 7, 2023, and a final prospectus supplement dated June 7, 2023. The transaction closed on June 14, 2023. The net proceeds to the Company were approximately $69.3 million, based on a public offering price of 100% of par, after deducting underwriting discounts and commissions of approximately $2.2 million and the estimated offering expenses of approximately $0.4 million payable by the Company. The Company intends to use the net proceeds from the Offering to repay a portion of the outstanding indebtedness under the Credit Facility.
The foregoing descriptions of the Fifth Supplemental Indenture and the Notes do not purport to be complete and are qualified in their entirety by reference to the full text of the Fifth Supplemental Indenture and the form of global note representing the Notes, respectively, each filed as exhibits hereto and incorporated by reference herein.