Capital Southwest (CSWC) risk factors, FY2026 10-K

Capital Southwest's FY2026 10-K, filed May 19, 2026, lists 68 risk factors in 3 groups. Against the prior year's 67: 8 new, 7 dropped, 21 substantially reworded.

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Risk factors listed
683 groups
New this year
8vs 67 last year
Dropped
7since the prior 10-K
Substantially reworded
21of those kept
Section length
23k wordsItem 1A

What the changes say

  • New risks address artificial intelligence, climate-related costs, system failures, geopolitical conflicts, and CapTrin co-investment subordination.

What changed since the prior 10-K

New

  • NewRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations

    A renewed economic downturn could reduce portfolio-company values and make it harder to raise equity or debt capital.

  • NewRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Climate change and related transition and physical risks could adversely affect our operations and those of our portfolio companies and increase costs (including insurance costs)

    Climate legislation, transition costs, physical effects, energy changes, and higher insurance costs could hurt operations and portfolio-company valuations.

  • NewRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    consequences. Shareholders are urged to consult with their tax advisor with respect to the impact of the status of any legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities

    Failures, interruptions, errors, or damage affecting company or third-party information systems could disrupt transactions, data, accounting, and operations.

  • NewRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    We may be subject to risks associated with artificial intelligence

    Poorly developed or inaccurate artificial intelligence tools used by the Company, portfolio companies, or counterparties could create costly errors and performance problems.

  • NewRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    In addition, the ongoing turmoil and political unrest in the Middle East and in Europe, and escalating tensions in those regions, may create volatility and disruption of global markets

    Escalating conflicts in the Middle East and Europe, sanctions, oil prices, and shipping costs could disrupt global markets and investment valuations.

  • NewRISKS RELATED TO OUR INVESTMENTS

    more of these persons could have a material adverse impact on our portfolio company and, in turn, on the value of such portfolio company

    Privately held LMM companies may face litigation, product obsolescence, customer concentration, unpredictable results, limited information, and vulnerability to competitors or downturns.

  • NewRISKS RELATED TO OUR INVESTMENTS

    We may be subject to risks associated with co-investments alongside our joint venture

    CapTrin may hold first-out unitranche interests while the Company holds junior last-out interests, increasing loss risk and creating conflicts.

  • NewRISKS RELATED TO OUR SECURITIES

    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" for more information

    The Notes lack financial tests and ratios, while future debt or recapitalization could make repayment harder and reduce their market value.

Dropped

  • DroppedRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    We are currently operating in a period of economic uncertainty. 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

  • DroppedRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    The effect of global climate change may impact the operations and valuation of our portfolio companies

  • DroppedRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    additional debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing shareholders, may harm the value of our common stock

  • DroppedRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Our portfolio companies also rely on similar information systems and face similar risks. A disruption or compromise of these systems could have a material adverse effect on the value of these businesses

  • DroppedRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    In addition, the recent outbreak of hostilities in the Middle East and escalating tensions in the region may create volatility and disruption of global markets

  • DroppedRISKS RELATED TO OUR INVESTMENTS

    substantial additional capital to support their operations, finance expansion or maintain their competitive position

  • DroppedRISKS RELATED TO OUR INVESTMENTS

    We may be subject to risks associated with “covenant-lite” loans

Reworded

  • 84% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    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

    The disclosure now says RIC qualification must be both obtained and maintained, defines investment company taxable income, and retains the 4% excise-tax risk.

    Was: 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

  • 77% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Legislative or other actions relating to taxes could have a negative effect on us

    The risk now expressly covers adverse tax consequences to shareholders and portfolio investments, not only effects on the Company.

  • 64% rewrittenRISKS RELATED TO OUR INVESTMENTS

    Our investments in portfolio companies involve a number of significant risks

    The disclosure changes “middle market companies” to “LMM companies” and continues describing management dependence and private-company operating risks.

  • 58% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Changes to U.S. tariff and import/export regulations may have a negative effect on the operations of our portfolio companies and, in turn, negatively impact us

    The disclosure adds that the Supreme Court invalidated IEEPA tariffs and identifies Trade Act tariffs effective February 24, 2026.

  • 54% rewrittenRISKS RELATED TO OUR SECURITIES

    While a trading market developed after issuing the 2029 Convertible Notes and the September 2030 Notes, we cannot assure you that an active trading market for the 2029 Convertible Notes and the September 2030 Notes will be maintained

    The disclosure now covers only the 2029 Convertible Notes and September 2030 Notes, adds underwriter market-making limits, and removes October 2026 Notes.

    Was: While a trading market developed after issuing the October 2026 Notes, August 2028 Notes and the 2029 Convertible Notes, we cannot assure you that an active trading market for the October 2026 Notes, the August 2028 Notes and the 2029 Convertible Notes will be maintained

  • 53% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    ( 28.51 )% ( 17.74 )% ( 6.98 )% 3.79 % 14.56 %

    The assumptions increase total assets to $2,177.5 million, debt to $1,148.0 million, interest rate to 6.00%, and required return to 3.24%.

    Was: (27.29)% (16.64)% (5.98)% 4.67% 15.32%

  • 51% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Even if the Company qualifies as a RIC, it may face tax liabilities that reduce its cash flow

    There is no substantive change: the Taxable Subsidiary tax and fair-value uncertainty disclosures remain materially the same.

  • 44% rewrittenRISKS RELATED TO OUR SECURITIES

    We may not be able to repurchase the September 2030 Notes upon a Change of Control Repurchase Event

    The repurchase risk now applies to September 2030 Notes instead of October 2026 Notes, with the same funding and credit-facility constraints.

    Was: We may not be able to repurchase the October 2026 Notes upon a Change of Control Repurchase Event

  • 42% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively

  • 40% rewrittenRISKS RELATED TO OUR INVESTMENTS

    We are exposed to risks associated with changes in interest rates

  • 38% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital

  • 34% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    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

  • 32% rewrittenRISKS RELATED TO OUR SECURITIES

    The respective indentures under which the 2029 Convertible Notes and the September 2030 Notes were issued contain limited protection for holders of the 2029 Convertible Notes and the September 2030 Notes

    Was: The respective indentures under which the October 2026 Notes, the August 2028 Notes and the 2029 Convertible Notes were issued contain limited protection for holders of the October 2026 Notes, the August 2028 Notes and the 2029 Convertible Notes

  • 31% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition, and results of operations

  • 26% rewrittenRISKS RELATED TO OUR INVESTMENTS

    The loans we make in portfolio companies may become non-performing

  • 26% rewrittenRISKS RELATED TO OUR INVESTMENTS

    Defaults by our portfolio companies could harm our operating results

  • 26% rewrittenRISKS RELATED TO OUR SECURITIES

    Terms relating to redemption may materially adversely affect the return on our debt securities

  • 25% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Our business is dependent on bank relationships and any strain on the banking system may adversely impact us

    Was: Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us

  • 22% rewrittenRISKS RELATED TO OUR BUSINESS AND STRUCTURE

    Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm our business, operating results and financial condition

  • 21% rewrittenRISKS RELATED TO OUR SECURITIES

    The Notes are unsecured and therefore are effectively subordinated to any existing and future secured indebtedness, including indebtedness under our Corporate Credit Facility

  • 21% rewrittenRISKS RELATED TO OUR SECURITIES

    The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries, including the SBA-guaranteed debentures and the SPV Credit Facility

All 68 risk factors

Headings as the filing states them, in filing order.

Other

  1. 01The following is a summary of the principal risk factors associated with an investment in us. Further details regarding each risk included in the below summary list can be found further below

RISKS RELATED TO OUR BUSINESS AND STRUCTURE

  1. 02Our financial condition and results of operations will depend on our ability to effectively allocate and manage capital
  2. 03Any unrealized losses we experience may be an indication of future realized losses, which could reduce our income available to make distributions
  3. 04Our business model depends to a significant extent upon strong referral relationships. 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
  4. 05Because 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 us34% rewritten
  5. 06Our ability to achieve our investment objective may depend in part on our ability to access additional leverage on favorable terms by borrowing from banks or insurance companies or by issuing debt securities and there can be no assurance that such additional leverage can in fact be achieved
  6. 07( 28.51 )% ( 17.74 )% ( 6.98 )% 3.79 % 14.56 %53% rewritten
  7. 08As a BDC, we are not permitted to acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets
  8. 09A failure on our part to maintain our status as a BDC would significantly reduce our operating flexibility
  9. 10We 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 84% rewritten
  10. 11Even if the Company qualifies as a RIC, it may face tax liabilities that reduce its cash flow51% rewritten
  11. 12deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operationsNew
  12. 13Inflation 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
  13. 14Political, social and economic uncertainty creates and exacerbates risks
  14. 15Changes to U.S. tariff and import/export regulations may have a negative effect on the operations of our portfolio companies and, in turn, negatively impact us58% rewritten
  15. 16Climate change and related transition and physical risks could adversely affect our operations and those of our portfolio companies and increase costs (including insurance costs)New
  16. 17Environmental, social and governance factors may adversely affect our business or cause us to alter our business strategy
  17. 18Downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition, and results of operations31% rewritten
  18. 19Our business is dependent on bank relationships and any strain on the banking system may adversely impact us25% rewritten
  19. 20We operate in a highly competitive market for investment opportunities
  20. 21Our success depends on attracting and retaining qualified personnel in a competitive environment
  21. 22Our asset coverage requirement is 150%, which could increase the risk of investing in the Company
  22. 23We expend significant financial and other resources to comply with the requirements of being a public company
  23. 24Our ability to enter into transactions with our affiliates is restricted
  24. 25Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital38% rewritten
  25. 26SBIC I and SBIC II received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended, on April 20, 2021 and April 17, 2025, respectively, and the SBIC Subsidiaries are regulated by the SBA
  26. 27Shareholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or issue securities that are convertible to shares of our common stock
  27. 28Legislative or other actions relating to taxes could have a negative effect on us77% rewritten
  28. 29consequences. Shareholders are urged to consult with their tax advisor with respect to the impact of the status of any legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securitiesNew
  29. 30A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively42% rewritten
  30. 31We may be subject to risks associated with artificial intelligenceNew
  31. 32Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm our business, operating results and financial condition22% rewritten
  32. 33In addition, the ongoing turmoil and political unrest in the Middle East and in Europe, and escalating tensions in those regions, may create volatility and disruption of global marketsNew
  33. 34Our business and operations may be negatively affected if we become subject to securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of our investment strategy and impact our stock price

RISKS RELATED TO OUR INVESTMENTS

  1. 35Our investments in portfolio companies involve a number of significant risks64% rewritten
  2. 36more of these persons could have a material adverse impact on our portfolio company and, in turn, on the value of such portfolio companyNew
  3. 37We are subject to risks associated with our investments in senior loans
  4. 38The lack of liquidity in our investments may adversely affect our business
  5. 39Defaults by our portfolio companies could harm our operating results26% rewritten
  6. 40We may not realize gains from our equity investments
  7. 41Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
  8. 42The loans we make in portfolio companies may become non-performing 26% rewritten
  9. 43We are exposed to risks associated with changes in interest rates40% rewritten
  10. 44There may be circumstances in which our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
  11. 45As a RIC, we may have certain regulatory restrictions that could preclude us from making additional investments in our portfolio companies
  12. 46We generally will not control our portfolio companies
  13. 47Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in those companies
  14. 48We may be subject to risks associated with co-investments alongside our joint ventureNew
  15. 49Changes in healthcare laws and other regulations, or the enforcement or interpretation of such laws or regulations, applicable to some of our portfolio companies’ businesses may constrain their ability to offer their products and services
  16. 50We may be subject to risks associated with our investments in the business services industry

RISKS RELATED TO OUR SECURITIES

  1. 51The market price of our common stock may fluctuate significantly
  2. 52Investing in shares of our common stock may involve an above average degree of risk
  3. 53Shares of closed-end investment companies, including BDCs, may trade at a discount to their NAV
  4. 54The Notes are unsecured and therefore are effectively subordinated to any existing and future secured indebtedness, including indebtedness under our Corporate Credit Facility21% rewritten
  5. 55The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries, including the SBA-guaranteed debentures and the SPV Credit Facility21% rewritten
  6. 56The respective indentures under which the 2029 Convertible Notes and the September 2030 Notes were issued contain limited protection for holders of the 2029 Convertible Notes and the September 2030 Notes32% rewritten
  7. 57Notes 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" for more informationNew
  8. 58We 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
  9. 59The Corporate Credit Facility may limit our ability to pay any cash amount upon the conversion or repayment of the 2029 Convertible Notes
  10. 60We may not be able to repurchase the September 2030 Notes upon a Change of Control Repurchase Event44% rewritten
  11. 61Conversion of the 2029 Convertible Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock
  12. 62While a trading market developed after issuing the 2029 Convertible Notes and the September 2030 Notes, we cannot assure you that an active trading market for the 2029 Convertible Notes and the September 2030 Notes will be maintained54% rewritten
  13. 63If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes
  14. 64Terms relating to redemption may materially adversely affect the return on our debt securities26% rewritten
  15. 65We currently intend to pay quarterly dividends. However, in the future we may not pay any dividends depending on a variety of factors
  16. 66We currently pay dividends in cash. However, in the future we may choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive
  17. 67We may not be able to invest a significant portion of the net proceeds from future capital raises on acceptable terms, which could harm our financial condition and operating results
  18. 68Provisions of Texas law and our charter could deter takeover attempts and have an adverse impact on the price of our common stock

Other Capital Southwest 10-Ks

  • FY2025 10-K risk factors
    67 risks

    Capital Southwest faces significant risks related to capital allocation, portfolio company credit defaults, valuation uncertainties, and borrowing leverage. The company depends heavily on external referral relationships, debt market access, and maintaining its BDC and RIC regulatory status. Inflation, economic volatility, and rising competition for middle-market investments directly threaten portfolio performance.

    Filed May 20, 2025

About this page

The headings are the filing's own. The one-line readings and the overview are automated and can be wrong: read Item 1A of the 10-K for the exact wording.