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Capital Southwest (CSWC) delivered a fairly uneventful but respectable quarter. Net Asset Value (NAV) came in slightly better than expected, while adjusted Net Investment Income (NII) came in a bit below our projections. All things considered, Q1 2025 was right down the middle.

NAV got a small lift thanks to CSWC’s continued use of its at-the-market (ATM) equity program, which helps raise capital efficiently when the stock trades above NAV. Think of it like selling lemonade for $2 a glass when it only costs $1 to make - it adds up over time. That advantage is built into our rating system for CSWC and still holds true this quarter.

NII dipped slightly, even after adjusting for a $2.8 million one-time expense related to a leadership change. That kind of cost is unusual, so it’s best to look at the adjusted figure for a fairer comparison. The dip wasn’t huge, but it’s something we’ll be keeping an eye on.

Credit-wise, CSWC’s non-accruals percentages slightly declined. It appears the company may have partially written-off some and/or restructured previous non-accrual portfolio companies during Q1 . Still, lower non-accruals are usually a good trend, and nothing so far has caught us off guard.

So where does that leave us? CSWC remains a well-run BDC, but until recently, its stock was trading well above what we considered fair value. After the recent sell-off, the price has come down enough to shift our stance from Sell to Hold.

We’re not pounding the table to buy yet. If valuation improves just a little more, we’d be ready to reconsider. As always, patience and discipline tend to reward BDC investors who know when to wait for the right entry point.

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This article was compiled by my assistant. If there are any mistakes, blame him - I certainly will.