Capital Southwest To Separate Into Two Public Companies

(RTTNews) - Capital Southwest Corp. (CSWC) said Tuesday that its board of directors has approved a plan to spin off certain of its control assets into a standalone, publicly-traded diversified industrial growth company. The company noted that the spin-off will result in the establishment of two independent publicly-traded companies with distinct strategies and growth profiles.

Dallas, Texas-based Capital Southwest is a business development company that specializes in private equity investments in growth capital, acquisition financings, management buyouts, and minority recapitalizations.

Following the spin-off, the newly formed Industrial Co. will include the businesses that are currently control investments of Capital Southwest. These include the RectorSeal Corporation, Whitmore Manufacturing and Jet-Lube Inc.

The spin-off is expected to be completed by the end of the third quarter of 2015. Following the spin-off, Capital Southwest will maintain operations as an internally-managed business development company and focus on lending to strong middle-market companies in the Southwest and across the country.

The proposed transaction is subject to approval by Capital Southwest's shareholders, the receipt of an order for exemptive relief from the Securities and Exchange Commission, and other customary conditions.

Upon closing of the transaction, the holder of each share of Capital Southwest stock will receive a pro rata distribution of stock of the Industrial Co. The proposed transaction will be structured as a tax-free distribution to Capital Southwest shareholders.

Capital Southwest noted that among its control assets that are being spun off, RectorSeal makes specialty chemical products and control devices for plumbing, HVAC, electrical and industrial applications, while Whitmore makes high performance, specialty lubricants for heavy equipment used in surface mining, railroads and other industries. Jet-Lube makes specialty lubricants and other products used in oil field and industrial applications.

The newly formed Industrial Co. will have scalable platforms and deep domain expertise initially across two core industries - industrial products and specialty chemicals. The company will have exposure to the high-growth Southwest markets and will focus on generating free cash flow by growing organically and through complementary and synergistic acquisitions.

Following the spin off, Capital Southwest plans to primarily invest in debt securities, including senior "unitranche" debt, second lien and subordinated debt. The company may also invest in preferred stock and common stock alongside its debt investments or through warrants.

Capital Southwest will remain a regulated investment company or RIC under Subchapter M of the U.S. Internal Revenue Code of 1986. As such, the company is not required to pay corporate-level income tax on investment income.

Capital Southwest has two wholly-owned subsidiaries, Capital Southwest Venture Corp. or CSVC, which holds a small business investment company license, and Capital Southwest Management Corp. or CSMC, which is the management company for CSWC and CSVC and generally incurs all normal operating and administrative expenses.

Capital Southwest noted that Joseph Armes will continue to serve as Chairman and CEO of the company until the completion of the spin-off. Upon completion of the separation, he will remain Capital Southwest's Chairman and also assume the role of Chairman and CEO of Industrial Co.

The company's board of directors expects to name Bowen Diehl as CEO of Capital Southwest. Diehl joined the company in 2014 as senior vice president and chief investment officer and has about 20 years of experience in the financial services, private equity and mezzanine lending industries.

Evercore is acting as financial advisor to Capital Southwest in relation to the spin-off, while Jones Day is acting as legal counsel.

CSWC is trading at $36.85, down $0.39 or 1.05 percent on a volume of 33,661 shares.