8-K
Great Elm Capital Corp. (GECC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 2, 2024
Great Elm Capital Corp.
(Exact name of Registrant as Specified in Its Charter)
| Maryland | 814-01211 | 81-2621577 |
|---|---|---|
| (State or Other Jurisdiction<br><br>of Incorporation) | (Commission File Number) | (IRS Employer<br><br>Identification No.) |
| 3801 PGA Boulevard, Suite 603,<br><br>Palm Beach Gardens, FL | 33410 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (617) 375-3006
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, $0.01 par value | GECC | Nasdaq Global Market |
| 6.75% Notes due 2025 | GECCM | Nasdaq Global Market |
| 5.875% Notes due 2026 | GECCO | Nasdaq Global Market |
| 8.75% Notes due 2028 | GECCZ | Nasdaq Global Market |
| 8.50% Notes due 2029 | GECCI | Nasdaq Global Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 2.02 Results of Operations and Financial Condition.
On May 2, 2024, Great Elm Capital Corp. issued the press release furnished as exhibit 99.1 to this report.
The foregoing information (including the exhibit hereto) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are furnished with this report but shall not be deemed filed:
| Exhibit<br><br>Number | Description |
|---|---|
| 99.1 | Earnings Press Release, dated May 2, 2024. |
| 104 | The cover page of this Current Report on Form 8-K, formatted as inline XBRL. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GREAT ELM CAPITAL CORP. | ||
|---|---|---|
| Date: May 2, 2024 | /s/ Keri A. Davis | |
| By: | Keri A. Davis | |
| Title: | Chief Financial Officer |
EX-99.1
Exhibit 99.1
Great Elm Capital Corp. Announces
FIRST Quarter 2024 Financial Results
Company to Host Conference Call and Webcast at 5:00 PM ET Today
PALM BEACH GARDENS, Florida, May 2, 2024 – Great Elm Capital Corp. (“we,” “our,” the “Company” or “GECC”) (NASDAQ: GECC), a business development company, today announced its financial results for the first quarter ended March 31, 2024.
First Quarter and Other Recent Highlights:
▪ In February 2024, the Company raised $24 million of equity at Net Asset Value from a special purchase vehicle (“SPV”), supported by a $6 million investment by Great Elm Group (“GEG”) into the SPV.
▪ In April 2024, the Company issued $34.5 million of 8.50% notes due 2029 (the “GECCI Notes”) to further bolster liquidity and provide balance sheet flexibility.
▪ Net investment income (“NII”) for the quarter ended March 31, 2024 was $3.2 million, or $0.37 per share, as compared to $3.3 million, or $0.43 per share, for the quarter ended December 31, 2023.
▪ Fifth consecutive quarter of NII per share covering the base dividend.
▪ Net assets were $118.8 million, or $12.57 per share, on March 31, 2024, as compared to $98.7 million, or $12.99 per share, on December 31, 2023.
▪ NAV adversely impacted by $0.55 per share in the quarter from write-downs on certain investments in illiquid assets originated by prior management.
▪ GECC’s asset coverage ratio improved to 180.2% as of March 31, 2024, as compared to 169.0% as of December 31, 2023, and 159.8% as of March 31, 2023.
▪ Asset coverage ratio pro forma for April bond issuance of approximately 166.9%.
▪ The Board of Directors approved a quarterly dividend of $0.35 per share for the second quarter of 2024, equating to a 13.5% annualized yield on the Company’s closing market price on May 1, 2024 of $10.36.
Management Commentary
“With 2024 underway, we were pleased to generate NII that covered the dividend for the fifth consecutive quarter,” said Matt Kaplan, GECC’s Chief Executive Officer. “NAV in the quarter was negatively impacted by 55 cents per share from illiquid investments in two portfolio companies which we inherited from prior management. We also successfully completed a Notes offering shortly after quarter-end, which provides us with additional capital to deploy into quality investments that offer attractive risk-adjusted returns for our shareholders. Additionally, we recently announced a JV to invest in CLO entities and related warehouse facilities. We expect the CLO JV will start receiving quarterly distributions in the third quarter and are targeting mid-teens to low-20% IRRs over time. Looking ahead, we expect NII to ramp in the second half of the year as we deploy capital from our recent issuances and generate income from new investments, including our CLO JV, leaving us well positioned to cover our dividend.”
Financial Highlights – Per Share Data
| Q1/2023 | Q2/2023 | Q3/2023 | Q4/2023 | Q1/2024 | |
|---|---|---|---|---|---|
| Earnings Per Share (“EPS”) | $1.07 | $0.68 | $1.02 | $0.55 | ($0.05) |
| Net Investment Income (“NII”) Per Share | $0.37 | $0.44 | $0.40 | $0.43 | $0.37 |
| Pre-Incentive Net Investment Income Per Share | $0.47 | $0.56 | $0.50 | $0.54 | $0.46 |
| Net Realized and Unrealized Gains / (Losses) Per Share | $0.70 | $0.24 | $0.62 | $0.12 | ($0.42) |
| Net Asset Value Per Share at Period End | $11.88 | $12.21 | $12.88 | $12.99 | $12.57 |
| Distributions Paid / Declared Per Share | $0.35 | $0.35 | $0.35 | $0.45 | $0.35 |
Portfolio and Investment Activity
As of March 31, 2024, GECC held total investments of $262.9 million at fair value, as follows:
• 44 debt investments in corporate credit, totaling approximately $184.5 million and representing 70.2% of the fair market value of the Company’s total investments. Secured debt investments comprised a substantial majority of the fair market value of the Company’s debt investments.
• An investment in Great Elm Specialty Finance comprised of 1 debt investment totaling approximately $28.7 million and 1 equity investment totaling approximately $15.9 million and representing 10.9% and 8.1%, respectively, of the fair market value of the Company’s total investments.
• 3 dividend paying equity investments, including our CLO investment, totaling approximately $21.2 million, representing 8.1% of the fair market value of the Company’s total investments.
• Other equity investments, totaling approximately $12.5 million, representing 4.8% of the fair market value of the Company’s total investments.
As of March 31, 2024, the weighted average current yield on the Company’s debt portfolio was 13.1%. Floating rate instruments comprised approximately 69% of the fair market value of debt investments (up from 67% as of December 31, 2023) and the Company’s fixed rate debt investments had a weighted average maturity of 2.2 years.
During the quarter ended March 31, 2024, we deployed approximately $64.2 million into 29 investments(1) at a weighted average current yield of 12.5%.
During the quarter ended March 31, 2024, we monetized, in part or in full, 33 investments for approximately $28.9 million(2), at a weighted average current yield of 11.4%. Monetizations include $16.5 million of mandatory debt paydowns and redemptions at a weighted average current yield of 12.2%. Sales aggregated to $12.4 million at a weighted average current yield of 9.7%.
Financial Review
Total investment income for the quarter ended March 31, 2024 was $8.9 million, or $1.03 per share. Net expenses for the quarter ended March 31, 2024 were approximately $5.7 million, or $0.66 per share.
Net realized and unrealized losses for the quarter ended March 31, 2024 were approximately $3.7 million, or $0.42 per share.
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Liquidity and Capital Resources
As of March 31, 2024, cash and money market securities totaled approximately $8.7 million.
As of March 31, 2024, total debt outstanding (par value) was $148.1 million, comprised of 6.75% senior notes due January 2025 (NASDAQ: GECCM), 5.875% senior notes due June 2026 (NASDAQ: GECCO), 8.75% senior notes due September 2028 (NASDAQ: GECCZ), and $5.0 million outstanding on the $25.0 million revolving credit facility due May 2027.
Subsequent to quarter-end, the Company issued $34.5 million in aggregate principal amount of 8.50% notes due June 2029 (NASDAQ: GECCI), and repaid $5.0 million of the outstanding balance on the revolving line of credit, leaving no borrowings outstanding under the revolving line.
Distributions
The Company’s Board of Directors has approved a quarterly cash distribution of $0.35 per share for the quarter ending June 30, 2024. The second quarter distribution will be payable on June 28, 2024 to stockholders of record as of June 14, 2024.
The distribution equates to a 13.5% annualized dividend yield on the Company’s closing market price on May 1, 2024 of $10.36 and an 11.1% annualized dividend yield on the Company’s March 31, 2024 NAV of $12.57 per share.
Conference Call and Webcast
GECC will discuss these results in a conference call today at 5:00 p.m. ET.
Conference Call Details
Date/Time: Thursday, May 2, 2024 – 5:00 p.m. ET
Participant Dial-In Numbers:
(United States): 800-717-1738
(International): 646-307-1865
To access the call, please dial-in approximately five minutes before the start time and, when asked, provide the operator with passcode “GECC”. An accompanying slide presentation will be available in pdf format via the “Events and Presentations” section of Great Elm Capital Corp.’s website here after the issuance of the earnings release.
Webcast
The call and presentation will also be simultaneously webcast over the internet via the Events and Presentations section of GECC’s website or by clicking on the conference call link here.
About Great Elm Capital Corp.
GECC is an externally managed business development company that seeks to generate current income and capital appreciation by investing in debt and income generating equity securities, including investments in specialty finance businesses. http://www.greatelmcc.com
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Cautionary Statement Regarding Forward-Looking Statements
Statements in this communication that are not historical facts are “forward-looking” statements within the meaning of the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “expect,” “anticipate,” “should,” “will,” “estimate,” “designed,” “seek,” “continue,” “upside,” “potential” and similar expressions. All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are: conditions in the credit markets, rising interest rates, inflationary pressure, the price of GECC common stock and the performance of GECC’s portfolio and investment manager. Information concerning these and other factors can be found in GECC’s Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. GECC assumes no obligation to, and expressly disclaims any duty to, update any forward-looking statements contained in this communication or to conform prior statements to actual results or revised expectations except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.
This press release does not constitute an offer of any securities for sale.
Endnotes:
(1) This includes new deals, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income. Amounts included herein do not include investments in short-term securities, including United States Treasury Bills.
(2) This includes scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities). Amounts included herein do not include investments in short-term securities, including United States Treasury Bills.
Media & Investor Contact:
Investor Relations
investorrelations@greatelmcap.com
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GREAT ELM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
Dollar amounts in thousands (except per share amounts)
| December 31, 2023 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Investments | |||||
| Non-affiliated, non-controlled investments, at fair value (amortized cost of 217,882 and 179,626, respectively) | 218,060 | $ | 183,335 | ||
| Non-affiliated, non-controlled short-term investments, at fair value (amortized cost of 8,335 and 10,807, respectively) | 8,335 | 10,807 | |||
| Affiliated investments, at fair value (amortized cost of 13,420 and 13,423, respectively) | 214 | 1,067 | |||
| Controlled investments, at fair value (amortized cost of 46,300 and 46,300, respectively) | 44,586 | 46,210 | |||
| Total investments | 271,195 | 241,419 | |||
| Cash and cash equivalents | 334 | 953 | |||
| Receivable for investments sold | 2,595 | 840 | |||
| Interest receivable | 3,827 | 2,105 | |||
| Dividends receivable | 763 | 1,001 | |||
| Due from portfolio company | 38 | 37 | |||
| Deferred financing costs | 311 | 335 | |||
| Prepaid expenses and other assets | 64 | 135 | |||
| Total assets | 279,127 | $ | 246,825 | ||
| Liabilities | |||||
| Notes payable (including unamortized discount of 2,641 and 2,896, respectively) | 140,469 | $ | 140,214 | ||
| Revolving credit facility | 5,000 | - | |||
| Payable for investments purchased | 10,411 | 3,327 | |||
| Interest payable | 37 | 32 | |||
| Accrued incentive fees payable | 1,466 | 1,431 | |||
| Distributions payable | - | 760 | |||
| Due to affiliates | 1,560 | 1,195 | |||
| Accrued expenses and other liabilities | 1,389 | 1,127 | |||
| Total liabilities | 160,332 | $ | 148,086 | ||
| Commitments and contingencies | - | $ | - | ||
| Net Assets | |||||
| Common stock, par value 0.01 per share (100,000,000 shares authorized, 9,452,382 shares issued and outstanding and 7,601,958 shares issued and outstanding, respectively) | 94 | $ | 76 | ||
| Additional paid-in capital | 307,599 | 283,795 | |||
| Accumulated losses | (188,898 | ) | (185,132 | ) | |
| Total net assets | 118,795 | $ | 98,739 | ||
| Total liabilities and net assets | 279,127 | $ | 246,825 | ||
| Net asset value per share | 12.57 | $ | 12.99 |
All values are in US Dollars.
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GREAT ELM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Dollar amounts in thousands (except per share amounts)
| For the Three Months Ended March 31, | |||||
|---|---|---|---|---|---|
| 2024 | 2023 | ||||
| Investment Income: | |||||
| Interest income from: | |||||
| Non-affiliated, non-controlled investments | $ | 5,987 | $ | 5,476 | |
| Non-affiliated, non-controlled investments (PIK) | 630 | 449 | |||
| Affiliated investments | 33 | 30 | |||
| Controlled investments | 931 | 442 | |||
| Controlled investments (PIK) | - | 233 | |||
| Total interest income | 7,581 | 6,630 | |||
| Dividend income from: | |||||
| Non-affiliated, non-controlled investments | 386 | 318 | |||
| Controlled investments | 385 | 616 | |||
| Total dividend income | 771 | 934 | |||
| Other commitment fees from non-affiliated, non-controlled investments | 525 | 802 | |||
| Other income from: | |||||
| Non-affiliated, non-controlled investments | 32 | 44 | |||
| Total other income | 32 | 44 | |||
| Total investment income | $ | 8,909 | $ | 8,410 | |
| Expenses: | |||||
| Management fees | $ | 940 | $ | 869 | |
| Incentive fees | 798 | 710 | |||
| Administration fees | 385 | 295 | |||
| Custody fees | 36 | 22 | |||
| Directors’ fees | 54 | 52 | |||
| Professional services | 388 | 536 | |||
| Interest expense | 2,807 | 2,821 | |||
| Other expenses | 303 | 238 | |||
| Total expenses | $ | 5,711 | $ | 5,543 | |
| Net investment income before taxes | $ | 3,198 | $ | 2,867 | |
| Excise tax | $ | 5 | $ | 28 | |
| Net investment income | $ | 3,193 | $ | 2,839 | |
| Net realized and unrealized gains (losses): | |||||
| Net realized gain (loss) on investment transactions from: | |||||
| Non-affiliated, non-controlled investments | $ | 2,356 | $ | 1,845 | |
| Total net realized gain (loss) | 2,356 | 1,845 | |||
| Net change in unrealized appreciation (depreciation) on investment transactions from: | |||||
| Non-affiliated, non-controlled investments | (3,533 | ) | 2,781 | ||
| Affiliated investments | (850 | ) | 163 | ||
| Controlled investments | (1,624 | ) | 532 | ||
| Total net change in unrealized appreciation (depreciation) | (6,007 | ) | 3,476 | ||
| Net realized and unrealized gains (losses) | $ | (3,651 | ) | $ | 5,321 |
| Net increase (decrease) in net assets resulting from operations | $ | (458 | ) | $ | 8,160 |
| Net investment income per share (basic and diluted): | $ | 0.37 | $ | 0.37 | |
| Earnings per share (basic and diluted): | $ | (0.05 | ) | $ | 1.07 |
| Weighted average shares outstanding (basic and diluted): | 8,659,344 | 7,601,958 |
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