Great Elm Capital Corp

Previous wording

On September 27, 2016, we and Great Elm Capital Management, Inc. (“GECM”), our external investment manager, entered into an investment management agreement (the “Investment Management Agreement”) and an administration agreement (the “Administration Agreement”), and we began to accrue obligations to our external investment manager under those agreements. On August 1, 2022, upon receiving our stockholders’ approval, we and GECM entered into an amendment to the Investment Management Agreement to reset the capital gains incentive fee to begin on April 1, 2022, which eliminated $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 in calculating future incentive fees. In addition, the incentive fee based on income was amended to reset the mandatory deferral commencement date used in calculating deferred incentive fees to April 1, 2022. The Investment Management Agreement renews for successive annual periods, subject to requisite approvals from our board of directors (our “Board”) and/or stockholders.

Current wording

On September 27, 2016, we and Great Elm Capital Management, LLC (“GECM”), our external investment manager, entered into an investment management agreement (the “Investment Management Agreement”) and an administration agreement (the “Administration Agreement”), and we began to accrue obligations to our external investment manager under those agreements. On August 1, 2022, upon receiving our stockholders’ approval, we and GECM entered into an amendment to the Investment Management Agreement to reset the capital gains incentive fee to begin on April 1, 2022, which eliminated $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 in calculating future incentive fees. In addition, the incentive fee based on income was amended to reset the mandatory deferral commencement date used in calculating deferred incentive fees to April 1, 2022. The Investment Management Agreement renews for successive annual periods, subject to requisite approvals from our board of directors (our “Board”) and/or stockholders.

Previous wording

The following is a summary of our investment activity for the year ended December 31, 2023 and the three months ended March 31, 2024:

Current wording

The following is a summary of our investment activity for the year ended December 31, 2023 and the six months ended June 30, 2024:

Previous wording

The following is a reconciliation of the investment portfolio for the three months ended March 31, 2024 and the year ended December 31, 2023. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.

Current wording

The following is a reconciliation of the investment portfolio for the six months ended June 30, 2024 and the year ended December 31, 2023. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.

Previous wording

Interest income increased for the three months ended March 31, 2024 as compared to the corresponding period in the prior year primarily due to growth of the portfolio and rising interest rates. As of March 31, 2024, the debt investment portfolio had an average coupon rate of 12.6% on approximately $218.0 million of principal as compared to 11.8% on approximately $204.2 million of principal as of March 31, 2023, excluding positions on non-accrual in each period.

Current wording

Interest income increased for the three and six months ended June 30, 2024 as compared to the corresponding period in the prior year primarily due to rising interest rates. As of June 30, 2024, the debt investment portfolio had an average coupon rate of 12.8% on approximately $216.8 million of principal as compared to 12.3% on approximately $217.5 million of principal as of June 30, 2023, excluding positions on non-accrual in each period.

Previous wording

Dividend income for the three months ended March 31, 2024 decreased as compared to the three months ended March 31, 2023 due to exits from certain preferred equity positions and lower distributions from our investments in specialty finance portfolio companies.

Current wording

Dividend income increased for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 primarily due to higher distributions from our investments in specialty finance portfolio companies.

Previous wording

Other commitment fees decreased for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 attributable to exits from positions with revolver commitments.

Current wording

Other commitment fees decreased for the three and six months ended June 30, 2024 as compared to the three months ended June 30, 2023 attributable to exits from positions with revolver commitments.

Previous wording

Incentive fees increased for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due to increased pre-incentive net investment income over the same periods.

Current wording

Incentive fees decreased for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 due to decreased pre-incentive net investment income over the same period. Incentive fees increased for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 due to increased pre-incentive net investment income over the same period.

Previous wording

Management fees increased for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due to increases in the underlying management fee assets which primarily consists of the fair value of the portfolio of investments. Administration fees increased in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due to increased allocation of personnel costs as a result of additional resource time spent on GECC matters.

Current wording

Management fees increased for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 due to increases in the underlying management fee assets which primarily consists of the fair value of the portfolio of investments. Administration fees increased in the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 due to increased allocation of personnel costs as a result of additional resource time spent on GECC matters.

Previous wording

Professional services costs decreased for the three months ended March 31, 2024 as compared to the corresponding period in the prior year, primarily due to decreased legal expenses associated with specific transaction matters which have been partially offset by general rate increases for professional services including legal and accounting costs.

Current wording

Professional services costs decreased for the three and six months ended June 30, 2024 as compared to the corresponding periods in the prior year, primarily due to decreased legal expenses associated with specific transaction matters which have been partially offset by general rate increases for professional services including legal and accounting costs.

Previous wording

Realized gain for the three months ended March 31, 2024 includes $0.9 million in gains from the partial sale of our investment in Blackstone Secured Lending common equity and $0.8 million in gains from the partial sale of our investment in American Coastal Insurance Corp. Realized losses for the three months ended March 31, 2024 resulted from the partial sale of our investment in Eagle Point Credit Company common equity.

Current wording

For the three months ended June 30, 2024, net realized losses were primarily driven by the realization of our investment in the Phillips Pet Food term loan of $0.6 million. During the six months ended June 30, 2024, net realized gains includes $0.9 million in gains from the partial sale of our investment in Blackstone Secured Lending common equity and $0.8 million in gains from the partial sale of our investment in American Coastal Insurance Corp.

Previous wording

During the three months ended March 31, 2023, net realized gains were primarily driven by sales of our investments in Crestwood Equity Partners, LP (“Crestwood”) preferred equity, ANGUS Chemical Company first lien secured loan, and Forum Energy Technologies, Inc. first lien secured convertible bond resulting in realized gain of $0.7 million, $0.2 million, and $0.1 million, respectively. In addition, the paydowns of our investments in Par Petroleum, LLC first lien secured loans and W&T Offshore, Inc. second lien secured bond resulted in realized gains of $0.4 million and $0.2 million, respectively.

Current wording

For the three months ended June 30, 2023, net realized gains were primarily driven by the sales of our investments in the Perforce Software, Inc. (“Perforce”) first lien secured revolver and Equitrans Midstream Corp. preferred equity on which we realized gains of $0.3 million and $0.2 million, respectively. During the six months ended June 30, 2023, net realized gains were primarily driven by sales of our investments in Crestwood Equity Partners LP preferred equity, the paydown of our investment in Par Petroleum, LLC first lien secured bond and the sale of our investment in the Perforce first lien secured revolver resulting in realized gains of $0.7 million, $0.4 million, and $0.3 million, respectively.

Previous wording

For the three months ended March 31, 2024, unrealized appreciation was primarily due to increases in fair value on our investments in NICE-PAK Products, Inc. warrants and Greenfire Resources Ltd. first lien secured bond of $0.8 million and $0.5 million respectively. Unrealized depreciation for the three months ended March 31, 2024 was primarily due to decreases in fair value on our investments in Research Now Group, Inc. (“Research Now”) of $3.9 million, GESF common equity of $1.6 million, and PFS Holdings Corp. (“PFS”) of $0.9 million. The mark downs on our investments in Research Now are due to a slowdown in the demand for their services from a weak mergers and acquisitions environment leading to balance sheet restructuring discussions and PFS are due to poor performance; both investments were originated by prior management. The decrease in fair value on GESF was attributable to weaker than planned new deal originations at the beginning of the year.

Current wording

For the three months ended June 30, 2024, unrealized appreciation was due to an increase in fair value on our investment in NICE-PAK Products, Inc. warrants of $0.9 million and due to the reversal of approximately $0.8 million in previously recognized unrealized depreciation on our investment in Phillips Pet Food term loan which was reclassified to realized loss upon the sale of our position. Unrealized depreciation for the three months ended June 30, 2024 was primarily due to decreases in fair value on our investments in New Wilkie Energy Pty Limited (“New Wilkie Energy”) of $2.0 million, Research Now Group, Inc. (“Research Now”) of $1.7 million, and GESF common equity of $0.8 million. The mark downs on our investments in Research Now are due to a slowdown in the demand for their services from a weak mergers and acquisitions environment leading to a bankruptcy filing in May 2024 and New Wilkie Energy are due to poor performance. The decrease in fair value on GESF was attributable to weaker than planned new deal originations in the first half of the year.

Previous wording

Net unrealized appreciation for the three months ended March 31, 2023 is primarily due to increases in fair value of our investments in United Insurance Holding Corp. unsecured bonds and Prestige Capital Finance, LLC common equity of $3.0 million and $0.8 million, respectively. This unrealized appreciation was partially offset by unrealized depreciation due to decreases in fair value of our investment in Maverick Gaming, LLC first lien secured loan and First Brands, Inc. second lien secured loan of $0.9 million and $0.8 million, respectively.

Current wording

Net unrealized appreciation for the six months ended June 30, 2023 was primarily driven by increases in the fair value of our investment in UIHC unsecured bonds, Prestige Capital Finance, LLC common equity, and Blackstone Secured Lending common equity on which recognized appreciation of $4.4 million, $1.2 million, and $1.0 million, respectively. These gains were partially offset by unrealized depreciation of $2.0 million, $0.7 million and $0.7 million due to decreases in fair value of our investment in Lenders Funding common equity, Research Now second lien secured loan and First Brands, Inc. second lien secured loan, respectively.

Previous wording

As of March 31, 2024, we had approximately $0.3 million of cash and cash equivalents and approximately $8.3 million of money market fund investments at fair value. As of March 31, 2024, we had investments in 45 debt instruments across 39 companies, totaling approximately $213.2 million at fair value and 13 equity investments in 12 companies, with an aggregate fair value of approximately $49.6 million.

Current wording

As of June 30, 2024, we had approximately $2.6 million of cash and cash equivalents and approximately $0.5 million of money market fund investments at fair value. As of June 30, 2024, we had investments in 51 debt instruments across 41 companies, totaling approximately $219.8 million at fair value and 15 equity investments in 14 companies, with an aggregate fair value of approximately $77.9 million.

Previous wording

In the normal course of business, we may enter into investment agreements under which we commit to make an investment in a portfolio company at some future date or over a specified period of time. As of March 31, 2024, there were no unfunded loan commitments to provide debt financing to certain of our portfolio companies.

Current wording

In the normal course of business, we may enter into investment agreements under which we commit to make an investment in a portfolio company at some future date or over a specified period of time. As of June 30, 2024, we had approximately $17.9 million in unfunded commitments to provide financing to certain of our portfolio companies. We had sufficient cash and other liquid assets on our June 30, 2024 balance sheet to satisfy the unfunded commitments.

Previous wording

For the three months ended March 31, 2024, net cash used for operating activities was approximately $25.4 million, reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to accretion of discount and PIK income and proceeds from sales of investments and principal payments received. Net cash provided by purchases and proceeds from sales of investments was approximately $29.4 million, reflecting payments for additional investments of $56.9 million, offset by proceeds from principal repayments and sales of $27.5 million. Such amounts include draws and repayments on investments in revolving credit facilities.

Current wording

For the six months ended June 30, 2024, net cash used for operating activities was approximately $59.7 million, reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to accretion of discount and PIK income and proceeds from sales of investments and principal payments received. Net cash provided by purchases and proceeds from sales of investments was approximately $52.8 million, reflecting payments for additional investments of $165.7 million, offset by proceeds from principal repayments and sales of $112.9 million. Such amounts include draws and repayments on investments in revolving credit facilities.

Previous wording

For the three months ended March 31, 2024, net cash provided by financing activities was $24.8 million, consisting of $23.8 million in proceeds from our issuance of shares of our common stock, net of related expenses, $5.0 million in borrowings on the revolving credit facility and $4.1 million in distributions to stockholders.

Current wording

For the six months ended June 30, 2024, net cash provided by financing activities was $61.3 million, consisting of $35.7 million in proceeds from our issuance of shares of our common stock, net of related expenses, $33.0 million in net proceeds from the issuance of the GECCI Notes, and $7.4 million in distributions to stockholders.

Previous wording

See “—Revolver” and “—Notes Payable” below for more information regarding our outstanding credit facility and notes.

Current wording

See “—Revolver” and “—Notes Payable” below for more information regarding our credit facility and outstanding notes.

Previous wording

On May 5, 2021, we entered into a Loan, Guarantee and Security Agreement (the “Loan Agreement”) with City National Bank (“CNB”). The Loan Agreement provides for a senior secured revolving line of credit (the “Revolver”) of up to $25 million (subject to a borrowing base as defined in the Loan Agreement). We may request to increase the revolving line in an aggregate amount not to exceed $25 million, which increase is subject to the sole discretion of CNB. In November 2023, the Company entered into an amendment to the Loan Agreement extending the maturity date of the revolving line to May 5, 2027. Borrowings under the revolving line bear interest at a rate equal to (i) the Secured Overnight Financing Rate (“SOFR”) plus 3.00% (reduced from SOFR plus 3.50% prior to the November 2023 amendment), (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by us. Additionally, we are required to pay a commitment fee of 0.50% per annum on any unused portion of the revolving line of credit. As of March 31, 2024, there were $5.0 million in borrowings outstanding under the revolving line.

Current wording

On May 5, 2021, we entered into a Loan, Guarantee and Security Agreement (the “Loan Agreement”) with City National Bank (“CNB”). The Loan Agreement provides for a senior secured revolving line of credit (the “Revolver”) of up to $25 million (subject to a borrowing base as defined in the Loan Agreement). We may request to increase the revolving line in an aggregate amount not to exceed $25 million, which increase is subject to the sole discretion of CNB. In November 2023, the Company entered into an amendment to the Loan Agreement extending the maturity date of the revolving line to May 5, 2027. Borrowings under the revolving line bear interest at a rate equal to (i) the Secured Overnight Financing Rate (“SOFR”) plus 3.00% (reduced from SOFR plus 3.50% prior to the November 2023 amendment), (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by us. Additionally, we are required to pay a commitment fee of 0.50% per annum on any unused portion of the revolving line of credit. As of June 30, 2024, there were no borrowings outstanding under the revolving line.

Previous wording

On April 17, 2024, we issued $30.0 million in aggregate principal amount of 8.50% notes due 2029 (the “GECCI Notes”) with an underwriters’ over-allotment option to purchase an additional $4.5 million in aggregate principal amount of the GECCI Notes. The underwriters exercised their over-allotment option in full, and on April 25, 2024, we issued an additional $4.5 million in aggregate principal amount of the GECCI Notes.

Current wording

On April 17, 2024, we issued $30.0 million in aggregate principal amount of 8.50% notes due 2029 (the “GECCI Notes”). On April 25, 2024, we issued an additional $4.5 million of the GECCI Notes upon full exercise of the underwriters’ over-allotment option. The aggregate principal balance of the GECCI Notes outstanding as of June 30, 2024 is$34.5 million.

Previous wording

The Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our Loan Agreement and any other future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. We pay interest on the Notes on March 31, June 30, September 30 and December 31 of each year. The GECCM Notes, GECCO Notes, and GECCZ Notes will mature on January 31, 2025, June 30, 2026, and September 30, 2028, respectively. The GECCM Notes and GECCO Notes are currently callable at the Company’s option and the GECCZ Notes can be called on, or after, September 30, 2025. Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity date. The Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

Current wording

The Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our Loan Agreement and any other future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. We pay interest on the Notes on March 31, June 30, September 30 and December 31 of each year. The GECCM Notes, GECCO Notes, GECCZ Notes, and GECCI Notes will mature on January 31, 2025, June 30, 2026, September 30, 2028, and April 30, 2029, respectively. The GECCM Notes and GECCO Notes are currently callable at the Company’s option and the GECCZ Notes and GECCI Notes can be called on, or after, September 30, 2025 and April 30, 2026, respectively. Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity date. The Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

Previous wording

We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder.

Current wording

We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder. During the six months ended June 30, 2024, the Company repurchased $38 in principal amount of the GECCM Notes.

Previous wording

As of March 31, 2024, our asset coverage ratio was approximately 180.2%. Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%.

Current wording

As of June 30, 2024, our asset coverage ratio was approximately 171.0%. Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%.

Previous wording

The last reported closing price for our common stock on April 25, 2024 was$10.35 per share. As of April 25, 2024, we had 9 record holders of our common stock.

Current wording

The last reported closing price for our common stock on July 25, 2024 was$10.59 per share. As of July 25, 2024, we had 10 record holders of our common stock.

Previous wording

We are also subject to financial risks, including changes in market interest rates. As of March 31, 2024, approximately $164.4 million in principal amount of our debt investments bore interest at variable rates, which are generally based on SOFR or US prime rate, and many of which are subject to certain floors. Recently, interest rates have risen and a prolonged increase in interest rates will increase our gross investment income and could result in an increase in our net investment income if such increases in interest rates are not offset by a corresponding decrease in the spread over variable rates that we earn on any portfolio investments or an increase in our operating expenses. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.

Current wording

We are also subject to financial risks, including changes in market interest rates. As of June 30, 2024, approximately $174.3 million in principal amount of our debt investments bore interest at variable rates, which are generally based on SOFR or US prime rate, and many of which are subject to certain floors. Recently, interest rates have risen and a prolonged increase in interest rates will increase our gross investment income and could result in an increase in our net investment income if such increases in interest rates are not offset by a corresponding decrease in the spread over variable rates that we earn on any portfolio investments or an increase in our operating expenses. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.