Great Elm Capital Corp

Previous 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:

Current wording

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

Previous 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.

Current wording

The following is a reconciliation of the investment portfolio for the nine months ended September 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 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.

Current wording

Interest income increased for the three and nine months ended September 30, 2024 as compared to the corresponding period in the prior year primarily due to an increased debt investment portfolio size. As of September 30, 2024, the debt investment portfolio had an average coupon rate of 12.3% on approximately $241.2 million of principal as compared to 12.5% on approximately $217.8 million of principal as of September 30, 2023, excluding positions on non-accrual in each period.

Previous 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.

Current wording

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

Previous 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.

Current wording

Management fees increased for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023 due to increases in the underlying management fee assets which primarily consists of the fair value of the portfolio of investments.

Previous 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.

Current wording

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

Previous 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.

Current wording

Professional services costs decreased for the three and nine months ended September 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 valuation and accounting costs.

Previous wording

Interest expense increased for the three and six months ended June 30, 2024 as compared to the corresponding periods in the prior year primarily due to the issuance of $34.5 million in aggregate principal amount of the 8.50% Notes due 2029 (the “GECCI Notes”) in April 2024.

Current wording

Interest expense increased for the three and nine months ended September 30, 2024 as compared to the corresponding periods in the prior year primarily due to the issuance of $56.5 million in aggregate principal amount of the 8.50% Notes due 2029 (the “GECCI Notes”) in April and July 2024, and the issuance of $36.0 million in aggregate principal amount of the 8.125% Notes due 2029 (the “GECCH Notes”) in September 2024.

Previous 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.

Current wording

Realized gain for the nine months ended September 30, 2024 includes $0.8 million in gains from the partial sale of our investment in American Coastal Insurance Corp unsecured bond and $0.8 million in gains from the partial sale of our investment in Blackstone Secured Lending Fund common equity. Realized losses for the nine months ended September 30, 2024 includes $0.6 million on the realization of our investment in PFS Holdings Corp. term loan and $0.3 million in loss from the realization of our investment in Eagle Point Credit Company common equity.

Previous 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.

Current wording

For the three months ended September 30, 2023, unrealized appreciation was primarily driven by reversal of approximately $7.0 million in previously recognized unrealized depreciation on our investment in Lenders Funding common equity which was reclassified to realized loss upon the sale of our position and $2.0 million in the reversal of previously recognized unrealized depreciation on our investment in Sterling equity which was reclassified to realized loss upon the in-kind contribution to GESF. Unrealized depreciation for the three months ended September 30, 2023 was primarily driven by the reversal of approximately $3.9 million in previously recognized unrealized appreciation on our investment in Prestige common equity which was reclassified to realized gain upon the in-kind contribution to GESF.

Previous 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.

Current wording

As of September 30, 2024, we had approximately $0.3 million of cash and cash equivalents and approximately $25.7 million of money market fund investments at fair value. As of September 30, 2024, we had investments in 54 debt instruments across 45 companies, totaling approximately $234.5 million at fair value and 20 equity investments in 18 companies, with an aggregate fair value of approximately $98.8 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 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.

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 September 30, 2024, we had approximately $11.1 million in unfunded commitments to provide financing to certain of our portfolio companies. We had sufficient availability on our Revolver as well as cash and other liquid assets on our September 30, 2024 balance sheet to satisfy the unfunded commitments.

Previous 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.

Current wording

For the nine months ended September 30, 2024, net cash used for operating activities was approximately $114.1 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 $47.0 million, reflecting payments for additional investments of $219.2 million, offset by proceeds from principal repayments and sales of $172.2 million.

Previous 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.

Current wording

For the nine months ended September 30, 2024, net cash provided by financing activities was $113.5 million, consisting of $35.7 million in proceeds from our issuance of shares of our common stock, net of related expenses, $88.8 million in net proceeds from the issuance of the GECCI Notes and GECCH Notes, less $11.0 million in distributions to stockholders.

Previous wording

On January 11, 2018, we issued $43.0 million in aggregate principal amount of 6.75% notes due 2025 (the “GECCM Notes”). On January 19, 2018 and February 9, 2018, we issued an additional $1.9 million and $1.5 million, respectively, of the GECCM Notes upon partial exercise of the underwriters’ over-allotment option. The aggregate principal balance of the GECCM Notes outstanding as of June 30, 2024 is$45.6 million.

Current wording

On January 11, 2018, we issued $43.0 million in aggregate principal amount of 6.75% notes due 2025 (the “GECCM Notes”). On January 19, 2018 and February 9, 2018, we issued an additional $1.9 million and $1.5 million, respectively, of the GECCM Notes upon partial exercise of the underwriters’ over-allotment option. The aggregate principal balance of the GECCM Notes outstanding as of September 30, 2024 was$45.3 million.

Previous 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.

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. On July 9, 2024, we issued an additional $22.0 million in aggregate principal amount of the GECCI Notes in a direct placement. The aggregate principal balance of the GECCI Notes outstanding as of September 30, 2024 is$56.5 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, 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.

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 to the extent of the value of the assets securing such indebtedness 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 GECCO Notes, GECCZ Notes, GECCI and GECCH Notes will mature on June 30, 2026, September 30, 2028, April 30, 2029, and December 31, 2029 respectively. The GECCO Notes are currently callable at the Company’s option and the GECCZ Notes, GECCI Notes and GECCH Notes can be called on, or after, September 30, 2025, April 30, 2026, and December 31, 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. During the six months ended June 30, 2024, the Company repurchased $38 in principal amount of the GECCM Notes.

Current wording

We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder. During the nine months ended September 30, 2024, the Company repurchased $0.3 million in principal amount of the GECCM Notes prior to redeeming them in full on October 12, 2024.

Previous 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%.

Current wording

As of September 30, 2024, our asset coverage ratio was approximately 166.2%. 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 July 25, 2024 was$10.59 per share. As of July 25, 2024, we had 10 record holders of our common stock.

Current wording

The last reported closing price for our common stock on October 24, 2024 was$10.05 per share. As of October 24, 2024, we had 9 record holders of our common stock.

Previous 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.

Current wording

We are also subject to financial risks, including changes in market interest rates. As of September 30, 2024, approximately $174.6 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. Although interest rates began to decline during the quarter, in recent years interest rates have risen and remain elevated. 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.