Great Elm Capital Corp

Previous wording

Please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a discussion of fiscal year 2021.

Current wording

This section of this Form 10-K generally discusses 2024 and 2023 items and year to year comparisons between 2024 and 2023. For the discussion of 2023 compared to 2022, see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, which specific discussion is incorporated herein by reference. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto in Part II, Item 8 of this Form 10-K, “Consolidated Financial Statements and Supplementary Data.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of this Form 10-K, “Risk Factors.” Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-K.

Previous wording

We are a BDC that seeks to generate both current income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance businesses. To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe offer sufficient downside protection and have the potential to generate attractive returns. We generally define middle market companies as companies with enterprise values between $100 million and $2 billion. We also make investments throughout other portions of a company’s capital structure, including subordinated debt, mezzanine debt, and equity or equity-linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals.

Current wording

We are a BDC that seeks to generate both current income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance businesses. To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe offer sufficient downside protection and have the potential to generate attractive returns. In addition, we invest in collateralized loan obligation (“CLO”) securities and related warehouse facilities. We generally define middle market companies as companies with enterprise values between $100 million and $2 billion. We also make investments throughout other portions of a company’s capital structure, including subordinated debt, mezzanine debt, and equity or equity-linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals.

Previous wording

Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fees, commitment fees and funding fees on loans. For the years ended December 31, 2023 and 2022, income includes non-cash PIK income of $2.6 million and $1.3 million, respectively.

Current wording

Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fees, commitment fees and funding fees on loans. For the years ended December 31, 2024 and 2023, income includes non-cash PIK income of $3.0 million and $2.6 million, respectively.

Previous wording

Interest income increased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to growth of the portfolio and rising interest rates.

Current wording

Interest income increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to growth of the debt portfolio.

Previous wording

Other commitment fees increased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is attributable to fees in connection with the extensions of certain revolver commitments.

Current wording

The decrease in administration fees for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is attributable to a decrease in overhead allocations under the administrative agreement with GECM.

Previous wording

Professional services costs decreased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to decreased legal expenses associated with specific transaction matters. The $0.2 million decrease in professional services were partially offset by general rate increases for professional services including legal and accounting costs.

Current wording

Professional services costs increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to increased legal expenses associated with specific transaction matters, as well as general rate increases for professional services including custody, valuation, and accounting costs.

Previous wording

Realized gain for the year ended December 31, 2023 includes $5.7 million in gains on the realization of our investment in Prestige Capital Finance, LLC (“Prestige”) common equity in connection with the in-kind contribution to GESF and $0.9 million in gains from the partial sale of our investment in ACIC. Realized losses for the year ended December 31, 2023 includes $7.0 million in loss on the sale of Lenders Funding, LLC (“Lenders Funding”) common equity and $4.6 million in loss related to the write off of investments in Avanti Communications Group plc (“Avanti Communications”).

Current wording

During year ended December 31, 2023, realized gain includes $5.7 million in gains on the realization of our investment in Prestige Capital Finance, LLC (“Prestige”) common equity in connection with the in-kind contribution to GESF and $0.9 million in gains from the partial sale of our investment in ACIC. Realized losses for the year ended December 31, 2023 includes $7.0 million in loss on the sale of Lenders Funding, LLC (“Lenders Funding”) common equity and $4.6 million in loss related to the write off of investments in Avanti Communications Group plc (“Avanti Communications”).

Previous wording

As of December 31, 2023, we had approximately $1.0 million of cash and cash equivalents and approximately $10.8 million of money market fund investments at fair value. As of December 31, 2023, we had investments in 38 debt instruments across 32 companies, totaling approximately $200.7 million at fair value and 10 equity investments in 10 companies, with an aggregate fair value of approximately $29.9 million.

Current wording

As of December 31, 2024, we had approximately $8.4 million of money market fund investments at fair value. As of December 31, 2024, we had investments in 53 debt instruments across 44 companies, totaling approximately $236.7 million at fair value and 18 equity investments in 14 companies, with an aggregate fair value of approximately $87.5 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 December 31, 2023, we had approximately $8.9 million in unfunded loan commitments to provide debt financing to certain of our portfolio companies. We had sufficient cash and other liquid assets on our December 31, 2023 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 December 31, 2024, we had approximately $14.6 million in unfunded commitments to provide financing to certain of our portfolio companies. We had sufficient cash and other liquid assets on our December 31, 2024 balance sheet to satisfy the unfunded commitments.

Previous wording

For the year ended December 31, 2022, net cash used in operating activities was approximately $41.8 million, reflecting the purchases and proceeds from sales of investments and principal 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 used in purchases and proceeds from sales of investments was approximately $36.5 million, reflecting payments for additional investments of $149.5 million, offset by proceeds from principal repayments and sales of $113.0 million. Such amounts include draws and repayments on revolving credit facilities.

Current wording

For the year ended December 31, 2024, net cash provided by operating activities was approximately $82.7 million, reflecting the purchases and proceeds from sales of investments and principal 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 $$93.6 million, reflecting payments for additional investments of $335.0 million, offset by proceeds from principal repayments and sales of $241.4 million.

Previous wording

For the year ended December 31, 2022, cash provided by financing activities was $33.2 million, which consisted of $37.5 million in proceeds from issuance of common stock and $10.0 million in borrowings under credit facility offset by $13.0 million in distributions and $1.3 million in payments of deferred financing costs.

Current wording

For the year ended December 31, 2024, cash provided by financing activities was $81.7 million, which consisted of $97.9 million in net proceeds from the issuance of the GECCI Notes and GECCH Notes and $48.7 million in issuances of common stock, which was partially offset by $45.6 million in payments on the redemption of the GECCM Notes and $15.1 million in distributions to stockholders.

Previous wording

For the year ended December 31, 2023, cash used for financing activities was $25.3 million, which consisted of $38.4 million in net proceeds from the issuance of the GECCZ Notes which was offset by $42.8 million in payments to retire the GECCN Notes, $10.0 million in net repayments on the revolving credit facility and $10.6 million in distributions to stockholders.

Current wording

For the year ended December 31, 2023, cash used for financing activities was $25.3 million, which consisted of $38.4 million in net proceeds from the issuance of the GECCZ Notes which was offset by $42.8 million in payments to retire the GECCN Notes, $10.0 in net repayments on the revolving credit facility and $10.6 million in distributions to stockholders.

Previous wording

On August 8, 2023, we caused redemption notices to be issued to the holders of the GECCN Notes regarding the Company's exercise of its option to redeem, in whole, the issued and outstanding GECCN Notes. We redeemed all of the issued and outstanding GECCN Notes on September 7, 2023 at 100% of the principal amount plus accrued and unpaid interest thereon from June 30, 2023 through, but excluding, the redemption date, September 7, 2023.

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. On September 12, 2024, we caused redemption notices to be issued to the holders of the GECCM Notes regarding the Company's exercise of its option to redeem, in whole, the issued and outstanding GECCM Notes. We redeemed all of the issued and outstanding GECCM Notes on October 12, 2024 at 100% of the principal amount plus accrued and unpaid interest thereon from September 30, 2024 through, but excluding, the redemption date, October 12, 2024.

Previous wording

On August 16, 2023, we issued $40.0 million in aggregate principal amount of 8.75% notes due 2028 (the “GECCZ Notes” and, together with the GECCM Notes and GECCO Notes, the “Notes”). The aggregate principal balance of the GECCZ Notes outstanding as of December 31, 2023 is$40.0 million.

Current wording

On August 16, 2023, we issued $40.0 million in aggregate principal amount of 8.75% notes due 2028 (the “GECCZ Notes” ). The aggregate principal balance of the GECCZ Notes outstanding as of December 31, 2024 is$40.0 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 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 Notes 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.

Current wording

We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder. During the year ended December 31, 2024, the Company redeemed the GECCM Notes in full on October 12, 2024.

Previous wording

As of December 31, 2023, our asset coverage ratio was approximately 169.0%. Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%.

Current wording

As of December 31, 2024, our asset coverage ratio was approximately 169.7%. Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%.

Previous wording

We are also subject to financial risks, including changes in market interest rates. As of December 31, 2023, approximately $148.9 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 7A. 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 December 31, 2024, approximately $179.8 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 7A. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.

Previous wording

Our Board set a distribution for the quarter ending March 31, 2024 at a rate of $0.35 per share. The full amount of the distribution will be from distributable earnings. The schedule of the distribution payment will be established by GECC pursuant to authority granted by our Board. The distribution will be paid in cash.

Current wording

Our Board set a distribution for the quarter ending March 31, 2025 at a rate of $0.37 per share. The full amount of the distribution will be from distributable earnings. The schedule of the distribution payment will be established by GECC pursuant to authority granted by our Board. The distribution will be paid in cash.