Great Elm Capital Corp. (“we,” “us,” “our” or “GECC”), (NASDAQ:
GECC), today announced its financial results for the quarter ended
June 30, 2020.
FINANCIAL HIGHLIGHTS
- During the quarter ended June 30,
2020, we began repositioning the portfolio, including intentionally
taking actions that depressed net investment income (“NII”) in
order to create liquidity
- Specifically, as the impact of COVID-19 increased volatility in
the leveraged credit secondary markets, we proactively monetized
investments in anticipation of more attractive redeployment
opportunities
- Toward the end of the quarter ended June 30, 2020 and following
quarter end, we redeployed a majority of our cash into new,
cash-generative investment opportunities that diversify our
holdings
- As we continue to diversify our holdings, we intend to weight
investments in specialty finance businesses, like Prestige Capital
Finance, LLC (“Prestige”), whose performance has exceeded internal
expectations, more significantly in our future portfolio
- NII for the quarter ended June 30,
2020 was approximately $0.9 million, or $0.09 per share, as
compared to NII per share of $2.7 million or $0.26 per share for
the quarter ended March 31, 2020
- The quarter-over-quarter reduction in NII was driven by the
monetization of certain income-generating investments as we
continued to meaningfully grow our cash balance and the loss of
cash and noncash income from investments placed on nonaccrual
status during the prior quarter
- Net realized gains for the quarter
ended June 30, 2020 were approximately $0.9 million, or $0.09 per
share. Net unrealized appreciation from investments for the quarter
ended June 30, 2020 was approximately $1.7 million, or $0.16 per
share
- As of June 30, 2020, our asset
coverage ratio was approximately 144.5%, up from 141.1% as of March
31, 2020, vs. a minimum asset coverage ratio of 150.0% (the
“Minimum ACR”)
- As a result of continuing to report an asset coverage ratio
below the Minimum ACR, we are subject to certain limitations on our
ability to incur additional debt, make cash distributions on junior
securities or repurchase junior securities
- During the quarter ended June 30,
2020, we repurchased $4.2 million in aggregate principal of our
senior notes at a weighted average price of $19.18 per note
- In August 2020, our Board of
Directors (the “Board”) set monthly distributions of $0.083 per
share for the fourth quarter of 2020
- The distributions will be paid in cash or shares of our common
stock at the election of shareholders, although the total amount of
cash to be distributed to all shareholders will be limited to
approximately 10% of the total distributions to be paid to all
shareholders; the remainder of the distributions (approximately
90%) will be paid in the form of shares of our common stock
- Net assets on June 30, 2020 were
approximately $53.2 million as compared to net assets on March 31,
2020 of $50.8 million, a 4.5% increase. NAV per share on June 30,
2020 was $5.10, as compared to NAV per share of $5.05 on March 31,
2020, as our share count increased by approximately 3.6%
“This quarter marked the beginning of GECC’s
portfolio repositioning,” remarked Peter A. Reed, GECC’s Chief
Executive Officer. “Our net investment income was substantially
reduced by, among other drivers, proactive sales of investments to
improve our liquidity profile. Since quarter end, we have made
meaningful progress redeploying the bulk of our cash balance into
high quality, income-generating investments. We remain focused on
diversifying our portfolio, maintaining significant liquidity and
further strengthening our balance sheet. Our investment in Prestige
continues to exceed our expectations and has led to an increased
number of opportunities in specialty finance. Going forward, we
intend to increase our focus on the specialty finance sector.”
PORTFOLIO AND INVESTMENT
ACTIVITY
As of June 30, 2020, we held 29 debt
investments, totaling approximately $121.0 million and representing
82.7% of the fair market value of our total investments. First lien
and/or secured debt investments comprised 98.4% of the fair market
value of our debt investments. As of the same date, we held eight
equity investments, totaling approximately $25.2 million and
representing 17.3% of the fair market value of our total
investments.
As of June 30, 2020, the weighted average
current yield on our debt portfolio was 10.2%. Floating rate
instruments comprised approximately 62.6% of the fair market value
of debt investments.
During the quarter ended June 30, 2020, we
deployed approximately $15.9 million into nine investments(1), at a
weighted average current yield of 12.2% The weighted average price
of the debt deployment activity was 92% of par.
During the quarter ended June 30, 2020, we
monetized, in part or in full, 17 investments for approximately
$37.5 million(2), at a weighted average current yield of 6.5%. The
weighted average realized price was 98% of par.
CONSOLIDATED RESULTS OF
OPERATIONS
Total investment income for the quarter ended
June 30, 2020 was approximately $4.8 million, or $0.47 per share.
Total expenses for the quarter ended June 30, 2020 were
approximately $3.9 million, or $0.38 per share.
Net realized gains for the quarter ended June
30, 2020 were approximately $0.9 million, or $0.09 per share. Net
unrealized appreciation from investments for the quarter ended June
30, 2020 was approximately $1.7 million, or $0.16 per share.
LIQUIDITY AND CAPITAL
RESOURCES
As of June 30, 2020, our cash balance was
approximately $31.0 million, exclusive of our holdings of United
States Treasury Bills. Total debt outstanding as of June 30, 2020
was $119.5 million, comprised of our 6.50% senior notes due
September 2022 (NASDAQ: GECCL), our 6.50% senior notes due June
2024 (NASDAQ: GECCN) and our 6.75% senior notes due January 2025
(NASDAQ: GECCM). During the quarter ended June 30, 2020, we
repurchased $4.2 million in aggregate principal of our senior notes
at a weighted average price of $19.18 per note. Importantly, as of
June 30, 2020, we had no secured credit facility, which allows for
greater flexibility in the use of our cash and other assets.
As of June 30, 2020, our asset coverage ratio
was approximately 144.5%, up from 141.1% as of March 31, 2020. We
are subject to a Minimum ACR of 150.0%, per the proposal that was
approved at our 2018 Annual Stockholders’ Meeting. As a result of
continuing to report an asset coverage ratio below the Minimum ACR
during the quarter ended June 30, 2020, we are subject to certain
limitations on our ability to incur additional debt, make cash
distributions on junior securities or repurchase junior securities,
in each case, in accordance with the Investment Company Act of
1940, as amended, and the indentures governing our outstanding
notes, until such time we are above the Minimum ACR.
SELECT SUBSEQUENT ACTIVITY
Distributions As previously
announced, in May 2020, our Board set monthly distributions of
$0.083 per share for the third quarter of 2020, through the month
ending September 30, 2020. The distributions will be paid in cash
or shares of our common stock at the election of shareholders,
although the total amount of cash to be distributed to all
shareholders will be limited to approximately 10% of the total
distributions to be paid to all shareholders. The remainder of the
distributions (approximately 90%) will be paid in the form of
shares of our common stock, in accordance with applicable law and
the indentures governing our outstanding notes.
In August 2020, our Board set monthly
distributions of $0.083 per share for the fourth quarter of 2020,
through the month ending December 31, 2020. The distributions will
be paid in cash or shares of our common stock at the election of
shareholders, although the total amount of cash to be distributed
to all shareholders will be limited to approximately 10% of the
total distributions to be paid to all shareholders. The remainder
of the distributions (approximately 90%) will be paid in the form
of shares of our common stock, in accordance with applicable law
and the indentures governing our outstanding notes.
CONFERENCE CALL AND WEBCAST
Great Elm Capital Corp. will host a conference
call and webcast on Monday, August 10, 2020 at 10:00 a.m. Eastern
Time to discuss its second quarter financial results. All
interested parties are invited to participate in the conference
call by dialing +1 (844) 820-8297; international callers should
dial +1 (661) 378-9758. Participants should enter the Conference ID
9372556 when asked. For a copy of the slide presentation that will
be referenced during the course of our conference call, please
visit:
http://www.investor.greatelmcc.com/events-and-presentations/presentations
The conference call will be webcast simultaneously at:
https://edge.media-server.com/mmc/p/fzae6hst
About Great Elm Capital
Corp.
Great Elm Capital Corp. is an externally
managed, specialty finance company focused on investing in debt
instruments of middle market companies. GECC elected to be
regulated as a business development company under the Investment
Company Act of 1940, as amended. GECC targets catalyst-driven
investments as it seeks to generate attractive, risk-adjusted
returns through both current income and capital appreciation.
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, the price of GECC common stock, the performance of
GECC’s portfolio and investment manager and risks associated with
the economic impact of the COVID-19 pandemic on GECC and its
portfolio companies. Information concerning these and other factors
can be found in GECC’s Annual Report on Form 10-K and other reports
filed with the SEC. 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.
GREAT ELM CAPITAL
CORP. |
|
|
CONSOLIDATED
STATEMENTS OF ASSETS AND LIABILITIES |
|
|
|
|
Dollar amounts in
thousands (except per share amounts) |
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
Assets |
|
|
|
|
Investments |
|
|
|
|
Non-affiliated, non-controlled investments, at fair value
(amortized cost of $137,138 and $168,269, respectively) |
|
$ |
99,040 |
|
|
$ |
147,412 |
|
Non-affiliated, non-controlled short-term investments, at fair
value (amortized cost of $74,964 and $85,733,
respectively) |
|
|
74,962 |
|
|
|
85,733 |
|
Affiliated investments, at fair value (amortized cost of
$106,696 and $102,704, respectively) |
|
|
38,485 |
|
|
|
40,608 |
|
Controlled investments, at fair value (amortized cost of
$9,598 and $10,601, respectively) |
|
|
8,736 |
|
|
|
9,595 |
|
Total investments |
|
|
221,223 |
|
|
|
283,348 |
|
|
|
|
|
|
Cash and cash equivalents |
|
|
30,977 |
|
|
|
4,606 |
|
Receivable for investments
sold |
|
|
1,531 |
|
|
|
- |
|
Interest receivable |
|
|
2,987 |
|
|
|
2,350 |
|
Dividends receivable |
|
|
480 |
|
|
|
14 |
|
Due from portfolio
company |
|
|
729 |
|
|
|
617 |
|
Due from affiliates |
|
|
15 |
|
|
|
15 |
|
Prepaid expenses and other
assets |
|
|
24 |
|
|
|
89 |
|
Total
assets |
|
$ |
257,966 |
|
|
$ |
291,039 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Notes payable 6.50% due
September 18, 2022 (including unamortized discount of $644
and $839, respectively) |
|
$ |
30,011 |
|
|
$ |
31,792 |
|
Notes payable 6.75% due
January 31, 2025 (including unamortized discount of $1,171
and $1,321, respectively) |
|
|
44,439 |
|
|
|
45,078 |
|
Notes payable 6.50% due June
30, 2024 (including unamortized discount of $1,768 and
$2,058, respectively) |
|
|
41,505 |
|
|
|
42,942 |
|
Payable for investments
purchased |
|
|
78,136 |
|
|
|
72,749 |
|
Interest payable |
|
|
361 |
|
|
|
354 |
|
Distributions payable |
|
|
865 |
|
|
|
1,338 |
|
Accrued incentive fees
payable |
|
|
8,484 |
|
|
|
8,157 |
|
Due to affiliates |
|
|
747 |
|
|
|
997 |
|
Accrued expenses and other
liabilities |
|
|
264 |
|
|
|
743 |
|
Total
liabilities |
|
$ |
204,812 |
|
|
$ |
204,150 |
|
|
|
|
|
|
Commitments and
contingencies (Note 6) |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
Net
Assets |
|
|
|
|
Common stock, par value $0.01
per share (100,000,000 shares authorized, 10,424,957 shares
issued and outstanding and 10,062,682 shares issued and
outstanding, respectively) |
|
$ |
104 |
|
|
$ |
101 |
|
Additional paid-in
capital |
|
|
194,460 |
|
|
|
193,114 |
|
Accumulated losses |
|
|
(141,410 |
) |
|
|
(106,326 |
) |
Total net
assets |
|
$ |
53,154 |
|
|
$ |
86,889 |
|
Total liabilities and
net assets |
|
$ |
257,966 |
|
|
$ |
291,039 |
|
Net asset value per
share |
|
$ |
5.10 |
|
|
$ |
8.63 |
|
GREAT ELM CAPITAL
CORP. |
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS |
|
|
|
|
|
|
|
|
Dollar amounts in
thousands (except per share amounts) |
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
For the Six Months Ended June 30, |
|
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
Investment
Income: |
|
|
|
|
|
|
|
|
Interest income from: |
|
|
|
|
|
|
|
|
Non-affiliated, non-controlled investments |
|
$ |
2,616 |
|
|
$ |
3,673 |
|
|
$ |
7,082 |
|
|
$ |
7,522 |
|
Affiliated investments |
|
|
243 |
|
|
|
213 |
|
|
|
470 |
|
|
|
411 |
|
Affiliated investments (PIK) |
|
|
1,297 |
|
|
|
940 |
|
|
|
2,521 |
|
|
|
1,815 |
|
Controlled investments |
|
|
28 |
|
|
|
539 |
|
|
|
98 |
|
|
|
1,053 |
|
Controlled investments (PIK) |
|
|
- |
|
|
|
299 |
|
|
|
- |
|
|
|
583 |
|
Total interest income |
|
|
4,184 |
|
|
|
5,664 |
|
|
|
10,171 |
|
|
|
11,384 |
|
Dividend income from: |
|
|
|
|
|
|
|
|
Non-affiliated, non-controlled investments |
|
|
- |
|
|
|
138 |
|
|
|
3 |
|
|
|
211 |
|
Controlled investments |
|
|
480 |
|
|
|
400 |
|
|
|
880 |
|
|
|
800 |
|
Total dividend income |
|
|
480 |
|
|
|
538 |
|
|
|
883 |
|
|
|
1,011 |
|
Other income from: |
|
|
|
|
|
|
|
|
Non-affiliated, non-controlled investments |
|
|
26 |
|
|
|
32 |
|
|
|
56 |
|
|
|
132 |
|
Affiliated investments |
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
Affiliated investments (PIK) |
|
|
75 |
|
|
|
456 |
|
|
|
75 |
|
|
|
456 |
|
Controlled investments |
|
|
3 |
|
|
|
19 |
|
|
|
12 |
|
|
|
39 |
|
Total other income |
|
|
104 |
|
|
|
509 |
|
|
|
143 |
|
|
|
629 |
|
Total investment income |
|
$ |
4,768 |
|
|
$ |
6,711 |
|
|
$ |
11,197 |
|
|
$ |
13,024 |
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Management fees |
|
$ |
591 |
|
|
$ |
742 |
|
|
$ |
1,289 |
|
|
$ |
1,448 |
|
Incentive fees |
|
|
228 |
|
|
|
749 |
|
|
|
328 |
|
|
|
1,445 |
|
Administration fees |
|
|
191 |
|
|
|
241 |
|
|
|
395 |
|
|
|
452 |
|
Custody fees |
|
|
19 |
|
|
|
15 |
|
|
|
39 |
|
|
|
30 |
|
Directors’ fees |
|
|
51 |
|
|
|
49 |
|
|
|
102 |
|
|
|
99 |
|
Professional services |
|
|
250 |
|
|
|
229 |
|
|
|
507 |
|
|
|
468 |
|
Interest expense |
|
|
2,390 |
|
|
|
1,571 |
|
|
|
4,695 |
|
|
|
3,025 |
|
Other expenses |
|
|
132 |
|
|
|
120 |
|
|
|
274 |
|
|
|
278 |
|
Total expenses |
|
$ |
3,852 |
|
|
$ |
3,716 |
|
|
$ |
7,629 |
|
|
$ |
7,245 |
|
Net investment income |
|
$ |
916 |
|
|
$ |
2,995 |
|
|
$ |
3,568 |
|
|
$ |
5,779 |
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized gains (losses): |
|
|
|
|
Net realized gain (loss) on
investment transactions from: |
|
|
|
|
|
|
|
|
Non-affiliated, non-controlled investments |
|
$ |
(42 |
) |
|
$ |
410 |
|
|
$ |
(11,498 |
) |
|
$ |
1,018 |
|
Repurchase of debt |
|
|
974 |
|
|
|
- |
|
|
|
1,117 |
|
|
|
- |
|
Total net realized gain
(loss) |
|
|
932 |
|
|
|
410 |
|
|
|
(10,381 |
) |
|
|
1,018 |
|
Net change in
unrealized appreciation (depreciation) on investment transactions
from: |
|
|
Non-affiliated, non-controlled investments |
|
|
2,472 |
|
|
|
(1,425 |
) |
|
|
(17,243 |
) |
|
|
718 |
|
Affiliated investments |
|
|
(1,030 |
) |
|
|
(6,693 |
) |
|
|
(6,115 |
) |
|
|
(3,570 |
) |
Controlled investments |
|
|
221 |
|
|
|
335 |
|
|
|
144 |
|
|
|
(255 |
) |
Total net change in unrealized
appreciation (depreciation) |
|
|
1,663 |
|
|
|
(7,783 |
) |
|
|
(23,214 |
) |
|
|
(3,107 |
) |
Net realized and unrealized
gains (losses) |
|
$ |
2,595 |
|
|
$ |
(7,373 |
) |
|
$ |
(33,595 |
) |
|
$ |
(2,089 |
) |
Net increase
(decrease) in net assets resulting from operations |
|
$ |
3,511 |
|
|
$ |
(4,378 |
) |
|
$ |
(30,027 |
) |
|
$ |
3,690 |
|
|
|
|
|
|
|
|
|
|
Net investment income per
share (basic and diluted): |
|
$ |
0.09 |
|
|
$ |
0.29 |
|
|
$ |
0.35 |
|
|
$ |
0.55 |
|
Earnings per share (basic and
diluted): |
|
$ |
0.34 |
|
|
$ |
(0.43 |
) |
|
$ |
(2.96 |
) |
|
$ |
0.35 |
|
Weighted average shares
outstanding (basic and diluted): |
|
|
10,195,857 |
|
|
|
10,239,631 |
|
|
|
10,129,269 |
|
|
|
10,439,572 |
|
Media & Investor Contact:
Investor Relations
+1 (617)
375-3006
investorrelations@greatelmcap.com
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