Q4 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Great Elm capital Corp. fourth quarter 2019 financial results Conference call.

Simon participant lines are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you want each press star one on your telephone.

Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Adam Good. Thank you. Please go ahead Sir.

Thank you Julie and good morning, everyone. Thank you for joining us for great on capital Corp's fourth quarter and year end 2019 earnings Conference call. As a reminder, this webcast is being recorded on Tuesday March 24 2020.

If you'd like to be added to our distribution list you can email investor Relations agreed on cap Dotcom, where you can sign up for alerts directly on our website www dot great album, Si Si Dot com.

The slide presentation accompanying this morning's conference call and webcast can be found on our web site under financial information quarterly results.

On the website you can also find a copy of our earnings release form 10-K, and a link to the webcast.

I'd like to call your attention to the customary safe Harbor statement regarding forward looking information.

Also please note that nothing in today's call constitute an offer to show where solicitation of offers to purchase our securities.

Today's conference call includes forward looking statements and projections and we actually you refer to the great on capital courts filings with the FCC for important factors that could cause actual results to differ materially from these projections.

Great on capital Corp. does not undertake to update forward looking statements unless required by law.

Obtain copies of the FCC filings. Please visit greed own cap of course web site under financial information FCC filings or visit the Fccs website.

Hosting the call. This morning, as Peter read greed on capital courts, President and Chief Executive Officer, I will now I'll turn the call over to Peter.

Thank you Adam good morning, and thank you for joining us today.

I'm joined this morning by our COO, Adam Brotman portfolio manager, Adam <unk>, and our CFO carry David.

Where relevant in our prepared remarks, we will point you did a corresponding slide number in the deck that Adam record, which is available on our website as well through the webcast.

Please turn to slide three for an overview G SIFI.

He sees he isn't externally manage total return focus BDC with a strong balance sheet.

GCC seeks to generate both current income and capital appreciation from its portfolios investment.

Comprised primarily of secured loan secured bond and specialty finance.

Investment.

As of December 31st 2020, GCC had total assets of approximately 291 million portfolio value of 197.6 million and the net asset value of 86.9 billion according to $8.63 per share.

The weighted average current yield on our debt holdings is approximately 10.8%.

GC C pace and 8.3 cents per share based monthly distribution that maybe in part B paid in common shares of G. SIFI.

This equates to approximately one dollar values per share on an annual basis.

Importantly, greater than 20% of GC C shares are held by employees and affiliates of great capital management, Inc. GE Cts investment manager, creating very clear alignment of interest between management and our shareholders.

Let's turn to slide four to go very few highlights and we can achieve.

As we previously announced a portion of our second quarter 2020 distributions will be paid and shares of our common stock.

These are unprecedented time filled with unprecedented opportunity.

Ordered the best capitalize on these opportunities we believe it it's prudent to preserve as much capital as possible and strengthen our already healthy balance sheet.

Our existing portfolio investments continued to generate sufficient net investment income to cover our based distribution as they had every quarter since inception.

Over the trailing 12 month GCC is paid one dollar and five cents in total distribution.

Good thing of an 8.3 cents monthly based distribution and a five cents special distribution.

Based on December 31st and they'd be in closing market price total distributions equate to an annual distribution yield to 12.1% and 13.4% respectively.

Capital at a weighted average price is 97% of Barton, we monetize investments at a weighted average price of bar.

On slide six we highlight a few high level characteristics of the portfolio. The weighted average current yield on our secured debt holding which comprise approximately 80% of the fair values the portfolio, it's approximately 10.8%.

The weighted average prices the debt investments in our portfolio is approximately 87% of par providing for significant potential capital appreciation.

Moreover, as we monetize legacy full circumcision been redeployed the boys proceeds into new and existing grade Elm investment portfolio continued to better reflect our investing styling approach.

As of December 31st roughly 93%. The portfolio is comprised of investments that are representatives of the diversified manner in which we intend to invest going forward.

Slide seven described additional portfolio characteristics.

The portfolio contains 35 investment 28 of which are secured debt in seven of which are equity.

28 debt investment account for 174.1 billion, a fair value and the seven equity investment to account for approximately 23.6 million a fair value.

Our total debt Holden, roughly 73% or floating rate instruments in 27% accrue it sounds great.

Slide eight detailed our capital deployment during the quarter, we purchased two new investments and added to existing investment during the quarter deploying approximately $12 million. The new investments were 2 million of bias that receivables and 10 million up from 70 communication secured revolver commitment.

In addition to our existing investments included 4.7 million of tens are corp.'s secured term loan and 5.8 million of ASP criminal flows secured term loan.

Please turn to slide nine break down the quarter end portfolio by asset and interest rate type.

Approximately 88% of the fair value of the portfolio is invested unsecured debt with the balance in equity.

That's roughly 174.1 billion of debt and $23.6 million of equity.

The 174.1 million of debt holdings, roughly 126.6 million has invested in floating rate debt with a weighted average current yield of 10.3%.

Roughly 47.5 million has invested in fixed rate debt with a weighted average current yield to 12.4%.

On slide 10, we highlight how the composition of the portfolio has changed over time.

Today, the portfolio has no unsecured debt, we continued to source and purchase attracted secured opportunities to generate sufficient income to cover our based distribution.

In addition, a fair portion of our equity holdings of generating substantial income for the portfolio.

Specifically for stage capital funding the specialty finance business. We acquired in February 2019 generated approximately 1.6 million of income in our less than 11 month of ownership through year end, making it our highest income generating investment per dollar deployed.

Turning to slide 11, let's review the composition of our debt holdings by interest rate type.

Our team has been focusing on floating rate leverage loan opportunities there aren't covering in the secondary market.

Recently, we have some greater opportunities to leverage loan market than in the more transparent high yield bond market.

It's both loan and bond prices dislocation the secondary market were evaluating all opportunities to increase shareholder value.

On slide 12, we break down the portfolio by industry wireless telecommunications services comprised of our investments in Avanti, it's still the largest industry waiting. Nevertheless, we continue to maintain a diversified portfolio investments as indicated by the 21 different industries represented.

Please turn to slide 13 to take an Oracle look at GE Ccs portfolio rotation.

During each of the past 13 quarters since inception, we have monetize higher dollar price investments in deployed capital into lower dollar price investments contributing to GCC total return.

Most recently in the fourth quarter 2019, we deployed capital in a weighted average price of approximately 97% of par and we've realized investment at a weighted average price of par with volatility increasing the leverage credit market. We firmly believe that investing capital at lower dollar prices provided natural margin safety for our portfolio.

Turning to slide 14, we get a more granular picture GE Ccs investment activity quarter over quarter, you can see we've been able to find compelling debt investment opportunity at prices below par each of the past five quarters.

This past quarter, we've invested capital of 9.0% average current yield slightly lower than our recent averages life where compresses.

Importantly, the duration to maturity for certain of our investment shrink the yield to maturity might increase while the current yield might not that's reflected total return potential we seek.

Currently we are focusing our efforts on higher quality lower dollar price investment opportunities that appear to be on necessarily punished by aggressive sellers.

On Slide 16, we know what is in is front and center on the my investors first quarter 2020 has been characterized by remarkable volatility the leverage credit market driven in part by the impact of the global Corona virus outbreak and violent swings in commodity prices.

We believe we must take every opportunity to bolster liquidity in order to successfully navigate current market volatility and to be in a position to capitalize on what the proved to be very attractive investment opportunities if and when they materialize.

In order to best position GCC.

Shoring up cash by trending higher dollar price investments and paying a portion of our second quarter 2020 based distributions in common stock importantly, our strong balance sheet has no secured debt and we do not relying on credit facility to purchase investment.

On slide 17 18.

We detail our activity since quarter end in particular I would note that the $4.4 million per course software secured revolving loan purchase at 92% apart in the $2 million a bias that receivables purchase that 90% of par.

We sold all 15.9 million of commercial barge line secured term loan at approximately 34% of par the company's ongoing restructuring would have resulted in significant amount of non income producing equity that we did not believe was the best fit for GCC.

Turning to slide 20 to review financial highlights from the quarter net loss per share was 16 cents in fourth quarter and I I for share came in at 25 cents covering our 25 cents quarterly based distribution once again.

We experienced insignificant net realized gains net unrealized losses were 41 cents, primarily the result of fluctuation in the fair value with certain of our investments.

Net asset value or NAV was $8.63 per share at period end.

Please turn to slide 21 for financial overview of the portfolio.

At period end total assets were 291 million.

Total fair value of investments is 197.6 million and our $8.63 per share an AB equated to an aggregate any idea of 86.9 billion.

Total debt outstanding with unchanged at 124 million in was comprised entirely of our unsecured baby gone.

Cash and money market investments were healthy 15.6 million at period end.

Turning to slide 22, let's discuss the quarterly operating results.

Total investment income of 7 million or 70 cents per share compared to 6.9 million or 65 cents. During the same period in the prior year.

Net operating expenses of 4.3 million or 42 cents per share were slightly higher than the 4.2 million or 40 cents per share in the fourth quarter of 2018, primarily the result of increased interest expense.

We'll see it with our most recent baby bond GE Si Si and.

And I have 2.5 million 25 cents per share was comparable on a per share basis through the fourth quarter 2018, 2.7 million or 25 cents per share. It's we repurchased shares during 2019.

Turning to slide 24, let's discuss GE Ccs distribution policy and declared distribution to date.

GCC continues to paying 8.3 cents per share monthly based distribution that some to one dollar per share per year.

In December we announce it special distribution of five cents per share bring the 12 month total distributions to one dollar Tyson for sure.

The past 12 month total distributions represented 12.1% dividend yield on the December 30, Onest 2019 that an approximate 13.4% dividend yield on the quarter end market value.

In March our board said, our our second quarter distribution amount of 8.3 cents per share per month, beginning with the distribution for April distribution fully paid in cash were 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 20%.

The token distribution to be paid to all shareholders.

The remainder of the distributions will be paid in the form of shares of our common stock. We made this adjustment in order to maximize our liquidity and further strengthen our balance sheet in this volatile investment environment to the benefit of all shareholders.

Slide 25 shows GE Ccs full distribution history, and overlays with the annual distribution yield was as a percentage at the market price.

GE Ccs special distribution in each of the past three years when combined with the monthly based distribution have driven annual distribution yield well north of 10% from each full years since inception.

Slide 26 illustrates our historical distribution coverage again, it's important to emphasize the Eni has covered the base distribution every quarter since inception in 2016.

Finally, please turn to slide 28th grade GTC Summer our board has set the second quarter 2020 distribution rate at 8.3 cents per share from.

Also greater than 20% of GE Cc shares are held by employees an affiliate of Great Capital Management, Inc.

He Ccs investment manager fostering a true alignment of interests became management and other shareholders furthering that alignment of interest to date GCC has repurchased approximately 22% of its initial share count the weighted average current yields on our diversified portfolio secured long been bond is approximately 10.8%.

With a significant portion of our assets in cash and equivalents no secured borrowings and a healthy asset coverage ratio GE Si season. During these uncertain times for the position of strength.

Thank you for joining us. This morning, we continued to be excited about the upside potential in the portfolio as well as with the many investment opportunities that market volatility. It's created we believed that we have formed a significant alignment of interest with you our shareholders. Thank you again for this important confident that you've placed.

With that we will turn the call over to the operator to open for questions.

As a reminder to ask a question you wanted to press star one on your telephone to withdraw your question press the pound Kane. Please standby well, we compile the Q and a roster.

At this time I'm showing no questions I would like.

To turn the call back over to Adam Yan for closing remarks.

Thank you again for joining us. This morning, we look forward to continued dialogue and please let us know if we can be helpful with anything and follow up have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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