Q1 2021 Great Elm Capital Corp Earnings Call

Greetings, Thank you for standing by and welcome to the Great Elm.

Capital Corp, first quarter 2021 financial results conference call at this time all parts of participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

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I would now like turn the conference over to a representative of the company. Please go ahead.

Well, thank you and good morning, everyone and thank you for joining us for Great Elm capital Corp's first quarter earnings conference call, if you'd be like if you would like to be added to our distribution list of the email investor relations at Great Elm capital Com, where you can sign up for alerts directly on our website at www dot great Elm <unk>.

In addition to our comments for today's call will be utilizing the investor presentation is and the company.

While we will not do the directly referring to the slides our comments today will generally follow the form of the structure of the presentation.

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

And on the website you can also find and copy of this presentation of the earnings release form 10-Q, and a link to this webcast.

I would like to call your attention to the customary safe Harbor language regarding forward looking information.

Also please note that nothing in today's call constitutes an offer to sell or solicitation of offers to purchase from securities.

Today's conference call includes forward looking statements and projections and we ask that you refer to great Elm Capital Corp, 's filings with the SEC for important factors that could cause actual results to differ materially from these projections great Elm capital Corp does not undertake to update its forward looking statements unless required by law.

To obtain copies of the SEC filings. Please visit great Elm capital Corp's website on the financial information and SEC filings of visit the SEC's website.

Hosting the call. This morning is Peter Reed, Great Elm Capital Corp, 's, President and Chief Executive Officer, as a reminder of just webcasting record of on Friday May seven 2020.

With that I'd now like to turn the call over to Peter. Please go ahead Pete.

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

On today's call, we have our COO, Adam Kleinman, our CFO, Gary Davis, and Matt Kaplan of portfolio manager and member of our investment Committee.

I will begin with an overview of G. E. C sees investment performance during the quarter, Matt will discuss our portfolio cash.

He will discuss our capital position and greater detail and then I'll return for closing remarks.

To begin while we experienced a slower than anticipated deployment of new capital early in the first quarter the depressed NII to a degree.

We ended the period and an excellent position and we're able to deploy for $3 $9 million and new investments excluding specs in the quarter at a weighted average current yield of approximately nine 9%.

In addition, we ended the period with our strongest asset coverage ratio and debt to equity ratio since the beginning of the pandemic.

Finally, we also announced the signing of about $25 million revolving credit facility yesterday that will allow great elm.

To be more fully invested in yielding assets and take advantage of the specialty finance overflow opportunities. We are seeing as part of our ownership position and prestige capital.

To begin with the quick outline at quarter and G. E. C. C. You had a portfolio of investments with the fair market value of $193 $6 million cash of $26 $6 million and $91 5 million of net asset value or $3.89 per share.

In terms of NAV. This is a sizable increase from the $3.46 per share reported on December 31, and 2020.

This is largely due to higher realized and unrealized gains on investments, which will detail shortly.

NII for the quarter was approximately $1 5 million or six cents per share as compared to NII of $1 6 million or seven cents per share for the quarter ended December 31, 2020 and.

And now with depressed as we entered the quarter with the high cash balance and legal expenses remain elevated.

Well I'll, let Matt go into greater detail on our portfolio review there were a couple of notable developments that we expect will favorably impact NII in the coming quarters.

We exited of legacy position and board riders during the quarter and will no longer incur related legal fees after April.

He sees and served as a drag on NII over the past two quarters.

Second it's important to understand the impact of timing during the period, we considerably increased our deployment of capital and February and March.

Lantis side of the $43 9 million deployed for <unk> during the quarter over 75% with deployed after January and we have seen this momentum continue into the second quarter.

We continue to work towards building and increasingly diversified investment portfolio and are utilizing a number of sourcing channels as we invest.

And the first quarter, we also continued to benefit from our investment and prestige capital.

In past calls, we have provided background and prestige and the 34 year history of the factoring business today and want to provide the little insight on how this relationship works and provides <unk> with proprietary opportunity to leverage its balance sheet to achieve attractive irr's overtime.

G E C C balance sheet enables prestige to increase the size of the transactions that can pursue and our investment and prestige may create opportunities that would allow G. E. C. C to participate in certain of the prestigious larger factory and transaction directly.

And the past prestige may have been unable to pursue these larger transactions be the capital constraints. However, following our investment in 2019, it became apparent the prestige merely needed additional capital to pursue these opportunities in 2020, we completed three participations and prestige investments, which we believe.

The stronger credit quality and typical leveraged investments at a rate of 13% per annum of.

Our goal now with the continued to working with the management of prestige to help them pursue larger transactions.

To that and we were very pleased to enter into a $25 million revolving credit facility with city National Bank with an interest rate on borrowings at LIBOR, plus three and a half per cent and a three year maturity.

This facility allows us to more efficiently manage our liquidity and take advantage of overflow opportunities at prestige and make other investments with the favorable cost of capital.

As I discussed last call. We recently added two new members to our investment committee from Imperial capital asset management, Jason race, and Matt Kaplan, both Jason and Matt were instrumental in closing the recent credit facility. We've benefited from their expertise throughout our investment selection process that and.

And I'd like to turn the call over to Matt to discuss our portfolio performance for the quarter.

Thanks Pete.

There are some moving parts of this period, including the initiation of the spec based cash management strategy early in the quarter.

Our March 31st portfolio comprised of 33 debt investments three income generating equity investments and seven other equity investments excluding specs.

The debt investments account for $135 million or approximately 70% of portfolio of fair value.

The weighted average current yield on our debt investments is 10, 9%.

Of the $135 million of debt holdings, roughly $69 million and invested in floating rate debt with the weighted average current yield of nine 3%.

Roughly $66 million is invested and fixed rate debt with the weighted average current yield of $12 seven per cent.

Away from more of debt holdings, we have three yielding equity investments accounting for $30 million or approximately 16% of portfolio fair value.

And other equity investments totaling 18 million or approximately 9% of fair value.

We also have holdings and spec instruments of $10 million accounting for approximately 5% of fair value.

The weighted average current yield of our three income generating equity investments the prestige.

<unk> energy partners and of Crestwood equity partners is approximately 13 and the half per cent.

Our portfolio is currently I believe weighted and the wireless telecommunications services industry each of our largest holding of bumps.

As we grow our investments and the specialty finance space and further diversify our holdings, we expect the portfolio to generally be less concentrated with additional focus and the specialty finance sector.

And the first quarter, we monetized approximately 28 million of and investments and deployed $58 million into new investments with a portfolio yield remaining stable.

And we've been able to successfully find compelling debt investment opportunities at prices below par and each of the last seven quarters.

And this past quarter, we were able to deploy capital at a weighted average price of 96 per cent of par and monetize investments of 89% of par.

Excluding our exit of board riders, which was the drag on the NII due to associated legal fees, we monetize the investments at a weighted average price of 97% of par this past quarter.

Before I turn it over to Kerry for review of financial highlights I wanted to take a few moments to discuss our recently implemented approach of utilizing spec investments is a hybrid of cash management tool for great Elm and.

In short we are focused on deploying our capital to take advantage of the risk mitigation dynamics that are inherent in the spec structure with an avenue to create upside for our capital as we seek new opportunities to deploy it into higher yielding instruments.

We entered the quarter with $53 million of cash and and as our deployment and to yielding investments ramped up we also decided to leverage our relationships to invest a portion of our cash and to a broad portfolio of specs and their ipos.

We believe <unk> will be able to earn and other than cash return on the underlying spec shares or retaining upside from warrants.

At March 31st 10 million wasn't buses and 125 Speck securities or approximately 5% of invested capital, which are all publicly traded securities listed on the NASDAQ or NYSE.

To be clear the allocation just back in the form of cash management that we believe has minimal permanent impairment of capital risk with potential upside with that I'll turn the call to Carrie to go through our financial highlights Gary.

Thanks for all.

The trading pretty quickly, but and by all of you to review our press release accompanying presentation and of course are of SEC filing.

Total weighted average shares outstanding increased to $23 4 million from $22 2 million and the prior quarter and $10 1 million and the prior period year the.

The main reason for the share increase from prior year with the rights offering completed by the company in October of 2020.

The reported net income from operations of 53 cents per share and the first quarter compared to the net loss of 43 cents in the prior quarter, which was largely due to net unrealized depreciation of or the current corner.

NII per share came in at six cents compared to seven cents and the prior quarter.

Net asset value of our NAV increased quite significantly.

And 389 per share as of March 31st from $3 46 per share at December 30, <unk>, 'twenty, and 'twenty, which was largely due to those unrealized gains.

Total fair value of investments as the Blackstone parcel of $193 $6 million compared to $151 $7 million from the prior quarter and net assets for $91 $5 million up from $79 $6 million from prior quarter.

Total debt outstanding was approximately $118 $7 million and was comprised entirely of our unsecured bonds.

And to evaluate ways to lower our cost of capital as exemplified by our new evolving credit facility, but for me.

Cash was $26 $6 million up there yet.

With that I'll turn it back to Pete for closing remarks.

Thanks, Carrie and Matt I'd like to close with information regarding our distribution and then we would be happy to take your questions.

In March we announced that our board authorized a 10 cent per share cash distribution to shareholders for the quarter ended June 30 of 2021 at.

As I mentioned earlier this represents and indicated yield of 10, 3% on NAV at year end, and and 11, 9% yield on our common stock price as of the close on April 30th.

We expect to announce the record and payable date for the distribution shortly.

The board of Directors also also authorized a 10 cent per share cash distribution for the quarter ending September 30 of 2021 the <unk>.

Record and payment dates for the distribution of our expected we set by GCC and the third quarter pursuant to authority granted by the board of directors.

Over the last year, we have proactively made decisions that we feel will position <unk> for greater financial success and the current market environment.

We're exiting the period with what we believe to be and increasingly high quality portfolio and the new revolving credit facility with C and B provides additional flexibility for future growth.

And equally important is that we have cultivated a relationship with prestige and this helped us deploy that capital into attractive proprietary investments.

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

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Price per pound.

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And you have a question.

From the line of Dan <unk>.

Alan Denzer. Please go ahead.

Yes, hi.

Question about the viability of the Avanti business going forward, please give us a little more.

Color on the.

What's the potential for a recovery.

And that business.

Hi, Alan Thank you for your question.

This past quarter was an important one for avanti refinance its first lien debt.

And also one significant amounts of new business and the form of contracts with new customers that we believe will drive.

Future revenue and cash flow. So we continue to be optimistic about the trajectory of avanti's business and what that means for our investment.

Thank you.

Yes.

And ladies again and again.

And to ask a question that of Star one.

Okay.

At this time I would like to turn it back over to the speakers for.

Or is it and the management team for any further comments.

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.

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

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