Great Elm Capital Corp. Q1 2023 Earnings Call

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Grading and welcome to the Great Capital Corp, first quarter, 20th 20th Conference call. At this time, all participants are in a listen only mode.

Question and answer session will follow the formal presentation. If you watch would require operated assistant in the conference.

Sorry zero Oh your telephone keypad.

This conference is being recorded.

It is now my pleasure to each of those Terre Haute Gareth Edison I see are please go ahead.

Good morning, and thank you everyone for joining us for Great Elm capital corpse first quarter 2023 earnings conference call, if you'd like to be added to our distribution list you can email investor relations at <unk> Dot com or you can sign up for alerts strictly on our website www dot grape M. C. C dotcom liked to note.

Slide presentation posted on our website accompanying today's call slide presentation can be found on our website under financial information quarterly results on our website. You can also find our earnings release in S. D. C filings I would like to call your attention to the customers Safe Harbor state regarding forward looking information also please note that nothing in today's call constitutes an offer to sell or <unk>.

<unk> offers to purchase our securities.

<unk> includes forward looking statements and we ask that you refer to Greyhound Catholic corpse filings with the S. C. C for important factors that could cause actual results to differ materially from these statements rate on capital does not undertake to update as forward looking statements unless required by law to obtain copies of S. D. C filings. Please visit great capital of course website under financial.

Information is D C filing surface with the FCC's website hosting the call. This morning, as Matt Caplan, Great on Capitol Corp's, Chief Executive Officer, who will be joined by Kerry Davis G. E. C. C. C F O and climbing cheap compliance officer G E C C and Mike Keller President of Great Elm Specialty finance I will now turn the call over to G. C. Six C E O.

Matt Caplan.

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

22, a reboot your for great.

2023 is shaping up to be the year that great on goes back on offense led by a revamped portfolio strategy.

Our focus on cash generation and portfolio construction, mainly deploying capital into senior secure floating right your investments.

To generate first quarter of $2.8 million.37 per share a 23% gain from about 30 <unk> reported for the fourth quarter of 2022.

On our prior call I had mentioned that we were positioned to cover our new quarterly distribution of 35 cents per share over the course of 2023, and we not only covered our distribution we exceeded it in the first quarter.

Given our momentum and are growing portfolio. We believe we remain well positioned to grow and I again in the second quarter and cover quarterly distribution.

In addition, our net asset value increased by six per cent and a quarter to 11 88 per share from both realized and unrealized mark to market games on certain investments in the corner recovering over half of the portfolio declines seen in the prior court.

We are focused on further recovering net asset value in the months ahead.

As we noted on our prior call. We are strategically focused on constructing a high quality diversified portfolio focused on performing and cash yielding investments.

For the second consecutive quarter, the cash income generated from our investment portfolio was the highest amount and G. E C sees history.

Presenting over 85 per cent of total investment income.

In the first quarter, we opportunistically deployed approximately $46 million into new investments at average yields in excess of 12 per cent. Meanwhile.

Meanwhile, about $53 million of assets or monetizing the quarter at average yields just above 10%.

Most importantly, 58 per cent of our debt investment portfolio at quarter and consistent a floating rate that up from 50 per cent at the end of 2022 and almost double the 33 per cent from just nine months ago.

Average yield on our credit portfolio also increased over 13 per cent at quarter end from around 12 per cent at the end of 2022.

You should expect that we will continue to focus on investments that benefit from rising rates as opposed to fixed rate investments, but we also continue to monitor the feds policy stance.

Along with reconstructing our portfolio to focus on floating rate investments.

Previously noted that we are committed to stealing our specialty finance platform.

<unk> I'm happy to announce that our health care Finance vehicle recently closed a credit line was <unk>.

As a result, <unk> health care Finance now has access to up to $100 million of financing for health care related stirred lending and we expect the team to begin deploying that capital in the second quarter in a disciplined manner toward its robust pipeline of investments are factoring business also continues to perform well and <unk>.

We believe the specialty finance platform cause well positioned to provide the material contributions to G. E. C C. As we move through the year.

Moving forward, we are cognizant of the increasingly challenging maccarone environment and remain measured with respect to deploy capital toward opportunities that have limited risk a permanent capital impairment and durable returns. We are excited for the future and our ability to generate attractive risk adjusted returns for our shareholders I am.

Proud of our teams ongoing efforts as we continue to grow great Capital Corp, what's that I'd like to hand, the call over to carry Davis to discuss our first quarter of 2023 performance.

Thank you Matt I'll go over our financial highlights now, but we invite all of you to review our press release pregnancy.

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During the first quarter at G E C C generated.

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26, perfect Oh two.

$2.3 million in the fourth quarter of 2022 is about more than doubling euro per year from $1.1 million in the prior year quarter, excluding the fever for herself.

Our net assets as of March 31st 2012 trained where $93 million compared to 84.8 million at December 31, and $59.3 million as of March 31st 2022.

Per share with 11 88 as of March 31st 2023 persons 11, 16 as of December 31st and 15 O six as of March 31st 2022.

Detailed for the quarter over quarter changing nap can be found on slide eight of the investor presentation.

As of March 31st 2023.

He's asked that coverage ratio with approximately 159.8% compared to 154.4% as of December 31st 2022.

He he said he had an increase in net assets.

1.7 per share in the first quarter compared to a net loss from operations at 96 cents per share the prior Claire.

Hey, I per share with 37 cents, succeeding or quarterly dividend from 30 cents in the prior quarter.

As of March 31st our total debt outstanding was approximately $151 million, including $5 million outstanding on at 25 million dollar line of credit.

As of March 31st 2023 are cashing money market securities totaled approximately $12.5 million.

A board of directors authorized take 35 cents per share cash distribution for the quarter ending June 30th 2023.

Second quarter cash distribution will be payable on June 30th to stockholders a record adds up to 15 2023.

Annualize the distribution equate to an 11.8% annualized dividend yield on a March 31st 2000 twenty-three nap at 11 88 per share.

And with that I'll turn the call back over to that to review the portfolio.

Thanks, Kerry just a quick note on how our portfolio construction has continued to evolve as noted on our prior call in early March we selectively took advantage of the recovery in January and February to monetize investments.

Shortly after that call Silicon Valley Bank in signature bank collapsed to credit Suisse was hastily. So can you be S, which created significant volatility in the market.

We remained focused Ah managing our relationships and counterparty risks and we're not directly impacted by these events. We continue to expect orderly markets will develop over the course of 2023, providing pockets of opportunity to invest.

In addition, we continued to direct our time and capital club indirect deals as well as specialty finance.

Still maintaining an active pipeline of potential secondary market investments.

<unk> G E. C. C was more focused on stressed and distress secondary trading or.

Through the strategy, we have been executing on the team is increases focus to sourcing direct deals performing cash paying credits to that and approximately 50 per cent of our capital deployed so far in 2023 has been in proprietary transactions.

Around the end of the quarter, we closed on two private clubs, yes, both senior secured floating rate loans interestingly. Both of these investments contained two per cent sofa Flores, which we believe provides adequate protection and a scenario where the federal reserve begins to cut rates.

Currently we are working on a number of deals almost all with a floating rate component was mid teams return profiles.

On that note I would like to turn the call over to Michael Keller to provide an update of our specialty finance initiatives.

Thanks, Matt.

<unk> noted in his remarks, we're excited to have successfully closed on a facility that provides a renewed great home health care finance platform with up to $100 million of financing from which to deploy capital into health care related securities experts.

We have taken much care to build this new vehicle step by step.

Developing an operational platform insignificant investment pipeline.

Finding the right senior finian's partner in Encino lender financed to fund our platform.

We'll continue to keep you apprised of our progress, but we expect great health care finance to scale in the months and quarters ahead.

As I noted in our last call structural and macroeconomic factors if created an opportunity in health care that I have not seen since the early two thousands.

We expect G. H F will become a major contributor to the specialty for any it's business when you're building across the continuum of blending the G. E. C. C can offer it small business clients.

Away from the opportunities, we see in the health care space.

Beginning to see a pull back by lenders in the ABL market as economic uncertainty credit losses, shrinking deposit bases and the full effect of interest rate increases take hold.

Our investment professionals had been receiving more inbound calls from borrowers shunned by banks as well as financial institutions looking for liquidity in specific pools of assets.

Addition to asset sales and overall lender pullback various private credit platforms may be sold or require capital investment. For example, we have been approached by lending platform seek an additional capital and or looking to sell specific portfolios with loans.

As noted previously we've taken steps to bolster the operations in the asset monitoring capabilities of our special refinance businesses, which should allow us to take advantage of current market dynamics and opportunities.

What are the direct beneficiaries of the pull back from banks is prestige or invoice funding business.

Prestige add a tremendous first quarter beginner management's expectations and both volumes and net income the team continues to execute on its pipeline and we have seen the momentum from the first quarter continue into the second quarter.

We remain confident that our special refinanced platforms are properly positioned to execute on our growth initiatives and generate increasing sustainable income.

Thanks, Mike we continued to head in the right direction as evidenced by our NII exceeding our quarterly dividend.

Only one third of the way through the second quarter I believe we are well positioned to grow in my eye and again cover the 35 cent dividend this quarter.

What's that turnbaugh call over to the operator for questions operator.

Thank you will now be connected a question and answer session. If you would like to ask a question. Please breakfast tier one telephone keypad, a confirmation phone, where we indicated your line of questioning <unk>.

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Perfect question. Please press.

<unk>.

And our first question comes from private Investor.

Good morning, Matt a couple of questions if I could.

On the Sly morning <unk>.

Morning on slide number aid your N. A V bridge, you've got the net realized gains of 24 cents and the unrealized gains of 46 cents could you give us a little details what's behind those numbers was a general was there a couple of specific credits in there that improved or is it just I don't.

No at the market did it will for that time period, and you've you've just overall spreads.

Cause that's question one.

Okay go ahead and.

That will not get the other one. Thank you, yes. So a third was from realized games, which there are various credits and the rally that I was speaking about.

In February the order monetize dreaming refinanced out and about two thirds was from recovery and marks I think there are two known you dig into contributors Jose investment and a insurance entity in Florida, but we we made.

The end of 2022, and beginning of 23 and the other one that I would like to highlight his prestige.

In the fourth quarter prestige actually impacted by about five cents, but this quarter was about 10 cent benefit to come out here and as Mike mentioned, they had a very strong first quarter and they'd carry that momentum well into the second quarter, even before the banking stress started.

A good start to the year Mmm, we believe the current contraction that we're seeing from credit from reach.

Banks will be a tailwind for them throughout the rest of the year.

And you know what I'm talking about specialty finance overall I'd just like to highlight on the great home health care finance side that developed a very robust pipeline and now that we have this credit facility in place.

They are well positioned to capitalize on this disruption asset based health care lending market.

Seen the banks pull back so as they grow over can be twenty-three. We accept expect this business could be a contributor to great, especially that's platform along with prestige and our other asset base lending platforms great.

And a question on the dividend in the.

December quarter, and I was 30 cents and they paid third any paid 35.

I hear you did 37 cents this quarter and you you exceeded the.

Acceded to do it and you did mention that you're you're comfortable with your confidence in these athletes generating the income to get to that level and maybe a little bit of a bump is the board committed to this 35 cent level of any thoughts you have on the earnings capacity going forward in the dividend payout going forward to to the extent you can you feel comfortable talking about it.

Sure. So gross is barely linear, but as we wrap our health care and other specialist Samantha initiatives and execute on the credit pipeline Berseem.

Looking to grow and I hope for 2023, I believe we're well positioned to grow R. M. I again in the second quarter here and cover the dividend over the year you know one item that I think I'd like to point out with regard to this is our cash generation.

[noise] excuse me as I mentioned on the call. This is our highest cash quarter income and the Bdcs history and originally when when drafting the script.

Wanted to say it was the highest cash income quarter as well, but then I went back and saw that actually fourth quarter of 2017.

<unk> was the highest cash income quarter, but G. C C reported something like $10 million total investment income.

What about 90% of that was pick an accretion income so that fourth quarter 2017 kind of highest income quarter G. C sees history, when we had a little north of $1 million of cash based income.

We did $8.4 million a total investment come second highest now in jaycees history, but over 85% of that is cash space. So that's over 7 million cashback.

This is a fundamental change from the past approach we have a newborn joined.

Kind of <unk> three new board members that joined back in.

March of 2023, when I stepped in that is.

C O B R focused now that's new approach focused on cash and cash generation. So when I talk about covering the dividend I'd like to emphasize that my approach to doing that.

Three different in the past and you know, we think we're well positioned because I said to cover the dividend over the year.

Great. Thank you.

The Hill.

Thank you for the question please.

We are closing our question is first person.

I would like to turn to fly back over to Makkah Panther closing comments.

Ahead.

Thank you again for joining US today, we continue to make solid progress in our efforts to transform G. C C <unk>.

To continue to invest your dialogue. Please let us know if we can help with any follow up questions that you may have thank you.

This concludes today's conference call you <unk>.

Disconnect the line at this time.

And then have a great day.

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