Q3 2023 Great Elm Capital Corp Earnings Call

Greetings welcome to the Great down Capital Corp, third quarter 2023 financial results.

At this time all participants on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference police fresh star zero on your telephone keypad.

Please note. This conference is being recorded Oh now turn the conference over to your House, Gary <unk>, a representative of the company you may begin.

Good morning, and thank you everyone for joining us the great Elm capital corpse third quarter of 2023 earnings Conference call. If you liked to be added to our distribution list you can email investor relations at <unk> Dot Com, where you can sign up for alerts directly on our website www dot great M. C. C dot com I'd like to know the slide presentation.

Oh said on our website accompanying today's call. The slide presentation can be found on our website under financial information quarterly results on our website. You can also find our earnings release and the SEC filings I liked to call your attention to a customer safe Harbor statement regarding forward looking information also please note that nothing in today's call constitutes an offer to sell or a solicitation of off.

Purchase our Securities today's conference call with forward looking statements. So we ask that you refer to great capital a corpse violence with the F. C. C for important factors that could cause actual results to differ materially from these statements great on Capitol not undertake to update its forward looking statements unless required by law to obtain copies of S. D. C filings. Please disagreed on camera.

Corpse website under financial information SEC filings obesity as he sees web site hosting a call. This morning is not Catholic <unk> Catholic Corp's, Chief Executive Officer will be joined by Chief Financial Officer carry Davis, Chief compliance officer at climbing and Michaela President Great Elms specialty finance I'll turn the call over to G. C. C C.

Oh, Matt Caplan.

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

Momentum throughout the year continued and I'm pleased to report yet another strong quarter for Gradovs generating an <unk> of nearly eight and a half per cent in the corner, bringing our year to date <unk> approximately 25 per cent.

Continued to successfully deliver across all facets of our business. We saw portfolio growth continued cash income generation capital structure improvements and implemented operational enhancements.

<unk> proud of our teams consistent execution, an incredible effort to position us to further grow our platform and portfolio in the quarters in years to come.

Turning to slide six you can see we would have reported and I I have 45 cents per share if we exclude the net impact of certain refinancing items in the corner store and continued sequential growth from our second quarter 2000 twenty-three NII. However.

However, the impact of the refinancing transaction the quarter.

<unk> third quarter of.

Of $3.1 million.

Or 40 cents per share again exceeding our quarterly distribution of 35 cents per share.

I, especially want to highlight slide seven which shows are cash and I.

Even with the double interest expense associated with the refinancing we continued to generate enough cash and I from our portfolio to cover our distribution driven by another consecutive quarter of record cash income generated from our investment portfolio. The cash income we generate in the third quarter.

Represented approximately 88 per cent of total investment income.

We continue to make great stripes, and enhancing our portfolio to generate increased cash income.

We also successfully harvested lower yielding investments and use the proceeds to continue enhancing our mix of firstly unsecured debt with 90 per cent of our deployments in the corner going into first lien investments.

All while further improving overall corporate portfolio yield.

These results are a further testament to our ability to build a new and high quality portfolio filled with attractive cash yielding investment.

In addition to another quarter of excellent and I I performance or net asset value increased by five and a half per cent and a quarter to $12.88 per share.

Driven by games on investments as you can see on slide nine.

Our investment portfolio games, where broad based with over 75 per cent of the portfolio pricing stable or up quarter over quarter with most of our investments that fall fair value declines being limited to Nixon Max that we expect will largely recover over the coming quarters.

We remain focused on further recovery and improving our Nab moving forward.

Along with our strong results, we successfully completed the refinancing of our 2024 that maturity with the issuance of new notes doing 2028.

While accomplished at a higher cost of capital given the current rate environment. We were pleased to extend our maturity wall and do not expect a material drag on NII from the higher interest expense in the fourth quarter.

We continue to evaluate the capital markets and potential financing transactions to opportunistically extend our maturity at an attractive cost of capital and further position for both near and long term success.

In addition, as Mike will discuss in his remarks, we also capitalized great Elm specialty finance with our core specialty finance.

<unk> and welcome to in the strategic Infestor.

G E S F and growling and scaling the platform.

With outside capital and increased operational flexibility I believe G. E. S. F can become a significant engine of growth for G. E. C. C. Over the next three to five years as a further scales.

With that I'd like to hand, the call over to carry Davis to discuss our third quarter of 2023 performance.

Thanks, Matt I'll go over our financial highlights now, but we invite all of you to review our press release accompanying presentation and efficacy filing for greater detail.

During the third quarter G E C T generated and I have 3.1 million as compared to 3.4 million in the second quarter of 2023 as well as nearly tripling R. N I a year over year from $1.1 million in the prior year quarter.

Third quarter and I include airplanes, 3 million Annette expenses related to the redemption up to 6.5%.

C N notes in 2024 in connection with our issue and put the eight and three quarter per cent B E. T. T V note in 2028.

Our net assets as of September 30th 2023 rose to $98 million as compared to $93 million.

Our naphtha Sharon premium to 12 88 as of September 30th 2023 verses 12, 21 June 30th.

Sales for the quarter over quarter changing that can be found on slide nine investor presentation.

And I I. Appreciate your was 40 cents once again exceeding our quarterly dividend and compared to 44 cents in the prior quarter.

Excluding the net expenses related to that refinancing would result in NII per share for the third quarter of 45 cents.

As of September 30th 2023 G E C T net at the coverage ratio with approximately 168.4% compared to 161.5 per cent as of June 30th.

As of September 30th or told us that outstanding with approximately $143 million during the quarter, we issued $40 million a G. E. C. T V notes and redeem $43 million at the six and a half.

In 2024.

Extending amateur evolved.

As of September 30th 2023 are cashing money market security totaled approximately $3 million and we had $25 million available on our Undrawn line of credit.

A board of directors is authorized and 35 cents per share cash distribution for the quarter ending December 31st 2023.

The fourth quarter cash distribution will be payable on December 29th 2023 to stockholders a record as of December 15th 2023 January.

Annualize the distribution equate to an 11% dividend yield on our September 30, 20 twenty-three nap at 12 88 per share I'll turn the call back over to that.

Thanks carry in the third quarter, we continued to rotate into higher yielding investments taking advantage of the continued elevated rate environment to deploy approximately $33 million into new investments and average yields of approximately 11.4 per cent. Meanwhile.

Meanwhile, we opportunistically monetize $37 million of assets in the quarter average yields of approximately 11%.

We continued to maintain significant exposure to floating rate investments with 63 per cent of our debt investment portfolio at quarter end comprised a floating rate that well above 48% from a year ago.

Most notably along with our portfolios high yield profile, which stood at 13.4% a quarter N.

As noted before 90 per cent of our capital deployed in the quarter was into first lien investments. Thus further improving the overall credit quality of our portfolio. We are very pleased with the composition and return profile of our current portfolio.

Looking ahead in the fourth quarter, we will continue to focus on the investments that benefit from the elevated rate environment, while continuing to monitor closely uncertain macro landscape.

We will remain disciplined with respect to deploy capital towards the opportunities that have limited risk of permanent capital impairment and durable returns.

By saying measured we remain well positioned to further grow great Elm capital Corp, and generate attractive risk adjusted returns for shareholders. We are very pleased with our performance, thus far and 20 twenty-three enhancing both our overall yield and the quality of our portfolio composition and ultimately leading to improving now.

And and I I that is consistently exceeded our quarterly distributions.

As we close out the year I think about what we have accomplished over the last 18 months, we have stabilized or business built a stronger high quality portfolio and set our platform with the appropriate infrastructure accelerate our growth further in 2024.

Kerry noted this quarter essentially tripled from the same period last year.

We believe that all of the changes implemented at G. E. C. C. Since I took over as C. E O in March 20th 20 to leave us well positioned for further growth. We are excited for the future of G. E C C and with that I would like to turn the call over to my color provide an update on specialty finance.

Thanks, Ma'am I would like to start off with the transform it to the transaction that provides a launch pad for a vision of great specially for news Corp.

<unk> G E. C. C contributed all its core specialty finance assets to Greyhound specialty finance and we welcomed a strategic investor that provided new capital to grow in scale, our special refinance platform offering a one stop shop for borrowers across the continuum is Wendy.

Today as an independent operating company G E F F can market its platform companies prestige Sterling health care financing or new initiative, great lender finian's under one umbrella to small and medium size businesses for bespoke capital solution.

By bringing all the core special refinance assets under great out specialty for me it's.

Platforms operation for being streamline dugger, one cohesive operating company.

Now that we have the core pieces and capital in place you can focus on growing or political and generating synergies across the platform.

The pullback of traditional bank lending to small and medium size businesses could not be occurring at a better time for the G. E. S. S platform companies to re energize the growth initiatives you continue to see positive momentum within each of our vehicles.

First I'll touch on prestige, which generated net income growth year over year. It is tracking ahead of budget, although the third quarter sauce and seasonal weakness an invoice for Nancy volume going into the fourth quarter. We are seeing values pick up again and expect them to end the year strongly.

A great home health care Finance, we continue to see robust deal flow entertain continues to execute on its plan. This platform has benefited from the industry wide pull back and health care lending, particularly in the skilled nursing and longterm care sectors.

[noise] expect great Elm health care finance to continue to take advantage of market dislocation into the fourth quarter as well as in two 2024.

As mentioned last quarter, we continued to build out Sterling commercial credit and its asset base service capabilities.

<unk>, two providing asset base with all the loans to lower middle market companies Sterling provides loan monitoring and back office services and capabilities to great Uhm Health care Finance, we believe that's totally blown monitoring capabilities can be used across multiple specialty finance vertical.

Turning to our latest business initiative I wanted to update you in great I'll Blender Phineas. This has been seeded with three participations contribute it and the affirmation special refinance transaction. This quarter. When we were working with various bank and bank capital providers to further grow in scale. This business line we be.

Leave that great on Monday, <unk> provide us with the ability to take advantage of opportunistic S. It back transactions.

In summary, now under G. E. S. S. I am confident that our specialty finance companies are properly positioned to execute on our growth initiative as we seek to generate increasing and sustainable income over the coming years.

Thanks, Mike cause sum it up it was another excellent quarter for G. E C C and given our current portfolio composition, an overall strategy. We believe we remained well positioned to cover a quarterly distribution for the fourth quarter and beyond.

<unk> I'll turn the call over to the operator for questions operator.

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Four I will hand to call back over to management for closing remarks.

Thank you again for joining US today, we are pleased with our strong momentum and incredible progress over the past 18 months. We look forward to continued investor dialogue. Please let us know if we can help with any follow up questions that you may have.

And this concludes today's conference that you may disconnect. Your lines at this time. Thank you for your participation.

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