Great Elm Capital Corp. (“we,” “us,” “our,” the “Company” or
“GECC”) (NASDAQ: GECC), a business development company, today
announced its financial results for the fourth quarter and year
ended December 31, 2021. Effective February 28, 2022, GECC
implemented a 6-for-1 reverse split of its outstanding common stock
and all per share amounts below are presented on a split adjusted
basis unless otherwise noted.
Today GECC Announces
- It is seeking to raise capital to
fund its specialty finance strategy.
- New board leadership with the
appointment of two new board members, including a new chairman,
with extensive investment, financial, and operational
experience.
- A CEO transition with Matt Kaplan
assuming the CEO role to execute on a strategy anchored in growing
GECC’s specialty finance platform alongside a less concentrated,
performing credit portfolio.
- Our Board of Directors has approved
a quarterly dividend of $0.45 per share for the second quarter of
2022, equating to a 10.8% annualized yield on pro forma NAV per
share.
- Great Elm Capital Management, Inc.,
GECC’s external investment advisor, has indicated that it intends
to waive all accrued incentive fees as of March 31, 2022, provided
GECC’s shareholders approve a proposal to reset the incentive fee
total return hurdle. As of December 31, 2021 there were
approximately $4.9 million, or $1.08 per share, of accrued fees
held on GECC’s balance sheet.
- If that waiver is obtained, we
would expect to recognize the reversal of these accrued fees during
the period ending March 31, 2022, contingent upon approval of the
new incentive fee hurdles by GECC’s stockholders, resulting in a
corresponding increase in income and increase in net asset value in
such period (subject to any offsetting additional expenses or
losses).
Financial and Operating
Highlights
- Net investment income (“NII”) for
the quarter ended December 31, 2021 was $7.1 million, or $1.58 per
share.
- NII for the quarter ended December
31, 2021 was positively impacted by the reversal of approximately
$5.2 million of previously accrued incentive fees associated with
our investments in the secured debt of Avanti that have been deemed
unlikely to be collected.
- Net assets were approximately $74.6
million on December 31, 2021, as compared to $99.4 million on
September 30, 2021, and $79.6 million on December 31, 2020.
- Net assets for the quarter ended
December 31, 2021 were negatively impacted by approximately $26.6
million of unrealized depreciation from investments in Avanti.
- NAV per share was $16.63 as of
December 31, 2021, as compared to $22.17 as of September 30, 2021,
and $20.74 as of December 31, 2020.
- As of December 31, 2021, GECC’s
asset coverage ratio was approximately 151.1%, compared to 163.8%
as of September 30, 2021, and 167.1% as of December 31, 2020.
- On February 3, 2022, we acquired a
majority ownership interest in Sterling Commercial Credit
(“Sterling”), a provider of asset-based loans to middle market
companies throughout the United States.
- On February 18,
2021, GECC entered into a joint venture with Utica Leaseco, LLC
(“Utica”), an established equipment finance company, for the
purpose of co-investing in proprietary equipment financings
originated by Utica.
Management Commentary“Our
investment in Avanti has negatively impacted our portfolio value,”
said Matt Kaplan, GECC’s newly appointed Chief Executive Officer.
“We recognize the negative consequences of this investment and are
ready to re-set GECC. The strategic plan to move forward is
supported by our board and large shareholders. We have
made significant strides to grow our portfolio of specialty finance
solutions with the ability to service the lending needs of small
businesses at varying stages of their development.”
Michael Keller, President of Great Elm Specialty
Finance, said “Post quarter end, we grew our specialty finance
business with the acquisition of a majority ownership stake in
Sterling Commercial Credit and agreed to a joint venture with
Utica. Coupled with portfolio companies Prestige Capital Finance
and Lenders Funding, Sterling Commercial Credit and the JV with
Utica should broaden GECC’s product offerings to its customers and
provide proprietary, attractive, risk-adjusted returns for
shareholders.”
Financial Highlights – Per Share
Data(1)
|
Q4/20201 |
Q1/20211 |
Q2/20211 |
Q3/20211 |
Q4/20211 |
Earnings Per Share
(“EPS”) |
($2.60) |
$3.22 |
$0.63 |
($0.79) |
($4.95) |
Net Investment Income (“NII”)
Per Share |
$0.44 |
$0.39 |
$0.54 |
$0.39 |
$1.58 |
Net Realized Gains / (Losses)
Per Share |
$0.21 |
($0.84) |
$(0.60) |
$0.42 |
($1.26) |
Net Unrealized Gains /
(Losses) Per Share |
($3.25) |
$3.67 |
$0.69 |
($1.60) |
($5.27) |
Net Asset Value Per Share at
Period End |
$20.74 |
$23.36 |
$23.40 |
$22.17 |
$16.63 |
Distributions Paid / Declared
Per Share |
$1.49 |
$0.60 |
$0.60 |
$0.60 |
$0.60 |
Portfolio and Investment
Activity
As of December 31, 2021, GECC held total
investments of $212.1 million at fair value, as follows:
- 45 debt investments, totaling
approximately $149.8 million and representing 70.6% of the fair
market value of our total investments. Secured debt investments
comprised a substantial majority of the fair market value of our
debt investments.
- 5 income generating equity
investments, totaling approximately $45.7 million, representing
21.5% of the fair market value of our total investments.
- 9 other equity investments,
totaling approximately $13.6 million and representing 6.4% of the
fair market value of our total investments.
- Special Purpose Acquisition Company
(SPAC) instruments totaling approximately $3.1 million, which
consist of SPAC common stock and warrants, representing
approximately 1.4% of the fair market value of our total
investments.
As of December 31, 2021, the weighted average
current yield on our debt portfolio was 10.8%. Floating rate
instruments comprised approximately 45.3% of the fair market value
of debt investments.
During the quarter ended December 31, 2021, we
deployed approximately $34.2 million into 23 investments(2) at a
weighted average current yield of 8.2%.
During the quarter ended December 31, 2021, we
monetized, in part or in full, 26 investments for approximately
$34.1 million(3) excluding SPACs, at a weighted average current
yield of 7.4%. We also monetized $6.2 million of SPAC securities
during the period, bolstering our liquidity profile.
Financial Review Total
investment income for the quarter ended December 31, 2021 was
approximately $6.4 million, or $1.42 per share. Net expenses for
the quarter ended December 31, 2021 were approximately $0.8
million, or $0.16 per share. Total expenses were positively
impacted by certain one-time items, primarily related to the
reversal of approximately $5.2 million of previously accrued
incentive fees associated with our investments in the secured debt
of Avanti that have been deemed unlikely to be collected.
Net realized losses for the quarter ended
December 31, 2021 were approximately ($5.7) million, or ($1.26) per
share. Net unrealized depreciation from investments for the quarter
ended December 31, 2021 was approximately ($23.6) million, or
($5.27) per share. Net unrealized depreciation from investments was
negatively impacted by approximately $26.6 million related to our
investments in Avanti. Investments in Avanti’s 1.5 lien term loan
and 2nd lien notes, totaling approximately $3.9 million of fair
value as of December 31, 2021 and $26.5 million of fair value as of
September 30, 2021, were placed on nonaccrual as of October 1,
2021. As of December 31, 2021, the fair value of our investments in
Avanti was approximately $8.1 million or 3.8% of portfolio fair
value.
Liquidity and Capital
ResourcesAs of December 31, 2021, our cash balance was
approximately $9.1 million, exclusive of holdings of United States
Treasury Bills.
Total debt outstanding (par value) as of
December 31, 2021 was $145.9 million, comprised of our 6.50% senior
notes due June 2024 (NASDAQ: GECCN), our 6.75% senior notes due
January 2025 (NASDAQ: GECCM), and our 5.875% senior notes due June
2026 (NASDAQ: GECCO). We also have $25.0 million revolving credit
facility due May 2024, which was undrawn as of December 31,
2021.
Subsequent EventsOn January 27,
2022, we announced that our Board of Directors approved a 6-for-1
reverse stock split of our outstanding common stock. On February
28, 2022, the reverse stock split of our outstanding common stock
became effective. As a result, every six shares of our issued and
outstanding common stock were converted into one share of issued
and outstanding common stock. Fractional shares to be received as a
result of the reverse stock split were redeemed for cash at $2.98
per share on a pre-split basis ($17.88 pro forma for the reverse
split), the closing market price February 25, 2022. Pro forma, our
fully diluted share count is 4.6 million and our NAV per share is
$16.63.
On February 3, 2022, we acquired a majority
ownership interest in Sterling, a provider of asset-based loans to
middle market companies throughout the United States, for total
consideration of approximately $7.5 million which consisted of $4.9
million of cash and $2.6 million of our common stock issued at NAV.
In connection with the acquisition, we also provided subordinated
debt to Sterling to fund growth initiatives. The majority of the
proceeds from the transaction were retained by Sterling to help
support the growth of the business. Founder and CEO Edwin Small
will continue to lead the business and will maintain an equity
interest. Michael Keller, President of Great Elm Specialty Finance,
became Chairman of Sterling’s Board of Managers.
On February 18, 2022, the Company entered into a
joint venture with Utica Leaseco. LLC (“Utica”) for the purpose of
co-investing in proprietary equipment financing originated by
Utica. Utica has been providing customized equipment loan and lease
options for businesses of all sizes throughout the continental U.S.
since 2005. This transaction remains subject to the approval of
Utica’s senior lender.
Leadership UpdateToday we
announce the following leadership changes: GECC names Matt Kaplan
as CEO, as Peter Reed resigns his position with the Company. Mr.
Kaplan has served as the Portfolio Manager for GECC since October
2020 and has an extensive background in credit investing, both on
the buy and sell sides. In addition to Mr. Kaplan’s appointment as
CEO, the Company announced that Matthew Drapkin, CEO &
Portfolio Manager of Northern Right Capital, has been named
Chairman of the Board, effective immediately. Joining Mr. Drapkin
on the Board of Directors as a new appointment is Richard Cohen,
President of Richard M. Cohen Consultants, as Audit Chair. Board
Members concluding service with the company include Peter Reed,
Michael Speller, and Revell Horsey.
DistributionsOn November 5,
2021, we announced that our Board of Directors approved a quarterly
dividend of $0.60 per share (on a post-split basis) for the quarter
ending March 31, 2022. The first quarter distribution will be
payable on March 30, 2022 to stockholders of record as of March 15,
2022.
In addition, our Board of Directors has approved
a $0.45 per share cash distribution for the quarter ending June 30,
2022. Annualized, the distribution equates to an 11.9% dividend
yield on our closing market price on March 3, 2022 of $15.9 and a
10.8% dividend yield on our pro forma NAV of $16.63 per share. The
record and payment dates for the distribution are expected to be
set in the second quarter, pursuant to authority granted by our
Board of Directors.
Conference Call and WebcastGECC
will discuss these results in a conference call on Friday, March 4,
2022, at 11:00 a.m. ET.
Conference Call Details |
Date/Time: |
Friday, March
4, 2022 – 11:00 a.m. ET |
|
|
Participant Dial-In Numbers: |
|
(United States): |
844-820-8297 |
(International): |
661-378-9758 |
To access the call, please dial-in approximately
five minutes before the start time and, when asked, provide the
operator with passcode "GECC". An accompanying slide presentation
will be available in .pdf format via the “Investor Relations”
section of Great Elm Capital Corp.’s website at
http://www.investor.greatelmcc.com/events-and-presentations/presentations
after the issuance of the earnings release.
WebcastThe call and presentation will also be
simultaneously webcast over the Internet via the Investor Relations
section of GECC’s website or by clicking on the conference call
link:
https://edge.media-server.com/mmc/p/8728zwhu%20.
About Great Elm Capital Corp.
Great Elm Capital Corp. is an externally managed, business
development company that seeks to generate current income and
capital appreciation by investing in debt and income generating
equity securities, including investments in specialty finance
businesses.
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) |
The per share figures are based on a weighted average outstanding
share count for the respective period, pro forma for the 6-for-1
reverse stock split effective on February 28, 2022. |
(2) |
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. |
(3) |
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. |
Media & Investor
Contact:Investor Relations
+1 (617)
375-3006investorrelations@greatelmcap.com
GREAT ELM CAPITAL CORP.CONSOLIDATED
STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)Dollar amounts in thousands (except per
share amounts)
|
|
|
|
|
|
|
December
31,2021 |
|
December
31,2020 |
Assets |
|
|
|
|
Investments |
|
|
|
|
Non-affiliated, non-controlled investments, at fair value
(amortized cost of $175,800 and $147,494, respectively) |
|
$ |
164,203 |
|
|
$ |
112,116 |
|
Non-affiliated, non-controlled short-term investments, at fair
value (amortized cost of $199,995 and $74,997, respectively) |
|
|
199,995 |
|
|
|
74,998 |
|
Affiliated investments, at fair value (amortized cost of $129,936
and $109,840, respectively) |
|
|
10,861 |
|
|
|
29,289 |
|
Controlled investments, at fair value (amortized cost of $32,649
and $7,630, respectively) |
|
|
37,085 |
|
|
|
10,243 |
|
Total
investments |
|
|
412,144 |
|
|
|
226,646 |
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
9,132 |
|
|
|
52,582 |
|
Restricted
cash |
|
|
13 |
|
|
|
600 |
|
Receivable
for investments sold |
|
|
766 |
|
|
|
- |
|
Interest
receivable |
|
|
1,811 |
|
|
|
2,423 |
|
Dividends
receivable |
|
|
1,540 |
|
|
|
- |
|
Due from
portfolio company |
|
|
136 |
|
|
|
837 |
|
Due from
affiliates |
|
|
17 |
|
|
|
- |
|
Deferred
financing costs |
|
|
376 |
|
|
|
- |
|
Prepaid
expenses and other assets |
|
|
379 |
|
|
|
240 |
|
Total assets |
|
$ |
426,314 |
|
|
$ |
283,328 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Notes
payable (including unamortized discount of $3,935 and $3,065,
respectively) |
|
$ |
141,998 |
|
|
$ |
115,661 |
|
Payable for
investments purchased |
|
|
203,575 |
|
|
|
75,511 |
|
Interest
payable |
|
|
29 |
|
|
|
328 |
|
Distributions payable |
|
|
- |
|
|
|
1,911 |
|
Accrued
incentive fees payable |
|
|
4,854 |
|
|
|
9,176 |
|
Due to
affiliates |
|
|
1,012 |
|
|
|
764 |
|
Accrued
expenses and other liabilities |
|
|
290 |
|
|
|
362 |
|
Total liabilities |
|
$ |
351,758 |
|
|
$ |
203,713 |
|
|
|
|
|
|
Commitments and contingencies |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
Net
Assets |
|
|
|
|
Common stock, par value $0.01 per share (100,000,000 shares
authorized, 4,484,278 shares issued and outstanding and 3,838,242
shares issued and outstanding, respectively) |
(1 |
) |
$ |
45 |
|
|
$ |
38 |
|
Additional
paid-in capital |
|
|
245,531 |
|
|
|
230,696 |
|
Accumulated
losses |
|
|
(171,020 |
) |
|
|
(151,119 |
) |
Total net assets |
|
$ |
74,556 |
|
|
$ |
79,615 |
|
Total liabilities and net assets |
|
$ |
426,314 |
|
|
$ |
283,328 |
|
Net
asset value per share |
(1 |
) |
$ |
16.63 |
|
|
$ |
20.74 |
|
|
|
|
|
|
GREAT ELM CAPITAL CORP.CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)Dollar amounts
in thousands (except per share amounts)
|
For the Year Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
Investment Income: |
|
|
|
|
|
Interest
income from: |
|
|
|
|
|
Non-affiliated, non-controlled investments |
$ |
13,100 |
|
|
$ |
12,740 |
|
|
$ |
17,087 |
|
Non-affiliated, non-controlled investments (PIK) |
|
387 |
|
|
|
22 |
|
|
|
- |
|
Affiliated investments |
|
910 |
|
|
|
981 |
|
|
|
858 |
|
Affiliated investments (PIK) |
|
4,874 |
|
|
|
5,218 |
|
|
|
4,158 |
|
Controlled investments |
|
646 |
|
|
|
249 |
|
|
|
1,411 |
|
Controlled investments (PIK) |
|
- |
|
|
|
- |
|
|
|
684 |
|
Total
interest income |
|
19,917 |
|
|
|
19,210 |
|
|
|
24,198 |
|
Dividend
income from: |
|
|
|
|
|
Non-affiliated, non-controlled investments |
|
1,713 |
|
|
|
867 |
|
|
|
470 |
|
Controlled investments |
|
2,634 |
|
|
|
2,240 |
|
|
|
1,600 |
|
Total
dividend income |
|
4,347 |
|
|
|
3,107 |
|
|
|
2,070 |
|
Other income
from: |
|
|
|
|
|
Non-affiliated, non-controlled investments |
|
683 |
|
|
|
125 |
|
|
|
142 |
|
Non-affiliated, non-controlled investments (PIK) |
|
- |
|
|
|
368 |
|
|
|
- |
|
Affiliated investments |
|
- |
|
|
|
- |
|
|
|
2 |
|
Affiliated investments (PIK) |
|
282 |
|
|
|
75 |
|
|
|
565 |
|
Controlled investments |
|
25 |
|
|
|
12 |
|
|
|
61 |
|
Total other
income |
|
990 |
|
|
|
580 |
|
|
|
770 |
|
Total investment income |
$ |
25,254 |
|
|
$ |
22,897 |
|
|
$ |
27,038 |
|
Expenses: |
|
|
|
|
|
Management
fees |
$ |
3,182 |
|
|
$ |
2,511 |
|
|
$ |
2,953 |
|
Incentive
fees |
|
(4,323 |
) |
|
|
1,020 |
|
|
|
2,735 |
|
Administration fees |
|
673 |
|
|
|
729 |
|
|
|
987 |
|
Custody
fees |
|
54 |
|
|
|
51 |
|
|
|
57 |
|
Directors'
fees |
|
233 |
|
|
|
198 |
|
|
|
200 |
|
Professional
services |
|
1,937 |
|
|
|
1,441 |
|
|
|
833 |
|
Interest
expense |
|
10,428 |
|
|
|
9,126 |
|
|
|
7,636 |
|
Other
expenses |
|
737 |
|
|
|
655 |
|
|
|
491 |
|
Total expenses |
|
12,921 |
|
|
|
15,731 |
|
|
|
15,892 |
|
Net
investment income before taxes |
$ |
12,333 |
|
|
$ |
7,166 |
|
|
$ |
11,146 |
|
Excise tax |
$ |
48 |
|
|
$ |
17 |
|
|
$ |
209 |
|
Net
investment income |
$ |
12,285 |
|
|
$ |
7,149 |
|
|
$ |
10,937 |
|
Net realized and unrealized gains (losses): |
|
|
|
|
Net realized
gain (loss) on investment transactions from: |
|
|
|
|
|
Non-affiliated, non-controlled investments |
$ |
(5,770 |
) |
|
$ |
(9,604 |
) |
|
$ |
1,146 |
|
Affiliated investments |
|
(4,162 |
) |
|
|
- |
|
|
|
- |
|
Controlled investments |
|
293 |
|
|
|
(1,382 |
) |
|
|
154 |
|
Realized
gain on repurchase of debt |
|
- |
|
|
|
1,237 |
|
|
|
- |
|
Total net
realized gain (loss) |
|
(9,639 |
) |
|
|
(9,749 |
) |
|
|
1,300 |
|
Net change in unrealized appreciation (depreciation) on investment
transactions from: |
|
|
Non-affiliated, non-controlled investments |
|
19,019 |
|
|
|
(14,520 |
) |
|
|
(11,316 |
) |
Affiliated investments |
|
(33,763 |
) |
|
|
(18,455 |
) |
|
|
(7,907 |
) |
Controlled investments |
|
1,823 |
|
|
|
3,619 |
|
|
|
(561 |
) |
Total net
change in unrealized appreciation (depreciation) |
|
(12,921 |
) |
|
|
(29,356 |
) |
|
|
(19,784 |
) |
Net realized
and unrealized gains (losses) |
$ |
(22,560 |
) |
|
$ |
(39,105 |
) |
|
$ |
(18,484 |
) |
Net
increase (decrease) in net assets resulting from
operations |
$ |
(10,275 |
) |
|
$ |
(31,956 |
) |
|
$ |
(7,547 |
) |
Net
investment income per share (basic and diluted)(1) |
$ |
3.02 |
|
|
$ |
3.22 |
|
|
$ |
6.40 |
|
Earnings per
share (basic and diluted)(1) |
$ |
(2.52 |
) |
|
$ |
(14.41 |
) |
|
$ |
(4.42 |
) |
Weighted
average shares outstanding (basic and diluted)(1) |
|
4,073,454 |
|
|
|
2,218,244 |
|
|
|
1,708,263 |
|
(1) |
Authorized, issued and outstanding shares of common stock, weighted
average shares outstanding and per share amounts have been adjusted
for the periods shown to reflect the six-for-one reverse stock
split effected on February 28, 2022 on a retroactive basis. |
Great Elm Capital (NASDAQ:GECCO)
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