Great Elm Capital Corp. Q1 FY2024 earnings call

• 2024 started solidly with asset base increasing over 20% and expansion into structured products. In February, raised $24 million of equity at net asset value. In June, completed an underwritten public offering of $34.5 million of 8.5% notes. - Formed a new joint venture focused on investing in CLO entities and related warehouse facilities, expecting sizable distributions from H2 2024. - Deployed approximately $64 million into new investments in Q1 at average yields of ~13% and monetized $29 million of assets at average yields of ~11%. - 69% of debt investment portfolio was floating rate debt at quarter end, portfolio yield profile was 13.1%, majority in first lien investments. - Specialty finance saw positive uptick in deal activity at quarter end, Jason Schwartz joined as Chief Credit Officer in February, exited position in lenders funding revolver. - Prestige had lower invoice financing volumes in Q1 but pickup in March and April; Sterling closed deals in February and March with strong foundation; Great Elm Healthcare Finance had lagging deal volume but management focused on strategic refinements.

In the first quarter, NAV per share declined to $12.57 on March 31 from $12.99 at year-end 2023, mainly due to write-downs of certain inherited investments, which impacted NAV by approximately $0.55 per share. GECC generated NII of $3.2 million or $0.37 per share in the first quarter, exceeding the base dividend of $0.35 per share. Net assets rose to $119 million as of March 31, 2024, from $99 million at December 31, 2023. The asset coverage ratio improved to approximately 180.2% as of March 31 from 169% as of December 31.

• Expect NII in H2 2024 to meaningfully outpace H1 due to ramp-up of distributions from JV and income from prudent deployments. - Believe to remain well positioned to continue covering dividend and Board may evaluate special distribution around year-end. - Board authorized $0.35 per share cash distribution for Q2 ending June 30, 2024, payable on June 28 to stockholders of record as of June 14, equating to an 11% annualized dividend yield on March 31 NAV.

• Need to refer to Great Elm Capital Corp's filings with the SEC for important factors that could cause actual results to differ materially from forward-looking statements. - Ongoing volatility in the macro environment could impact the business.

Q: Characterize the 29 investments made in the quarter by category?

A: Over half are in first lien secured debt, and about $10.8 million is into CLO subordinated notes (CLO Equity).

Q: How is the CLO equity initiative structured?

A: It is a joint venture where we are 75%, the strategic partner is 25%, and we are investing in CLO securities and warehouse facilities.

Q: How will Great Elm access attractive investment opportunities given significant capital targeting CLO equity?

A: Initial investment was $10.8 million, with potential to grow as attractive opportunities are identified and warehouses ramp; it's an attractive way to access the loan market with good funding sources.

Q: What is the role of the JV partner?

A: They are involved in the CLO business and have a strategic relationship with us.

Q: Are you continuing to move forward with initiatives in specialty finance's 3 boxes?

A: We continue to evaluate deal opportunities but haven't found ones that fit in the boxes yet.

Q: What are you seeing in healthcare finance area?

A: We're focused on asset-based financing, very judicious in deploying capital, keenly aware of cash flows in and out of business.