Great Elm Capital (GECC) 1 Aug 24 2024 Q2 Earnings call transcript

Great Elm Capital Corp. (GECC) recently released its second quarter 2024 earnings report, showcasing a solid performance and strategic growth initiatives. The company has successfully raised significant capital, expanded into new investment areas, and maintained a disciplined approach to capital deployment.

Capital Raising and Strategic Financing

The company announced the successful completion of $90 million in fresh capital raising efforts, including equity and debt financing. These capital inflows have bolstered GECC's liquidity and financial position, enabling the company to pursue investment opportunities at a larger scale. The successful execution of these financing activities underscores the strength of GECC's platform and strategic repositioning efforts over the past two years.

Expansion into CLO Products

One of the notable strategic initiatives is the expansion into Collateralized Loan Obligations (CLO) products. GECC has formed a joint venture (JV) to hold investments in CLOs and related warehouse entities, which has begun to receive distributions from the CLO investments. The company expects potential returns ranging from mid-teens to low 20% from its CLO investment portfolio. This strategic move adds a new dimension to GECC's investment portfolio and demonstrates the company's commitment to building a resilient and diverse investment strategy.

Financial Performance and Outlook

GECC reported a net asset value (NAV) of $12.06 per share as of June 30, 2024, down from $12.57 as of March 31. The decline was primarily due to illiquid Level 3 investments on nonaccrual in certain portfolio companies. However, the company expects to recapture NAV moving ahead, with distributions from the CLO JV and strategic capital deployments expected to boost NII in the second half of the year.

Specialty Finance Update

The specialty finance segment, particularly GESF, has shown improved performance in the second quarter, with two of its platform companies experiencing increased net income. Despite a sluggish start to the year for new deal originations, GESF remains optimistic about its prospects and is focused on closing new deals and streamlining operations.

Conclusion

Overall, Great Elm Capital Corp.'s second quarter 2024 earnings call highlights a solid performance and strategic growth initiatives, including capital raising, expansion into CLO products, and disciplined capital deployment. The company's commitment to enhancing and expanding its platforms and portfolio positions it well for future growth and delivering attractive risk-adjusted returns for its shareholders.