Great Elm Capital's Q4 2024: Unpacking Key Contradictions in CLO Strategies and Maverick Gaming Insights

These are the key contradictions discussed in Great Elm Capital Corporation's latest 2024Q4 earnings call, specifically including: CLO JV Funding Strategy, Outlook on CLO Performance, and Maverick Gaming Outlook:



Investment Portfolio and Dividend:
- Great Elm Capital Corp's investment portfolio was generally stable in Q4 2024, with a step down in NAV per share due to the dividend exceeding NII. The total investment income and NII were impacted by temporary items expected to reverse in 2025.
- The decline in NII was exacerbated by the uneven distribution patterns of CLOs in their early stages and the short-term impact of equity raises through SPVs. The dividend was increased by 6% to $0.37 per share for Q1 2025, reflecting confidence in the portfolio and outlook for 2025.

Capital Raise and CLO Joint Venture:
- The company raised nearly $150 million of total capital through equity and note issuances, increasing its operating scale. A distinctive joint venture with a high-quality partner was formed to invest in CLOs, enhancing cash generation ability.
- The CLO JV is expected to become a significant source of income for GECC, providing high teens to 20% returns over time. The joint venture allows GECC to hold majority CLO positions, offering enhanced economics compared to direct investments.

Portfolio Composition and Quality:
- Great Elm Capital Corp grew its corporate portfolio by 34% in 2024, with first lien loans comprising 71% of the portfolio at year-end, up from 67% in 2023. This demonstrates a commitment to enhancing portfolio quality while maintaining a focus on secured income-generating assets.
- The increase in first lien loans reflects a strategic shift in portfolio composition, aimed at improving the quality and stability of the investment portfolio. This change is expected to contribute positively to GECC's financial performance and risk management.

Filing a New Shelf and Flexibility:
- Great Elm Capital Corp filed a new $500 million shelf, replacing the prior shelf registration. This new shelf allows for increased flexibility and reduced costs in raising debt in the future.
- The new shelf also provides greater flexibility in capital raising, which could help GECC manage its balance sheet and fund its growth initiatives more efficiently.