Great Elm Capital's Strategic Debt Redemption: A Signal for Financial Restructuring and Shareholder Value Creation

Great Elm Capital Corp. (GECC) has embarked on a strategic debt restructuring initiative, redeeming its 6.75% Notes due 2025 and issuing new 8.125% Notes due 2029. This move, conditional on the successful completion of the 2029 Notes offering, aims to extend the company’s debt maturity profile by four years, reducing short-term liquidity risks while aligning with long-term capital planning [1]. The redemption, scheduled for October 12, 2024, will occur at 100% of the principal amount plus accrued interest, offering GECC flexibility if the new notes face delays [1].

The decision reflects a calculated trade-off: while the new notes carry a higher interest rate (8.125% vs. 6.75%), the extended maturity provides greater financial stability. This is further supported by GECC’s recent amendment to its revolving credit facility with City National Bank, which increased borrowing capacity from $25.0 million to $50.0 million, with potential expansion to $90.0 million under certain conditions. The interest rate was also reduced to SOFR plus 2.50%, down from 3.00%, lowering immediate borrowing costs and enhancing flexibility for new investments [2].

The restructuring’s impact on shareholder value is nuanced. While the company’s Net Asset Value (NAV) per share declined from $12.57 in March 2024 to $11.79 by year-end 2024, this was partly due to write-downs in nonaccrual investments and financing expenses [3]. However, GECC’s capital-raising efforts—$13.2 million in equity at NAV in December 2024 and $22 million in July 2024 through bond issuance—have strengthened liquidity and funded a CLO joint venture with projected returns in the mid-teens to low 20% range [3]. Additionally, the company increased its first-quarter 2025 dividend by 5.7% to $0.37 per share, signaling confidence in its ability to sustain distributions despite higher interest costs [3].

Critically, the asset coverage ratio fell from 180% to 169.7% by year-end 2024, indicating increased leverage [3]. While this amplifies risk, the extended debt maturities and lower short-term borrowing costs may offset these concerns by providing a more stable capital structure. The success of this strategy hinges on the 2029 Notes offering, as any failure could disrupt the redemption and raise questions about GECC’s debt management capabilities [1].

In conclusion, GECC’s debt restructuring underscores a proactive approach to capital optimization, balancing near-term costs with long-term flexibility. By extending maturities, reducing borrowing rates, and leveraging its credit facility, the company aims to position itself for sustained growth while maintaining shareholder returns. However, investors must weigh the higher interest expenses against the potential benefits of a more resilient capital structure.

Source:
[1] Great Elm Capital Corp. Announces Conditional Redemption of 6.75% Notes due 2025 [https://greatelmcc.com/investor-relations/investor-news/news-details/2024/Great-Elm-Capital-Corp.-Announces-Conditional-Redemption-of-6.75-Notes-due-2025/default.aspx]
[2] Great Elm Capital Corp--Announces--Amended and Upsized Revolving Credit Facility [https://greatelmcc.com/investor-relations/investor-news/news-details/2025/Great-Elm-Capital-Corp--Announces--Amended-and-Upsized-Revolving-Credit-Facility/default.aspx]
[3] Great Elm Capital Corp. Announces Fourth Quarter and Full Year 2024 Financial Results [https://www.greatelmcc.com/investor-relations/investor-news/news-details/2025/Great-Elm-Capital-Corp.-Announces-Fourth-Quarter-and-Full-Year-2024-Financial-Results/default.aspx]