Great Elm Capital Corp (GECC) 2024 Q2 法說會逐字稿

Greetings and welcome to Great Elm Capital Corp., second-quarter 2024 financial results call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce you to Garrett Edson, a representative of the company. Thank you. You may begin.

歡迎光臨 Great Elm Capital Corp. 2024 年第二季財務業績電話會議。（操作員指示）謹此提醒，本次會議正在錄製中。現在我很高興向您介紹該公司的代表加勒特·埃德森 (Garrett Edson)。謝謝。你可以開始了。

Good afternoon. Thank you, everyone, for joining us for Great Elm Capital Corp’s second-quarter 2024 earnings conference call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcc.com.

午安.感謝大家參加 Great Elm Capital Corp 的 2024 年第二季財報電話會議。如果您想要新增到我們的通訊群組清單中，您可以發送電子郵件至investorrelations@greatelmcap.com，或者您可以直接在我們的網站www.greatelmcc.com 上註冊提醒。

I'd like to note the slide presentation posted on our website accompanying today's call slide presentation can be found on our website under events and presentations on our website. You can also find our earnings release and SEC filings.

我想指出的是，我們網站上發布的幻燈片簡報以及今天的電話會議幻燈片簡報可以在我們網站上的「活動和簡報」下找到。您也可以找到我們的收益發布和 SEC 文件。

I'd like to call your attention to the customary Safe Harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or solicitation of offers to purchase our securities. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp's filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of SEC filings, please visit Great Elm Capital Corp's website under Financials, Sec filings, or visit the SEC's website.

我想提請您注意有關前瞻性資訊的慣例安全港聲明。另請注意，今天的電話會議中的任何內容均不構成出售要約或徵求購買我們證券的要約。今天的電話會議包含前瞻性陳述，我們要求您參考 Great Elm Capital Corp 向 SEC 提交的文件，以了解可能導致實際結果與這些陳述有重大差異的重要因素。除非法律要求，否則 Great Elm Capital Corp. 不承諾更新其前瞻性聲明。要取得 SEC 文件的副本，請造訪 Great Elm Capital Corp 網站的“財務”、“SEC 文件”，或造訪 SEC 網站。

Hosting the call this afternoon is Matt Kaplan, Great Elm Capital Corp's Chief Executive Officer, who will be joined by Chief Financial Officer, Keri Davis; Chief Compliance Officer, Adam Kleinman; and Mike Keller, President of Great Elm Specialty Finance.

今天下午主持電話會議的是 Great Elm Capital Corp 執行長 Matt Kaplan，財務長 Keri Davis 也將參加會議。首席合規官 Adam Kleinman；以及 Great Elm Specialty Finance 總裁 Mike Keller。

I will now turn the call over to GECC’s CEO, Matt Kaplan.

我現在將把電話轉給 GECC 執行長 Matt Kaplan。

Thanks Garrett, and good afternoon and thank you all for joining us today. We had a solid second quarter as we continued to advance our long-term growth strategy as demonstrated by our portfolio enhancement initiatives and notable financing activities completed to date. In June, we successfully raised $12 million in equity at net asset value from Prosper Peak Holdings and SPV, supported by a $3 million investment from Great Elm Group in the SPV.

謝謝加勒特，下午好，謝謝大家今天加入我們。我們繼續推動長期成長策略，第二季表現強勁，我們的投資組合增強計劃和迄今為止完成的顯著融資活動證明了這一點。6 月，在 Great Elm Group 對 SPV 投資 300 萬美元的支持下，我們成功從 Prosper Peak Holdings 和 SPV 籌集了 1,200 萬美元的淨資產股本。

This capital raise followed the structure established by the $24 million equity raise at net asset value in February, which was also supported by a $6 million investment from grade on group. In July, we issued an additional $22 million of GECC notes through a registered direct offering to an institutional investor. This supplemental debt financing was a tack-on to our GECC offering in April, during which we issued $34.5 million of five-year notes, which were syndicated favorably at a more than 50 basis point spread to treasury improvement as compared to our August 2023 note offering. We believe this financing rate improvement was driven by our strong earnings, fresh equity capital and the Egan Jones rating upgrade to BBB flat from BBB- since our August offering. Overall, we are pleased to have secured over $90 million of fresh capital this year, bolstering our liquidity and further strengthening our financial position, enabling us to execute on our investment pipeline at greater scale.

此次融資遵循了 2 月按資產淨值進行 2,400 萬美元股權融資所建立的結構，該結構也得到了集團級 600 萬美元投資的支持。7 月，我們透過註冊直接發行向機構投資者額外發行了 2,200 萬美元的 GECC 票據。此次補充債務融資是我們4 月份GECC 發行的補充，在此期間我們發行了3,450 萬美元的五年期票據，與我們2023 年8 月的票據相比，這些票據以超過50 個基點的利差進行銀團融資，以改善財務狀況奉獻。我們相信，融資利率的提高是由於我們強勁的盈利、新的股本以及自 8 月份發行以來 Egan Jones 評級從 BBB- 升級至 BBB 平。總體而言，我們很高興今年獲得了超過 9000 萬美元的新資本，增強了我們的流動性並進一步增強了我們的財務狀況，使我們能夠更大規模地執行我們的投資管道。

The successful execution of these nondilutive equity raises and debt issuances underscores the enduring strength of our platform. As a result of the strategic repositioning efforts implemented over the past two years, we continue to actively pursue investment opportunities that offer attractive risk-adjusted returns for our shareholders. We are particularly excited about our expansion into CLO products as previously outlined in our last earnings call, in April, we created a JV to hold investments in CLOs and related warehouse entities.

這些非稀釋性股權融資和債務發行的成功執行凸顯了我們平台的持久實力。由於過去兩年實施的策略重新定位努力，我們繼續積極尋求投資機會，為股東提供有吸引力的風險調整回報。我們對 CLO 產品的擴張感到特別興奮，正如我們在上一次財報電話會議中所概述的那樣，四月份，我們創建了一家合資企業來持有對 CLO 和相關倉庫實體的投資。

Notably, the JV is beginning to receive distributions from our CLO investments with its first sizable distribution in July, we expect the CLO JV will be a source of increasing income as we further invest in that portfolio moving forward over time, we anticipate potential returns ranging from the mid-teens to low 20% from our CLO investment portfolio. By incorporating structured financial vehicles into our portfolio, we gain exposure to instruments that have historically demonstrated strong ROEs across various economic cycles, exemplifying our commitment to building a resilient and diverse investment portfolio.

值得注意的是，該合資企業已開始從我們的CLO 投資中獲得分配，並於7 月首次大規模分配，我們預計，隨著我們進一步投資該投資組合，隨著時間的推移，CLO 合資企業將成為收入增加的來源，我們預計潛在回報範圍我們的 CLO 投資組合中的比例從 10% 到 20% 不等。透過將結構性金融工具納入我們的投資組合，我們獲得了歷來在各個經濟週期中表現出強勁股本回報率的工具，體現了我們對建立彈性和多元化投資組合的承諾。

Turning to our second-quarter performance, we ended the quarter with NAV of $12.06 per share on June 30th, compared to $12.57 as of March 31st. The reduction was primarily due to a liquid Level three investments on nonaccrual in two portfolio companies which adversely affected NAV by approximately $0.4 per share in the quarter. We believe the bulk of the impact to NAV from these portfolio companies has been realized, positioning us to recapture NAV.

談到我們第二季的業績，截至 6 月 30 日，本季結束時，我們的每股資產淨值為 12.06 美元，截至 3 月 31 日，每股資產淨值為 12.57 美元。減少的主要原因是對兩家投資組合公司的非應計流動性三級投資，這對本季每股資產淨值產生了約 0.4 美元的不利影響。我們相信這些投資組合公司對資產淨值的大部分影響已經實現，使我們能夠重新奪回資產淨值。

Moving at nonaccruals as of quarter end totaled $9.4 million or approximately 3% of portfolio fair value. Of this $9.4 million, $8.1 million was attributable to a portfolio company which emerged from bankruptcy in July, and we received a significant majority of our recovery and now current pay secured take-back debt, leaving our pro forma non-accruals at $1.3 million of fair value. Otherwise, we believe our portfolio remains solid and we continue to actively monitor our investments for any incremental stress in the second quarter, we generated $0.32 of NII per share. Sequentially. Our NII per share declined due to cash drag related to the GECC offering in April and our June equity offering, as well as the residual impact from the nonaccrual positions and from the timing of cash flows from certain investments such as the CLO JV as distributions from our CLO focused JV begin to materialize, combined with income from our strategic capital deployments. We expect NII in the second half of the year to surpass that of the first half. As such, we believe we remain well positioned to more than cover our dividend and continue to grow the portfolio.

截至季末，非應計費用總額為 940 萬美元，約佔投資組合公允價值的 3%。在這940 萬美元中，810 萬美元歸屬於一家於7 月份擺脫破產的投資組合公司，我們收到了大部分復甦資金，現在已按當期工資擔保收回債務，因此我們的預計非應計費用為130 萬美元。除此之外，我們相信我們的投資組合仍然穩固，我們將繼續積極監控我們的投資，以應對第二季度的任何增量壓力，我們每股產生了 0.32 美元的 NII。依次。我們的每股 NII 下降，原因是 4 月份 GECC 發行和 6 月份股票發行相關的現金拖累，以及非應計頭寸和某些投資（例如 CLO JV）的現金流分配的剩餘影響。的合資企業開始實現，加上我們策略資本部署的收入。我們預計下半年NII將超過上半年。因此，我們相信我們仍然處於有利地位，不僅可以支付股息，還可以繼續擴大投資組合。

Overall, we delivered another solid quarter of results while advancing our strategic initiatives, enhancing both our capital structure and operational efficiency and positioning ourselves well for sustainable long-term growth.

整體而言，我們在推進策略性舉措的同時，又實現了穩健的季度業績，增強了資本結構和營運效率，並為可持續的長期成長做好了準備。

Before turning the call over to Keri to review our financials in greater detail, I would like to address our upcoming baby bond maturity in 2025 as we are actively assessing various options to refinance these bonds. Further, we are constantly evaluating the capital markets and have initiatives in place to take advantage of potential transactions to refinance this maturity. And we expect to refinance these bonds by the end of 2024 and remain focused on optimizing our cost of capital.

在將電話轉給 Keri 更詳細地審查我們的財務狀況之前，我想談談我們即將在 2025 年到期的嬰兒債券，因為我們正在積極評估為這些債券再融資的各種選擇。此外，我們不斷評估資本市場，並採取措施利用潛在交易為此到期日再融資。我們預計在 2024 年底前為這些債券進行再融資，並繼續專注於優化我們的資本成本。

With that, I'd like to hand the call over to Keri Davis to discuss our second-quarter 2024 performance.

說到這裡，我想將電話轉交給 Keri Davis，討​​論我們 2024 年第二季的業績。

Thanks, Matt. I'll go over our financial highlights now, but we invite all of you to review our press release accompanying presentation and SEC filings for greater detail.

謝謝，馬特。我現在將回顧我們的財務亮點，但我們邀請大家查看我們的新聞稿、隨附的簡報和 SEC 文件，以了解更多詳細資訊。

During the second quarter, GECC generated NII of $3.1 million or $0.32 per share as compared to $3.2 million or $0.37 per share in the first quarter of 2024. The sequential decline is largely attributed to cash drag and the increased share count from our June equity issuance at NAV, in addition to the timing of distributions from certain positions, particularly our CLO investments.

第二季度，GECC 產生的 NII 為 310 萬美元，即每股 0.32 美元，而 2024 年第一季為 320 萬美元，即每股 0.37 美元。環比下降主要歸因於現金拖累以及我們 6 月按資產淨值發行股票的股票數量增加，以及某些頭寸（尤其是我們的 CLO 投資）的分配時間。

Our net assets as of June 30th, 2024, rose to $126 million compared to $119 million at March 31st, 2024. Our NAV per share was $12.06 as of June 30th, versus $12.57 as of March 31st. But the decline once again primarily attributable to the write-down of certain investments, highlighted by Matt. Detail for the quarter-over-quarter change in NAV can be found on Slide 9 of the investor presentation.

截至 2024 年 6 月 30 日，我們的淨資產從 2024 年 3 月 31 日的 1.19 億美元增至 1.26 億美元。截至 6 月 30 日，我們的每股淨值為 12.06 美元，而截至 3 月 31 日，每股資產淨值為 12.57 美元。但馬特強調，下降再次主要歸因於某些投資的減記。有關資產淨值季度環比變化的詳細信息，請參閱投資者簡報的幻燈片 9。

As of June 30th, GECC's asset coverage ratio was 171% compared to 180% as of March 31st. Pro forma for the July bond issuance, the asset coverage ratio would be approximately 163%. As of June 30th, total debt outstanding was approximately $178 million and our $25 million revolver remains undrawn.

截至6月30日，GECC的資產覆蓋率為171%，而截至3月31日為180%。預計7月債券發行的資產覆蓋率約為163%。截至 6 月 30 日，未償債務總額約為 1.78 億美元，我們的 2,500 萬美元左輪手槍仍未提領。

Cash and money market securities totaled approximately $3 million. Pro forma for the July bond issuance, total debt outstanding was approximately $200 million. Our Board of Directors authorized a $0.35 per share cash distribution for the quarter ending September 30th, 2024. The third quarter cash distribution will be payable on September 30th, 2024, to stockholders of record as of September 16th. The distribution equates to an 11.6% annualized dividend yield on our June 30th, NAV of $12.06 per share.

現金和貨幣市場證券總額約 300 萬美元。預計 7 月債券發行的未償債務總額約為 2 億美元。我們的董事會授權在截至 2024 年 9 月 30 日的季度進行每股 0.35 美元的現金分配。第三季現金分配將於 2024 年 9 月 30 日支付給截至 9 月 16 日在冊的股東。此次分配相當於 6 月 30 日的年化股息殖利率為 11.6%，每股資產淨值為 12.06 美元。

And with that, I'll turn the call back over to Matt.

然後，我會將電話轉回給馬特。

Thanks, Keri. Our investment portfolio continues to get stronger as we focus on increasing its exposure to secured debt. To that end and notably, our CLO investments provide us a solid look through the broadly syndicated first lien loan market with attractive financing sources and strong institutional counterparties. This gives us additional confidence in sourcing and deploying capital into these investments.

謝謝，凱裡。隨著我們專注於增加擔保債務曝險，我們的投資組合繼續變得更加強大。為此，值得注意的是，我們的 CLO 投資為我們提供了對廣泛的銀團第一留置權貸款市場的可靠了解，該市場具有有吸引力的融資來源和強大的機構交易對手。這讓我們更有信心在這些投資中尋找和部署資金。

Consider last year, our portfolio consisted of 44% first-lien loans and no CLO exposure. Fast-forward to the second quarter of 2024, first lien loans and CLOs make up 60% of our portfolio. As our joint venture continues growing, we expect to provide additional insight into our underlying portfolio in the quarters ahead.

考慮一下去年，我們的投資組合由 44% 的第一留置權貸款組成，沒有 CLO 曝險。快進到 2024 年第二季度，第一留置權貸款和 CLO 占我們投資組合的 60%。隨著我們的合資企業不斷發展，我們預計在未來幾季對我們的基礎投資組合提供更多見解。

Notably, our portfolio's yield profile stood steady at over 13% at quarter end. Despite the lingering effects from the nonaccrual investments, we are pleased with the portfolio's composition and return profile, which will further be strengthened as we receive distributions from our CLO JV investments amongst other newly initiated positions.

值得注意的是，我們的投資組合的收益率在季度末穩定在 13% 以上。儘管非應計投資的影響揮之不去，但我們對投資組合的組成和回報狀況感到滿意，隨著我們從 CLO 合資企業投資以及其他新發起的頭寸中獲得分配，這一點將進一步得到加強。

Given the ongoing volatility in the macro environment, with uncertainty surrounding the timing of rate cuts and a turbulent election year, we are maintaining a disciplined approach to capital deployment. We are directing our investments towards opportunities that are primed to perform across various economic cycles. As always, we prioritize credit quality and seek investments with minimal risk of permanent capital loss. By adhering to this strategy, we are well-equipped to continue growing Great Elm Capital Corp and delivering attractive risk adjusted returns for our shareholders. We remain excited for the future of GECC. And with that, I would like to turn the call over to Mike Keller to provide an update on specialty finance.

鑑於宏觀環境持續波動、降息時機的不確定性以及動盪的選舉年，我們在資本部署方面保持嚴格的態度。我們將投資轉向那些能夠在不同經濟週期中發揮作用的機會。一如既往，我們優先考慮信用質量，並尋求永久資本損失風險最小的投資。透過堅持這項策略，我們有能力繼續發展 Great Elm Capital Corp，並為我們的股東提供有吸引力的風險調整回報。我們對 GECC 的未來仍然感到興奮。說到這裡，我想將電話轉給邁克凱勒（Mike Keller），以提供專業金融的最新資訊。

Thanks, Matt. Despite a sluggish start to 2024 for new deal originations across all our specialty finance platforms, GESF saw improved performance in two of its three platform companies in the second quarter. Moreover, the pipelines remain robust thus far in the third quarter, but we continue to be laser focused on closing new deals and streamlining operations.

謝謝，馬特。儘管 2024 年我們所有專業金融平台的新交易發起緩慢，但 GESF 的三家平台公司中的兩家公司在第二季的業績有所改善。此外，第三季到目前為止，管道仍然強勁，但我們繼續專注於完成新交易和簡化營運。

Touching on our platform companies, while Prestige started the first quarter with lower invoice financing volumes, a notable pickup in the second quarter led to increased net income sequentially. At Sterling, deals closed in the first half of the year generated positive momentum for the Company, improving earnings both sequentially and year over year. We are excited for Sterling's prospects as the progress made over the last six months has positioned the business to further convert its pipeline into earning assets over the coming months.

談到我們的平台公司，雖然 Prestige 第一季開始時發票融資量較低，但第二季的顯著回升導致淨利潤環比增加。在 Sterling，上半年完成的交易為公司帶來了積極的勢頭，盈利環比和同比都有所提高。我們對 Sterling 的前景感到興奮，因為過去六個月的進展使該公司能夠在未來幾個月進一步將其管道轉化為盈利資產。

Lastly, although deal volume at Great Elm Healthcare Finance has continued to lag projections, we remain focused on implementing strategic refinements to reposition the platform for future success overall, although the year began slowly. We experienced some sequential improvement in the second quarter and are optimistic that our efforts to drive further growth and profitability will pay off.

最後，儘管 Great Elm Healthcare Finance 的交易量繼續落後於預期，但我們仍然專注於實施策略改進，以重新定位該平台，以實現未來的整體成功，儘管這一年開局緩慢。我們在第二季度經歷了一些連續的改善，並樂觀地認為我們推動進一步成長和獲利的努力將會得到回報。

Thanks, Mike. In closing, GECC had a solid second quarter and strong first half of the year. The strategic and capital raising initiatives implemented so far this year reflect our commitment to enhancing and expanding our platforms and portfolio. Looking ahead, we believe we are well positioned to grow NII and more than covered the dividend for the remainder of the year.

謝謝，麥克。最後，GECC 第二季表現強勁，上半年表現強勁。今年迄今實施的策略和融資舉措反映了我們對增強和擴大我們的平台和產品組合的承諾。展望未來，我們相信我們已做好充分準備來成長NII，並且超過了今年剩餘時間的股息支付。

With that, I'd like to turn the call over to the operator for questions. Operator?

這樣，我想將電話轉給接線員詢問問題。操作員？

(Operator Instructions) There are no questions at this time. I would like to turn the floor back over to Matt Kaplan for closing comments.

（操作員說明） 目前沒有任何問題。我想把發言權交還給馬特·卡普蘭（Matt Kaplan）以供結束評論。

Thank you all again for joining us today, and we are pleased with another quarter of solid performance as we continue to execute on our growth strategy. We look forward to continuing investor dialogue. Please let us know if we can help any follow-up questions that you may have.

再次感謝大家今天加入我們，在我們繼續執行成長策略的過程中，我們對另一個季度的穩健業績感到高興。我們期待繼續與投資者對話。如果我們可以協助解決您可能遇到的任何後續問題，請告知我們。

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

謝謝。今天的電話會議到此結束。此時您可以斷開線路。感謝您的參與。