Great Elm Capital Corp (GECC) 2024 Q3 法說會逐字稿

Ladies and Chairman. Good morning and welcome to the Great Elm Capital Corp third quarter, 2024 earnings conference call.

女士們、主席。早安，歡迎參加 Great Elm Capital Corp 2024 年第三季財報電話會議。

(Operator Instructions)

（操作員指令）

It is now my pleasure to introduce your host, Peter Scusa with Investor Relations. Please go ahead, sir.

現在我很高興向大家介紹您的主持人、投資者關係部門的 Peter Scusa。先生，請繼續。

Hello and thank you everyone for joining us for Great Elm Capital Corp's third quarter, 2024 earnings conference call. If you'd like to be added to our distribution list, you can email iinvestorrelations@greatelmcap.com, or you could sign up for alerts directly on our website. www.greatelmcc.com. I'd like to note the slide presentation posted on our website accompanying today's call. The 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. I like to call your attendant to the customer a 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 forward-looking statements unless required by law to ping copies of sec filings. Please visit Great Elm Capital Corp's website under financials sec filings or visit the SECs website. I see the call today 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 Michael Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC CEO, Matt Kaplan.

大家好，感謝大家參加 Great Elm Capital Corp 2024 年第三季財報電話會議。如果您想加入我們的分發列表，您可以發送電子郵件至 iinvestorrelations@greatelmcap.com，也可以直接在我們的網站上註冊接收提醒。 www.greatelmcc.com。我想指出我們網站上發布的與今天的電話會議一起發布的幻燈片演示。幻燈片演示可以在我們網站的活動和演示下找到。您也可以找到我們的收益報告和美國證券交易委員會 (SEC) 文件。我想向您的客戶服務人員提供一份有關前瞻性資訊的安全港聲明，同時請注意，今天的電話會議中沒有任何內容構成出售要約或購買我們證券的要約邀請。今天的電話會議包括前瞻性陳述，我們請您參考 Great Elm Capital Corp 向美國證券交易委員會提交的文件，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。Great Elm Capital Corp 不承諾更新前瞻性聲明，除非法律要求 ping 證券交易委員會文件的副本。請造訪 Great Elm Capital Corp 網站的財務證券交易委員會備案文件，或造訪證券交易委員會網站。我看到今天的來電者是馬特卡普蘭 (Matt Kaplan)。Great Elm Capital Corp 的執行長將與財務長 Keri Davis、首席合規長 Adam Kleinman 和 Great Elm Specialty Finance 總裁 Michael Keller 一起出席。現在我將把電話轉給 GECC 執行長 Matt Kaplan。

Thanks Peter and thank you all for joining us today.

謝謝彼得，也謝謝大家今天的參加。

I am pleased to report we had a busy and record setting quarter for GECC. We completed a $22 million attack onto the GECCI bonds in July with an institutional investor, utilizing our stuff for the first time. In August, we CLOsed the second CLO in our recently formed CLO JV in September. We priced our GECCH bonds at a lower rate than our previous other debt financings this year and utilized the proceeds to take out our notes maturing in January 2025, leaving us with no maturities for the next 20 months, and finally, I am pleased to report that our investment income was the highest ever in GECC's history and not only the highest but also the highest cash income quarter as well overall. It was a very strong third quarter for GECC with NII of $0.39 per share rebounding from $0.32 in 2Q and exceeding our quarterly distribution of $0.35.

我很高興地告訴大家，GECC 度過了一個忙碌且創下紀錄的季度。7 月份，我們與一家機構投資者合作完成了 GECCI 債券的 2,200 萬美元投資，這是我們首次運用我們的資產。8 月份，我們關閉了新成立的 CLO JV 中的第二個 CLO，該交易已於 9 月完成。我們今年對 GECCH 債券的定價低於之前的其他債務融資，並利用所得收益購買了 2025 年 1 月到期的票據，這樣我們在接下來的 20 個月內就無需償還債務，最後，我很高興地報告，我們的投資收益是 GECC 歷史上最高的，不僅是最高的，而且也是現金收入最高的季度。GECC 第三季表現非常強勁，每股 NII 為 0.39 美元，較第二季的 0.32 美元有所反彈，並超過了季度分配的 0.35 美元。

Our NII growth was primarily driven by the increase in cash flows attributed to our CLO JV. In addition, we ended the quarter with NAV of $12.04 per share on September 30th, essentially flat from $12.06 as of June 30th. Further, we believe our portfolio remains solid and we continue to actively monitor our investments. Nonaccruals declined in the quarter and totaled $1.3 million or less than 1% of portfolio fair value as of September 30th. This compares to $9.4 million or approximately 3% of portfolio fair value as of June 30th. We believe the bulk of the impact to NAV from these non accrual positions has been realized.

我們的 NII 成長主要得益於 CLO JV 帶來的現金流成長。此外，截至 9 月 30 日，我們本季的每股資產淨值為 12.04 美元，與 6 月 30 日的 12.06 美元基本持平。此外，我們相信我們的投資組合依然穩健，我們將繼續積極監控我們的投資。本季未計費用下降，截至 9 月 30 日，總額為 130 萬美元，佔投資組合公允價值的不到 1%。相較之下，截至 6 月 30 日的投資組合公允價值為 940 萬美元，約佔 3%。我們相信，這些非應計部位對資產淨值的大部分影響已經實現。

Looking forward, we do expect NII to step down in the fourth quarter due to the uneven nature of CLO distributions at the start of their life.

展望未來，我們確實預計 NII 將在第四季度下降，因為 CLO 分佈在其生命週期開始時並不均勻。

As we scale and expand our asset base, we would expect these quarterly income fluctuations to normalize over time.

隨著我們擴大和擴展資產基礎，我們預計這些季度收入波動將隨著時間的推移而正常化。

This year, we have completed numerous equity and debt issuances in excess of $130 million, adding a lot of noise into our 2024 numbers, while at the same time increasing our scale. These actions have laid a strong foundation for GECC as we look forward. Additionally, as distributions from our CLO focused JV continue to ramp combined with other income from our strategic capital deployments backed by our recent capital raises, we believe we remain well positioned to continue to increase our scale and to cover our dividend.

今年，我們完成了多筆超過 1.3 億美元的股權和債務發行，為我們的 2024 年數字增添了許多亮點，同時也擴大了我們的規模。這些措施為我們今後的GECC發展奠定了堅實的基礎。此外，隨著我們以 CLO 為重點的合資企業的分配不斷增加，加上我們最近的資本增加所支持的戰略資本部署的其他收入，我們相信我們仍然處於有利地位，可以繼續擴大規模並支付股息。

A key highlight this quarter is the early success of our CLO joint venture strategy, where we've deployed approximately $33 million through September 30th. We are encouraged by the first distributions from our CLO investments including a large initial distribution on our first CLO investment in July and a strong return on our warehouse investment related to the second CLO settling in August. Through the third quarter. We generated a strong cash return on our JV investment, receiving approximately $3 million in distributions on our $33 million invested. Our JV which holds majority CLO positions increases GECC's exposure to a diverse portfolio of broadly syndicated first lien loans. These largely floating rate investments held by the CLOs are financed primarily by long term floating rate debt mitigating interest rate risk. We believe our innovative structure provides superior financing as compared to typical BDCJD loan structures and also enhances our ability to minimize the book tax differences that holding CLO equity directly can create.

本季的一大亮點是我們的 CLO 合資策略取得了早期成功，截至 9 月 30 日，我們已投入約 3,300 萬美元。我們對 CLO 投資的首批分配感到鼓舞，包括 7 月第一筆 CLO 投資的大量初始分配，以及 8 月第二筆 CLO 結算相關的倉庫投資的強勁回報。直到第三季。我們的合資投資獲得了豐厚的現金回報，從我們投資的 3,300 萬美元中獲得了約 300 萬美元的分配。我們的合資企業持有多數 CLO 頭寸，這增加了 GECC 對廣泛銀團貸款的多元化組合的風險敞口。CLO 持有的這些大部分浮動利率投資主要由長期浮動利率債務提供資金，以降低利率風險。我們相信，與典型的 BDCJD 貸款結構相比，我們的創新結構提供了更優質的融資，同時也增強了我們減少直接持有 CLO 股權可能產生的帳面稅差異的能力。

We continue to believe that our CLO joint venture will become an increasingly significant source of income for GECC as we continue to expand the vertical, targeting high 10% to 20% returns over time.

我們仍然相信，隨著我們繼續擴大垂直業務，我們的 CLO 合資企業將成為 GECC 越來越重要的收入來源，目標是隨著時間的推移實現 10% 至 20% 的高回報率。

With this foundation in place, we are well situated to capitalize on the CLO asset class which has historically demonstrated resilience across various market cycles. CLOs represent one of the most established forms of nonrecourse finance bank loans making them an attractive addition to our investment strategy.

有了這個基礎，我們就可以利用 CLO 資產類別，該資產類別在歷史上已在各個市場週期中表現出韌性。CLO 是最成熟的無追索權融資銀行貸款形式之一，這使其成為我們投資策略中一個有吸引力的補充。

Moving on to our capital structure during the quarter, we also successfully issued $36 million of 8.125% GECCH notes due 2029 and the underwriters exercised their full shoe for an additional $5.4 million in October.

本季度，我們也成功發行了價值 3,600 萬美元、利率 8.125%、到期日 2029 年的 GECCH 票據，承銷商在 10 月又行使了 540 萬美元的全部權利。

We subsequently used the net proceeds along with available cash to redeem all outstanding six and three quarter percent GECCM notes due January 2025.

我們隨後使用淨收益以及可用現金贖回了所有未償還的、2025 年 1 月到期的 6.75% GECCM 票據。

The refinancing extends our debt maturity profile into 2026 and beyond, providing us with enhanced financial flexibility. Overall, we delivered a solid quarter of results supported by our enhanced investment platform, strengthened balance sheet and diversified portfolio. These core strengths create a strong framework to execute on as we seek to further advance our long term growth strategy. With that. I'd like to hand the call over to Keri Davis to discuss our third quarter, 2024 performance.

再融資將我們的債務到期期限延長至2026年及以後，為我們提供了增強的財務彈性。整體而言，在增強的投資平台、強化的資產負債表和多元化投資組合的支持下，我們取得了穩健的季度表現。這些核心優勢為我們尋求進一步推動長期成長策略建構了強而有力的執行框架。就這樣。我想把電話交給凱裡戴維斯來討論我們 2024 年第三季的業績。

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

謝謝馬特。我現在將介紹我們的財務亮點，但我們邀請大家查看隨附簡報和 SCC 文件的新聞稿以了解更多詳細資訊。

During the third quarter, GECC generated an NII of $4.1 million or $0.389 per share as compared to $3.1 million or $0.32 per share. In the second quarter of 2024.

第三季度，GECC 的 NII 為 410 萬美元，即每股 0.389 美元，去年同期為 310 萬美元，即每股 0.32 美元。2024年第二季。

Our net assets as of September 30th were $126 million, stable as compared to the previous quarter.

截至 9 月 30 日，我們的淨資產為 1.26 億美元，與上一季相比保持穩定。

Our NAV per share was $12.04 as of September 30th versus $12.06 as of June 30th. Detail for the quarter of a quarter change in NAV can be found on slide 9 of the investor presentation. As of September 30th GECC asset coverage ratio was 166.2% compared to 171% as of June 30. As of September 30th, total debt outstanding was approximately $235 million, and our $25 million revolver remains undrawn and fully available. Cash and money market securities totaled approximately $26 million.

截至 9 月 30 日，我們的每股淨值為 12.04 美元，而截至 6 月 30 日，我們的每股資產淨值為 12.06 美元。關於淨資產價值季度變化的詳細信息，請參閱投資者簡報的第 9 頁。截至 9 月 30 日，GECC 資產覆蓋率為 166.2%，而截至 6 月 30 日為 171%。截至 9 月 30 日，未償還債務總額約為 2.35 億美元，而我們的 2,500 萬美元循環信貸額度仍未動用且可用。現金和貨幣市場證券總額約 2,600 萬美元。

Pro Forma for the GECCH notes, issuance and subsequent refinancing of the GECCM Notes, total debt outstanding was approximately $195 million.

GECCH 票據的預測、GECCM 票據的發行和後續再融資，未償還債務總額約為 1.95 億美元。

Our board of directors authorized a $0.35 per share cash distribution for the fourth quarter which will be payable on December 31st, stockholders of record as of December 16th. The distribution equates to an 11.6% annualized dividend yield on our September 30th net asset value.

我們的董事會批准第四季度每股 0.35 美元的現金分配，將於 12 月 31 日支付給截至 12 月 16 日登記在冊的股東。該分配相當於我們 9 月 30 日淨資產價值的 11.6% 年化股息殖利率。

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

說完這些，我會把電話轉回給馬特。

Thanks. Keri in the quarter. We enhanced our portfolio strength by steadily increasing our secured debt positions. Notably, our CLO investments provide valuable access to the broadly syndicated first lien loan market supported by favorable financing terms and established institutional partnerships. The shift in our portfolio composition reflects this strategy. Last year, first lien loans made up 44% of our holdings with no CLO exposure. As of Q3 2024, our combined first lien loans and CLO positions have increased to 60% of the portfolio, demonstrating our commitment to enhancing portfolio quality while maintaining a focus on secured income generating assets.

謝謝。本季的 Keri。我們透過穩定增加擔保債務部位增強了我們的投資組合實力。值得注意的是，我們的 CLO 投資提供了進入廣泛銀團的優先留置權貸款市場的寶貴機會，並得到了優惠的融資條款和已建立的機構合作夥伴關係的支持。我們的投資組合構成的轉變反映了這個策略。去年，我們持有的資產中，第一留置權貸款佔 44%，且沒有 CLO 風險。截至 2024 年第三季度，我們的綜合第一留置權貸款和 CLO 頭寸已增加到投資組合的 60%，這表明我們致力於提高投資組合質量，同時繼續關注有擔保的創收資產。

Given the ongoing volatility in the macro environment including uncertainties around further rate cuts and electoral outcomes. We continue to take a measured approach to capital deployment. As always, we prioritize credit quality and seek investments with minimal risk of permanent capital loss, directing capital toward opportunities that are primed to perform across various economic cycles. This balanced approach combined with our strengthened platform and diversified portfolio positions us well to continue growing Great Elm Capital Corp and delivering attractive risk adjusted returns for our shareholders.

鑑於宏觀環境持續波動，包括進一步降息和選舉結果的不確定性。我們繼續採取審慎的態度進行資本配置。與往常一樣，我們優先考慮信貸質量，尋求永久性資本損失風險最小的投資，將資本引導至適合在各個經濟週期中表現的投資機會。這種平衡的方法與我們增強的平台和多元化的投資組合相結合，使我們能夠繼續發展 Great Elm Capital Corp 並為我們的股東提供有吸引力的風險調整回報。

We remain excited for the future of GECC and with that, I would like to turn the call over to Michael Keller to provide an update on specialty finance.

我們仍然對 GECC 的未來感到興奮，因此，我想將電話轉給 Michael Keller，以提供有關專業融資的最新資訊。

Thanks man. After a rebound in the second quarter, GESF's momentum stalled in the third quarter. While our platform companies maintained robust pipelines, all of our companies struggle to convert and close new business in the quarter.

謝謝老兄。在第二季度出現反彈之後，GESF 的成長勢頭在第三季度陷入停滯。雖然我們的平台公司保持了強勁的管道，但我們所有的公司在本季都難以轉換並完成新業務。

Touching on our platform companies while Prestige saw a notable pickup in the second quarter income in the third quarter declined sequentially due to slower volumes, partially attributable to summer seasonality.

談到我們的平台公司，Prestige 在第二季度的收入顯著回升，但第三季的收入由於銷量下降而環比下降，部分原因是夏季季節性因素。

On a positive note, volumes began to tick up near the end of September and October has been tracking. Well as you may recall, prestige provides spot invoice financing services which can lead to lumpy income generation quarter to quarter.

從正面的一面來看，9 月底交易量開始回升，10 月也呈現回升趨勢。您可能還記得，Prestige 提供現貨發票融資服務，這可能導致季度間收入出現波動。

Management has a strong track record of delivering durable ROEs, year in and year out and we have confidence earnings will revert at sterling operations were stable quarter over quarter. But new business originations have been challenging. We are well positioned to capitalize on our pipeline and remain focused on driving deal closings into the year end.

管理層在年復一年地實現持久的淨資產收益率方面擁有良好的記錄，我們有信心，收益將恢復到英鎊水平，並且運營業務每個季度都會保持穩定。但開展新業務一直充滿挑戰。我們已做好準備，充分利用我們的管道，並繼續專注於推動年底前的交易完成。

Lastly, Great Elm health care finance has continued to lag projections. The business has struggled to originate and close deals and has had to manage a high cost of leverage. Steps were taken in the quarter to cut costs including head count reductions in separating with the CEO I have stepped in as CEO of Great Elm health care finance and I focused on implementing strategic initiatives to reposition the platform for future success overall. In spite of a challenging quarter, I am optimistic that our efforts to drive further growth and profitability at great on specialty finance will pay off.

最後，Great Elm 的醫療保健融資繼續落後於預期。該企業在達成交易方面舉步維艱，並且必須管理高昂的槓桿成本。本季度採取了多項措施削減成本，包括裁員、與首席執行官離職、我接任 Great Elm 醫療金融首席執行官，並專注於實施戰略舉措，重新定位平台，以取得未來的整體成功。儘管本季充滿挑戰，但我仍樂觀地認為，我們在專業融資領域推動進一步成長和獲利的努力將獲得回報。

Thanks Mike. In closing, we delivered a strong third quarter generating NII above our quarterly distribution. While maintaining stable and looking ahead, we believe we remain well positioned to maintain our dividend coverage and continue delivering attractive risk adjusted returns to our shareholders. With that. I'll turn the call over to the operator for questions, operator.

謝謝邁克。最後，我們在第三季表現強勁，產生的 NII 高於我們的季度分配。在保持穩定和展望未來的同時，我們相信我們仍然處於有利地位，能夠維持我們的股息覆蓋率，並繼續為股東提供有吸引力的風險調整回報。就這樣。我將把電話轉給接線員以便回答問題，接線員。

Thank you.

謝謝。

Ladies and gentlemen, we will now be conducting a question and answer session.

女士們、先生們，我們現在將進行問答環節。

(Operator Instructions)

（操作員指令）

As there are no questions in the queue, I now have the conference over to Matt Kaplan for his closing comments. Matt.

由於隊列中沒有問題，我現在將會議交給馬特·卡普蘭 (Matt Kaplan) 來做結束語。馬特。

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

再次感謝您今天的參與。隨著我們繼續執行成長策略，我們對又一個季度的穩健表現感到滿意，我們期待繼續與投資者對話。如果我們能夠幫助您解決任何後續問題，請告知我們。謝謝。

Thank you. The conference of Great Elm Capital Corp has now concluded. Thank you for your participation. You may now disconnect your lines.

謝謝。大榆樹資本股份有限公司大會至此結束。感謝您的參與。現在您可以斷開線路了。