Ladies and gentlemen, thank you for standing by, and welcome to the Great Elm Capital Corp., First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Adam Yates. Thank you. Please go ahead, sir..

Thank you, Teresa, and good morning everyone. Thank you for joining us for Great Elm Capital Corp.’s first quarter earnings conference call. As a reminder, this webcast is being recorded on Monday, May 11, 2020.

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. The slide presentation accompanying this morning’s conference call and webcast can be found on our website under Financial Information, Quarterly Results.

On the website, you can also find a copy of our earnings release, Form 10-Q and a link to the webcast. I would 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 a solicitation of offers to purchase our securities.

Today’s conference call includes forward-looking statements and projections and we ask that you refer to the Great Elm Capital Corp.’s filings with the SEC for important factors that could cause actual results to differ materially from these projections. Great Elm Capital Corp.

does not undertake to update its forward-looking statements unless required by law. To obtain copies of the SEC filings, please visit Great Elm Capital Corp.’s website under Financial Information, SEC filings or visit the SEC's website. Hosting the call this morning is Peter Reed, Great Elm Capital Corp.’s President and Chief Executive Officer.

I will now turn the call over to Peter..

Thank you, Adam. Good morning and thank you for joining us today. I am joined this morning by our COO, Adam Kleinman; Portfolio Manager, Adam Yates; and our CFO, Keri Davis.

Where relevant in our prepared remarks, we will point you to the corresponding slide number in the deck that Adam referenced, which is available on our website as well as through the webcast. Please turn to Slide 3 for A note to shareholders, regarding our current operating environment.

The first half of 2020 has been characterized by remarkable volatility in the leverage credit markets, driven by the impact of the COVID-19 pandemic and violent swings in commodity prices.

We believe, we must take every opportunity to bolster liquidity in order to successfully navigate current market volatility and to be in a position to capitalize on attractive investment opportunities, when they materialize.

To best position ourselves, we will strengthen our balance sheet by paying a substantial portion of our base distributions and stocks; and therefore, maintaining the flexibility to utilize cash and other assets to create shareholder value.

Since we do not currently have a secured credit facility, we don't have limits on our flexibility to use cash that frequently come along with a facility that type. Importantly, we are confident in the quality of our portfolio investments, our robust liquidity profile, and our ability to capitalize on new potential investment opportunities.

Please turn to Slide 4 for an overview of GECC. GECC is an externally managed, total return focused BDC with a strong balance sheet. GECC is to generate both current income and capital appreciation from its portfolio of investments, comprised primarily of secured loans, secured bonds and specialty finance investments.

As of March 31, 2020, GECC had total assets of approximately 274 million, a portfolio fair value of 166 million and a net asset value of 51 million, equating to $5.05 per share. The weighted average current yield on our debt holdings was approximately 10%.

Importantly, approximately 23% of the GECC shares are held by employees and affiliates of Great Elm Capital Management Inc., GECC’s investment manager, creating very clear alignment of interest between management and our shareholders. Let's turn to Slide 5 to go over a few highlights in recent achievements.

The majority of our third quarter 2020 distributions will be paid in shares of our common stock. As I noted, in order to best capitalize on potential opportunities. We believe it is prudent to preserve as much capital as possible and strengthen our balance sheet.

Over the trailing 12 months, GECC has paid $1.05 in total distributions, consisting of an $0.083 monthly base distribution, and a $0.05 special distribution. Based on March 31st NAV and closing market price, the total distributions equate to an annual distribution yield of 20.8% and 37.5%, respectively.

During the quarter, we deployed capital at a weighted average price of 99% of par and monetized investments at a weighted average price of 82% of par. On Slide 7, we highlighted a few high level characteristics of the portfolio.

The weighted average current yield on our secured debt holdings, which comprised approximately 89% of the fair value of the portfolio, is approximately 10%. The weighted average price of the debt investments in our portfolio is approximately 79% of par, providing for significant potential capital appreciation.

Moreover, as we had monetized legacy Full Circle positions and redeploy the proceeds into new and existing Great Elm investments. The portfolio continues to better reflect our investing style and approach.

As of March 31st, roughly 93% of the portfolio is comprised of investments that are representative of the matter in which we intend to invest going forward. Slide 8 describes additional portfolio of characteristics. The portfolio contains 35 investments, 28 of which are secured debt and 7 of which are equity.

The 28 debt investments account for 147 million in fair value and 7 equity investments accounts for approximately 19 billion of fair value. Of our total debt holdings, roughly 72% of the floating rate instruments 28% accrual fixed rates. Slide 9 details our capital deployment during the quarter.

We purchased four new investments and added the two existing investments during the quarter deploying approximately $8 million. The new investments were 2 million Viasat receivables and 3 new secured revolver commitments in Perforce Software, Greenway Health, and EIG Investors Corp.

In addition to our existing investments included 1.2 million of Tensar Corp's secured term loan, and 5.4 million of ASP Chromaflo secured term loan. Please turn to Slide 10, to break down the quarter and portfolio by asset in the interest rate type.

Approximately 89% of the fair value of the portfolio is invested in secured debts with the balance in equity investments. That's roughly $147 million of debt and $19 million of equity.

Of the 147 million in debt holdings, roughly 106 million is invested in floating rate debt with a weighted average current yield of 8.5, roughly 41 million is invested in fixed rate debt with a weighted average current yield of 14.5%. On Slide 11, we break down the portfolio by industry.

Wireless telecommunications are comprised of our investment in Avanti is still the largest industry weighting. Nevertheless, we continue to maintain a diversified portfolio of investments, as indicated by the 21 different industries representative. Please turn to Slide 12, to take a historical look at GECC's portfolio rotation.

This is the first quarter since 2 GECC's inception in which we monetized investments that are lower average dollar price than we deployed capital. This is in part due to our previously disclosed exit of Commercial Barge Line secured term loan at approximately 34% of part.

The Company's ongoing restructuring would have resulted in a significant amount of non-income producing equity that we did not believe was the best fit for GECC.

Looking ahead in the near term, we plan to deploy capital at a lower average dollar price as credit spreads have widened substantially in pricing in the secondary markets have fallen from previous highs. Turning to Slide 13, we get a more granular picture for GECC's investment activity quarter-over-quarter.

As you can see, we've been able to find compelling debt investment opportunities at prices below par in each of the past five quarters. This past quarter, we invested capital of 7.1% average current yield, lower than our return average, as a number of our secured revolver instruments grew down at par.

Importantly, to the duration of certain of our investments shrink, the yield to maturity might increase while the current yield might not best reflect the total return potential we're seeking.

Currently, we're focusing our efforts on higher quality, lower dollar price investment opportunities that appear to be overly impacted by the market volatility. On Slide 15, we detailed our activities since quarter end.

In particular, I would note to new Viasat receivables investment of 90% of par and the $1 million of view new Avanti communication secured loans, the most senior of our investments in Avanti. Please turn to Slide 16 for an update on Avanti's business and fractal structure.

Avanti continues to see strong demand for its capacity, and I'm encouraged that thus far the business has not been significantly impacted by the COVID-19 pandemic. In April, Avanti raised approximately $8 million radically from its largest stakeholders in the form of a 1.25 lien linked term loan.

This new term loan ranked junior to the existing first lien long term loans and senior to our existing 1.5 lien long term and second lien bond investments. Aside from rank, all other terms of the new term loan are substantially similar to the existing 1.5 lien term loan.

As for the underlying business, Avanti continues to capitalize on its momentum, announcing new business wins that should drive growth and revenue adjusted EBITDA and unleveraged free cash flow. A significant portion of fiscal year 2020's budgeted revenue has already been contracted.

The Company continues to record meaningful high margin contract wins with reputable satellite service providers. In addition, Avanti anticipates growing of cash balance throughout the year. Let's turn to Slide 18 to review financial highlights from the quarter.

Net loss per share was $3.33 in the first quarter, NII per share came in at $0.26, covering our $0.25 quarterly base distribution once again. We experienced significant net realized losses of $1.12.

Losses weren't even greater $2.47 primarily the results of fluctuations in the fair value of certain of our investments, as volatility are permeated secondary markets. Net asset value or NAV was $5.05 per share at period end. Please turn to the Slide 19 for a financial overview of the portfolio.

At period end, total assets were $273.6 million, total fair value of investments was $165.5 million, and our $5.05 per share NAV equated to an aggregate NAV of $50.8 million. Total debt outstanding was approximately $124 million and was comprised entirely of our unsecured baby bonds. Cash was $22.8 million at period end.

Turning to Slide 20, let's discuss the quarterly operating results. Total investment income of $6.4 million or $0.64 per share, compared to $6.3 million or $0.59 during the same period in prior year. Net operating expenses of $3.8 million or $0.38 per share were slightly higher than the $3.5 million or $0.33 per share in the first quarter of 2019.

Primarily, the result of increased interest expense associated with our most recent baby bond GECCN. NII $2.7 million or $0.26 per share was comparable on a per share basis to the first quarter of 2019, $2.8 million or $0.26 per share as we repurchase shares during 2019.

Turning to Slide 22, let's discuss the GECC's distribution policy and declared distributions today. We're subject to a minimum asset coverage ratio of 150% for the proposal that was approved at our 2018 Annual Stockholders Meeting. As of March 31, 2020, our asset coverage ratio was approximately 141%.

As a result of following below the minimum asset coverage ratio, it will be subject to certain limitations on our ability to incur additional debt, make cash distributions on senior securities or repurchased senior security in each case in accordance with the Investment Company Act of 1940 as amended, and the indentures governing our outstanding notes, until such time we are above the minimum asset coverage ratio.

As previously announced, in March 2020, our Board declared monthly distributions through the month ending June 30, 2020 of $0.083 per share.

Such distributions shall be paid in cash or in shares of our common stock at the election of shareholders, although the total amount of cash to be distributed to all shareholders will be limited to approximately 20% of the total distributions paid to all shareholders.

The remainder of the distributions will be paid in the form of shares of our common stock. In May 2020, our Board set monthly distributions of $0.083 per share for the third quarter of 2020, through the month ending September 30, 2020.

The distributions will be paid in cash or shares of our common stock at the election of shareholders, although the total amount of cash to be distributed to all shareholders will be limited to approximately 10% of the total distributions to be paid to all shareholders.

Again, the remainder of the distributions will be paid in the form of shares of our common stock. Slide 23 shows GECC's full distribution history and overlays what the annual distribution yield was as a percentage of market place.

GECC's special distributions in each of the past 3 years, when combined with the monthly-based distributions have driven annual distribution yields well north of 10% in each full year since inception. Slide 24 illustrates our historical distribution coverage. As noted, NII had covered the base distribution every quarter since inception in 2016.

Finally, please turn to Slide 26 for GECC summary. Approximately 23% of GECC shares are held by employees and affiliates of Great Elm Capital Management Inc., GECC's investment manager, fostering a true alignment of interests between management and other shareholders.

Furthering that alignment of interests, to-date, GECC has repurchased approximately 22% of its initial share count. The weighted-average current yield on our diversified portfolio of secured bonds and bonds is approximately 10%.

With a significant portion of our assets in cash and no secured credit facility, GECC is entering these uncertain times with the flexibility to utilize cash and other assets to create shareholder value. Thank you for joining us this morning.

We continue to be confident in the upside potential in the portfolio and we're diligently sourcing and reviewing new investment ideas. We believe that we've formed a significant alignment of interests with you, our shareholders. Thank you again for the support and confidence that you've placed in us.

With that, we'll turn the call over to the operator to open for questions..

Operator:.

Thank you again for joining us this morning. We look forward to continued dialogue and please let us know, if we can be helpful with anything in follow-up..

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect..