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spk05: Greetings. Thank you for standing by, and welcome to the Great Elm Capital Court First Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to a representative of the company. Please go ahead.
spk02: Thank you, and good morning, everyone. Thank you for joining us for Great Elm Capital Corp.' 's first quarter earnings conference call. If you would like to be added to our distribution list, you can email investorrelations at greatelmcap.com, or you can sign up for alerts directly on our website at www.greatelmcc.com. In addition to our comments for today's call, we'll be utilizing an investor presentation as an accompaniment. While we will not be directly referring to the slide, our comments today will generally follow the form and structure of the presentation. 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 this presentation, our earnings release, Form 10-Q, and a link to this webcast. I would like to call your attention to the customary safe harbor language 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 projections, 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 projections. 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 Financial Information, SEC Filings, or visit the SEC's website. Hosting this call this morning is Peter Reed, Great Elm Capital Corp's President and Chief Executive Officer. As a reminder, this webcast is being recorded on Friday, May 7, 2021. With that, I'd now like to turn the call over to Peter. Please go ahead, Pete.
spk03: Thank you, Adam. Good morning, and thank you for joining us today. On today's call, we have our COO, Adam Kleinman, our CFO, Kerry Davis, and Matt Kaplan, a portfolio manager and member of our investment committee. I will begin with an overview of GECC's investment performance during the quarter. Matt will discuss our portfolio. Kerry will discuss our capital position in greater detail, and then I'll return for closing remarks. To begin, While we experienced a slower than anticipated deployment of new capital early in the first quarter that depressed NII to a degree, we ended the period in an excellent position and were able to deploy $43.9 million in new investments excluding SPACs in the quarter at a weighted average current yield of approximately 9.9%. In addition, we ended the period with our strongest asset coverage ratio and debt-to-equity ratio since the beginning of the pandemic. Finally, we also announced the signing of a $25 million revolving credit facility yesterday that will allow Great Elm to be more fully invested in yielding assets and take advantage of the specialty finance overflow opportunities we are seeing as part of our ownership position in Prestige Capital. To begin with a quick outline, at quarter end, GECC had a portfolio of investments with a fair market value of $193.6 million, cash of $26.6 million, and $91.5 million of net asset value, or $3.89 per share. In terms of NAV, this is a sizable increase from the $3.46 per share reported on December 31, 2020. This is largely due to higher realized and unrealized gains on investments, which we'll detail shortly. NII for the quarter was approximately $1.5 million, or $0.06 per share, as compared to NII of $1.6 million, or $0.07 per share, for the quarter ended December 31, 2020. NII was depressed as we entered the quarter with a high cash balance and legal expenses remain elevated. While I'll let Matt go into greater detail on our portfolio review, there were a couple of notable developments that we expect will favorably impact NII in the coming quarters. We exited a legacy position in board writers during the quarter and will no longer incur related legal fees after April. These fees have served as a drag on NII over the past two quarters. Second, it's important to understand the impact of timing during the period. We considerably increased our deployment of capital in February and March. To quantify, of the 43.9 million deployed for GECC during the quarter, over 75% was deployed after January, and we have seen this momentum continue into the second quarter. We continue to work towards building an increasingly diversified investment portfolio and are utilizing a number of sourcing channels as we invest. In the first quarter, we also continued to benefit from our investment in Prestige Capital. In past calls, we have provided background on Prestige and its 34-year history as a factoring business. Today, I want to provide a little insight on how this relationship works and provides GECC with proprietary opportunities to leverage its balance sheet to achieve attractive IRRs over time. GECC's balance sheet enables Prestige to increase the size of the transactions it can pursue and our investment in Prestige may create opportunities that would allow GECC to participate in certain of Prestige's larger factoring transactions directly. In the past, Prestige may have been unable to pursue these larger transactions due to capital constraints. However, following our investment in 2019, it became apparent that Prestige merely needed additional capital to pursue these opportunities. In 2020, we completed three participations in Prestige investments, which we believe have a stronger credit quality than typical leveraged investments at a rate of 13% per annum. Our goal now is to continue to working with the management at Prestige to help them pursue larger transactions. To that end, we were very pleased to enter into a $25 million revolving credit facility with Citi National Bank with an interest rate on borrowings at LIBOR plus 3.5% and a three-year maturity. This facility allows us to more efficiently manage our liquidity take advantage of overflow opportunities at Prestige, and make other investments with a favorable cost of capital. As I discussed last call, we recently added two new members to our investment committee from Imperial Capital Asset Management, Jason Reese and Matt Kaplan. Both Jason and Matt were instrumental in closing the recent credit facility. We've benefited from their expertise throughout our investment selection process. To that end, I'd like to turn the call over to Matt to discuss our portfolio performance for the quarter.
spk01: Thanks, Pete. There are some moving parts of this period, including the initiation of a SPAC-based cash management strategy early in the quarter. Our March 31st portfolio comprised of 33 debt investments, three income-generating equity investments, and seven other equity investments, excluding SPACs. The debt investments account for $135 million, or approximately 70% of portfolio fair value, The weighted average current yield on our debt investments is 10.9%. Of the $135 million of debt holdings, roughly $69 million is invested in floating rate debt with a weighted average current yield of 9.3%. Roughly $66 million is invested in fixed rate debt with a weighted average current yield of 12.7%. Away from our debt holdings, we have three yielding equity investments accounting for $30 million or approximately 16% of portfolio fair value, and other equity investments totaling $18 million, or approximately 9% of fair value. We also have holdings in SPAC instruments of $10 million, accounting for approximately 5% of fair value. The weighted average current yield of our three income-generating equity investments in Prestige, Blue Knight Energy Partners, and Crestwood Equity Partners is approximately 13.5%. Our portfolio is currently heavily weighted in the wireless telecommunications services industry due to our largest holding, Avanti. However, as we grow our investments in the specialty finance space and further diversify our holdings, we expect the portfolio to generally be less concentrated with additional focus in the specialty finance sector. In the first quarter, we monetized approximately $28 million of investments and deployed $58 million into new investments with our portfolio yield remaining stable. We have been able to successfully find compelling debt investment opportunities at prices below par in each of the last seven quarters. This past quarter, we were able to deploy capital at a weighted average price of 96% of par and monetize investments at 89% of par. Excluding our exit of board writers, which was a drag on NII due to associated legal fees, we monetized investments at a weighted average price of 97% par this past quarter. Before I turn it over to Carrie for a review of financial highlights, I wanted to take a few moments to discuss our recently implemented approach of utilizing SPAC investments as a hybrid cash management tool for Great Elm. In short, We are focused on deploying our capital to take advantage of the risk mitigation dynamics that are inherent in the SPAC structure with an avenue to create upside for our capital as we seek new opportunities to deploy it into higher-yielding instruments. We entered the quarter with $53 million of cash, and as our deployment into yielding investments ramped up, we also decided to leverage our relationships to invest a portion of our cash into a broad portfolio of SPACs in their IPOs. We believe GECC will be able to earn a better-than-cash return on the underlying SPAC shares while retaining upside from warrants. At March 31st, $10 million was invested in 125 SPAC securities, or approximately 5% of invested capital, which are all publicly traded securities listed on the NASDAQ or NYSE. To be clear, the allocation to SPACs is a form of cash management that we believe has minimal permanent impairment of capital risk with potential upside. With that, I'll turn the call to Carrie to go through our financial highlights. Carrie?
spk04: Thanks, Matt. I'll go through these pretty quickly, but invite all of you to review our press release, accompanying presentations, and, of course, our SEC filing. Total weighted average shares outstanding increased to 23.4 million from 22.2 million in the prior quarter and 10.1 million in the prior period year. The main reason for the share increase from prior year was the rights offering completed by the company in October 2020. GECC reported net increase from operations of 53 cents per share in the first quarter compared to a net loss of 43 cents in the prior quarter, which was largely due to net unrealized depreciation over the current quarter. NII per share came in at 6 cents compared to 7 cents in the prior quarter. Net asset value, or NAV, increased significantly to 389 per share as of March 31st from 346 per share at December 31st, 2020, which was largely due to those unrealized gains. Total fair value of investments as of March 31st was $193.6 million compared to $151.7 million in the prior quarter, and net assets were $91.5 million up from $79.6 million in the prior quarter. Total debt outstanding was approximately $118.7 million and was comprised entirely of our unsecured baby bonds. We continue to evaluate ways to lower our cost of capital as exemplified by our new evolving credit facility with CMB. Cash was $26.6 million at period end. And with that, I'll turn it back to Pete for closing remarks.
spk03: Thanks, Carrie and Matt. I'd like to close with information regarding our distribution, and then we would be happy to take your questions. In March, we announced that our board authorized a $0.10 per share cash distribution to shareholders for the quarter ending June 30, 2021. As I mentioned earlier, this represents an indicated yield of 10.3% on NAB at year end and an 11.9% yield on our common stock price as of the close on April 30th. We expect to announce the record and payable dates for this distribution shortly. Our Board of Directors also authorized a $0.10 per share cash distribution for the quarter ending September 30, 2021. The record and payment dates for the distribution are expected to be set by GECC in the third quarter pursuant to authority granted by its Board of Directors. Over the last year, we have proactively made decisions that we feel will position GECC for greater financial success in the current market environment We're exiting the period with what we believe to be an increasingly high-quality portfolio, and the new revolving credit facility with CMB provides additional flexibility for future growth. What is equally important is that we have cultivated a relationship with Prestige that has helped us deploy that capital into attractive proprietary investments. With that, we will turn the call over to the operator to open for questions.
spk05: As a reminder, to ask a question, you will need to press star and 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Please wait while callers queue for their question. And you have a question from the line of Alan Denzer. Please go ahead.
spk00: Yeah, hi. A question about the viability of the Avanti business going forward. Please give us a little more color on what the potential for recovery is in that business.
spk03: Hi, Alan. Thank you for your question. This past quarter was an important one for Avanti. It refinanced its first lien debt and also won significant amounts of new business in the form of contracts with new customers that we believe will drive future revenue and cash flow. So we continue to be optimistic about the trajectory of Avanti's business and what that means for our investments. Thank you.
spk05: And ladies, again, to ask a question that is star one. At this time, I'd like to turn back over to the speakers for the management team for any further comments.
spk03: 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.
spk05: Ladies and gentlemen, this concludes today's conference call. Thank you for your participating. You may now disconnect.
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