Great Elm Capital (GECC) - 2024 Q4 - Annual Report

Market Share and Product Segments - First Brands, Inc. holds a 26% market share in the aftermarket brake components market, leading with its Centric, Raybestos, Specialty, and private label offerings[26] - The Filter Products segment of First Brands commands a 30% market share, driven by its FRAM and Champion Laboratory brands[26] - First Brands' Wiper Segment is the top supplier of aftermarket wiper blades, with a significant 37% market share through brands like Trico, ANCO, and Michelin[26] Investment Management and Fees - The base management fee for GECM is set at an annual rate of 1.50% of average adjusted gross assets, payable quarterly[49] - The Income Incentive Fee is based on pre-incentive fee net investment income, which includes interest and dividend income minus operating expenses[51] - The fixed hurdle rate for pre-incentive fee net investment income is 1.75% per quarter, equating to 7.00% annualized[53] - For the year ended December 31, 2024, the company incurred $4.5 million in base management fees and$2.6 million in income-based fees accrued during the period[66] - For the year ended December 31, 2023, the company incurred $3.5 million in base management fees and$3.1 million in income-based fees accrued during the period, with no capital gains incentive fees earned[67] - For the year ended December 31, 2022, the company incurred $3.2 million in base management fees and$0.6 million in income-based fees accrued during the period, with no capital gains incentive fees earned[68] - The Capital Gains Incentive Fee is calculated as 20% of the positive difference between cumulative realized capital gains and cumulative realized capital losses, minus any fees paid in prior years[57] - The pre-incentive fee net investment income must exceed a hurdle rate of 1.75% to earn an incentive fee, with a "catch up" provision applicable for income exceeding 2.1875%[60] - Aggregate realized capital gains for Year 2 in Assumption 1 were $30.0 million, leading to a Capital Gains Incentive Fee of$6.0 million[63] - Aggregate realized capital gains for Year 3 in Assumption 1 were $31.0 million, resulting in a Capital Gains Incentive Fee calculated as greater than zero[64] - The company deferred cash payment of any Income Incentive Fee exceeding 20$179.8 million in principal amount of debt investments bearing variable interest rates as of December 31, 2024[386] - Interest rate increases could lead to higher gross investment income for the company, impacting net investment income positively if not offset by increased operating expenses[386] - The company may face challenges in making distributions necessary to satisfy tax requirements due to the nature of its investments[102] - If the company invests in foreign securities, it may be subject to withholding and other foreign taxes, which could affect stockholder tax credits[105] - The company may need to restructure investments in portfolio companies facing financial difficulties, potentially leading to non-qualifying income[103] - The company’s ability to pay dividends may be limited by loan covenants, which could jeopardize its RIC status[110] - The company may employ subsidiaries treated as U.S. corporations to manage income that could disqualify it from RIC status, leading to reduced yields for stockholders[113] Governance and Agreements - The Investment Management Agreement was renewed on July 23, 2024, and is effective until September 26, 2025[75] - The Board considered factors such as the quality of advisory services, investment performance, and economies of scale in approving the Investment Management Agreement[76] - GECM is indemnified for damages arising from its services under the Investment Management Agreement, except in cases of willful misconduct or gross negligence[73] - The Administration Agreement with GECM includes provisions for indemnification from the company for damages arising from GECM's services, absent willful misconduct[117] - The company bears all costs and expenses incurred in its operations and transactions not specifically assumed by GECM[116] - The company has a non-exclusive, royalty-free license to use the name "Great Elm Capital Corp." as long as GECM remains its investment adviser[118] - The Administration Agreement may be terminated by either party with 60 days' written notice[115] Distribution and Earnings - The Board set a distribution for the quarter ending March 31, 2025, at a rate of $0.37 per share, fully from distributable earnings[388] - The aggregate amount of brokerage commissions paid by the company during the three most recent fiscal years is approximately$129, with nearly 100% of these commissions paid to Imperial Capital, LLC[120] - GECM is responsible for selecting brokers and dealers for publicly traded securities transactions, aiming to obtain the best net results[119]