Great Elm Capital (US:GECC)2021-08-02 16:00Revenue and Investment Performance - The company generated revenue primarily from interest on debt investments, dividends on equity investments, and capital gains, with expected maturities of three to five years for fixed income instruments[18]. - For the year ended December 31, 2020, the company acquired investments totaling $101.36 million and disposed of investments totaling $111.99 million, resulting in a weighted average yield of 10.00%[33]. - As of June 30, 2021, the ending investment portfolio at fair value was $209.43 million, up from $151.65 million at the beginning of the period[35]. - The net change in unrealized appreciation on investments for the six months ended June 30, 2021, was $17.08 million, while the net realized loss on investments was $5.64 million[35]. - The weighted average yield for the quarter ended June 30, 2021, was 11.10%, reflecting the performance of the investment portfolio[33]. - Investment income for the three months ended June 30, 2021, was $6,233,000, up from $4,768,000 in the same period of 2020, reflecting a year-over-year increase of approximately 30.6%[40]. - Interest income for the three months ended June 30, 2021, was $5,092,000, compared to $4,184,000 for the same period in 2020, marking an increase of approximately 21.8%[40]. - Dividend income for the three months ended June 30, 2021, increased to $1,093,000 from $480,000 in the prior year, representing a growth of approximately 128.5%[44]. Expenses and Financial Management - The company’s primary operating expenses include a base management fee and an incentive fee, which are tied to the performance of the investments[19]. - Total expenses for the three months ended June 30, 2021, were $4,130,000, an increase from $3,852,000 in the same period of 2020, indicating a rise of approximately 7.2%[47]. - Management fees for the three months ended June 30, 2021, were $765,000, up from $591,000 in the prior year, reflecting an increase of approximately 29.4%[47]. - Interest expense for the three months ended June 30, 2021, was $2,291,000, slightly down from $2,390,000 in the same period of 2020, showing a decrease of approximately 4.1%[47]. - The company recognized incentive fees of $398,000 for the three months ended June 30, 2021, compared to $228,000 in the same period of 2020, representing an increase of approximately 74.6%[47]. Cash Flow and Financial Position - As of June 30, 2021, the company had approximately $59.8 million in cash and cash equivalents, with investments totaling approximately $155.7 million in debt instruments and $53.7 million in equity investments[65]. - During the six months ended June 30, 2021, net cash used for operating activities was approximately $36.5 million, reflecting significant investment activity[68]. - For the six months ended June 30, 2021, net cash provided by financing activities was $43.1 million, primarily from the issuance of GECCO Notes[69]. - The company had approximately $24.6 million in unfunded loan commitments as of June 30, 2021, indicating potential future investment activity[66]. - The total contractual obligations as of June 30, 2021 amounted to $168.7 million, with significant future commitments related to various notes[70]. Investment Risks and Market Conditions - The company expects potential financial distress among portfolio companies due to the ongoing impact of COVID-19, which may affect future interest payments and dividend distributions[46]. - The company anticipates further decreases in investment income if interest rates remain depressed or continue to decline without offsetting investments in higher-yielding debt instruments[46]. - The company is subject to financial risks, with approximately $100.4 million in principal amount of debt investments bearing interest at variable rates as of June 30, 2021[99]. - The COVID-19 pandemic has disrupted economic markets, potentially impacting the valuation of the company's investments and results of operations[91]. - The company continues to monitor the COVID-19 situation and its impact on portfolio companies, which may experience financial distress and default on obligations[95]. Portfolio Valuation and Changes - The company’s portfolio investments are valued at fair value, with the board approving valuations at the end of each quarter[22]. - As of June 30, 2021, the total fair value of the investment portfolio was $209,433,000, an increase from $151,648,000 as of December 31, 2020, representing a growth of approximately 38%[38]. - The company recognized unrealized appreciation of $2.8 million on CPK common stock during the three months ended June 30, 2021[59]. - The company experienced a net unrealized appreciation of $17.1 million for the six months ended June 30, 2021, compared to a net unrealized depreciation of $23.2 million in the same period of 2020[56]. - Unrealized depreciation for the six months ended June 30, 2021 included decreases in fair value of $3.8 million on PFS common stock[60]. Debt and Financing Activities - The company entered into a Loan Agreement with City National Bank providing a senior secured revolving line of credit of up to $25 million, with no borrowings outstanding as of June 30, 2021[76]. - The Loan Agreement includes financial covenants requiring net assets of not less than $65 million and asset coverage equal to or greater than 160%[77]. - The company sold $28.4 million in aggregate principal amount of 6.50% notes due 2022, with an additional $4.3 million sold upon full exercise of the underwriters' over-allotment option, totaling $30.3 million outstanding as of June 30, 2021[78]. - All issued and outstanding GECCL Notes were redeemed on July 23, 2021 at 100% of the principal amount plus accrued interest[79]. - The company sold $50.0 million in aggregate principal amount of 5.875% notes due 2026, with an additional $7.5 million sold upon full exercise of the underwriters' over-allotment option[85]. - As of June 30, 2021, the asset coverage ratio was approximately 166.2%, exceeding the minimum requirement of 150% under the Investment Company Act[87]. - In July 2021, the company made several investments, including purchasing 250,000 shares of Equitrans Midstream Corp. preferred stock for approximately $5.3 million[90].