Great Elm Capital (US:GECC)2025-05-06 12:30Financial Data and Key Metrics Changes - The company achieved a record total investment income of $12.5 million in Q1 2025, representing a 37% increase from the previous quarter and over 40% year-over-year growth [6][12] - Net investment income (NII) per share doubled to $0.40 from $0.20 in the prior quarter, primarily due to the increase in total investment income [6][12] - The first quarter distribution increased to $0.37 per share, a 5.7% rise from the previous quarter's $0.35 per share [6][12] - Net assets as of March 31, 2025, were $132 million, down from $136 million as of December 31, 2024 [12] - NAV per share decreased to $11.46 from $11.79 [12] Business Line Data and Key Metrics Changes - The CLO joint venture significantly contributed to the increase in total investment income, with cash distributions of $3.8 million in Q1 2025 compared to $5 million in Q4 2024 [6][8] - The corporate portfolio grew to nearly $250 million, with first lien loans comprising 71% of this portfolio as of March 31 [15] Market Data and Key Metrics Changes - The company noted volatility in the markets beginning in mid-quarter, leading to markdowns on positions, particularly in CLO JV equity and investments in CoreWeave [10] - The asset coverage ratio was 163.8% as of March 31, down from 169.7% as of December 31 [13] Company Strategy and Development Direction - The company aims to enhance portfolio strength by increasing secured debt positions and targeting high teens to 20% returns from the CLO joint venture [15][19] - A $100 million at-the-market equity program was filed to provide additional capital flexibility [10] - The company is focused on maintaining credit quality and seeking investments with minimal risk of permanent capital loss [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to generate sustainable returns and deliver increasing value to shareholders despite market volatility [10][19] - The company anticipates that NII in Q2 2025 will exceed Q1 levels, supported by ongoing capital raising and deployment initiatives [7][30] Other Important Information - The company has zero positions on non-accrual as of March 31, indicating strong portfolio performance [17] - The company is taking a measured approach to capital deployment amid ongoing tariff uncertainties, with minimal direct exposure to China [18][44] Q&A Session Summary Question: How does the portfolio and NAV perform with the widening loan market and private credit spreads? - Management noted modest markdowns in the portfolio but expressed confidence in the overall health of the portfolio, expecting unrealized losses to reverse as market conditions stabilize [22][24] Question: What is the expected ROE on the CLO investment? - The company targets high teens to 20% returns on the CLO investments [53] Question: What is the impact of incoming yields being higher than outgoing yields? - Management indicated that there was a barbell effect in deployments, with expectations for additional flow-through effects into Q2 [38] Question: What is the exposure to government contracts given federal spending cutbacks? - The company has been cautious and has avoided investments with significant government contract exposure [43] Question: How is the consumer segment of the portfolio characterized? - The largest exposure in the consumer space is to companies with private label products, which are expected to benefit from trade-down effects during economic downturns [47]