As filed with the Securities and Exchange Commission on August 1, 2024
Securities Act File No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
|
|
|
|
|
☒ Registration Statement under the Securities Act of 1933 |
|
|
☐ Pre-Effective Amendment No. |
|
|
☐ Post-Effective Amendment No. |
|
|
☐ Registration Statement under the Investment Company Act of 1940 |
|
|
☐ Amendment No. |
|
|
GREAT ELM CAPITAL CORP.
(Registrants Exact Name as Specified in Charter)
3801 PGA
Boulevard, Suite 603
Palm Beach Gardens, Florida
33410
(Address of
Principal Executive Offices)
(617) 375-3006
(Registrants Telephone Number, including Area Code)
Matt Kaplan
President and
Chief Executive Officer
Great Elm Capital Corp.
3801 PGA Boulevard, Suite 603
Palm Beach Gardens, Florida
33410
(Name and Address of
Agent for Service)
COPIES TO:
|
|
|
|
|
Christopher Healey
Davis Polk & Wardwell LLP
901 15th Street NW
Washington, DC 20005 (202) 962-7036 |
|
Hillary A. Coleman
Davis Polk & Wardwell LLP
450 Lexington Avenue New
York, NY 10017 (212) 450-4733 |
|
William J. Tuttle, P.C.
Kirkland & Ellis LLP
1301 Pennsylvania Ave, N.W.
Washington, DC 20004 (202) 389-5000 |
Approximate Date of Commencement of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
☐ |
Check box if the only securities being registered on this Form are being offered pursuant to dividend or
interest reinvestment plans. |
☐ |
Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in
reliance on Rule 415 under the Securities Act of 1933 (Securities Act), other than securities offered in connection with a dividend reinvestment plan. |
☐ |
Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective
amendment thereto. |
☐ |
Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective
amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. |
☐ |
Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General
Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
It is proposed that this filing will become effective (check appropriate box):
☐ |
when declared effective pursuant to Section 8(c) of the Securities Act. |
If appropriate, check the following box:
☐ |
This [post-effective] amendment designates a new effective date for a previously filed [post-effective
amendment] [registration statement]. |
☐ |
This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
☐ |
This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the
Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
☐ |
This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the
Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
Check each
box that appropriately characterizes the Registrant:
☐ |
Registered Closed-End Fund
(closed-end company that is registered under the Investment Company Act of 1940 (Investment Company Act)). |
☒ |
Business Development Company (closed-end company that intends or has
elected to be regulated as a business development company under the Investment Company Act). |
☐ |
Interval Fund (Registered Closed-End Fund or a Business Development
Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). |
☒ |
A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).
|
☐ |
Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
☐ |
Emerging Growth Company (as defined by Rule 12b-2 under the Securities
Exchange Act of 1934 (Exchange Act)). |
☐ |
If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
☐ |
New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months
preceding this filing). |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY
ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The information in this preliminary prospectus is not complete and may be changed. A
registration statement relating to these securities has been filed with the Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 1, 2024
PROSPECTUS
$
GREAT ELM CAPITAL CORP.
% NOTES DUE 2029
We are an externally managed non-diversified closed-end management investment company that has elected to be regulated as a business development company (BDC) under the Investment Company Act
of 1940, as amended (the Investment Company Act). We seek to generate current income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance businesses. Our external
investment manager, Great Elm Capital Management, LLC (GECM) provides the administrative services necessary for us to operate. Great Elm Group, Inc. (GEG), the parent company of GECM, may purchase Notes (as defined below)
from the underwriters in connection with this offering at the public offering price.
We are offering $ in aggregate principal amount of
% notes due 2029 (the Notes). The Notes will mature on , 2029. We will pay interest on the Notes on March 31, June 30, September 30 and December 31 of each year, beginning , 2024. We may redeem the Notes in
whole or in part at any time or from time to time on or after , 2026 at our option, at the redemption price equal to 100% of the aggregate principal amount, plus any accrued and unpaid interest, as discussed under
Description of the Notes-Optional Redemption in this prospectus. Holders of the Notes will not have the option to have the Notes repaid prior to the stated maturity date. The Notes will be issued in minimum denominations of $25 and
integral multiples of $25 in excess thereof.
The Notes will be our direct unsecured obligations and rank pari passu, or equal, with all outstanding
and future unsecured unsubordinated indebtedness issued by us. The Notes will be effectively subordinated, or junior in right of payment, to indebtedness under our credit facility and any future secured indebtedness that we may incur to the extent
of the value of the assets securing such indebtedness and structurally subordinated to all future indebtedness and other obligations of our subsidiaries.
We intend to list the Notes on The Nasdaq Global Market (Nasdaq) and we expect trading to commence thereon within 30 days of the original issue
date under the trading symbol GECCH. The Notes are expected to trade flat. This means that purchasers will not pay, and sellers will not receive, any accrued and unpaid interest on the Notes that is not included in the
trading price. Currently, there is no public market for the Notes.
Investing in our securities
involves a high degree of risk. See Risk Factors beginning on page 17 of this prospectus to read about factors you should consider, including the risk of leverage, before investing in the Notes.
This prospectus sets forth concisely important information you should know before investing in the Notes. Please read it and the documents we refer you to
carefully in their entirety before you invest and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. We maintain a website at
http://www.greatelmcc.com and we make all of our annual, quarterly and current reports, proxy statements and other publicly filed information, and all information incorporated by reference herein, available, free of charge, on or through such
website. Information on our website is not incorporated or a part of this prospectus. You may also obtain free copies of our annual and quarterly reports and make stockholder inquiries by contacting us at Great Elm Capital Corp., 3801 PGA Boulevard,
Suite 603, Palm Beach Gardens, Florida 33410 or by calling us collect at (617) 375-3006. The Securities and Exchange Commission maintains a website at http://www.sec.gov where such information is available
without charge.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
|
|
Per Note |
|
|
Total |
|
Public Offering Price |
|
$ |
|
|
|
$ |
|
|
Underwriting Discount and Commissions (sales load) |
|
$ |
|
|
|
$ |
|
|
Proceeds to us, before
expenses(1) |
|
$ |
|
|
|
$ |
|
|
(1) |
Before deducting expenses payable by us related to this offering, estimated at $ , or
approximately $ per Note. See Underwriting. The underwriters may also purchase up to an additional $ aggregate principal amount of the Notes offered hereby, to cover over-allotments, if any, within 30 days of
the date of this prospectus. If the underwriters exercise this option in full, the total public offering price would be $ , the total underwriting discount and commissions (sales load) paid by us would be $ , and total
proceeds to us, before expenses, would be $ . |
THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Delivery of the Notes in book-entry form only through The
Depository Trust Company will be made on or about , 2024.
Lucid Capital
Markets
This prospectus is dated , 2024.
TABLE OF CONTENTS
i
ABOUT THIS PROSPECTUS
You should read this prospectus carefully before you invest in the Notes. This prospectus and the exhibits to the registration statement to which this
prospectus relates contain the terms of the Notes we are offering. It is important for you to read and consider all of the information contained in this prospectus before making your investment decision. See Where You Can Find More
Information in this prospectus.
We and the underwriters have not authorized any other person to provide you with additional information, or with
information different from that contained in this prospectus. We and the underwriters take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give to you. We and the underwriters are not
making an offer to sell the Notes in any jurisdiction where the offer or sale is not permitted. This prospectus does not constitute an offer to sell or a solicitation of any offer to buy any security other than the securities to which it relates.
You should assume that the information appearing in this prospectus is accurate only as of the date on its front cover. Our business, financial condition, results of operations and prospects may have changed since such date. To the extent required
by law, we will amend or supplement the information contained in this prospectus. We encourage you to consult your own counsel, accountant and other advisors for legal, tax, business, financial and related advice regarding an investment in our
securities.
The terms we, us, our, the Company and GECC in this prospectus refer to Great
Elm Capital Corp., a Maryland corporation, and its subsidiaries.
ii
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you may want to
consider. You should read carefully the more detailed information set forth under Risk Factors in this prospectus and the other information included in this prospectus and the documents to which we have referred.
Unless otherwise noted, the information contained in this prospectus assumes that the underwriters over-allotment option is not exercised.
Great Elm Capital Corp.
We are a Maryland corporation
that was formed in April 2016. We operate as a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a BDC
under the Investment Company Act. In addition, for tax purposes, we elected to be treated as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (the Code), beginning with our tax year
starting October 1, 2016.
We seek to generate current income and capital appreciation through debt and income-generating equity investments,
including investments in specialty finance businesses.
To achieve our investment objective, we invest in secured and senior secured debt instruments of
middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe offer sufficient downside protection and have the potential to generate attractive returns. We generally define middle market
companies as companies with enterprise values between $100 million and $2 billion.
We also make investments throughout other portions of a
companys capital structure, including subordinated debt, mezzanine debt, and equity or equity-linked securities.
We source these transactions
directly with issuers and in the secondary markets through relationships with industry professionals.
Great Elm Capital Management, LLC
We are managed by GECM, whose investment team has an aggregate of more than 100 years of experience in financing and investing in leveraged middle-market
companies. GECMs team is led by Matt Kaplan, GECMs Portfolio Manager and our President and Chief Executive Officer. GECMs investment committee includes Matt Kaplan, Adam M. Kleinman, Jason W. Reese, Nichole Milz and Dan Cubell.
Great Elm Group, Inc. (GEG) is the parent company of GECM.
GECM has entered into a shared services agreement (the Shared Services
Agreement) with Imperial Capital Asset Management, LLC (ICAM), pursuant to which ICAM makes available to GECM certain back-office employees of ICAM to provide services to GECM in exchange for reimbursement by GECM of the allocated
portion of such employees time.
We entered into an investment management agreement with GECM, dated as of September 27, 2016, and subsequently
amended and restated as of August 1, 2022 (the Investment Management Agreement), pursuant to which and subject to the overall supervision of our Board of Directors (the Board), GECM provides investment advisory services
to GECC. For providing these services, GECM receives a fee from us, consisting of two components: (1) a base management fee and (2) an incentive fee.
1
The base management fee is calculated at an annual rate of 1.50% based on the average value of our total
assets (determined in conformity with generally accepted accounting principles in the United States (GAAP) (other than cash or cash equivalents but including assets purchased with borrowed funds or other forms of leverage)) at the end of
the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears.
The incentive fee consists of two components
that are independent of each other, with the result that one component may be payable even if the other is not. One component of the incentive fee is based on income (the Income Incentive Fee) and the other component is based on capital
gains (the Capital Gains Incentive Fee). See The CompanyInvestment Management Agreement.
Pursuant to the administration
agreement, dated as of September 27, 2016 (the Administration Agreement), by and between us and GECM, GECM furnishes us with administrative services and we pay GECM our allocable portion of overhead and other expenses incurred by
GECM in performing its obligations under the Administration Agreement, including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
Investment Portfolio
The following is a reconciliation
of the investment portfolio for the six months ended June 30, 2024 and the year ended December 31, 2023. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.
|
|
|
|
|
|
|
|
|
(in thousands) |
|
For the Six Months Ended June 30, 2024 |
|
|
For the Year Ended December 31, 2023 |
|
Beginning Investment Portfolio, at fair value |
|
$ |
230,612 |
|
|
$ |
224,957 |
|
Portfolio Investments acquired(1) |
|
|
186,327 |
|
|
|
226,063 |
|
Amortization of premium and accretion of discount, net |
|
|
1,193 |
|
|
|
2,375 |
|
Portfolio Investments repaid or sold(2)
|
|
|
(112,448 |
) |
|
|
(235,570 |
) |
Net change in unrealized appreciation (depreciation) on investments |
|
|
(9,919 |
) |
|
|
17,485 |
|
Net realized gain (loss) on investments |
|
|
1,886 |
|
|
|
(4,698 |
) |
Ending Investment Portfolio, at fair value |
|
$ |
297,651 |
|
|
$ |
230,612 |
|
(1) |
Includes new investments, additional fundings (inclusive of those on revolving credit facilities),
refinancings, and capitalized payment-in-kind (PIK) income. |
(2) |
Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving
credit facilities). |
2
The following table shows the fair value of our portfolio of investments by industry as of June 30,
2024 and December 31, 2023 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
Industry |
|
Investments at Fair Value |
|
|
Percentage of Fair Value |
|
|
Investments at Fair Value |
|
|
Percentage of Fair Value |
|
Specialty Finance |
|
$ |
44,761 |
|
|
|
15.04 |
% |
|
$ |
52,322 |
|
|
|
22.69 |
% |
Structured Finance |
|
|
28,092 |
|
|
|
9.44 |
% |
|
|
|
|
|
|
|
% |
Chemicals |
|
|
25,405 |
|
|
|
8.54 |
% |
|
|
27,023 |
|
|
|
11.72 |
% |
Transportation Equipment Manufacturing |
|
|
24,017 |
|
|
|
8.07 |
% |
|
|
17,261 |
|
|
|
7.49 |
% |
Consumer Products |
|
|
21,700 |
|
|
|
7.29 |
% |
|
|
20,211 |
|
|
|
8.76 |
% |
Insurance |
|
|
20,459 |
|
|
|
6.87 |
% |
|
|
16,026 |
|
|
|
6.95 |
% |
Technology |
|
|
18,997 |
|
|
|
6.38 |
% |
|
|
7,342 |
|
|
|
3.18 |
% |
Closed-End Fund |
|
|
15,589 |
|
|
|
5.24 |
% |
|
|
6,770 |
|
|
|
2.94 |
% |
Shipping |
|
|
14,740 |
|
|
|
4.95 |
% |
|
|
11,724 |
|
|
|
5.08 |
% |
Oil & Gas Exploration & Production |
|
|
11,894 |
|
|
|
4.00 |
% |
|
|
11,420 |
|
|
|
4.95 |
% |
Internet Media |
|
|
8,441 |
|
|
|
2.83 |
% |
|
|
13,732 |
|
|
|
5.95 |
% |
Metals & Mining |
|
|
8,377 |
|
|
|
2.81 |
% |
|
|
9,538 |
|
|
|
4.14 |
% |
Energy Services |
|
|
6,717 |
|
|
|
2.26 |
% |
|
|
6,930 |
|
|
|
3.01 |
% |
Casinos & Gaming |
|
|
6,171 |
|
|
|
2.07 |
% |
|
|
4,252 |
|
|
|
1.84 |
% |
Defense |
|
|
5,847 |
|
|
|
1.96 |
% |
|
|
1,945 |
|
|
|
0.87 |
% |
Consumer Services |
|
|
4,961 |
|
|
|
1.67 |
% |
|
|
1,742 |
|
|
|
0.76 |
% |
Food & Staples |
|
|
4,363 |
|
|
|
1.47 |
% |
|
|
7,199 |
|
|
|
3.12 |
% |
Aircraft |
|
|
4,239 |
|
|
|
1.42 |
% |
|
|
3,958 |
|
|
|
1.72 |
% |
Energy Midstream |
|
|
4,052 |
|
|
|
1.36 |
% |
|
|
1,996 |
|
|
|
0.87 |
% |
Retail |
|
|
3,717 |
|
|
|
1.25 |
% |
|
|
54 |
|
|
|
0.02 |
% |
Apparel |
|
|
3,680 |
|
|
|
1.24 |
% |
|
|
2,007 |
|
|
|
0.87 |
% |
Restaurants |
|
|
3,467 |
|
|
|
1.16 |
% |
|
|
3,441 |
|
|
|
1.49 |
% |
Industrial |
|
|
3,456 |
|
|
|
1.16 |
% |
|
|
3,719 |
|
|
|
1.61 |
% |
Telecommunications |
|
|
1,801 |
|
|
|
0.61 |
% |
|
|
|
|
|
|
|
% |
Marketing Services |
|
|
1,757 |
|
|
|
0.59 |
% |
|
|
|
|
|
|
|
% |
Electronics Manufacturing |
|
|
951 |
|
|
|
0.32 |
% |
|
|
|
|
|
|
|
% |
Total |
|
$ |
297,651 |
|
|
|
100.00 |
% |
|
$ |
230,612 |
|
|
|
100.00 |
% |
Risk Factors
Investment
in our securities involves a number of significant risks relating to our investments and our business and structure that you should consider before investing in our securities.
Our business is subject to a number of risks and uncertainties, including the following:
|
|
|
We face competition for investment opportunities. Limited availability of attractive investment opportunities in
the market could cause us to hold a larger percentage of our assets in liquid securities until market conditions improve. |
|
|
|
Our portfolio is limited in the number of portfolio companies which may subject us to a risk of significant loss
if one or more of these companies defaults on its obligations under any of its debt instruments. |
|
|
|
Our portfolio is concentrated in a limited number of industries, which subjects us to a risk of significant loss
if there is a downturn in a particular industry in which a number of our investments are concentrated. |
3
|
|
|
Defaults by our portfolio companies may harm our operating results. |
|
|
|
By investing in companies that are experiencing significant financial or business difficulties, we are exposed to
distressed lending risks. |
|
|
|
Certain of the companies we target may have difficulty accessing the capital markets to meet their future capital
needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity. |
|
|
|
Investing in middle market companies involves a high degree of risk and our financial results may be affected
adversely if one or more of our portfolio investments defaults on its loans or notes or fails to perform as we expect. |
|
|
|
An investment strategy that includes privately held companies presents challenges, including the lack of
available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns. |
|
|
|
Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S.
investments. |
|
|
|
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
|
|
|
|
Our failure to maintain our status as a BDC would reduce our operating flexibility. |
|
|
|
Regulations governing our operations as a BDC affect our ability to raise additional capital and the way in which
we do so. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage. |
|
|
|
We will be subject to corporate level U.S. federal income tax if we are unable to qualify as a RIC under the
Code. |
|
|
|
We may incur additional debt, which could increase the risk in investing in our Company. |
|
|
|
The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery
systems and management continuity planning, could impair our ability to conduct business effectively. |
|
|
|
There are significant potential conflicts of interest that could impact our investment returns.
|
As a BDC with less than $100 million in annual investment income, we are not subject to the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). Some investors may find our securities less attractive because we are not subject to such auditor attestation requirement, which could lead to a less active and
more volatile trading market for our securities.
See Risk Factors and the other information included in this prospectus for a discussion
of factors you should carefully consider before deciding to invest in our securities.
Conflicts of Interest
Certain of our executive officers and directors, and the members of the investment committee of GECM, serve or may serve as officers, directors or principals
of entities, including ICAM or funds managed by ICAM, that operate in the same or related lines of business as GECC or of investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities that may
require them to devote time to services for other entities, which could interfere with the time available to provide services to us. Further, we may not be given the opportunity to participate in certain investments made by investment funds managed
by advisers affiliated with GECM and any advisers that may in the future become affiliated with GEG. GEG, the
4
parent company of GECM, currently holds approximately 14.5% of our outstanding common stock. Our participation in any negotiated co-investment
opportunities (other than those in which the only term negotiated is price) with investment funds managed by investment managers under common control with GECM is subject to compliance with the SEC order dated May 12, 2020 (Release No. 33864)
(the Exemptive Relief Order). See Risk FactorsThere are significant potential conflicts of interest that could impact our investment returns.
Although funds managed by GECM may have different primary investment objectives than us, they may from time to time invest in asset classes similar to those
we target. GECM is not restricted from raising an investment fund with investment objectives similar to ours. Any such funds may also, from time to time, invest in asset classes similar to those we target. GECM will endeavor to allocate investment
opportunities in a fair and equitable manner, and in any event consistent with any duties owed to us and such other funds. Nevertheless, it is possible that we may not be given the opportunity to participate in investments made by investment funds
managed by investment managers affiliated with GECM. We have received exemptive relief from the SEC that allows us to co-invest, together with other investment vehicles managed by GECM, in specific investment
opportunities in accordance with the terms of the Exemptive Relief Order.
We pay management and incentive fees to GECM and reimburse GECM for certain
expenses it incurs. In addition, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct
investments. GECMs management fee is based on a percentage of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds and other forms of leverage) and GECM may have conflicts of interest in
connection with decisions that could affect our total assets, such as decisions as to whether to incur indebtedness.
The part of the incentive fee
payable by us that relates to our pre-incentive fee net investment income is computed on income that may include interest that is accrued but not yet received in cash, but payment is made on such accrual only
once corresponding income is received in cash. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become
uncollectible, which would result in the reversal of any previously accrued and unpaid incentive fees.
The Investment Management Agreement renews for
successive annual periods if approved by our Board or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons.
However, we and GECM each have the right to terminate the agreement without penalty upon 60-days written notice to the other party. Moreover, conflicts of interest may arise if GECM seeks to change the
terms of the Investment Management Agreement, including, for example, the terms for compensation. Except in limited circumstances, any material change to the Investment Management Agreement must be submitted to our stockholders for approval under
the Investment Company Act, and we may from time to time decide it is appropriate to seek stockholder approval to change the terms of the agreement.
As a
result of the arrangements described above, there may be times when our management team has interests that differ from those of our stockholders, giving rise to a conflict.
Our stockholders may have conflicting investment, tax and other objectives with respect to their investments in us. The conflicting interests of individual
stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of our investments, and the timing of disposition of our investments. As a consequence, conflicts of interest may arise in
connection with decisions we make, including with respect to the nature or structuring of our investments, that may be more beneficial for one stockholder than for another stockholder, especially with respect to stockholders individual tax
situations. In selecting and
5
structuring investments appropriate for us, GECM will consider our investment and tax objectives and our stockholders, as a whole, not the investment, tax or other objectives of any stockholder
individually.
We may also have conflicts of interest arising out of the investment advisory activities of GECM. GECM may in the future manage other
investment funds, accounts or investment vehicles that invest or may invest in assets eligible for purchase by us. To the extent that we compete with entities managed by GECM or any of its affiliates for a particular investment opportunity, GECM
will allocate investment opportunities across the entities for which such opportunities are appropriate, consistent with (1) its internal investment allocation policies, (2) the requirements of the Investment Advisers Act of 1940, as
amended (the Advisers Act), and (3) restrictions under the Investment Company Act regarding co-investments with affiliates, including the requirements of the Exemptive Relief Order.
Our Corporate Information
Our offices are located at
3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410 and our phone number is (617) 375-3006. GECMs offices are located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410. We maintain
a website located at http://www.greatelmcc.com. Information on our website is not incorporated into or a part of this prospectus.
Recent Developments
Distribution
Our Board set the
distribution for the quarter ending September 30, 2024 at a rate of $0.35 per share. The full amount of each distribution will be from distributable earnings. The schedule of distribution payments will be established by GECC pursuant to
authority granted by our Board. The distribution will be paid in cash.
Notes Issuance
On July 9, 2024, we issued $22.0 million in additional aggregate principal amount of the Companys GECCI Notes. The GECCI Notes are an
additional issuance of the Companys 8.50% Notes due 2029, $34.5 million in aggregate principal amount of which has been previously issued and is outstanding.
6
FINANCIAL HIGHLIGHTS
Information regarding our financial highlights for the fiscal years ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016 is incorporated by
reference herein from our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February 29, 2024. Information regarding our financial highlights for the fiscal years ended December 31, 2023, 2022, 2021, 2020 and 2019 has been audited by [ ], an independent registered public accounting
firm whose report thereon is incorporated by reference in this prospectus under the heading Independent Registered Public Accounting Firm from our Annual Report on Form 10-K for the fiscal year
ended December 31, 2023, filed on February 29, 2024. Information regarding our financial highlights for the six months ended June 30, 2024
is incorporated by reference herein from our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, filed on August 1, 2024.
7
SENIOR SECURITIES
Information about our senior securities is shown in the following table as of the end of the audited fiscal years ended December 31, 2023, 2022, 2021,
2020, 2019, 2018, 2017 and 2016 and for the six months ended June 30, 2024. The report of [ ], our independent registered public accounting firm, related to our consolidated statements of assets and
liabilities, including the consolidated schedules of investments, as of December 31, 2023 and 2022, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended
December 31, 2023, and financial highlights for each of the five years in the period then ended, and the related notes, which include the senior securities table in Note 5 - Debt, is incorporated by reference in this prospectus
under the heading Independent Registered Public Accounting Firm. This information about our senior securities should be read in conjunction with our audited financial statements and related notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus. Dollar amounts are presented in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
Total Amount
Outstanding Exclusive
of Treasury Securities(1) |
|
|
Asset
Coverage Per Unit(2) |
|
|
Involuntary Liquidating
Preference Per Unit(3) |
|
|
Average
Market Value Per Unit(4) |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.25% Notes due 2020 |
|
$ |
33,646 |
|
|
$ |
6,168 |
|
|
|
N/A |
|
|
$ |
1.02 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.50% Notes due 2022 (GECCL Notes) |
|
$ |
32,631 |
|
|
$ |
5,010 |
|
|
|
N/A |
|
|
$ |
1.02 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCL Notes |
|
$ |
32,631 |
|
|
$ |
2,393 |
|
|
|
N/A |
|
|
$ |
1.01 |
|
GECCM Notes |
|
$ |
46,398 |
|
|
$ |
2,393 |
|
|
|
N/A |
|
|
$ |
0.98 |
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCL Notes |
|
$ |
32,631 |
|
|
$ |
1,701 |
|
|
|
N/A |
|
|
$ |
1.01 |
|
GECCM Notes |
|
$ |
46,398 |
|
|
$ |
1,701 |
|
|
|
N/A |
|
|
$ |
1.01 |
|
GECCN Notes |
|
$ |
45,000 |
|
|
$ |
1,701 |
|
|
|
N/A |
|
|
$ |
1.00 |
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCL Notes |
|
$ |
30,293 |
|
|
$ |
1,671 |
|
|
|
N/A |
|
|
$ |
0.89 |
|
GECCM Notes |
|
$ |
45,610 |
|
|
$ |
1,671 |
|
|
|
N/A |
|
|
$ |
0.84 |
|
GECCN Notes |
|
$ |
42,823 |
|
|
$ |
1,671 |
|
|
|
N/A |
|
|
$ |
0.84 |
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCM Notes |
|
$ |
45,610 |
|
|
$ |
1,511 |
|
|
|
N/A |
|
|
$ |
1.00 |
|
GECCN Notes |
|
$ |
42,823 |
|
|
$ |
1,511 |
|
|
|
N/A |
|
|
$ |
1.00 |
|
GECCO Notes |
|
$ |
57,500 |
|
|
$ |
1,511 |
|
|
|
N/A |
|
|
$ |
1.02 |
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCM Notes |
|
$ |
45,610 |
|
|
$ |
1,544 |
|
|
|
N/A |
|
|
$ |
0.99 |
|
GECCN Notes |
|
$ |
42,823 |
|
|
$ |
1,544 |
|
|
|
N/A |
|
|
$ |
1.00 |
|
GECCO Notes |
|
$ |
57,500 |
|
|
$ |
1,544 |
|
|
|
N/A |
|
|
$ |
1.00 |
|
Revolving Credit Facility |
|
$ |
10,000 |
|
|
$ |
1,544 |
|
|
|
N/A |
|
|
|
|
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCM Notes |
|
$ |
45,610 |
|
|
$ |
1,690 |
|
|
|
N/A |
|
|
$ |
0.99 |
|
GECCO Notes |
|
$ |
57,500 |
|
|
$ |
1,690 |
|
|
|
N/A |
|
|
$ |
0.96 |
|
GECCZ Notes |
|
$ |
40,000 |
|
|
$ |
1,690 |
|
|
|
N/A |
|
|
$ |
0.99 |
|
Revolving Credit Facility |
|
|
|
|
|
$ |
1,690 |
|
|
|
N/A |
|
|
|
|
|
June 30, 2024 (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCM Notes |
|
$ |
45,573 |
|
|
$ |
1,710 |
|
|
|
N/A |
|
|
$ |
1.00 |
|
GECCO Notes |
|
$ |
57,500 |
|
|
$ |
1,710 |
|
|
|
N/A |
|
|
$ |
0.98 |
|
GECCZ Notes |
|
$ |
40,000 |
|
|
$ |
1,710 |
|
|
|
N/A |
|
|
$ |
1.00 |
|
GECCI Notes |
|
$ |
34,500 |
|
|
$ |
1,710 |
|
|
|
N/A |
|
|
$ |
1.01 |
|
Revolving Credit Facility |
|
|
|
|
|
$ |
1,710 |
|
|
|
N/A |
|
|
|
|
|
(1) |
Total amount of each class of senior securities outstanding at the end of the period presented.
|
8
(2) |
Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all
liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.
|
(3) |
The amount to which such class of senior security would be entitled upon the voluntary liquidation of the
issuer in preference to any security junior to it. |
(4) |
The average market value per unit for the notes, as applicable, is based on the average daily prices of such
notes and is expressed per $1 of indebtedness. |
9
THE OFFERING
This section outlines the specific legal and financial terms of the Notes. You should read this section together with the more general description of the
Notes under the heading Description of the Notes before investing in the Notes. Capitalized terms used in this prospectus and not otherwise defined shall have the meanings ascribed to them in the indenture governing the Notes.
Issuer |
Great Elm Capital Corp. |
Title of the Securities |
% Notes due 2029 |
Initial Aggregate Principal Amount Offered |
$ |
Over-allotment Option |
The underwriters may also purchase from us up to an additional $ aggregate principal amount of Notes within 30 days of the date of this prospectus solely to cover over-allotments, if any. |
Initial Public Offering Price |
% of the aggregate principal amount of Notes. |
Principal Payable at Maturity |
100% of the aggregate principal amount; the principal amount of each Note will be payable on its stated maturity date at the office of the Trustee, Paying Agent, and Security Registrar for the Notes or at such other office in New York, New York
as we may designate. |
Type of Note |
Fixed-rate note |
Day Count Basis |
360-day year of twelve 30-day months |
Original Issue Date |
, 2024 |
Stated Maturity Date |
, 2029 |
Date Interest Starts Accruing |
, 2024 |
Interest Payment Dates |
Each March 31, June 30, September 30 and December 31, beginning , 2024. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next
business day and no additional interest will accrue as a result of such delayed payment. |
Interest Periods |
The initial interest period will be the period from, and including, , 2024, to, but excluding, the initial interest payment date, and the subsequent interest periods will be the periods from, and including, an interest
payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be. |
Regular Record Dates for Interest |
Each March 15, June 15, September 15 and December 15, beginning , 2024. |
10
Specified Currency |
United States Dollars |
Place of Payment |
New York, New York and/or such other places that may be specified in the indenture or a notice to holders. |
Ranking of Notes |
The Notes will be our direct unsecured obligations and will rank: |
|
|
|
pari passu, or equal, with our existing and future unsecured indebtedness, including, without limitation,
the $45.6 million in aggregate principal amount of 6.75% unsecured notes that mature on January 31, 2025 (the GECCM Notes), the $57.5 million in aggregate principal amount of 5.875% unsecured notes that mature on
June 30, 2026 (the GECCO Notes), the $40 million in aggregate principal amount of 8.75% unsecured notes that mature on September 30, 2028 (the GECCZ Notes) and the $56.5 million in aggregate principal
amount of 8.50% unsecured notes that mature on April 30, 2029 (the GECCI Notes); |
|
|
|
effectively subordinated to all of our existing and future secured indebtedness, including any amounts
outstanding under the Loan, Guarantee and Security Agreement, as amended (the Loan Agreement), with City National Bank (CNB) and any indebtedness that is initially unsecured to which we subsequently grant security, to the
extent of the value of the assets securing such indebtedness (as of June 30, 2024, there were no borrowings outstanding under the Loan Agreement); |
|
|
|
structurally subordinated to all existing and future indebtedness and other obligations of any of our
subsidiaries; and |
|
|
|
senior to any of our future indebtedness that expressly provides it is subordinated to the Notes.
|
|
Effective subordination means that in any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our
subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors. Structural subordination means that creditors of a
parent entity are subordinate to creditors of a subsidiary entity with respect to the subsidiarys assets. |
|
The indenture does not contain any provisions that give you protection in the event we issue a large amount of debt or we are acquired by another entity. |
Listing |
We intend to list the Notes on Nasdaq within 30 days of the original issue date under the symbol GECCH. |
Denominations |
We will issue the Notes in denominations of $25 and integral multiples of $25 in excess thereof. |
11
Business Day |
Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City are authorized or required by law or executive order to close. |
Optional Redemption |
The Notes may be redeemed in whole or in part at any time or from time to time at our option on or after , 2026 upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof,
at a redemption price equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption.
|
|
You may be prevented from exchanging or transferring the Notes when they are subject to redemption. In case any Notes are to be redeemed in part only, the redemption notice will provide that, upon surrender of such
Note, you will receive, without a charge, a new Note or Notes of authorized denominations representing the principal amount of your remaining unredeemed Notes. |
|
Any exercise of our option to redeem the Notes will be done in compliance with the Investment Company Act to the extent applicable. |
|
If we redeem only some of the Notes, Equiniti Trust Company, LLC (the Trustee) or, with respect to global securities, The Depositary Trust Company (DTC) will determine the method for selection of
the particular Notes to be redeemed, in accordance with the indenture governing the Notes, and in accordance with the rules of any national securities exchange or quotation system on which the Notes are listed, in such case, to the extent
applicable. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Notes called for redemption. |
Sinking Fund |
The Notes will not be subject to any sinking fund. |
|
A sinking fund is a fund established by us by periodically setting aside money for the gradual repayment of a debt. No amounts will be set aside for the express purpose of repayment of principal and any unpaid interest
on the Notes, and repayment of the Notes will depend upon our financial condition as of the maturity date of the Notes. |
Repayment at Option of Holders |
Holders will not have the option to have the Notes repaid prior to the stated maturity date. |
Defeasance |
The Notes are subject to defeasance by us. |
|
Defeasance means that, by depositing with the Trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on the Notes when due and satisfying any
|
12
|
additional conditions required under the indenture relating to the Notes, we will be deemed to have been discharged from our obligations under the indenture relating to the Notes. We are under no
obligation to exercise any rights of defeasance. |
Covenant Defeasance |
The Notes are subject to covenant defeasance by us. |
|
In the event of a covenant defeasance, upon depositing such funds and satisfying conditions similar to those for defeasance, we would be released from certain covenants under the indenture relating to the
Notes. The consequences to the holders of the Notes would be that, while they would no longer benefit from certain covenants under the indenture, and while the Notes could not be accelerated for any reason, the holders of Notes nonetheless would be
guaranteed to receive the principal and interest owed to them. We are under no obligation to exercise any rights of covenant defeasance. |
Form of Notes |
The Notes will be represented by global securities that will be deposited and registered in the name of DTC or its nominee. This means that, except in limited circumstances, you will not receive certificates for the Notes. Beneficial interests
in the Notes will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Investors may elect to hold interests in the Notes through either DTC, if they
are a participant, or indirectly through organizations that are participants in DTC. See Description of the Notes-Book-Entry Procedures. |
Trustee, Paying Agent, and Security Registrar |
Equiniti Trust Company, LLC |
Events of Default |
You will have rights if an Event of Default occurs with respect to the Notes and is not cured. |
|
The term Event of Default in respect of the Notes means any of the following: |
|
|
|
We do not pay the principal of any Note when due and payable. |
|
|
|
We do not pay interest on any Note when due, and such default is not cured within 30 days. |
|
|
|
We remain in breach of any other covenant with respect to the Notes for 60 days after we receive a written notice
of default stating we are in breach. The notice must be sent by either the Trustee or holders of at least 25% of the principal amount of the Notes. |
|
|
|
We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and in the case
of certain orders or decrees entered against us under any bankruptcy law, such order or decree remains undischarged or unstayed for a period of 90 days. |
13
|
|
|
If, pursuant to Sections 18(a)(1)(c)(ii) and 61 of the Investment Company Act, or any successor provisions
thereto of the Investment Company Act, on the last business day of each of 24 consecutive calendar months, the Notes have an asset coverage (as such term is used in the Investment Company Act) of less than 100%, as such obligation may be amended or
superseded but giving effect to any exemptive relief that may be granted to us by the SEC. |
Other Covenants |
In addition to any covenants described elsewhere in this prospectus, the following covenants shall apply to the Notes: |
|
|
|
We agree that for the period of time during which the Notes are outstanding, we will not violate, whether or not
we are subject to, Section 18(a)(1) (A) as modified by Sections 61(a)(1) and (2) of the Investment Company Act or any successor provisions thereto of the Investment Company Act, as such obligation may be amended or superseded but giving
effect to any exemptive relief that may be granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt securities, unless our asset coverage, as
defined in the Investment Company Act, equals at least 150% after such borrowings. See Risk FactorsRisks Relating to IndebtednessIncurring additional indebtedness could increase the risk in investing in our Company.
|
|
|
|
We agree that for the period of time during which the Notes are outstanding, we will not declare any dividend
(except a dividend payable in our stock), or declare any other distribution, upon a class of our capital stock, or purchase any such capital stock, unless, in every such case, at the time of the declaration of any such dividend or distribution, or
at the time of any such purchase, we have an asset coverage (as defined in the Investment Company Act) of at least the threshold specified in pursuant to Section 18(a)(1)(B) as modified by Sections 61(a)(1) and (2) of the Investment
Company Act or any successor provisions thereto of the Investment Company Act, as such obligation may be amended or superseded (regardless of whether we are subject thereto), after deducting the amount of such dividend, distribution or purchase
price, as the case may be, and giving effect, in each case, (i) to any exemptive relief granted to us by the SEC and (ii) to any no-action relief granted by the SEC to another BDC (or to us if we
determine to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by
Sections 61(a)(1) and (2) of the Investment Company Act, as such obligation may be amended or superseded, in order to maintain such BDCs status as a RIC under Subchapter M of the Code. |
|
|
|
If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act), to file any periodic reports with the |
14
|
SEC, we agree to furnish to holders of the Notes and the Trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90
days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in
accordance with GAAP. |
|
Notwithstanding the restrictions on indebtedness and dividends described above, the indenture under which the Notes will be issued may not prohibit us from paying distributions to our stockholders if we incur
indebtedness in excess of the limits set forth in Sections 61(a)(1) and (2) of the Investment Company Act or any successor provision if we determine that such indebtedness, which may include indebtedness under a bank credit facility, is not a
senior security for purposes of determining asset coverage under the Investment Company Act. |
Credit Rating Maintenance |
We have agreed with the underwriters to use commercially reasonable efforts to ensure the Notes remain rated by a rating organization designated from time to time by the SEC as being nationally recognized whose status has been confirmed by the
Securities Valuation Office of the National Association of Insurance Commissioners. |
Further Issuances |
We have the ability to issue additional debt securities under the indenture with terms different from the Notes and, without consent of the holders thereof, to reopen the Notes and issue additional Notes, provided that if any such additional
Notes are not fungible with the Notes initially offered hereby for U.S. federal income tax or securities law purposes, such additional Notes will have one or more separate CUSIP numbers. If we issue additional debt securities, these additional debt
securities could have a lien or other security interest that results in such debt securities being effectively senior to the Notes. |
Global Clearance and Settlement Procedures |
Interests in the Notes will trade in DTCs Same Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. None of GECC,
the Trustee or the Paying Agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. |
Use of Proceeds |
We expect to use the net proceeds of this offering for general corporate purposes, including making investments consistent with our investment
objectives. We may also elect to (i) redeem a portion of our outstanding $45.6 million aggregate principal amount of the GECCM Notes; (ii) redeem a portion of our outstanding $57.5 million
|
15
|
aggregate principal amount of the GECCO Notes; (iii) redeem a portion of our outstanding $40.0 million aggregate principal amount of the GECCZ Notes; (iv) repurchase a portion of our
outstanding $56.5 million aggregate principal amount of GECCI Notes; or (v) repay all or a portion of any borrowings outstanding under the Loan Agreement with proceeds of this offering. See Use of Proceeds.
|
16
RISK FACTORS
Investing in our securities involves a number of significant risks. Before you invest in the Notes, you should be aware of various risks, including those
described below. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide whether to make an investment in the Notes. These are not the only risks we face. The risks
described below, as well as additional risks and uncertainties presently unknown by us or currently not deemed significant, could negatively affect our business, financial condition and results of operations and the value of the Notes and our
ability to perform our obligations under the Notes. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our
business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case, our net asset value (NAV) and the trading price of our securities could decline, and you may lose all or part
of your investment.
Risk Factors Related to the Notes and the Offering
The Notes will be unsecured and therefore will be effectively subordinated to any secured indebtedness we have currently incurred or may incur in the
future.
The Notes will not be secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively
subordinated to any secured indebtedness we or our subsidiaries have currently incurred or may incur in the future, including under the Loan Agreement, and any indebtedness that is initially unsecured to which we subsequently grant security, to the
extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries
may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of June 30, 2024, there
were no borrowings outstanding under the Loan Agreement, leaving capacity of up to $25 million (subject to a borrowing base). In addition, we may request to increase the revolving line in an aggregate amount not to exceed $25 million,
subject to the sole discretion of CNB, all of which increase would be effectively senior to the Notes.
The Notes will be structurally subordinated
to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of GECC and not of any of our subsidiaries.
None of our subsidiaries are guarantors of the Notes and the Notes are not required to be guaranteed by any subsidiary we may acquire or create in the future. Any assets of our subsidiaries will not be directly available to satisfy the claims of our
creditors, including holders of the Notes. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such subsidiaries (and
therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to
any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities
of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. Although our subsidiaries currently do not have any indebtedness outstanding, they may incur substantial indebtedness in the future, all of which would
be structurally senior to the Notes.
The indenture under which the Notes will be issued contains limited protection for holders of the Notes.
The indenture under which the Notes will be issued offers limited protection to holders of the Notes. The terms of the indenture and the Notes do
not restrict our or any of our subsidiaries ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your
17
investment in the Notes. The indenture and the Notes will not place any restrictions on our or our subsidiaries ability to:
|
|
|
issue securities or otherwise incur additional indebtedness or other obligations, including (1) any
indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the
values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or
incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness
or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Sections 61(a)(1) and (2) of the Investment Company Act or any successor provisions; |
|
|
|
pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities
ranking junior in right of payment to the Notes, except that we have agreed that for the period of time during which the Notes are outstanding, we will not declare any dividend (except a dividend payable in our stock), or declare any other
distribution, upon a class of our capital stock, or purchase any such capital stock, unless, in every such case, at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, we have an asset coverage (as
defined in the Investment Company Act) of at least the threshold specified in pursuant to Section 18(a)(1)(B) as modified by Sections 61(a)(1) and (2) of the Investment Company Act or any successor provisions thereto of the Investment
Company Act, as such obligation may be amended or superseded (regardless of whether we are subject thereto), after deducting the amount of such dividend, distribution or purchase price, as the case may be, and giving effect, in each case,
(i) to any exemptive relief granted to us by the SEC and (ii) to any no-action relief granted by the SEC to another BDC (or to us if we determine to seek such similar
no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Sections 61(a)(1) and (2) of
the Investment Company Act, as such obligation may be amended or superseded, in order to maintain such BDCs status as a RIC under Subchapter M of the Code; |
|
|
|
sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or
substantially all of our assets); |
|
|
|
enter into transactions with affiliates; |
|
|
|
create liens (including liens on the stock of our subsidiaries) or enter into sale and leaseback transactions;
|
|
|
|
create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
|
Notwithstanding the restrictions on indebtedness and dividends described above, the indenture under which the Notes will be issued may
not prohibit us from paying distributions to our stockholders if we incur indebtedness in excess of the limits set forth in Sections 61(a)(1) and (2) of the Investment Company Act or any successor provision if we determine that such
indebtedness, which may include indebtedness under a bank credit facility, is not a senior security for purposes of determining asset coverage under the Investment Company Act.
In addition, the indenture will not require us to offer to purchase the Notes in connection with a change of control or any other event.
Furthermore, the terms of the indenture and the Notes do not protect holders of the Notes if we experience changes (including significant adverse changes) in
our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net
18
worth, revenues, income, cash flow, or liquidity other than as described under Description of the Notes-Events of Default. Any such changes could affect the terms of the Notes.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important
consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and
events of default. The indenture under which the Notes will be issued does not contain cross-default provisions. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of
the Notes.
An active trading market for the Notes may not develop, which could limit the market price of the Notes or your ability to sell them.
The Notes are a new issue of debt securities for which there currently is no trading market. We intend to list the Notes on Nasdaq within 30 days
of the original issue date under the symbol GECCH. We cannot assure you that the Notes will be listed or that an active trading market will develop for the Notes or that you will be able to sell your Notes. If the Notes are traded after
their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance
and prospects and other factors. Certain of the underwriters advised us that they intend to make a market in the Notes, but are not obligated to do so. The underwriters may discontinue any market-making in the Notes at any time at their sole
discretion. Accordingly, we cannot assure you that a liquid trading market will develop or be maintained for the Notes, that you will be able to sell your Notes at a particular time or that the price you receive when you sell will be favorable. To
the extent an active trading market does not develop or is not maintained, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite
period of time.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
Any default under the agreements governing our indebtedness, including our current indebtedness, which is composed of the GECCM Notes, the GECCO Notes, the
GECCZ Notes and the GECCI Notes, and any future indebtedness under the Loan Agreement or other agreements to which we may be a party, that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make
us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required
payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in
default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid
interest, the lenders under other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.
If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under other debt that we may incur in the future to avoid being in default. If we breach our covenants under other debt and seek a
waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under the other debt, the lenders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation.
If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing the debt. Because any future credit facilities would likely have customary cross-default provisions, if we have a default under the
terms of the Notes, the obligations under any future credit facility may be accelerated and we may be unable to repay or finance the amounts due.
19
We may be subject to certain corporate-level taxes which could adversely affect our cash flow and
consequently adversely affect our ability to make payments on the Notes.
We currently are a RIC under Subchapter M of the Code for U.S. federal
income tax purposes and intend to continue to qualify each year as a RIC. In order to qualify for tax treatment as a RIC, we generally must satisfy certain
source-of-income, asset diversification and distribution requirements. As long as we so qualify, we will not be subject to U.S. federal income tax to the extent that we
distribute investment company taxable income and net capital gain on a timely basis.
We may, nonetheless, be subject to certain corporate-level taxes
regardless of whether we continue to qualify as a RIC. Additionally, should we fail to qualify for RIC tax treatment, we would be subject to corporate-level taxes on all of our taxable income. The imposition of corporate-level taxes could adversely
affect our cash flow and consequently adversely affect our ability to make payments on the Notes.
A downgrade, suspension or withdrawal of the
credit rating assigned by a rating agency to us or our securities, if any, could cause the liquidity or market value of the Notes to decline significantly.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Additionally, private rating agencies may rate the Notes.
Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the Notes. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the Notes. Credit
ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. An explanation of the significance of ratings may be obtained from any such rating
agency. Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate. We do not undertake any obligation to maintain our credit ratings and
neither we nor any underwriter undertakes to advise holders of Notes of any changes in our credit ratings. There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will not be lowered or
withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit ratings, such as adverse changes in our company, so warrant.
The optional redemption provision may materially adversely affect your return on the Notes.
The Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option on or after, 2026. We may choose to redeem
the Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the
Notes being redeemed.
Our redemption right also may adversely impact your ability to sell the Notes as the optional redemption date or period approaches.
Risks Relating to Our Investments
Our
portfolio companies may experience financial distress and our investments in such companies may be restructured.
Our portfolio companies may
experience financial distress from time to time. Debt investments in such companies may cease to be income-producing, may require us to bear certain expenses to protect our investment and may subject us to uncertainty as to when, in what manner and
for what value such distressed debt will eventually be satisfied, including through liquidation, reorganization or bankruptcy. Any restructuring can fundamentally alter the nature of the related investment, and restructurings may not be subject to
the same underwriting standards that GECM employs in connection with the origination of an investment. In addition, we may write-down the value of our investment in any such company to reflect the status of financial distress and future prospects of
the business. Any restructuring could alter, reduce or delay the payment of interest or
20
principal on any investment, which could delay the timing and reduce the amount of payments made to us. For example, if an exchange offer is made or plan of reorganization is adopted with respect
to the debt securities we currently hold, there can be no assurance that the securities or other assets received by us in connection with such exchange offer or plan of reorganization will have a value or income potential similar to what we
anticipated when our original investment was made or even at the time of restructuring. Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments made to us, or we may receive equity
securities, which may require significantly more of our managements time and attention or carry restrictions on their disposition.
We face
increasing competition for investment opportunities. Limited availability of attractive investment opportunities in the market could cause us to hold a larger percentage of our assets in liquid securities until market conditions improve.
We compete for investments with other BDCs and investment funds (including specialty finance companies, private equity funds, mezzanine funds and
small business investment companies), as well as traditional financial services companies such as commercial banks and other sources of funding. Many of our competitors are substantially larger and have considerably greater financial, technical and
marketing resources than we do. For example, some competitors have a lower cost of capital and access to funding sources that are not available to us, including from the Small Business Administration. In addition, increased competition for
attractive investment opportunities allows debtors to demand more favorable terms and offer fewer contractual protections to creditors. Some of our competitors have higher risk tolerances or different risk assessments than we do. These
characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to offer. We may lose investment opportunities if we do not
match our competitors pricing, terms and structure. If we are forced to match our competitors pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss.
A significant part of our competitive advantage stems from the fact that the market for investments in lower middle-market companies is underserved by traditional commercial banks and other financing sources. A significant increase in the number
and/or the size of our competitors in this target market would force us to accept less attractive investment terms. GECM may, at its discretion, decide to pursue such opportunities if it believes that they are in our best interest; however, GECM may
decline to pursue available investment opportunities that, although otherwise consistent with our investment policies and objectives, in GECMs view present unacceptable risk/return profiles. Under such circumstances, we may hold a larger
percentage of our assets in liquid securities until market conditions improve in order to avoid having assets remain uninvested. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory
restrictions that the Investment Company Act imposes on us as a BDC. We believe that competitors will make first and second-lien loans with interest rates and returns that are lower than the rates and returns that we target. Therefore, we do not
seek to compete solely on the interest rates and returns offered to prospective portfolio companies.
We are invested in a limited number of
portfolio companies which may subject us to a risk of significant loss if one or more of these companies defaults on its obligations under any of its debt instruments.
Our portfolio is likely to hold a limited number of portfolio companies. Beyond the asset diversification requirements associated with qualifying as a RIC, we
do not have fixed guidelines for diversification, and our investments are likely to be concentrated in relatively few companies. As our portfolio is less diversified than the portfolios of some funds, we are more susceptible to failure if a single
investment fails. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.
21
Our portfolio is subject to change over time and may be concentrated in a limited number of industries,
which subjects us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.
Our portfolio is likely to be concentrated in a limited number of industries. A downturn in any particular industry in which we are invested could
significantly impact our aggregate realized returns. We may concentrate our investments in issuers that are part of the specialty finance industry, which represents approximately 15% of our total investments at fair value as of June 30, 2024.
Such concentration may change as a result of additional investments in, or divestments in, the specialty finance industry and/or fluctuations in the fair value of our investments in the specialty finance industry and other industries.
In addition, we may from time to time invest a relatively significant percentage of our portfolio in industries in which GECM does not necessarily have
extensive historical research coverage. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could
be affected adversely, which, in turn, could adversely affect our financial position and results of operations.
We are exposed to risks relating to
our specialty finance investments.
There is no guarantee that our controls to monitor and detect fraud with respect to our specialty finance
business will be effective and, as a result, we could face exposure to the credit risk associated with such investments. With respect to our asset-based loans, we generally limit our lending to a percentage of the customers borrowing base
assets that we believe can be readily liquidated in the event of financial distress of the borrower. With respect to our factoring products, we purchase the underlying invoices of our customers and become the direct payee under such invoices, thus
transferring the credit risk in such transactions from our customers to the underlying account debtors on such invoices. In the event one or more of our customers fraudulently represents the existence or valuation of borrowing base assets in the
case of an asset-based loan, or the existence or validity of an invoice we purchase in the case of a factoring transaction, we may advance more funds to such customer than we otherwise would and lose the benefit of the structural protections of our
products with respect to such advances. In such event we could be exposed to material additional losses with respect to such loans or factoring products.
Any unrealized losses we experience in our portfolio may be an indication of future realized losses, which could reduce our income available for
distribution.
As a BDC, we are required to carry our investments at fair value as determined in good faith by our Board. Decreases in the fair
values of our investments are recorded as unrealized depreciation. Any unrealized losses in our portfolio could be an indication of a portfolio companys inability to meet its repayment obligations to us with respect to the affected
investments. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our returns on equity.
We are subject to the risk that investments intended to be held over long periods are, instead, repaid prior to maturity. When this occurs, we
will generally reinvest these proceeds in temporary investments, repay debt or repurchase our common stock, depending on expected future investment opportunities. These temporary investments will typically have substantially lower yields than the
debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely
affected if one or more of our portfolio companies elects to prepay amounts owed by them.
22
We are not in a position to exercise control over certain of our portfolio companies or to prevent
decisions by management of such portfolio companies that could decrease the value of our investments.
Although we may be deemed, under the
Investment Company Act, to control certain of our portfolio companies because we own more than 25% of the common equity of those portfolio companies, we generally do not hold controlling equity positions in our portfolio companies. As a result, we
are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to
the lack of liquidity of the debt and equity investments that we hold in certain of our portfolio companies, we may not be able to dispose of such investments if we disagree with the actions of a portfolio company and may therefore suffer a decrease
in the value of such investments.
We have made, and in the future intend to pursue additional, investments in specialty finance businesses, which
may require reliance on the management teams of such businesses.
We have made, and may make additional, investments in companies and operating
platforms that originate and/or service commercial specialty finance businesses, including factoring, equipment finance, inventory leasing, merchant cash advance and hard money real estate lending and may also invest directly (including via
participation) in the investments made by such businesses. The form of investment may vary and may require reliance on management teams to provide the resources necessary to originate new receivables, manage portfolios of performing receivables, and
work-out portfolios of stressed or non-performing receivables.
Defaults by our portfolio companies may harm our operating results.
A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially,
termination of our investments and foreclosure on our secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio companys ability to meet its obligations under the debt or equity securities that we
hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of financial covenants, with a defaulting portfolio company. If any of these occur, it could materially and
adversely affect our operating results and cash flows.
If we invest in companies that experience significant financial or business difficulties, we
may be exposed to certain distressed lending risks.
As part of our lending activities, we may purchase notes or loans from companies that are
experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although the terms of such financing may result in significant financial returns to us, they
involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high. We cannot assure
you that we will correctly evaluate the value of the assets collateralizing our investments or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a portfolio company, we may
lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the investment advanced by us to the borrower.
Certain of the companies in which we invest may have difficulty accessing the capital markets to meet their future capital needs, which may limit their
ability to grow or to repay their outstanding indebtedness upon maturity.
Senior Secured Loans and Notes. There is a risk that the
collateral securing our loans and notes may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as
a result of the inability of the
23
portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio companys
financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan or note. Consequently, the fact that a loan or note is secured does not guarantee
that we will receive principal and interest payments according to the loans or notes terms, or at all, or that we will be able to collect on the loan or note should we be forced to enforce our remedies.
Mezzanine Loans. Our mezzanine debt investments will be generally subordinated to senior loans and will be generally unsecured. As such, other
creditors may rank senior to us in the event of an insolvency, which could likely result in a substantial or complete loss on such investment in the case of such insolvency. This may result in an above average amount of risk and loss of principal.
Unsecured Loans and Notes. We may invest in unsecured loans and notes. If the issuer defaults or has an event of insolvency, other creditors may
rank senior, be structurally senior or have lien protection that effectively renders their claim superior to our rights under our unsecured notes or loans, which could likely result in a substantial or complete loss on such investment in the case of
such insolvency. This may result in an above average amount of risk and loss of principal.
Unfunded Commitments. From time to time, we purchase
revolving credit loans with unfunded commitments in the ordinary course of business. In the event multiple borrowers of such revolving credit loans were to draw these commitments at the same time, including during a market downturn, it could have an
adverse impact on our cash reserves and liquidity position at a time when it may be more difficult for us to sell other assets.
Equity Investments.
When we invest in senior secured loans or mezzanine loans, we may acquire equity securities, including warrants, as well. In addition, we may invest directly in the equity securities of portfolio companies. The equity interests we receive may
not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we realize on the disposition of any equity interests may not be sufficient to offset any
other losses we experience.
In addition, investing in middle-market companies involves a number of significant risks, including:
|
|
|
these companies may have limited financial resources and may be unable to meet their obligations under their debt
securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; |
|
|
|
they typically have shorter operating histories, narrower product lines and smaller market shares than larger
businesses, which tend to render them more vulnerable to competitors actions and market conditions, as well as general economic downturns; |
|
|
|
they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the
death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on our stockholders; |
|
|
|
they generally have less predictable operating results, may from time to time be parties to litigation, may be
engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition,
our executive officers, directors and GECM may be named as defendants in litigation arising from our investments in the portfolio companies; |
|
|
|
they may have difficulty accessing the capital markets to meet future capital needs, which may limit their
ability to grow or to repay their outstanding indebtedness upon maturity; and |
24
|
|
|
a portion of our income may be non-cash income, such as contractual PIK
interest, which represents interest added to the debt balance and due at the end of the instruments term, in the case of loans, or issued as additional notes in the case of bonds. Instruments bearing PIK interest typically carry higher
interest rates as a result of their payment deferral and increased credit risk. When we recognize income in connection with PIK interest, there is a risk that such income may become uncollectable if the borrower defaults. |
Investing in middle-market companies involves a high degree of risk and our financial results may be affected adversely if one or more of our portfolio
investments defaults on its loans or notes or fails to perform as we expect.
A portion of our portfolio consists of debt and equity investments in
privately owned middle-market companies. Investing in middle-market companies involves a number of significant risks. Compared to larger publicly owned companies, these middle-market companies may be in a weaker financial position and experience
wider variations in their operating results, which may make them more vulnerable to economic downturns and other business disruptions.
Typically, these
companies need more capital to compete; however, their access to capital is limited and their cost of capital is often higher than that of their competitors. Our portfolio companies face intense competition from larger companies with greater
financial, technical and marketing resources and their success typically depends on the managerial talents and efforts of an individual or a small group of persons. Therefore, the loss of any of their key employees, as well as increased competition
in the labor market, could affect a portfolio companys ability to compete effectively and harm its financial condition. Further, some of these companies conduct business in regulated industries that are susceptible to regulatory changes. These
factors could impair the cash flow of our portfolio companies and result in other events, such as bankruptcy. These events could limit a portfolio companys ability to repay its obligations to us. Deterioration in a borrowers financial
condition and prospects may be accompanied by deterioration in the value of the loans collateral and the fair market value of the loan.
Most of the
loans in which we invest are not structured to fully amortize during their lifetime. In order to create liquidity to pay the final principal payment, borrowers typically must raise additional capital or sell their assets, which could potentially
result in the collateral being sold for less than its fair market value. If they are unable to raise sufficient funds to repay us, the loan will go into default, which will require us to foreclose on the borrowers assets, even if the loan was
otherwise performing prior to maturity. This will deprive us from immediately obtaining full recovery on the loan and prevent or delay the reinvestment of the loan proceeds in other, more profitable investments. Moreover, there are no assurances
that any recovery on such loan will be obtained. Most of these companies cannot obtain financing from public capital markets or from traditional credit sources, such as commercial banks. Accordingly, loans made to these types of companies pose a
higher default risk than loans made to companies that have access to traditional credit sources.
An investment strategy that includes privately
held companies presents challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
We invest in privately held companies. Generally, little public information exists about these companies, and we are required to rely on
GECMs or our specialty finance partners ability to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not
make a fully informed investment decision, and may lose money on our investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors. These factors could adversely affect our
investment returns as compared to companies investing primarily in the securities of public companies.
25
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such
companies.
Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or in some cases senior to, the
debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we
invested. Also, in insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in
full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we
invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability
claims.
Even though we may have structured investments as secured investments, if one of our portfolio companies were to go bankrupt, depending on
the facts and circumstances, and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such
subordinated claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where the senior investment is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender liability claims for actions taken by
us with respect to a borrowers business or instances where we exercise control over the borrower. It is possible that we could become subject to a lenders liability claim, including as a result of actions taken in rendering managerial
assistance or actions to compel and collect payments from the borrower outside the ordinary course of business. To the extent GECC provides significant managerial assistance to the portfolio companies, this risk is exacerbated.
Second priority liens on collateral securing loans and notes that we invest in may be subject to control by senior creditors with first priority liens.
If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
We may
purchase loans or notes that are secured by a second priority security interest in the same collateral pledged by a portfolio company to secure senior debt owed by the portfolio company to commercial banks or other traditional lenders. Often the
senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lenders consent. Prior to and as a condition of permitting the portfolio company to borrow money from us
secured by the same collateral pledged to the senior lender, the senior lender will require assurances that it will control the disposition of any collateral in the event of bankruptcy or other default. In many such cases, the senior lender will
require us or the indenture trustee to enter into an intercreditor agreement prior to permitting the portfolio company to borrow. Typically the intercreditor agreements expressly subordinate our second lien debt instruments to those held
by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other
collection proceedings; (3) the amendment of any collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement. Because of the control we may
cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans and notes.
The reference rates for our loans may be manipulated or changed.
Actions by market participants or by government agencies, including central banks, may affect prevailing interest rates and the reference rates for loans to
our portfolio companies. Actions by governments may create inflation in
26
asset prices that over-state the value of our portfolio companies and their assets and drive cycles of capital market activities (like mergers and acquisitions) at a rate and at prices in excess
of those that would prevail in an unaffected market.
We cannot assure you that actions by market participants or by government agencies will not
materially adversely affect trading markets or our portfolio companies or us or our and our portfolio companies respective business, prospects, financial condition or results of operations.
We may mismatch the interest rate and maturity exposure of our assets and liabilities.
Our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. We
cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which could reduce our net investment
income. Typically, our fixed-rate investments are financed primarily with equity and/or long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include
various interest rate hedging activities to the extent permitted by the Investment Company Act. If we do not implement these techniques properly, we could experience losses on our hedging positions, which could be material.
If interest rates fall, our portfolio companies are likely to refinance their obligations to us at lower interest rates. Our proceeds from these refinancings
are likely to be reinvested at lower interest rates than our refinanced loans resulting in a material decrease in our net investment income.
We may
not realize gains from our equity investments.
Our portfolio may include common stock, warrants or other equity securities. We may also take back
equity securities in exchange for our debt investments in workouts of troubled investments. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability
to access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may
from time to time make non-control, equity investments in portfolio companies. The equity interests we invest in may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able
to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company
does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We may seek puts or similar rights to give it the right to sell our equity securities
back to the portfolio company. We may be unable to exercise these put rights if the issuer is in financial distress or otherwise lacks sufficient liquidity to purchase the underlying equity investment.
Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates investments in debt securities of foreign companies. Investing in foreign companies may expose us to additional risks not
typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than
is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and
auditing standards and greater price volatility. Such investments will generally not represent qualifying assets under Section 55(a) of the Investment Company Act.
27
Any investments denominated in a foreign currency will be subject to the risk that the value of a particular
currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies,
long-term opportunities for investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we offer no assurance that we will, in fact, hedge currency risk, or that if it does, such
strategies will be effective.
We may hold a significant portion of our portfolio assets in cash, cash equivalents, money market mutual funds, U.S.
government securities, repurchase agreements and high-quality debt instruments maturing in one year or less, which may have a negative impact on our business and operations.
We may hold a significant portion of our portfolio assets in cash, cash equivalents, money market mutual funds, U.S. government securities, repurchase
agreements and high-quality debt instruments maturing in one year or less for many reasons, including, among others:
|
|
|
as part of GECMs strategy in order to take advantage of investment opportunities as they arise;
|
|
|
|
when GECM believes that market conditions are unfavorable for profitable investing; |
|
|
|
when GECM is otherwise unable to locate attractive investment opportunities; |
|
|
|
as a defensive measure in response to adverse market or economic conditions; or |
|
|
|
to meet RIC qualification requirements. |
We may also be required to hold higher levels of cash, money market mutual funds or other short-term securities in order to pay our expenses or make
distributions to stockholders in the ordinary course of business given the relatively high percentage of our total investment income represented by non-cash income, including PIK income and accretion of
original issue discount (OID). During periods when we maintain exposure to cash, money market mutual funds, or other short-term securities, we may not participate in market movements to the same extent that it would if we were fully
invested, which may have a negative impact on our business and operations and, accordingly, our returns may be reduced.
Risks Relating to Our Business
and Structure
Capital markets experience periods of disruption and instability. These market conditions have historically materially and
adversely affected debt and equity capital markets in the United States and abroad, which had, and may in the future have, a negative impact on our business and operations.
The global capital markets are subject to disruption which may result from, among other things, a lack of liquidity in the debt capital markets, significant
write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market or the failure of major financial institutions. Despite actions of the U.S. federal government
and foreign governments, such events have historically materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in
particular. Equity capital may be difficult to raise because, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV. In addition, our ability to incur indebtedness or issue preferred stock is
limited by applicable regulations such that our asset coverage, as defined in the Investment Company Act, must equal at least 150% immediately after each time we incur indebtedness or issue preferred stock. The debt capital that may be available, if
at all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations.
Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness, and any failure to do so could have a
material adverse effect on our business. The expected illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than the value at which we have recorded our
investments.
28
In addition, significant changes in the capital markets, including recent volatility and disruption, have had,
and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes,
could have a material adverse impact on our business, financial condition and results of operations.
We may experience fluctuations in our
quarterly results.
Our quarterly operating results will fluctuate due to a number of factors, including the level of expenses, variations in and
the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. Our quarterly operating results will also fluctuate due to a number of other
factors, including the interest rates payable on the debt investments we make and the default rates on such investments. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future
periods.
Our success depends on the ability of our investment adviser to attract and retain qualified personnel in a competitive environment.
Our growth requires that GECM retain and attract new investment and administrative personnel in a competitive market. GECMs ability to
attract and retain personnel with the requisite credentials, experience and skills depends on several factors, including, but not limited to, its ability to offer competitive wages, benefits and professional growth opportunities. Many of the
entities, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, which compete for experienced personnel with GECM, have greater resources than GECM.
Our ability to grow depends on our ability to raise equity capital and/or access debt financing.
We intend to periodically access the capital markets to raise cash to fund new investments. We expect to continue to be treated as a RIC and operate in a
manner so as to qualify for the U.S. federal income tax treatment applicable to RICs. Among other things, in order to maintain our RIC status, we must distribute to our stockholders on a timely basis generally an amount equal to at least 90% of our
investment company taxable income (as defined by the Code), and, as a result, such distributions will not be available to fund new investments. As a result, we must borrow from financial institutions or issue additional securities to fund our
growth. Unfavorable economic or capital market conditions, including interest rate volatility, may increase our funding costs, limit our access to the capital markets or could result in a decision by lenders not to extend credit to us. There has
been and will continue to be uncertainty in the financial markets in general. An inability to successfully access the capital or credit markets for either equity or debt could limit our ability to grow our business and fully execute our business
strategy and could decrease our earnings, if any.
If the fair value of our assets declines substantially, we may fail to maintain the asset coverage
ratios imposed upon us by the Investment Company Act or our lenders. Any such failure, or a tightening or general disruption of the credit markets, would affect our ability to issue senior securities, including borrowings, and pay dividends or other
distributions, which could materially impair our business or our ability to qualify for RIC tax treatment under the Code.
In addition, with certain
limited exceptions we are only allowed to borrow or issue debt securities or preferred stock such that our asset coverage, as defined in the Investment Company Act, equals at least 150% immediately after such borrowing, which, in certain
circumstances, may restrict our ability to borrow or issue debt securities or preferred stock. The amount of leverage that we may employ will depend on GECMs and our Boards assessments of market and other factors at the time of any
proposed borrowing or issuance of debt securities or preferred stock. We cannot assure you that we will be able to obtain lines of credit at all or on terms acceptable to us.
29
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
The economy is subject to periodic downturns that, from time to time, result in recessions or more serious adverse macroeconomic events. Our
portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay loans or notes during these periods. Therefore, our non-performing assets may increase and the value of our
portfolio may decrease during these periods as we are required to record the market value of our investments. Adverse economic conditions may also decrease the value of collateral securing some of our investments and the value of our equity
investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital
markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.
A portfolio companys failure to satisfy financial or operating covenants in its agreements with us or other lenders could lead to defaults and,
potentially, acceleration of the time when the debt obligations are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio companys ability to meet its obligations
under the debt that we hold. We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, if one of our portfolio companies were to go bankrupt,
depending on the facts and circumstances, including the extent to which we actually provided significant managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt
holding and subordinate all or a portion of our claim to that of other creditors.
Global economic, political and market conditions may adversely
affect our business, results of operations and financial condition, including our revenue growth and profitability.
The condition of the global
financial market, as well as various social and political tensions in the United States and around the world, may contribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, may cause economic
uncertainties or deterioration in the United States and worldwide, and may subject our investments to heightened risks.
These heightened risks could also
include to: increased risk of default; greater social, trade, economic and political instability (including the risk of war or terrorist activity); greater governmental involvement in the economy; greater governmental supervision and regulation of
the securities markets and market participants resulting in increased expenses related to compliance; greater fluctuations in currency exchange rates; controls or restrictions on foreign investment and/or trade, capital controls and limitations on
repatriation of invested capital and on the ability to exchange currencies; inability to purchase and sell investments or otherwise settle transactions (i.e., a market freeze); and unavailability of hedging techniques. During times of political
uncertainty and/or change, global markets often become more volatile. Markets experiencing political uncertainty and/or change could have substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates typically have negative effects on such countries economies and markets. Tax laws could change materially, and any changes in tax laws could have an unpredictable effect on us, our investments and our investors.
Our debt investments may be risky, and we could lose all or part of our investments.
Our debt portfolios, including those held by our specialty finance companies, are subject to credit and interest rate risk. Credit risk refers to
the likelihood that an issuer will default in the payment of principal and/or interest on an instrument. Financial strength and solvency of an issuer are the primary factors influencing credit risk. In addition, subordination, lack or inadequacy of
collateral or credit enhancement for a debt instrument may affect its credit risk. Credit risk may change over the life of an instrument, and securities which are rated by rating agencies are often reviewed and may be subject to downgrade.
Interest rate risk refers to the risks associated with market changes
30
in interest rates. Factors that may affect market interest rates include, without limitation, inflation, slow or stagnant economic growth or recession, unemployment, money supply and the monetary
policies of the Federal Reserve Board and central banks throughout the world, international disorders and instability in domestic and foreign financial markets. The Federal Reserve Board has since raised the federal funds rate and may raise,
maintain or lower the federal funds rate in the future. These developments, along with domestic and international debt and credit concerns, could cause interest rates to be volatile, which may negatively impact our ability to access the debt markets
on favorable terms. Interest rate changes may also affect the value of a debt instrument indirectly (especially in the case of fixed rate securities) and directly (especially in the case of instruments whose rates are adjustable). In general, rising
interest rates will negatively impact the price of a fixed-rate debt instrument and falling interest rates will have a positive effect on price. Adjustable rate instruments may also react to interest rate changes in a similar manner although
generally to a lesser degree (depending, however, on the characteristics of the reset terms, including, among other factors, the index chosen, frequency of reset and reset caps or floors). Interest rate sensitivity is generally more pronounced and
less predictable in instruments with uncertain payment or prepayment schedules. We expect that we will periodically experience imbalances in the interest rate sensitivities of our assets and liabilities and the relationships of various interest
rates to each other. In a changing interest rate environment, we may not be able to manage this risk effectively, which in turn could adversely affect our performance.
We may acquire other funds, portfolios of assets or pools of debt and those acquisitions may not be successful.
We may acquire other funds, portfolios of assets or pools of debt investments. Any such acquisition program has a number of risks, including among others:
|
|
|
managements attention will be diverted from running our existing business by efforts to source, negotiate,
close and integrate acquisitions; |
|
|
|
our due diligence investigation of potential acquisitions may not reveal risks inherent in the acquired business
or assets; |
|
|
|
we may over-value potential acquisitions resulting in dilution to stockholders, incurrence of excessive
indebtedness, asset write downs and negative perception of our common stock; |
|
|
|
the interests of our existing stockholders may be diluted by the issuance of additional shares of our common
stock or preferred stock; |
|
|
|
we may borrow to finance acquisitions, and there are risks associated with borrowing as described in this
prospectus; |
|
|
|
GECM has an incentive to increase our assets under management in order to increase its fee stream, which may not
be aligned with your interests; |
|
|
|
we and GECM may not successfully integrate any acquired business or assets; and |
|
|
|
GECM may compensate the existing managers of any acquired business or assets in a manner that results in the
combined company taking on excessive risk. |
Our failure to maintain our status as a BDC would reduce our operating flexibility.
We elected to be regulated as a BDC under the Investment Company Act. The Investment Company Act imposes numerous constraints on the operations of
BDCs and their external advisers. For example, BDCs are required to invest at least 70% of their gross assets in specified types of securities, primarily in private companies or illiquid U.S. public companies below a certain market capitalization,
cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on BDCs by the Investment Company Act could cause the SEC to
bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our voting securities (as defined under the Investment Company Act), we may elect to withdraw our
31
status as a BDC. If we decide to withdraw our BDC election, or if we otherwise fail to qualify, or to maintain our qualification, as a BDC, we may be subject to substantially greater regulation
under the Investment Company Act as a closed-end management investment company. Compliance with such regulations would significantly decrease our operating flexibility and would significantly increase our
costs of doing business.
Regulations governing our operations as a BDC affect our ability to raise additional capital and the way in which we do
so. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
We may
issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, referred to collectively as senior securities, up to the maximum amount permitted under the Investment Company Act. Under the
provisions of the Investment Company Act applicable to BDCs, we are permitted to issue senior securities (e.g., notes and preferred stock) in amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 150%
of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to
sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available
for distributions to our stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
Our Board may change our investment objectives, operating policies and strategies without prior notice or stockholder approval, the effects of which may
be adverse.
Our Board has the authority to modify or waive our investment objectives, current operating policies, investment criteria and
strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, NAV and operating results.
We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash representing
such income.
For U.S. federal income tax purposes, we may be required to include in income certain amounts before our receipt of the cash
attributable to such amounts, such as OID on a debt instrument, which generally is required to be taken into account for U.S. federal income tax purposes throughout the term of the debt instrument on a constant yield basis. Also, we may be required
to include in income other amounts that we will not receive in cash, including, for example, non-cash income from PIK securities, deferred payment securities and hedging and foreign currency transactions. In
addition, we intend to seek debt investments in the secondary market that represent attractive risk-adjusted returns, taking into account both stated interest rates and current market discounts to par value. Such market discount may be included in
income before we receive any corresponding cash payments. Certain of our debt investments earn PIK interest, resulting in income without receipt of cash.
Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the U.S. federal income tax
requirement to distribute generally an amount equal to at least 90% of our investment company taxable income to maintain our tax treatment as a RIC. Accordingly, we may have to sell some of our investments at times we would not consider
advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify as a RIC and thus be subject to
additional corporate-level income taxes.
However, in order to satisfy the Annual Distribution Requirement (as defined below) for a RIC, we may, but have
no current intention to, declare a large portion of a dividend in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a
dividend for U.S. federal income tax purposes.
32
We may expose ourselves to risks associated with the inclusion of
non-cash income prior to receipt of cash.
To the extent we invest in OID debt instruments or debt
instruments that result in OID for U.S. federal income tax purposes, including PIK loans, zero coupon bonds, and debt securities with attached warrants, investors will be exposed to the risks associated with the inclusion of such non-cash income in taxable and accounting income prior to receipt of cash.
The deferred nature of payments on PIK loans
creates specific risks. Interest payments deferred on a PIK loan are subject to the risk that the borrower may default when the deferred payments are due in cash at the maturity of the loan. Since the payment of PIK income does not result in cash
payments to us, we may also have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations (and thus hold higher cash or cash equivalent balances, which
could reduce returns) to pay our expenses or make distributions to stockholders in the ordinary course of business, even if such loans do not default. An election to defer PIK interest payments by adding them to principal increases our gross assets
and, thus, increases future base management fees to GECM and, because interest payments will then be payable on a larger principal amount, the PIK election also increases GECMs future Income Incentive Fees at a compounding rate. The deferral
of interest on a PIK loan increases its loan-to-value ratio, which is a measure of the riskiness of a loan.
More generally, market prices of OID instruments are more volatile because they are impacted to a greater extent by interest rate changes than instruments
that pay interest periodically in cash. Ordinarily, OID would also create the risk of non-refundable cash payments to GECM based on non-cash accruals that may never be
realized; however, this risk is mitigated since the Investment Management Agreement requires GECM to defer any incentive fees on Accrued Unpaid Income (as defined below), the effect of which is that Income Incentive Fees otherwise payable with
respect to Accrued Unpaid Income become payable only if, as, when and to the extent cash is received by us or our consolidated subsidiaries in respect thereof.
Additionally, as described above, we may be required to make distributions of non-cash income to stockholders without
receiving any cash so as to satisfy certain requirements necessary to maintain our RIC status for U.S. federal income tax purposes. Such required cash distributions may have to be paid from the sale of our assets without investors being given any
notice of this fact. The required recognition of non-cash income, including OID, for U.S. federal income tax purposes may have a negative impact on liquidity because it represents a non-cash component of our taxable income that must, nevertheless, be distributed to investors to avoid us being subject to corporate level taxation.
We may choose to pay distributions in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive.
We may distribute a portion of our taxable distributions in the form of shares of our stock. In accordance with certain applicable U.S. Treasury
regulations and other related administrative pronouncements issued by the Internal Revenue Service (the IRS), a RIC may be eligible to treat a distribution of its own stock as fulfilling its RIC distribution requirements if each
stockholder is permitted to elect to receive his or her entire distribution in either cash or stock of the RIC, subject to the satisfaction of certain guidelines. If too many stockholders elect to receive cash, each stockholder electing to receive
cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the distribution paid in stock generally will be
equal to the amount of cash that could have been received instead of stock. Taxable stockholders receiving such distributions will be required to include the full amount of the distribution as ordinary income (or as long-term capital gain to the
extent such distribution is properly reported as a capital gain dividend) to the extent of their share of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be subject to tax
with respect to such distributions in excess of any cash received. If a U.S. stockholder sells the stock it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with
33
respect to the distribution, depending on the market price of our stock at the time of the sale, which would result in a capital loss the deductibility of which is subject to limitations.
Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distributions, including in respect of all or a portion of such distribution that is payable in
stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on distributions, such sales may put downward pressure on the trading price of our stock.
We may expose our self to risks if we engage in hedging transactions.
If we engage in hedging transactions, we may expose our self to risks associated with such transactions. We may utilize instruments such as forward contracts,
currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline
in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. Such hedging transactions may also limit the opportunity for gain
if the values of the underlying portfolio positions increase. It may not be possible to hedge against an exchange rate or interest rate fluctuation that is generally anticipated because we may not be able to enter into a hedging transaction at an
acceptable price. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged.
Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge
fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not
related to currency fluctuations.
We will be subject to corporate-level U.S. federal income tax if we are unable to qualify as a RIC under the
Code.
No assurance can be given that we will be able to qualify for and maintain RIC status. To maintain RIC tax treatment under the Code, we must
meet certain annual distribution, source of income and asset diversification requirements.
The Annual Distribution Requirement (as defined below) for a
RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we may use debt
financing, we may be subject to asset coverage ratio requirements under the Investment Company Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to
satisfy the distribution requirement. If we are unable to make the required distributions, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.
The source of income requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of
stock or securities or similar sources.
The asset diversification requirement will be satisfied if we meet asset diversification requirements at the end
of each quarter of our taxable year. Failure to meet the asset diversification requirements could result in us having to dispose of investments quickly in order to prevent the loss of RIC status. Because most of our investments will be relatively
illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses. Further, the illiquidity of our investments may make them difficult or impossible to dispose of in a timely manner.
If we fail to qualify for RIC tax treatment for any reason and become subject to corporate U.S. federal income tax, the resulting corporate taxes could
substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions and the value of our shares of common stock.
34
We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any
such legislation could adversely affect our business.
Legislative or other actions relating to taxes could have a negative effect on us. The rules
dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. We cannot predict with certainty how any changes in the tax
laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our
ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. Investors are urged to consult with their tax adviser regarding tax
legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our securities.
The incentive
fee structure and the formula for calculating the management fee may incentivize GECM to pursue speculative investments, advise us to use leverage when it may be unwise to do so, or advise us to refrain from reducing debt levels when it would
otherwise be appropriate to do so.
The incentive fee payable by us to GECM creates an incentive for GECM to pursue investments on our behalf that
are riskier or more speculative than would be the case in the absence of such a compensation arrangement. The incentive fee payable to GECM is calculated based on a percentage of our return on invested capital. In addition, GECMs base
management fee is calculated on the basis of our gross assets, including assets acquired through the use of leverage. This may encourage GECM to use leverage to increase the aggregate amount of and the return on our investments, even when it may not
be appropriate to do so, and to refrain from reducing debt levels when it would otherwise be appropriate to do so. The use of leverage increases our likelihood of default, which would impair the value of our securities. In addition, GECM will
receive the incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there will be no hurdle rate applicable to the portion of the incentive fee based on net capital
gains. As a result, GECM may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in us investing in more speculative securities
than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.
We may invest in the securities
and instruments of other investment companies, including private funds, and we will bear our ratable share of any such investment companys expenses, including management and performance fees. We will also remain obligated to pay management and
incentive fees to GECM with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our stockholders will bear its share of the management and incentive fee
payable to GECM, as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest.
In
addition, if we purchase our debt instruments and such purchase results in our recording a net gain on the extinguishment of debt for financial reporting and tax purposes, such net gain will be included in our
pre-incentive fee net investment income for purposes of determining the Income Incentive Fee payable to GECM under the Investment Management Agreement.
Finally, the incentive fee payable by us to GECM also may create an incentive for GECM to invest on our behalf in instruments that have a deferred interest
feature such as investments with PIK provisions. Under these investments, we would accrue the interest over the life of the investment but would typically not receive the cash income from the investment until the end of the term or upon the
investment being called by the issuer. Our net investment income used to calculate the income portion of our incentive fee, however, includes accrued interest. The portion of the incentive fee that is attributable to deferred interest, such as PIK,
will not be paid to GECM until we receive such interest in cash. Even though such portion of the incentive fee will be paid only when the
35
accrued income is collected, the accrued income is capitalized and included in the calculation of the base management fee. In other words, when deferred interest income (such as PIK) is accrued,
a corresponding Income Incentive Fee (if any) is also accrued (but not paid) based on that income. After the accrual of such income, it is capitalized and added to the debt balance, which increases our total assets and thus the base management fee
paid following such capitalization. If any such interest is reversed in connection with any write-off or similar treatment of the investment, we will reverse the Income Incentive Fee accrual and an Income
Incentive Fee will not be payable with respect to such uncollected interest. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the
incentive fee will become uncollectible, which would result in the reversal of any previously accrued and unpaid incentive fees.
A general increase
in interest rates will likely have the effect of making it easier for GECM to receive incentive fees, without necessarily resulting in an increase in our net earnings.
Given the structure of the Investment Management Agreement, any general increase in interest rates will likely have the effect of making it easier for GECM to
meet the quarterly hurdle rate for payment of Income Incentive Fees under the Investment Management Agreement without any additional increase in relative performance on the part of GECM. In addition, in view of the
catch-up provision applicable to Income Incentive Fees under the Investment Management Agreement, GECM could potentially receive a significant portion of the increase in our investment income attributable to
such a general increase in interest rates. If that were to occur, our increase in net earnings, if any, would likely be significantly smaller than the relative increase in GECMs Income Incentive Fee resulting from such a general increase in
interest rates.
GECM has the right to resign on 60 days notice, and we may not be able to find a suitable replacement within that time,
resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
GECM has the
right, under the Investment Management Agreement, to resign at any time upon not more than 60 days written notice, whether we have found a replacement or not. If GECM resigns, we may not be able to find a new investment adviser or hire
internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption; our financial
condition, business and results of operations, as well as our ability to pay distributions are likely to be adversely affected; and the market price of our common stock may decline. In addition, the coordination of our internal management and
investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our investment adviser and its affiliates. Even if we are able to retain
comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective and current investment portfolio may result in additional costs and time delays that may adversely
affect our financial condition, business and results of operations.
We incur significant costs as a result of being a publicly traded company.
As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements
applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010 and other rules
implemented by our government.
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our
business strategy.
We and our portfolio companies are subject to applicable local, state and federal laws and regulations. New legislation may be
enacted or new interpretations, rulings or regulations could be adopted, including those
36
governing the types of investments we are permitted to make, any of which could harm us and you, potentially with retroactive effect. Additionally, any changes to the laws and regulations
governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourself of new or different opportunities. Such changes could result in material differences to the strategies and plans and
may result in our investment focus shifting from the areas of expertise of GECM to other types of investments in which the investment committee may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a
material adverse effect on our results of operations.
There is, and will be, uncertainty as to the value of our portfolio investments.
Under the Investment Company Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair
value as determined by us in accordance with our written valuation policy, with our Board having final responsibility for overseeing, reviewing and approving, in good faith, our estimate of fair value. Often, there will not be a public market for
the securities of the privately held companies in which we invest. As a result, we will value these securities on a quarterly basis at fair value based on input from management, third-party independent valuation firms and our audit committee, with
the oversight, review and approval of our Board. We consult with an independent valuation firm in valuing all securities in which we invest classified as Level 3, other than investments which are less than 1% of NAV as of the
applicable quarter end.
The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are subjective and
dependent on a valuation process approved and overseen by our Board. Factors that may be considered in determining the fair value of our investments include, among others, estimates of the collectability of the principal and interest on our debt
investments and expected realization on our equity investments, as well as external events, such as private mergers, sales and acquisitions involving comparable companies. Because such valuations, and particularly valuations of private securities
and private companies and small cap public companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. Our determinations of fair value may differ materially from the values that would have been
used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our NAV on a given date to materially misstate the value that we may ultimately realize on one or more of our investments. As a
result, investors purchasing our securities based on an overstated NAV would pay a higher price than the value of our investments might warrant. Conversely, investors selling securities during a period in which the NAV understates the value of our
investments will receive a lower price for their securities than the value of our investments might otherwise warrant.
Our financial condition and
results of operations depend on our ability to effectively manage and deploy capital.
Our ability to achieve our investment objective depends on
our ability to effectively manage and deploy capital, which depends, in turn, on GECMs ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that meet our investment criteria.
Accomplishing our investment objective on a cost-effective basis is largely a function of GECMs handling of the investment process, its ability to
provide competent, attentive and efficient services and its access to investments offering acceptable terms. In addition to monitoring the performance of our existing investments, GECM may also be called upon, from time to time, to provide
managerial assistance to some of our portfolio companies. These demands on their time may distract them or slow the rate of investment.
Even if we are
able to grow and build out our investment operations, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations and prospects. Our results of operations will depend
on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets and economic conditions.
37
We may hold assets in cash or short-term treasury securities in situations where we or GECM expects downward
pricing in the high yield market. Our strategic decision not to be fully invested may, from time to time, reduce funds available for distribution and cause downward pressure on the price of our common stock.
The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity
planning, could impair our ability to conduct business effectively.
The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an
epidemic or pandemic, an industrial accident, a terrorist attack or war, events anticipated or unanticipated in our disaster recovery systems, or a failure in externally provided data systems, could have an adverse effect on our ability to conduct
business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage and retrieval systems or destroy data. Our ability to effectively conduct our business
could be severely compromised. The financial markets we operate in are dependent upon third-party data systems to link buyers and sellers and provide pricing information.
We depend heavily upon computer systems to perform necessary business functions. Our computer systems could be subject to cyber-attacks and unauthorized
access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we expect to experience threats to our data and systems, including malware and computer virus attacks,
unauthorized access, system failures and disruptions. These failures and disruptions may be more likely to occur as a result of employees working remotely. If one or more of these events occurs, it could potentially jeopardize the confidential,
proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial
losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss, respectively.
Terrorist attacks, acts of war,
natural disasters or an epidemic or pandemic may affect the market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition.
Terrorist acts, acts of war, natural disasters or an epidemic or pandemic may disrupt our operations, as well as the operations of the businesses in which we
invest. Such acts, including, for example, Russias February 2022 invasion of Ukraine and conflicts in the Middle East, have created, and continue to create, economic and political uncertainties and have contributed to global economic
instability. Additionally, a public health epidemic or pandemic, poses the risk that we, GECM, our portfolio companies or other business partners may be prevented from conducting business activities for an indefinite period of time, including due to
shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that any such event could have on our business, the continued occurrence thereof and the measures taken by the
governments of countries affected in response thereto could disrupt the supply chain and the manufacture or shipment of products and adversely impact our business, financial condition or results of operations.
Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional
uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and
natural disasters are generally uninsurable.
There are significant potential conflicts of interest that could impact our investment returns.
Certain of our executive officers and directors, and members of the investment committee of GECM, serve or may serve as officers, directors or
principals of other entities, including ICAM or funds managed by ICAM, and affiliates of GECM and investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not
be in our or our stockholders best interests or that
38
may require them to devote time to services for other entities, which could interfere with the time available to provide services to us. For example, Matt Kaplan, our President and Chief
Executive Officer, is a portfolio manager at GECM and a member of its investment committee.
Although funds managed by GECM may have different primary
investment objectives than we do, they may from time to time invest in asset classes similar to those targeted by us. GECM is not restricted from raising an investment fund with investment objectives similar to ours. Any such funds may also, from
time to time, invest in asset classes similar to those targeted by us. It is possible that we may not be given the opportunity to participate in certain investments made by investment funds managed by investment managers affiliated with GECM.
GECCs participation in any negotiated co-investment opportunities (other than those in which the only term negotiated is price) with investment funds managed by investment managers under common control
with GECM is subject to compliance with the Exemptive Relief Order.
We will pay management and incentive fees to GECM, and will reimburse GECM for
certain expenses it incurs. In addition, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through
direct investments.
GECMs management fee is based on a percentage of our total assets (other than cash or cash equivalents but including assets
purchased with borrowed funds) and GECM may have conflicts of interest in connection with decisions that could affect our total assets, such as decisions as to whether to incur indebtedness.
The part of the incentive fee payable by us that relates to our pre-incentive fee net investment income is computed on
income that may include interest that is accrued but not yet received in cash, but payment is made on such accrual only once corresponding income is received in cash. If a portfolio company defaults on a loan or note that is structured to provide
accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible, which would result in the reversal of any previously accrued and unpaid incentive fees. On April 6, 2022,
our Board and the independent directors approved the amendment to the Investment Management Agreement (the Amendment) to eliminate $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 from the calculation
of the Capital Gains Incentive Fee and reset the Capital Gains Commencement Date (as defined below) and the mandatory deferral commencement date, effectively resetting the incentive fee total return hurdle, which was subsequently approved by our
stockholders on August 1, 2022.
The Investment Management Agreement renews for successive annual periods if approved by our Board or by the
affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. However, both we and GECM have the right to terminate the
agreement without penalty upon 60 days written notice to the other party. Moreover, conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms for compensation.
Pursuant to the Administration Agreement, we pay GECM our allocable portion of overhead and other expenses incurred by GECM in performing its obligations
under the Administration Agreement, including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
As a result of the arrangements described above, there may be times when our management team has interests that differ from those of our stockholders, giving
rise to a conflict.
Our stockholders may have conflicting investment, tax and other objectives with respect to their investments in us. The conflicting
interests of individual stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of our investments, and the timing of disposition of our investments. As a consequence, conflicts
of interest may arise in connection with decisions made by GECM,
39
including with respect to the nature or structuring of our investments, that may be more beneficial for one stockholder than for another stockholder, especially with respect to stockholders
individual tax situations. In selecting and structuring investments appropriate for us, GECM will consider the investment and tax objectives of us and our stockholders, as a whole, not the investment, tax or other objectives of any stockholder
individually.
Risks Relating to Indebtedness
We
may borrow additional money, which would magnify the potential for loss on amounts invested and may increase the risk of investing with us.
We have
existing indebtedness and may in the future borrow additional money, including borrowings under the Loan, Guarantee and Security Agreement, as amended (the Loan Agreement), dated as of May 5, 2021, with City National Bank
(CNB), each of which magnifies the potential for loss on amounts invested and may increase the risk of investing with us. Our ability to service our existing and potential future debt depends largely on our financial performance and is
subject to prevailing economic conditions and competitive pressures. The amount of leverage that we could employ at any particular time will depend on GECMs and our Boards assessment of market and other factors at the time of any
proposed borrowing.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks
associated with investing in our securities. Holders of such debt securities would have fixed dollar claims on our consolidated assets that would be superior to the claims of our common stockholders or any preferred stockholders.
If the value of our consolidated assets decreases while we have debt outstanding, leveraging would cause our NAV to decline more sharply than it otherwise
would have had we not leveraged. Similarly, any decrease in our consolidated income while we have debt outstanding would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our
ability to make common stock distributions. We cannot assure you that our leveraging strategy will be successful.
Illustration. The following
tables illustrate the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The first table assumes the actual amount of senior securities outstanding as of June 30, 2024. The
second table assumes the maximum amount of senior securities outstanding as permitted under our asset coverage ratio of 150%. The calculations in the tables below are hypothetical and actual returns may be higher or lower than those appearing below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Return on Our Portfolio(1)(2) (net of
expenses) |
|
|
(10.0)% |
|
|
|
(5.0)% |
|
|
|
0.0% |
|
|
|
5.0% |
|
|
|
10.0% |
|
Corresponding net return to common stockholder |
|
|
(14.33)% |
|
|
|
(9.33)% |
|
|
|
(4.33)% |
|
|
|
0.67% |
|
|
|
5.67% |
|
(1) |
Assumes $297.7 million in total portfolio assets, excluding short term investments, $177.6 million in
senior securities outstanding, $126.0 million in net assets, and an average cost of funds of 7.26%. Actual interest payments may be different. |
(2) |
In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our
June 30, 2024 total portfolio assets of at least 4.33%. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 2 |
|
|
|
|
|
|
|
|
|
Assumed Return on Our Portfolio(1)(2) (net of
expenses) |
|
|
(10.0)% |
|
|
|
(5.0)% |
|
|
|
0.0% |
|
|
|
5.0% |
|
|
|
10.0% |
|
Corresponding net return to common stockholder |
|
|
(14.92)% |
|
|
|
(9.92)% |
|
|
|
(4.92)% |
|
|
|
0.08% |
|
|
|
5.08% |
|
(1) |
Assumes $372.0 million in total portfolio assets, excluding short term investments, $252.0 million in senior
securities outstanding, $126.0 million in net assets, and an average cost of funds of 7.26%. Actual interest payments may be different. |
40
(2) |
In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our
June 30, 2024 total portfolio assets of at least 4.92%. |
Incurring additional indebtedness could increase the risk in
investing in our Company.
In 2018, our stockholders approved of the reduction of our required minimum asset coverage ratio from 200% to 150%,
permitting us to incur additional leverage. The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculative investment technique and increases the risks associated with
investing in our securities.
As of June 30, 2024, we had approximately $177.6 million of total outstanding indebtedness in the aggregate under
four series of senior securities (unsecured notes)the GECCM Notes, the GECCO Notes, the GECCZ Notes, and the GECCI Notesand our asset coverage ratio was 171.0%.
On May 5, 2021, we entered into the Loan Agreement, which provides for a senior secured revolving line of credit of up to $25 million (subject to a
borrowing base). As of June 30, 2024, there were no borrowings outstanding under the Loan Agreement. We may request to increase the revolving line in an aggregate amount not to exceed $25 million, which increase is subject to the sole
discretion of CNB.
If we are unable to meet the financial obligations under any of the Loan Agreement or any series of our outstanding unsecured notes,
the holders of such indebtedness would have a superior claim to our assets over our common stockholders, and the lenders or noteholders may seek to recover against our assets in the event of a default by us. If the value of our assets decreases,
leveraging would cause NAV to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses. Similarly, any decrease in our revenue or income will cause our net income to decline more sharply than it would have
had we not borrowed. Such a decline would also negatively affect our ability to make distributions with respect to our common stock. Our ability to service any debt depends largely on our financial performance and is subject to prevailing economic
conditions and competitive pressures.
Moreover, as the base management fee payable to GECM, our investment advisor, is payable based on the average value
of our total assets, including those assets acquired through the use of leverage, GECM will have a financial incentive to incur leverage, which may not be consistent with our stockholders interests. In addition, our common stockholders bear
the burden of any increase in our fees or expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to GECM.
If our asset coverage ratio falls below the required limit, we will not be able to incur additional debt until we are able to comply with the asset coverage
ratio applicable to us. This could have a material adverse effect on our operations, and we may not be able to make distributions to stockholders. The actual amount of leverage that we employ will depend on GECMs and our Boards
assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
Incurring additional leverage may magnify our exposure to risks associated with changes in interest rates, including fluctuations in interest rates
which could adversely affect our profitability.
If we incur additional leverage, including through the offering of Notes hereby, general interest
rate fluctuations may have a more significant negative impact on our financial condition and results of operations than they would have absent such additional incurrence, and, accordingly, may have a material adverse effect on our investment
objectives and rate of return on investment capital. A portion of our income will depend upon the difference between the rate at which we borrow funds and the interest rate on the debt securities in which we invest. Because we may borrow money to
make investments and may issue debt securities, preferred stock or other securities, our net investment income is dependent upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities, preferred
stock or other securities and the rate at which we invest these borrowed funds.
41
We expect that a majority of our investments in debt will continue to be at floating rates with a floor. As a
result, significant increase in market interest rates could result in an increase in our non-performing assets and a decrease in the value of our portfolio because our floating-rate loan portfolio companies
may be unable to meet higher payment obligations. In periods of rising interest rates, our cost of funds would increase, resulting in a decrease in our net investment income. Incurring additional leverage will magnify the impact of an increase to
our cost of funds. In addition, a decrease in interest rates may reduce net income, because new investments may be made at lower rates despite the increased demand for our capital that the decrease in interest rates may produce. To the extent our
additional borrowings are in fixed-rate instruments, we may be required to invest in higher-yield securities in order to cover our interest expense and maintain our current level of return to stockholders, which may increase the risk of an
investment in our securities.
42
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
Some of the statements in this prospectus and the documents incorporated by reference herein constitute forward-looking statements, which relate to future
events or our future performance or financial conditions. The forward-looking statements contained in this prospectus involve a number of risks and uncertainties, including statements concerning:
|
|
|
our, or our portfolio companies, future business, operations, operating results or prospects;
|
|
|
|
the return or impact of current and future investments; |
|
|
|
the impact of a protracted decline in the liquidity of credit markets on our business; |
|
|
|
the impact of fluctuations in interest rates on our business; |
|
|
|
the impact of changes in laws or regulations governing our operations or the operations of our portfolio
companies; |
|
|
|
our contractual arrangements and relationships with third parties; |
|
|
|
our current and future management structure; |
|
|
|
the general economy, including recessionary trends, and its impact on the industries in which we invest;
|
|
|
|
the financial condition of and ability of our current and prospective portfolio companies to achieve their
objectives; |
|
|
|
serious disruptions and catastrophic events; |
|
|
|
our expected financings and investments, including interest rate volatility; |
|
|
|
the adequacy of our financing resources and working capital; |
|
|
|
the ability of our investment adviser to locate suitable investments for us and to monitor and administer our
investments; |
|
|
|
the timing of cash flows, if any, from the operations of our portfolio companies; |
|
|
|
the timing, form and amount of any dividend distributions; |
|
|
|
the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and
|
|
|
|
our ability to maintain our qualification as a RIC and as a BDC. |
We use words such as anticipate, believe, expect, intend, will, should,
could, may, plan and similar words to identify forward-looking statements. The forward-looking statements contained in this prospectus involve risks and uncertainties. Our actual results could differ materially
from those implied or expressed in the forward-looking statements for any reason, including the factors set forth under Risk Factors.
We have
based the forward-looking statements included in this prospectus on information available to us on the date of this prospectus, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise
or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the
future may file with the SEC.
You should understand that, under Sections 27A(b)(2)(B) of the Securities Act and Section 21E(b)(2)(B) of the Exchange
Act, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this prospectus or in any report that we file under the
Exchange Act.
43
USE OF PROCEEDS
The net proceeds of the offering are estimated to be approximately $ (or approximately $ if the underwriters exercise their over-allotment option in full)
after deducting the underwriting discount and commissions and estimated offering expenses of approximately $ payable by us.
We expect to use the net
proceeds of this offering for general corporate purposes, including making investments consistent with our investment objectives. We may also elect to (i) redeem a portion of our outstanding $45.6 million aggregate principal amount of the
GECCM Notes; (ii) redeem a portion of our outstanding $57.5 million aggregate principal amount of the GECCO Notes; (iii) redeem a portion of our outstanding $40.0 million aggregate principal amount of the GECCZ Notes;
(iv) repurchase a portion of our outstanding $56.5 million aggregate principal amount of GECCI Notes; or (v) repay all or a portion of any borrowings outstanding under the Loan Agreement with proceeds of this offering. The GECCM Notes
bear interest at 6.75% per annum and have a stated maturity of January 31, 2025. The GECCO Notes bear interest at 5.875% per annum and have a stated maturity of June 30, 2026. The GECCZ Notes bear interest at 8.75% per annum and have a
stated maturity of September 30, 2028. The GECCI Notes bear interest at 8.50% per annum and have a stated maturity of April 30, 2029. The Loan Agreement provides for a senior secured revolving line of credit that matures on May 5,
2027. Borrowings under the Loan Agreement bear interest at a rate equal to (i) SOFR plus 3.00%, (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by us.
We intend to use a portion of the net proceeds from the sale of the Notes for general corporate purposes, including making investments consistent with our
investment objectives. We do not intend to use any proceeds of the offering to pay required distributions, management fees or other expenses. Nevertheless, to the extent that our current cash and cash equivalents holdings are invested in other
investment opportunities before we receive the proceeds of this offering, some portion of the proceeds from this offering may be used to pay required distributions, management fees and other expenses. We anticipate that it will take approximately
three to six months after completion of this offering to invest substantially all of the net proceeds in investments consistent with our investment objectives or to otherwise utilize such proceeds. Pending the investment of the net proceeds in
investments consistent with our investment objectives, we may invest the net proceeds of this offering in cash, cash equivalents, U.S. Government securities, money market mutual funds and other high-quality debt instruments that mature in one year
or less, or temporary investments, as appropriate. These securities may have lower yields than our other investments and accordingly result in lower distributions, if any, by us during such period.
44
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2024:
|
|
|
On an as adjusted basis to give effect to the sale of $22.0 million aggregate principal amount of the GECCI
Notes in July 2024; and |
|
|
|
On an as further adjusted basis to give effect to the assumed sale of $ million aggregate principal
amount of the Notes at a public offering price of $25.00 per Note, after deducting underwriting discounts and commissions of approximately $ million and estimated offering expenses of $ million payable by us.
|
This table should be read in conjunction with our Managements Discussion and Analysis of Financial Condition and Results of
Operations and our financial statements and notes thereto included in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2024 |
|
Dollar amounts in thousands (except per share amounts) |
|
Actual |
|
|
As Adjusted |
|
|
As Further Adjusted |
|
Investments, at fair value(1) |
|
$ |
318,081 |
|
|
$ |
318,081 |
|
|
$ |
318,081 |
|
Cash and cash equivalents |
|
|
2,575 |
|
|
|
2,575 |
|
|
|
|
|
Total assets |
|
|
326,519 |
|
|
|
326,519 |
|
|
|
|
|
GECCM Notes(2) |
|
|
56,589 |
|
|
|
56,589 |
|
|
|
56,589 |
|
GECCO Notes(2) |
|
|
45,423 |
|
|
|
45,423 |
|
|
|
45,423 |
|
GECCZ Notes(2) |
|
|
38,668 |
|
|
|
38,668 |
|
|
|
38,668 |
|
GECCI Notes(2) |
|
|
33,085 |
|
|
|
54,921 |
|
|
|
54,921 |
|
The Notes(3) |
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
200,510 |
|
|
$ |
222,346 |
|
|
$ |
|
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share, 100,000,000 shares of common stock authorized, 10,449,888
shares issued and outstanding |
|
$ |
104 |
|
|
$ |
104 |
|
|
$ |
104 |
|
Additional paid in capital |
|
|
319,438 |
|
|
|
319,438 |
|
|
|
319,438 |
|
Accumulated losses |
|
|
(193,533 |
) |
|
|
(193,533 |
) |
|
|
(193,533 |
) |
Total net assets |
|
|
126,009 |
|
|
|
126,009 |
|
|
|
126,009 |
|
Total liabilities and net assets |
|
$ |
326,519 |
|
|
$ |
348,355 |
|
|
$ |
|
|
(1) |
Includes approximately $514 of money market fund investments at fair value. |
(2) |
Includes unamortized discount of $150, $911, $1,332, and $1,579 relating to the GECCM Notes, the GECCO Notes,
the GECCZ Notes, and the GECCI Notes, respectively. |
(3) |
Net of deferred offering costs. |
45
DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture, dated as of September 18, 2017, and the seventh supplemental indenture thereto, to be entered into between
us and Equiniti Trust Company, LLC (formerly known as American Stock Transfer & Trust Company, LLC) as trustee. We refer to the indenture, as supplemented by the seventh supplemental indenture, as the indenture and to Equiniti Trust
Company, LLC as the Trustee. The Notes are governed by the indenture, as required by federal law for all bonds and notes of companies that are publicly offered. An indenture is a contract between us and the financial institution acting as trustee on
your behalf, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The Trustee has two main roles. First, the Trustee can enforce your rights against us if we default. There are some limitations on the extent to which the
Trustee acts on your behalf, described in the second paragraph under -Events of Default-Remedies if an Event of Default Occurs. Second, the Trustee performs certain administrative duties for us with respect to our Notes.
This section includes a description of the material terms of the Notes and the indenture. Because this section is a summary, however, it does not describe
every aspect of the Notes and the indenture. We urge you to read the indenture because it, and not this description, defines your rights as a holder of the Notes. The indenture has been attached as an exhibit to the registration statement of which
this prospectus is a part and filed with the SEC. See Where You Can Find More Information for information on how to obtain a copy of the indenture.
We are permitted, under specified conditions, to issue multiple classes of indebtedness if our asset coverage, as defined in the Investment Company Act, is at
least equal to 150% immediately after each such issuance, as such obligation may be amended or superseded and giving effect to any exemptive relief that may be granted to us by the SEC. In addition, while any indebtedness and senior securities
remain outstanding, we must make provisions to prohibit the distribution to our stockholders or the repurchase of such securities or common stock in certain cases, unless we meet the applicable asset coverage ratios at the time of the distribution
or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary purposes without regard to asset coverage.
General
The Notes will mature on , 2029. The principal payable at maturity will be 100.0% of the aggregate principal amount. The interest rate of the Notes is
% per year, and interest will be paid every March 31, June 30, September 30 and December 31, beginning , 2024, and the regular record dates for interest payments will be every March 15, June 15, September 15 and
December 15, commencing , 2024. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a
result of such delayed payment. The initial interest period will be the period from and including , 2024 to, but excluding, the initial interest payment date, and the subsequent interest periods will be the periods from and including an interest
payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be.
We will issue the Notes in minimum
denominations of $25 and integral multiples of $25 in excess thereof. The Notes will not be subject to any sinking fund and holders of the Notes will not have the option to have the Notes repaid prior to the stated maturity date.
The indenture does not limit the amount of debt (including secured debt) that may be issued by us or our subsidiaries under the indenture or otherwise, but
does contain a covenant regarding our asset coverage that would have to be satisfied at the time of our incurrence of additional indebtedness. See -Other Covenants. Other than the foregoing and as described under -Other
Covenants, the indenture does not contain any financial covenants and does not restrict us from paying dividends or issuing or repurchasing our other securities. Other than restrictions described under -Merger, Consolidation or Sale of
Assets below, the indenture does not contain any covenants or other provisions designed to afford holders of the Notes protection in the event of a highly leveraged transaction involving us or if our credit rating declines as the result of a
takeover, recapitalization, highly leveraged transaction or similar restructuring involving us that could adversely affect your investment in us.
46
We have the ability to issue indenture securities with terms different from the Notes and, without the consent of
the holders thereof, to reopen the Notes and issue additional Notes. See Risk Factors-The indenture under which the Notes will be issued contains limited protection for holders of the Notes.
Optional Redemption
The Notes may be redeemed in whole
or in part at any time or from time to time at our option on or after , 2026 upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price equal to 100% of the
outstanding principal amount of the Notes to be redeemed plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption.
You may be prevented from exchanging or transferring the Notes when they are subject to redemption. In case any Notes are to be redeemed in part only, the
redemption notice will provide that, upon surrender of such Note, you will receive, without a charge, a new Note or Notes of authorized denominations representing the principal amount of your remaining unredeemed Notes, with the same terms as the
redeemed Notes. Any exercise of our option to redeem the Notes will be done in compliance with the Investment Company Act, to the extent applicable.
If
we redeem only some of the Notes, the Trustee or, with respect to global securities, DTC will determine the method for selection of the particular Notes to be redeemed, in accordance with the indenture and the Investment Company Act, to the extent
applicable, and in accordance with the rules of any national securities exchange or quotation system on which the Notes are listed. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to
accrue on the Notes called for redemption.
Global Securities
Each Note will be issued in book-entry form and represented by a global security that we deposit with and register in the name of DTC, New York, New York, or
its nominee. A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. As a result of these arrangements, the depositary, or its nominee,
will be the sole registered owner and holder of all the Notes represented by a global security, and investors will be permitted to own only beneficial interests in a global security. For more information about these arrangements, see
-Book-Entry Procedures below.
Termination of a Global Security
If a global security is terminated for any reason, interests in it will be exchanged for certificates in non-book-entry
form (certificated securities). After that exchange, the choice of whether to hold the certificated Notes directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their
interests in a global security transferred on termination to their own names, so that they will be holders.
Payment and Paying Agents
We will pay interest to the person listed in the Trustees records as the owner of the Notes at the close of business on a particular day in advance of
each due date for interest, even if that person no longer owns the Notes on the interest due date. That day, usually about two weeks in advance of the interest due date, is called the record date. Because we will pay all the interest for
an interest period to the holders on the record date, holders buying and selling the Notes must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the Notes to prorate interest fairly
between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called accrued interest.
47
Payments on Global Securities
We will make payments on the Notes so long as they are represented by a global security in accordance with the applicable policies of the depositary as in
effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in the global security. An indirect holders right to those payments
will be governed by the rules and practices of the depositary and its participants, as described under -Book-Entry Procedures.
Payments on
Certificated Securities
In the event the Notes become represented by certificated securities, we will make payments on the Notes as follows. We will
pay interest that is due on an interest payment date to the holder of the Notes as shown on the Trustees records as of the close of business on the regular record date at our office in Palm Beach Gardens, Florida. We will make all payments of
principal and premium, if any, by check at the office of the Trustee in New York, New York and/or at other offices that may be specified in a notice to holders against surrender of the Note.
Alternatively, at our option, we may pay any cash interest that becomes due on the Notes by mailing a check to the holder at his, her or its address shown on
the Trustees records as of the close of business on the regular record date or by transfer to an account at a bank in the United States, in either case, on the due date.
Payment When Offices Are Closed
If any payment is due on
the Notes on a day that is not a business day, we will make the payment on the next day that is a business day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original due
date. Such payment will not result in a default under the Notes or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business day.
Book-entry and other indirect holders should consult their banks or brokers for information on how they will receive payments on the Notes.
Events of Default
You will have rights if an Event of
Default occurs with respect to the Notes and the Event of Default is not cured, as described later in this subsection.
The term Event of
Default with respect to the Notes means any of the following:
|
|
|
We do not pay the principal of any Note when due and payable. |
|
|
|
We do not pay interest on any Note when due, and such default is not cured within 30 days. |
|
|
|
We remain in breach of any other covenant with respect to the Notes for 60 days after we receive a written
notice of default stating we are in breach. The notice must be sent by either the Trustee or holders of at least 25% of the principal amount of the Notes. |
|
|
|
We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and, in
the case of certain orders or decrees entered against us under any bankruptcy law, such order or decree remains undischarged or unstayed for a period of 90 days. |
|
|
|
If, pursuant to Sections 18(a)(1)(c)(ii) and 61 of the Investment Company Act, or any successor provisions
thereto of the Investment Company Act, on the last business day of each of 24 consecutive calendar months the Notes have an asset coverage (as such term is used in the Investment Company Act) of less than 100%, as such obligation may be amended or
superseded but giving effect to any exemptive relief that may be granted to us by the SEC. |
48
An Event of Default for the Notes does not necessarily constitute an Event of Default for any other series of
debt securities issued under the same or any other indenture. The Trustee may withhold notice to the holders of the Notes of any default, except in the payment of principal or interest, if it in good faith considers the withholding of notice to be
in the best interests of the holders.
Remedies if an Event of Default Occurs
If an Event of Default has occurred and has not been cured, the Trustee or the holders of at least 25% in principal amount of the Notes may declare the entire
principal amount of all the Notes to be due and immediately payable. If an Event of Default referred to in the second to last bullet point above with respect to us has occurred, the entire principal amount of all the Notes will automatically become
due and immediately payable. This is called a declaration of acceleration of maturity. In certain circumstances, a declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the Notes if (1) we
have deposited with the Trustee all amounts due and owing with respect to the Notes (other than principal that has become due solely by reason of such acceleration) and certain other amounts, and (2) any other Events of Default have been cured
or waived.
Except in cases of default, where the Trustee has some special duties, the Trustee is not required to take any action under the indenture at
the request of any holders unless the holders offer the Trustee protection reasonably satisfactory to it from expenses and liability (called an indemnity). If reasonable indemnity is provided, the holders of a majority in principal
amount of the Notes may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the Trustee. The Trustee may refuse to follow those directions in certain circumstances. No delay or
omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.
Before you are allowed to bypass the
Trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the Notes, the following must occur:
|
|
|
You must give the Trustee written notice that an Event of Default has occurred with respect to the Notes
and remains uncured. |
|
|
|
The holders of at least 25% in principal amount of all the Notes must make a written request that the
Trustee take action because of the default and must offer reasonable indemnity to the Trustee against the cost and other liabilities of taking that action. |
|
|
|
The Trustee must not have taken action for 60 days after receipt of the above notice and offer of
indemnity. |
|
|
|
The holders of a majority in principal amount of the Notes must not have given the Trustee a direction
inconsistent with the above notice during that 60-day period. |
However, you are entitled at any
time to bring a lawsuit for the payment of money due on your Notes on or after the due date.
Book-entry and other indirect holders should consult
their banks or brokers for information on how to give notice or direction to or make a request of the Trustee and how to declare or cancel an acceleration of maturity.
Each year, we will furnish to the Trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the
indenture and the Notes, or else specifying any default.
Waiver of Default
Holders of a majority in principal amount of the Notes may waive any past defaults other than a default:
|
|
|
in the payment of principal or interest; or |
49
|
|
|
in respect of a covenant that cannot be modified or amended without the consent of each holder of the
Notes. |
Merger, Consolidation or Sale of Assets
Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially
all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:
|
|
|
Where we merge out of existence or convey or transfer substantially all of our assets, the resulting
entity must agree to be legally responsible for our obligations under the Notes; |
|
|
|
The merger or sale of assets must not cause a default on the Notes and we must not already be in default
(unless the merger or sale would cure the default). For purposes of this no-default test, a default would include an Event of Default that has occurred and has not been cured, as described under Events
of Default above. A default for this purpose would also include any event that would be an Event of Default if the requirements for giving us a notice of default or our default having to exist for a specified period of time were disregarded;
and |
|
|
|
We must deliver certain certificates and documents to the Trustee. |
Modification or Waiver
There are three types of changes
we can make to the indenture and the Notes issued thereunder.
Changes Requiring Your Approval
First, there are changes that we cannot make to the Notes without approval from each affected holder. The following is a list of those types of changes:
|
|
|
change the stated maturity of the principal of or interest on the Notes; |
|
|
|
reduce any amounts due on the Notes; |
|
|
|
reduce the amount of principal payable upon acceleration of the maturity of the Notes following a default;
|
|
|
|
change the place or currency of payment on the Notes; |
|
|
|
impair your right to sue for payment; |
|
|
|
reduce the percentage of holders of Notes whose consent is needed to modify or amend the indenture; and
|
|
|
|
reduce the percentage of holders of Notes whose consent is needed to waive compliance with certain
provisions of the indenture or to waive certain defaults. |
Changes Not Requiring Approval
The second type of change does not require any vote by the holders of the Notes. This type is limited to clarifications and certain other changes that would
not adversely affect holders of the Notes in any material respect.
Changes Requiring Majority Approval
Any other change to the indenture and the Notes would require the following approval:
|
|
|
If the change affects only the Notes, it must be approved by the holders of a majority in principal amount
of the Notes. |
50
|
|
|
If the change affects more than one series of debt securities issued under the same indenture, it must be
approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting together as one class for this purpose. |
The holders of a majority in principal amount of all of the series of debt securities issued under an indenture, voting together as one class for this
purpose, may waive our compliance with some of our covenants in that indenture. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under -Changes Requiring Your
Approval.
Further Details Concerning Voting
When taking a vote, we will use the following rules to decide how much principal to attribute to a debt security (including the Notes):
Debt securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or
redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described below under -Defeasance-Full Defeasance.
We will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled
to vote or take other action under the indenture. If we set a record date for a vote or other action to be taken by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities
of those series on the record date and must be taken within eleven months following the record date.
Book-entry and other indirect holders should
consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the debt securities or request a waiver.
Defeasance
The following defeasance provisions will be
applicable to the Notes. Defeasance means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on the Notes when due and satisfying any additional
conditions noted below, we will be deemed to have been discharged from our obligations under the Notes. In the event of a covenant defeasance, upon depositing such funds and satisfying similar conditions discussed below, we would be
released from certain covenants under the indenture relating to the Notes. The consequences to the holders of the Notes would be that, while they would no longer benefit from certain covenants under the indenture, and while the Notes could not be
accelerated for any reason, the holders of Notes nonetheless would be guaranteed to receive the principal and interest owed to them.
Covenant
Defeasance
Under current U.S. federal tax law, we can make the deposit described below and be released from some of the restrictive covenants in the
indenture under which the particular series was issued. This is called covenant defeasance. In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and government
securities set aside in trust to repay your debt securities. If applicable, you also would be released from the subordination provisions described under -Indenture Provisions-Ranking below. In order to achieve covenant defeasance, we
must do the following:
|
|
|
Since the Notes are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders
of the Notes a combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the Notes on their due dates. |
51
|
|
|
We must deliver to the Trustee a legal opinion of our counsel confirming that, under current U.S. federal
income tax law, we may make the above deposit without causing you to be taxed on the Notes any differently than if we did not make the deposit and just repaid the Notes ourselves at maturity. |
|
|
|
Defeasance must not result in a breach or violation of, or result in a default under, the indenture or any
of our other material agreements or instruments. |
|
|
|
No default or Event of Default with respect to the Notes shall have occurred and be continuing and no
defaults or Events of Default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days. |
|
|
|
We must deliver to the Trustee a legal opinion of our counsel stating that the above deposit does not
require registration by us under the Investment Company Act and a legal opinion and officers certificate stating that all conditions precedent to covenant defeasance have been complied with. |
If we accomplish covenant defeasance, you can still look to us for repayment of the Notes if there were a shortfall in the trust deposit or the Trustee is
prevented from making payment. For example, if one of the remaining Events of Default occurred (such as our bankruptcy) and the Notes became immediately due and payable, there might be a shortfall. Depending on the event causing the default, you may
not be able to obtain payment of the shortfall.
Full Defeasance
If there is a change in U.S. federal tax law, as described below, we can legally release ourselves from all payment and other obligations on the Notes of a
particular series (called full defeasance) if the following conditions are satisfied in order for you to be repaid:
|
|
|
Since the Notes are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders
of the Notes a combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the Notes on their various due dates. |
|
|
|
We must deliver to the Trustee a legal opinion confirming that there has been a change in current U.S.
federal tax law or an IRS ruling that allows us to make the above deposit without causing you to be taxed on the Notes any differently than if we did not make the deposit and just repaid the Notes ourselves at maturity. Under current U.S. federal
tax law, the deposit and our legal release from the Notes would be treated as though we paid you your share of the cash and notes or bonds at the time the cash and notes or bonds were deposited in trust in exchange for the Notes and you would
recognize a gain or loss on the Notes at the time of the deposit. |
|
|
|
We must deliver to the Trustee a legal opinion of our counsel stating that the above deposit does not
require registration by us under the Investment Company Act and a legal opinion and officers certificate stating that all conditions precedent to defeasance have been complied with. |
|
|
|
Defeasance must not result in a breach or violation of, or constitute a default under, the indenture or
any of our other material agreements or instruments. |
|
|
|
No default or Event of Default with respect to the Notes shall have occurred and be continuing and no
defaults or Events of Default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days. |
If we ever did
accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the Notes. You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most
likely be protected from claims of our lenders and other creditors if we ever became bankrupt or insolvent. If your Notes were subordinated as described later under -Indenture Provisions-Ranking, such subordination would not prevent the
Trustee under the indenture from applying the
52
funds available to it from the deposit referred to in the first bullet of the preceding paragraph to the payment of amounts due in respect of such Notes for the benefit of the subordinated
debtholders.
Other Covenants
In addition to any
other covenants described in this prospectus, as well as standard covenants relating to payment of principal and interest, maintaining an office where payments may be made or securities can be surrendered for payment, our payment of taxes and
related matters, the following covenants will apply to the Notes:
|
|
|
We agree that for the period of time during which the Notes are outstanding, we will not violate, whether or not
it is subject to, Section 18(a)(1)(A) as modified by Sections 61(a)(1) and (2) of the Investment Company Act or any successor provisions thereto of the Investment Company Act, as such obligation may be amended or superseded but giving
effect to any exemptive relief that may be granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt securities, unless our asset coverage, as
defined in the Investment Company Act, equals at least 150% after such borrowings. |
|
|
|
We agree that for the period of time during which the Notes are outstanding, we will not declare any
dividend (except a dividend payable in our stock), or declare any other distribution, upon a class of our capital stock, or purchase any such capital stock, unless, in every such case, at the time of the declaration of any such dividend or
distribution, or at the time of any such purchase, we have an asset coverage (as defined in the Investment Company Act) of at least the threshold specified in pursuant to Section 18(a)(1)(B) as modified by Sections 61(a)(1) and (2) of the
Investment Company Act or any successor provisions thereto of the Investment Company Act, as such obligation may be amended or superseded (regardless of whether we are subject thereto), after deducting the amount of such dividend, distribution or
purchase price, as the case may be, and giving effect, in each case, (i) to any exemptive relief granted to us by the SEC and (ii) to any no-action relief granted by the SEC to another BDC (or to us
if we determine to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified
by Sections 61(a)(1) and (2) of the Investment Company Act, as such obligation may be amended or superseded, in order to maintain such BDCs status as a RIC under Subchapter M of the Code. |
|
|
|
If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange
Act to file any periodic reports with the SEC, we will furnish to holders of the Notes and the Trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal
year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with
applicable GAAP. |
Notwithstanding the restrictions on indebtedness and dividends described above, the indenture under which the Notes
will be issued may not prohibit us from paying distributions to our stockholders if we incur indebtedness in excess of the limits set forth in Sections 61(a)(1) and (2) of the Investment Company Act or any successor provision if we determine
that such indebtedness, which may include indebtedness under a bank credit facility, is not a senior security for purposes of determining asset coverage under the Investment Company Act.
Form, Exchange and Transfer of Certificated Registered Securities
If registered Notes cease to be issued in book-entry form, they will be issued:
|
|
|
only in fully registered certificated form; |
|
|
|
without interest coupons; and |
|
|
|
unless we indicate otherwise, in denominations of $25 and amounts that are multiples of $25.
|
53
Holders may exchange their certificated securities for Notes of smaller denominations or combined into fewer
Notes of larger denominations, as long as the total principal amount is not changed and as long as the denomination is equal to or greater than $25.
Holders may exchange or transfer their certificated securities at the office of the Trustee. We have appointed the Trustee to act as our agent for registering
Notes in the names of holders transferring Notes. We may appoint another entity to perform these functions or perform them ourselves.
Holders will not be
required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our
transfer agent is satisfied with the holders proof of legal ownership.
We may appoint additional transfer agents or cancel the appointment of any
particular transfer agent. We may also approve a change in the office through which any transfer agent acts.
If any certificated securities of a
particular series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of redemption and
ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit
transfers and exchanges of the unredeemed portion of any debt security that will be partially redeemed.
If a registered debt security is issued in
book-entry form, only the depositary will be entitled to transfer and exchange the debt security as described in this subsection, since it will be the sole holder of the debt security.
Concerning the Trustee
The Trustee serves as trustee for
the GECCM Notes, the GECCO Notes, the GECCZ Notes and the GECCI Notes and as transfer agent for our common stock and agent for our dividend reinvestment plan. We will appoint the Trustee as registrar and paying agent under the indenture.
Resignation of Trustee
The Trustee may resign or be
removed with respect to the Notes provided that a successor trustee is appointed to act with respect to the Notes. In the event that two or more persons are acting as trustee with respect to different series of indenture securities under the
indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any other trustee.
Indenture
Provisions-Ranking
The Notes will be our direct unsecured obligations and will rank:
|
|
|
pari passu, or equal, with our existing and future unsecured indebtedness, including, without
limitation, the GECCM Notes, the GECCO Notes, the GECCZ Notes and the GECCI Notes; |
|
|
|
effectively subordinated to all of our existing and future secured indebtedness, including any amounts
outstanding under the Loan Agreement, and any indebtedness that is initially unsecured to which we subsequently grant security, to the extent of the value of the assets securing such indebtedness; |
|
|
|
structurally subordinated to all existing and future indebtedness and other obligations of any of our
subsidiaries; and |
|
|
|
senior to our common stock and any of our future indebtedness that expressly provides it is subordinated
to the Notes. |
54
Effective subordination means that in any liquidation, dissolution, bankruptcy or other similar proceeding, the
holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the
assets may be used to pay other creditors. Structural subordination means that creditors of a parent entity are subordinate to creditors of a subsidiary entity with respect to the subsidiarys assets.
Upon any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and premium if any) and
interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated to the extent provided in the indenture in right of payment to the prior payment in full of all Senior Indebtedness (as defined below).
In addition, no payment on account of principal (or premium, if any), sinking fund or interest, if any, may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and premium, if
any), sinking fund and interest on the Senior Indebtedness has been made or duly provided for in money or moneys worth.
In the event that,
notwithstanding the foregoing, any payment by us is received by the Trustee in respect of subordinated debt securities or by the holders of any of such subordinated debt securities, upon our dissolution, winding up, liquidation or reorganization
before all Senior Indebtedness is paid in full, the payment or distribution must be paid over to the holders of the Senior Indebtedness or on their behalf for application to the payment of all the Senior Indebtedness remaining unpaid until all the
Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution to the holders of the Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness upon this distribution by us, the holders
of such subordinated debt securities will be subrogated to the rights of the holders of the Senior Indebtedness to the extent of payments made to the holders of the Senior Indebtedness out of the distributive share of such subordinated debt
securities.
By reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may
recover more, ratably, than holders of any subordinated debt securities or the holders of any indenture securities that are not Senior Indebtedness or subordinated debt securities. The indenture provides that these subordination provisions will not
apply to money and securities held in trust under the defeasance provisions of the indenture.
Senior Indebtedness is defined in the indenture as the
principal of (and premium, if any) and unpaid interest on:
|
|
|
our indebtedness (including indebtedness of others guaranteed by us), whenever created, incurred, assumed
or guaranteed, for money borrowed, that we have designated as Senior Indebtedness for purposes of the indenture and in accordance with the terms of the indenture (including any indenture securities designated as Senior Indebtedness), and
|
|
|
|
renewals, extensions, modifications and refinancings of any of this indebtedness. |
Book-Entry Procedures
The Notes will be represented by
global securities that will be deposited and registered in the name of DTC or its nominee. This means that, except in limited circumstances, you will not receive certificates for the Notes. Beneficial interests in the Notes will be represented
through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Investors may elect to hold interests in the Notes through either DTC, if they are a participant, or indirectly
through organizations that are participants in DTC.
The Notes will be issued as fully registered securities registered in the name of Cede & Co.
(DTCs partnership nominee) or such other name as may be requested by an authorized representative of DTC, and will be deposited with DTC. Interests in the Notes will trade in DTCs Same Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. None of us, the Trustee or the Paying Agent will have any responsibility for the performance by DTC or its participants
or indirect participants of their respective obligations under the rules and procedures governing their operations.
55
DTC is a limited-purpose trust company organized under the New York Banking Law, a banking
organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and
money market instruments from over 100 countries that DTCs participants (Direct Participants) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in
deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation
(DTCC).
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are
registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (Indirect Participants). DTC has a Standard & Poors rating
of AA+. The DTC Rules applicable to its participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information on such website is not incorporated by reference into this
prospectus.
Purchases of the Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on
DTCs records. The ownership interest of each actual purchaser of each security, or the Beneficial Owner, is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written
confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in the Notes, except in the event that use of the book-entry system for the Notes is discontinued.
To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee,
Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of the Notes with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Notes; DTCs records reflect only the identity of the Direct Participants to whose accounts the Notes are credited, which may or may not be the Beneficial Owners.
The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices
and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory
or regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Notes within an issue
are being redeemed, DTCs practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Redemption proceeds, distributions, and interest payments on the Notes will be made to Cede & Co., or such other nominee as may be requested by an
authorized representative of DTC. DTCs practice is to credit Direct Participants accounts upon DTCs receipt of funds and corresponding detail information from us or the Trustee
56
on the payment date in accordance with their respective holdings shown on DTCs records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or us, subject to
any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of
DTC) is the responsibility of us or the Trustee, but disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depository with respect to the Notes at any time by giving reasonable notice to us
or to the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, certificates are required to be printed and delivered. We may decide to discontinue use of the system of book-entry-only transfers
through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC.
The information in this section
concerning DTC and DTCs book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.
57
PORTFOLIO COMPANIES
The following table sets forth certain information as of June 30, 2024, for each portfolio company in which we had an investment. Other than these
investments, our only formal relationships with our portfolio companies are the significant managerial assistance that we may provide upon request and the board observation or participation rights we may receive in connection with our investment. As
defined by the Investment Company Act, we are deemed to control CLO Formation JV, LLC and Great Elm Specialty Finance, LLC because we own more than 25% of the common equity of those portfolio companies. In general, under the Investment
Company Act, we would be presumed to control a portfolio company if we owned more than 25% of its voting securities and would be an affiliate of a portfolio company if we owned more than 5% of its outstanding voting
securities. See The Company-Our Portfolio at June 30, 2024 for a brief description of each company representing greater than 5% of our assets at June 30, 2024.
Dollar amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company |
|
Industry |
|
|
Security(1) |
|
|
Notes |
|
|
Interest
Rate(2) |
|
|
Initial
Acquisition
Date |
|
|
Maturity |
|
|
Par
Amount /
Quantity |
|
|
Cost |
|
|
Fair
Value |
|
|
Percentage
of Class(3) |
|
Investments at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advancion 1500 E Lake Cook Rd Buffalo Grove, IL 60089 |
|
|
Chemicals |
|
|
|
2nd Lien, Secured Loan |
|
|
|
2 |
|
|
|
1M SOFR + 7.75%, 8.50% Floor (13.19%) |
|
|
|
09/21/2022 |
|
|
|
11/24/2028 |
|
|
|
1,625 |
|
|
|
1,524 |
|
|
|
1,543 |
|
|
|
|
|
ADS Tactical, Inc. 621 Lynnhaven Parkway Suite 160 Virginia Beach, VA 23452 |
|
|
Defense |
|
|
|
1st Lien, Secured Loan |
|
|
|
2, 6 |
|
|
|
1M Prime + 4.75%, 5.75% Floor (13.25%) |
|
|
|
11/28/2023 |
|
|
|
03/19/2026 |
|
|
|
3,856 |
|
|
|
3,849 |
|
|
|
3,856 |
|
|
|
|
|
American Coastal Insurance Corp. 800 2nd Avenue S. Saint Petersburg, FL 33701 |
|
|
Insurance |
|
|
|
Unsecured Bond |
|
|
|
|
|
|
|
7.25% |
|
|
|
12/20/2022 |
|
|
|
12/15/2027 |
|
|
|
13,000 |
|
|
|
7,595 |
|
|
|
12,139 |
|
|
|
|
|
Arcline FM Holdings, LLC 655 3rd Street, Suite 301 Beloit, WI 53511 |
|
|
Defense |
|
|
|
1st Lien, Secured Loan |
|
|
|
2 |
|
|
|
3M SOFR + 4.75%, 5.50% Floor (10.35%) |
|
|
|
02/08/2024 |
|
|
|
06/23/2028 |
|
|
|
1,990 |
|
|
|
1,990 |
|
|
|
1,991 |
|
|
|
|
|
Avation Capital SA 65 Kampong Bahru Road, #01-01
Singapore 169370 |
|
|
Aircraft |
|
|
|
2nd Lien, Secured Bond |
|
|
|
7, 10, 11 |
|
|
|
8.25% |
|
|
|
02/04/2022 |
|
|
|
10/31/2026 |
|
|
|
4,671 |
|
|
|
4,298 |
|
|
|
4,239 |
|
|
|
|
|
Blackstone Secured Lending 345 Park Avenue New York, NY 10154 |
|
|
Closed-End Fund |
|
|
|
Common Stock |
|
|
|
10 |
|
|
|
n/a |
|
|
|
08/18/2022 |
|
|
|
n/a |
|
|
|
313,999 |
|
|
|
9,983 |
|
|
|
9,615 |
|
|
|
* |
|
Blue Ribbon, LLC 110 E Houston St. San Antonio, TX 78205 |
|
|
Food & Staples |
|
|
|
1st Lien, Secured Loan |
|
|
|
2 |
|
|
|
3M SOFR + 6.00%, 6.75% Floor (11.57%) |
|
|
|
02/06/2023 |
|
|
|
05/07/2028 |
|
|
|
5,778 |
|
|
|
4,467 |
|
|
|
4,363 |
|
|
|
|
|
CLO Formation JV, LLC 800 South Street Suite 230 Waltham, MA 02453 |
|
|
Structured Finance |
|
|
|
Common Equity |
|
|
|
4, 6, 10, 12 |
|
|
|
n/a |
|
|
|
04/24/2024 |
|
|
|
n/a |
|
|
|
87 |
|
|
|
28,152 |
|
|
|
28,092 |
|
|
|
75.00 |
% |
Coreweave Compute Acquisition Co. II, LLC 101 Eisenhower Parkway, Suite 106 Roseland, NJ
07068 |
|
|
Technology |
|
|
|
1st Lien, Secured Loan |
|
|
|
2, 6 |
|
|
|
3M SOFR + 9.62%, 9.62% Floor (14.95%) |
|
|
|
07/31/2023 |
|
|
|
07/31/2028 |
|
|
|
12,375 |
|
|
|
12,176 |
|
|
|
12,622 |
|
|
|
|
|
Coreweave Compute Acquisition Co. IV, LLC 101 Eisenhower Parkway, Suite 106 Roseland, NJ
07068 |
|
|
Technology |
|
|
|
1st Lien, Secured Loan |
|
|
|
2, 6 |
|
|
|
3M SOFR + 6.00%, 6.00% Floor (11.33%) |
|
|
|
05/29/2024 |
|
|
|
05/16/2030 |
|
|
|
314 |
|
|
|
309 |
|
|
|
309 |
|
|
|
|
|
Creation Technologies, Inc. One Beacon Street, 23rd Floor Boston, MA 02108 |
|
|
Electronics Manufacturing |
|
|
|
1st Lien, Secured Loan |
|
|
|
2, 6 |
|
|
|
3M SOFR + 5.50%, 6.00% Floor (11.07%) |
|
|
|
02/12/2024 |
|
|
|
10/05/2028 |
|
|
|
997 |
|
|
|
970 |
|
|
|
951 |
|
|
|
|
|
Crown Subsea Communications Holding, Inc. 250 Industrial Way West Eatontown, NJ 07724 |
|
|
Telecommunications |
|
|
|
1st Lien, Secured Loan |
|
|
|
2 |
|
|
|
3M SOFR + 4.75%, 5.50% Floor (10.08%) |
|
|
|
01/26/2024 |
|
|
|
01/27/2031 |
|
|
|
1,800 |
|
|
|
1,783 |
|
|
|
1,801 |
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company |
|
Industry |
|
Security(1) |
|
Notes |
|
Interest
Rate(2) |
|
Initial
Acquisition
Date |
|
|
Maturity |
|
|
Par
Amount /
Quantity |
|
|
Cost |
|
|
Fair
Value |
|
|
Percentage
of Class(3) |
|
CSC Serviceworks 35 Pinelawn Road, Suite 120 Melville, NY 11747 |
|
Consumer Services |
|
1st Lien, Secured Loan |
|
2 |
|
3M SOFR + 4.00%, 4.75% Floor (9.6%) |
|
|
09/26/2023 |
|
|
|
03/04/2028 |
|
|
|
2,977 |
|
|
|
2,600 |
|
|
|
2,523 |
|
|
|
|
|
CW Opportunity 2 LP 1603 Orrington Avenue, 13th Floor Evanston, IL 60201 |
|
Technology |
|
Private Fund |
|
10, 12 |
|
n/a |
|
|
05/14/2024 |
|
|
|
n/a |
|
|
|
6,000,000 |
|
|
|
6,000 |
|
|
|
6,066 |
|
|
|
|
|
Eagle Point Credit Company Inc 600 Steamboat Road, Suite 202 Greenwich, CT 06830 |
|
Closed-End Fund |
|
Common Stock |
|
10 |
|
n/a |
|
|
08/18/2022 |
|
|
|
n/a |
|
|
|
300,000 |
|
|
|
3,090 |
|
|
|
3,015 |
|
|
|
* |
|
ECL Entertainment, LLC 8978 Spanish Ridge Ave Las Vegas, NV 89148 |
|
Casinos & Gaming |
|
1st Lien, Secured Loan |
|
2 |
|
1M SOFR + 4.00%, 4.00% Floor (9.34%) |
|
|
04/11/2024 |
|
|
|
08/31/2030 |
|
|
|
400 |
|
|
|
399 |
|
|
|
401 |
|
|
|
|
|
EPIC Crude Services LP 18615 Tuscany Stone, Suite 300 San Antonio, TX 78258 |
|
Energy Midstream |
|
1st Lien, Secured Loan |
|
2 |
|
3M SOFR + 5.00%, 6.00% Floor (10.61%) |
|
|
02/08/2024 |
|
|
|
03/02/2026 |
|
|
|
1,995 |
|
|
|
1,997 |
|
|
|
1,996 |
|
|
|
|
|
First Brands, Inc. 3255 West Hamlin Road Rochester Hills, MI 48309 |
|
Transportation Equipment Manufacturing |
|
2nd Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 8.50%, 9.50% Floor (14.14%) |
|
|
03/24/2021 |
|
|
|
03/30/2028 |
|
|
|
12,545 |
|
|
|
12,243 |
|
|
|
12,378 |
|
|
|
|
|
First Brands, Inc. 3255 West Hamlin Road Rochester Hills, MI 48309 |
|
Transportation Equipment Manufacturing |
|
1st Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 5.00%, 6.00% Floor (10.59%) |
|
|
06/09/2023 |
|
|
|
03/30/2027 |
|
|
|
7,622 |
|
|
|
7,517 |
|
|
|
7,585 |
|
|
|
|
|
First Brands, Inc. 3255 West Hamlin Road Rochester Hills, MI 48309 |
|
Transportation Equipment Manufacturing |
|
1st Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 5.00%, 6.00% Floor (10.59%) |
|
|
01/19/2024 |
|
|
|
03/30/2027 |
|
|
|
1,792 |
|
|
|
1,779 |
|
|
|
1,783 |
|
|
|
|
|
Flexsys Holdings 260 Springside Drive Akron, OH 44333 |
|
Chemicals |
|
1st Lien, Secured Loan |
|
2 |
|
3M SOFR + 5.25%, 6.00% Floor (10.85%) |
|
|
11/04/2022 |
|
|
|
11/01/2028 |
|
|
|
4,912 |
|
|
|
4,061 |
|
|
|
4,642 |
|
|
|
|
|
Florida Marine, LLC 2360 5th Street Mendeville, LA 70471 |
|
Shipping |
|
1st Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 8.40%, 10.40% Floor (13.86%) |
|
|
03/17/2023 |
|
|
|
03/17/2028 |
|
|
|
5,790 |
|
|
|
5,659 |
|
|
|
5,987 |
|
|
|
|
|
Foresight Energy 211 North Broadway, Suite 2600 St. Louis, MO 63102 |
|
Metals & Mining |
|
1st Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 8.00%, 9.50% Floor (13.43%) |
|
|
07/29/2021 |
|
|
|
06/30/2027 |
|
|
|
5,934 |
|
|
|
5,959 |
|
|
|
5,934 |
|
|
|
|
|
Form Technologies, LLC 11325 N Community House Road, Suite 300 Charlotte, NC 28277 |
|
Industrial |
|
1st Lien, Secured Loan |
|
2 |
|
3M SOFR + 4.75%, 5.75% Floor (10.2%) |
|
|
01/25/2024 |
|
|
|
07/22/2025 |
|
|
|
995 |
|
|
|
955 |
|
|
|
950 |
|
|
|
|
|
FS KKR Capital Corp. 201 Rouse Boulevard Philadelphia, PA 19112 |
|
Closed-End Fund |
|
Common Stock |
|
10 |
|
n/a |
|
|
05/09/2024 |
|
|
|
n/a |
|
|
|
150,000 |
|
|
|
3,041 |
|
|
|
2,959 |
|
|
|
* |
|
GrafTech Global Enterprises Inc. 982 Keynote Circle Brooklyn Heights, OH 44131 |
|
Industrial |
|
1st Lien, Secured Bond |
|
10, 11 |
|
9.88% |
|
|
01/18/2024 |
|
|
|
12/15/2028 |
|
|
|
1,000 |
|
|
|
754 |
|
|
|
737 |
|
|
|
|
|
Great Elm Specialty Finance, LLC 3100 West End Ave, Suite 750 Nashville, TN 37203 |
|
Specialty Finance |
|
Subordinated Note |
|
4, 6 |
|
13.00% |
|
|
09/01/2023 |
|
|
|
06/30/2026 |
|
|
|
29,733 |
|
|
|
29,733 |
|
|
|
29,733 |
|
|
|
|
|
Great Elm Specialty Finance, LLC 3100 West End Ave, Suite 750 Nashville, TN 37203 |
|
Specialty Finance |
|
Common Equity |
|
4, 6 |
|
n/a |
|
|
09/01/2023 |
|
|
|
n/a |
|
|
|
87,500 |
|
|
|
17,567 |
|
|
|
15,028 |
|
|
|
87.50 |
% |
Greenfire Resources Ltd. 205 5th Avenue SW, Suite 1900 Calgary, AB T2P 2V7 Canada |
|
Oil & Gas Exploration & Production |
|
1st Lien, Secured Bond |
|
10, 11 |
|
12.00% |
|
|
09/13/2023 |
|
|
|
10/01/2028 |
|
|
|
6,500 |
|
|
|
6,385 |
|
|
|
6,941 |
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company |
|
Industry |
|
Security(1) |
|
Notes |
|
Interest
Rate(2) |
|
Initial
Acquisition
Date |
|
|
Maturity |
|
|
Par
Amount /
Quantity |
|
|
Cost |
|
|
Fair
Value |
|
|
Percentage
of Class(3) |
|
Harvey Gulf Holdings LLC 701 Poydras Street, Suite 3700 New Orleans, LA 70139 |
|
Shipping |
|
Secured Loan B |
|
2, 6 |
|
3M SOFR + 7.06%, 9.06% Floor (12.4%) |
|
|
02/28/2024 |
|
|
|
01/19/2029 |
|
|
|
8,784 |
|
|
|
8,712 |
|
|
|
8,753 |
|
|
|
|
|
Loparex LLC 1255 Crescent Green Suite 400 Cary, NC 27518 |
|
Industrial |
|
1st Lien Secured Loan |
|
2, 6 |
|
3M SOFR + 6.00%, 8.00% Floor (11.35%) |
|
|
04/24/2024 |
|
|
|
02/01/2027 |
|
|
|
1,790 |
|
|
|
1,769 |
|
|
|
1,769 |
|
|
|
|
|
LSF9 Atlantis Holdings, LLC 2017 Fiesta Drive, Suite 201 Sarasota, FL 34231 |
|
Retail |
|
1st Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 6.50%, 7.25% Floor (11.83%) |
|
|
02/12/2024 |
|
|
|
03/31/2029 |
|
|
|
988 |
|
|
|
989 |
|
|
|
988 |
|
|
|
|
|
Lummus Technology Holdings 5825 N. Sam Houston Parkway West, #600 Houston, TX 77086 |
|
Chemicals |
|
Unsecured Bond |
|
11 |
|
9.00% |
|
|
05/17/2022 |
|
|
|
07/01/2028 |
|
|
|
2,500 |
|
|
|
2,126 |
|
|
|
2,520 |
|
|
|
|
|
Mad Engine Global, LLC 6740 Cobra Way San Diego, CA, 92121 |
|
Apparel |
|
1st Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 7.00%, 8.00% Floor (12.6%) |
|
|
06/30/2021 |
|
|
|
07/15/2027 |
|
|
|
4,780 |
|
|
|
4,305 |
|
|
|
3,680 |
|
|
|
|
|
Manchester Acquisition Sub, LLC 251 Little Falls Drive, Wilmington, DE 19808 |
|
Chemicals |
|
1st Lien, Secured Loan |
|
2 |
|
3M SOFR + 5.75%, 6.50% Floor (11.25%) |
|
|
09/26/2023 |
|
|
|
11/01/2026 |
|
|
|
6,100 |
|
|
|
5,661 |
|
|
|
5,665 |
|
|
|
|
|
Maverick Gaming LLC 12530 NE 144th Street Kirkland, WA 98034 |
|
Casinos & Gaming |
|
1st Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 7.50%, 8.50% Floor (12.8%) |
|
|
11/16/2021 |
|
|
|
06/03/2028 |
|
|
|
1,476 |
|
|
|
1,476 |
|
|
|
1,476 |
|
|
|
|
|
Maverick Gaming LLC 12530 NE 144th Street Kirkland, WA 98034 |
|
Casinos & Gaming |
|
1st Lien, Secured Loan |
|
2, 6, 7 |
|
3M SOFR + 7.50%, 8.50% Floor (12.8%), (12.80% PIK) |
|
|
04/03/2024 |
|
|
|
06/03/2028 |
|
|
|
5,223 |
|
|
|
5,953 |
|
|
|
4,294 |
|
|
|
|
|
New Wilkie Energy Pty Limited 56 Pitt Street Sydney, New South Wales 2000, Australia |
|
Metals & Mining |
|
1st Lien, Secured Loan |
|
6, 7, 9, 10 |
|
n/a |
|
|
04/06/2023 |
|
|
|
04/06/2026 |
|
|
|
4,935 |
|
|
|
4,821 |
|
|
|
1,234 |
|
|
|
|
|
New Wilkie Energy Pty Limited 56 Pitt Street Sydney, New South Wales 2000, Australia |
|
Metals & Mining |
|
Warrants |
|
6, 8, 10 |
|
n/a |
|
|
04/06/2023 |
|
|
|
n/a |
|
|
|
1,078,899 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
New Wilkie Energy Pty Limited 56 Pitt Street Sydney, New South Wales 2000, Australia |
|
Metals & Mining |
|
SS Working Capital Facility |
|
6, 7, 10 |
|
16.00% |
|
|
02/22/2024 |
|
|
|
08/16/2024 |
|
|
|
1,110 |
|
|
|
1,096 |
|
|
|
1,110 |
|
|
|
|
|
New Wilkie Energy Pty Limited 56 Pitt Street Sydney, New South Wales 2000, Australia |
|
Metals & Mining |
|
Super Senior Receivership Loan |
|
6, 7, 10 |
|
15.00% |
|
|
05/29/2024 |
|
|
|
08/29/2024 |
|
|
|
99 |
|
|
|
90 |
|
|
|
99 |
|
|
|
|
|
NICE-PAK Products, Inc. Two Nice-Pak Park Orangeburg, NY 10962 |
|
Consumer Products |
|
Secured Loan B |
|
2, 6, 7 |
|
3M SOFR + 12.50%, 13.50% Floor (18.10%), (8.10% cash + 10.00% PIK) |
|
|
09/30/2022 |
|
|
|
09/30/2027 |
|
|
|
9,099 |
|
|
|
8,919 |
|
|
|
9,181 |
|
|
|
|
|
NICE-PAK Products, Inc. Two Nice-Pak Park Orangeburg, NY 10962 |
|
Consumer Products |
|
Promissory Note |
|
6, 8 |
|
n/a |
|
|
09/30/2022 |
|
|
|
09/30/2029 |
|
|
|
1,449 |
|
|
|
|
|
|
|
1,449 |
|
|
|
|
|
NICE-PAK Products, Inc. Two Nice-Pak Park Orangeburg, NY 10962 |
|
Consumer Products |
|
Warrants |
|
6, 8 |
|
n/a |
|
|
09/30/2022 |
|
|
|
n/a |
|
|
|
880,909 |
|
|
|
|
|
|
|
2,316 |
|
|
|
2.56 |
% |
PFS Holdings Corp. 3747 Hecktown Road Easton, PA 18045 |
|
Food & Staples |
|
Common Equity |
|
5, 6, 8 |
|
n/a |
|
|
11/13/2020 |
|
|
|
n/a |
|
|
|
5,238 |
|
|
|
12,378 |
|
|
|
|
|
|
|
5.05 |
% |
PowerStop LLC 6112 W 73rd Street Bedford Park, IL 60638 |
|
Transportation Equipment Manufacturing |
|
1st Lien, Secured Loan |
|
2 |
|
3M SOFR + 4.75%, 5.25% Floor (10.2%) |
|
|
02/09/2024 |
|
|
|
01/26/2029 |
|
|
|
2,331 |
|
|
|
2,144 |
|
|
|
2,271 |
|
|
|
|
|
ProFrac Holdings II, LLC 333 Shops Boulevard Suite 301 Weatherford, Texas 76087 |
|
Energy Services |
|
1st Lien, Secured Loan |
|
2, 6, 10, 11 |
|
3M SOFR + 7.25%, 9.75% Floor (12.81%) |
|
|
12/27/2023 |
|
|
|
01/23/2029 |
|
|
|
6,732 |
|
|
|
6,670 |
|
|
|
6,717 |
|
|
|
|
|
Research Now Group, Inc. n/k/a Dynata, LLC 5800 Tennyson Parkway Suite 600 Plano, TX
75024 |
|
Internet Media |
|
1st Lien, Secured Revolver |
|
2, 6, 9 |
|
3M SOFR + 4.50%, 4.50% Floor (10.07%) |
|
|
01/29/2019 |
|
|
|
06/14/2024 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
7,844 |
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company |
|
Industry |
|
Security(1) |
|
Notes |
|
Interest
Rate(2) |
|
Initial
Acquisition
Date |
|
|
Maturity |
|
|
Par
Amount /
Quantity |
|
|
Cost |
|
|
Fair
Value |
|
|
Percentage
of Class(3) |
|
Research Now Group, Inc. n/k/a Dynata, LLC 5800 Tennyson Parkway Suite 600 Plano, TX
75024 |
|
Internet Media |
|
2nd Lien, Secured Loan |
|
6, 9 |
|
3M SOFR + 0.00%, 0.00% Floor (0%) |
|
|
05/20/2019 |
|
|
|
12/20/2025 |
|
|
|
8,000 |
|
|
|
7,977 |
|
|
|
289 |
|
|
|
|
|
Research Now Group, Inc. n/k/a Dynata, LLC 5800 Tennyson Parkway Suite 600 Plano, TX
75024 |
|
Internet Media |
|
1st Lien, DIP Loan |
|
2, 6 |
|
1M SOFR + 8.75%, 9.75% Floor (14.21%) |
|
|
06/04/2024 |
|
|
|
08/17/2024 |
|
|
|
308 |
|
|
|
302 |
|
|
|
308 |
|
|
|
|
|
Ruby Tuesday Operations LLC 333 E. Broadway Avenue Maryville, TN 37804 |
|
Restaurants |
|
1st Lien, Secured Loan |
|
2, 6, 7 |
|
1M SOFR + 13.50%, 14.50% Floor (17.44%), (11.44% cash + 6.00% PIK) |
|
|
02/24/2021 |
|
|
|
02/24/2025 |
|
|
|
1,921 |
|
|
|
1,921 |
|
|
|
1,895 |
|
|
|
|
|
Ruby Tuesday Operations LLC 333 E. Broadway Avenue Maryville, TN 37804 |
|
Restaurants |
|
1st Lien, Secured Loan |
|
2, 6, 7 |
|
1M SOFR + 16.00%, 17.25% Floor (21.44%), (21.44% PIK) |
|
|
01/31/2023 |
|
|
|
02/24/2025 |
|
|
|
666 |
|
|
|
666 |
|
|
|
666 |
|
|
|
|
|
Ruby Tuesday Operations LLC 333 E. Broadway Avenue Maryville, TN 37804 |
|
Restaurants |
|
Warrants |
|
6, 8 |
|
n/a |
|
|
02/24/2021 |
|
|
|
n/a |
|
|
|
311,697 |
|
|
|
|
|
|
|
906 |
|
|
|
2.81 |
% |
Spencer Spirit Holdings, Inc. 6826 E Black Horse Pike Egg Harbor Township, NJ 08234 |
|
Retail |
|
1st Lien, Secured Loan |
|
2, 6 |
|
1M SOFR + 5.50%, 5.50% Floor (10.83%) |
|
|
06/25/2024 |
|
|
|
07/15/2031 |
|
|
|
2,700 |
|
|
|
2,680 |
|
|
|
2,680 |
|
|
|
|
|
Stone Ridge Opportunities Fund L.P. One Vanderbilt Ave., 65th Floor New York, NY
10017 |
|
Insurance |
|
Private Fund |
|
8, 10, 12 |
|
n/a |
|
|
01/01/2023 |
|
|
|
n/a |
|
|
|
2,379,875 |
|
|
|
2,380 |
|
|
|
3,320 |
|
|
|
|
|
Summit Midstream Holdings, LLC 910 Louisiana Street, Suite 4200 Houston, TX 77002 |
|
Energy Midstream |
|
2nd Lien, Secured Bond |
|
11 |
|
9.50% |
|
|
10/19/2021 |
|
|
|
10/15/2026 |
|
|
|
2,000 |
|
|
|
1,920 |
|
|
|
2,056 |
|
|
|
|
|
Thryv, Inc. 2200 West Airfield Drive PO Box 619810 Dallas, TX 75261 |
|
Marketing Services |
|
1st Lien, Secured Loan |
|
2, 10 |
|
1M SOFR + 6.75%, 7.50% Floor (12.09%) |
|
|
04/30/2024 |
|
|
|
05/01/2029 |
|
|
|
1,730 |
|
|
|
1,713 |
|
|
|
1,757 |
|
|
|
|
|
Trouvaille Re Ltd. 1700 City Plaza Drive, Suite 200 Spring, TX 77389 |
|
Insurance |
|
Preference Shares |
|
8, 10 |
|
n/a |
|
|
03/27/2024 |
|
|
|
n/a |
|
|
|
100 |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
TruGreen Limited Partnership 1790 Kirby Parkway Suite 300 Memphis, TN 38138 |
|
Consumer Services |
|
1st Lien, Secured Loan |
|
2, 6 |
|
1M SOFR + 4.00%, 4.75% Floor (9.44%) |
|
|
05/14/2024 |
|
|
|
11/02/2027 |
|
|
|
1,795 |
|
|
|
1,713 |
|
|
|
1,737 |
|
|
|
|
|
TruGreen Limited Partnership 1790 Kirby Parkway Suite 300 Memphis, TN 38138 |
|
Consumer Services |
|
2nd Lien, Secured Loan |
|
2, 6 |
|
3M SOFR + 8.50%, 9.25% Floor (14.09%) |
|
|
05/14/2024 |
|
|
|
11/02/2028 |
|
|
|
900 |
|
|
|
700 |
|
|
|
701 |
|
|
|
|
|
TRU Taj Trust 505 Park Avenue, 2nd Floor New York, NY 10022 |
|
Retail |
|
Common Equity |
|
6, 8 |
|
n/a |
|
|
07/21/2017 |
|
|
|
n/a |
|
|
|
16,000 |
|
|
|
611 |
|
|
|
49 |
|
|
|
2.75 |
% |
Universal Fiber Systems 640 State Street Bristol, TN 37620 |
|
Chemicals |
|
Term Loan B |
|
2, 6, 7 |
|
1M SOFR + 12.79%, 13.79% Floor (18.25%), (9.25% cash + 9.00% PIK) |
|
|
09/30/2021 |
|
|
|
09/29/2026 |
|
|
|
8,196 |
|
|
|
8,133 |
|
|
|
8,030 |
|
|
|
|
|
Universal Fiber Systems 640 State Street Bristol, TN 37620 |
|
Chemicals |
|
Term Loan C |
|
2, 6, 7 |
|
1M SOFR + 12.79%, 13.79% Floor (18.25%), (9.25% cash + 9.00% PIK) |
|
|
09/30/2021 |
|
|
|
09/29/2026 |
|
|
|
3,160 |
|
|
|
3,129 |
|
|
|
2,921 |
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company |
|
Industry |
|
Security(1) |
|
Notes |
|
Interest
Rate(2) |
|
Initial
Acquisition
Date |
|
|
Maturity |
|
|
Par
Amount /
Quantity |
|
|
Cost |
|
|
Fair
Value |
|
|
Percentage
of Class(3) |
|
Universal Fiber Systems 640 State Street Bristol, TN 37620 |
|
Chemicals |
|
Warrants |
|
6, 8 |
|
n/a |
|
|
09/30/2021 |
|
|
|
n/a |
|
|
|
3,383 |
|
|
|
|
|
|
|
84 |
|
|
|
1.50 |
% |
Vi-Jon 8800 Page Avenue St. Louis, MO 63114 |
|
Consumer Products |
|
1st Lien, Secured Loan |
|
2, 6, 7 |
|
3M SOFR + 10%, 12.5% Floor (15.59%), (13.59% cash + 2.00% PIK) |
|
|
12/28/2023 |
|
|
|
12/28/2028 |
|
|
|
8,949 |
|
|
|
8,702 |
|
|
|
8,754 |
|
|
|
|
|
W&T Offshore, Inc. 5718 Westheimer Road, Suite 700 Houston, TX 77057 |
|
Oil & Gas Exploration & Production |
|
2nd Lien, Secured Bond |
|
10, 11 |
|
11.75% |
|
|
01/12/2023 |
|
|
|
02/01/2026 |
|
|
|
4,816 |
|
|
|
4,816 |
|
|
|
4,953 |
|
|
|
|
|
Total Investments excluding Short-Term Investments (236.21% of Net
Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316,307 |
|
|
|
297,651 |
|
|
|
|
|
Short-Term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury |
|
Short-Term Investments |
|
Treasury Bill |
|
|
|
0.00% |
|
|
06/28/2024 |
|
|
|
n/a |
|
|
|
20,000,000 |
|
|
|
19,918 |
|
|
|
19,916 |
|
|
|
|
|
MFB Northern Inst Funds Treas Portfolio Premier CL |
|
Short-Term Investments |
|
Money Market |
|
|
|
0.00% |
|
|
10/26/2023 |
|
|
|
n/a |
|
|
|
514,398 |
|
|
|
514 |
|
|
|
514 |
|
|
|
|
|
Total Short-Term Investments (16.21% of Net Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,432 |
|
|
|
20,430 |
|
|
|
|
|
TOTAL INVESTMENTS (252.43% of Net Assets) |
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
336,739 |
|
|
$ |
318,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities in Excess of Net Assets (152.43% of Net Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(192,072 |
) |
|
|
|
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
126,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Companys investments are generally acquired in private transactions exempt from registration under the
Securities Act and, therefore, are generally subject to limitations on resale, and may be deemed to be restricted securities under the Securities Act. |
(2) |
Certain of the Companys variable rate debt investments bear interest at a rate that is determined by
reference to Secured Overnight Financing Rate (SOFR) or prime rate (Prime) which are reset periodically. For each debt investment, the Company has provided the interest rate in effect as of period end. A floor is the minimum
rate that will be applied in calculating an interest rate. A cap is the maximum rate that will be applied in calculating an interest rate. The SOFR as of period end was 5.33%. The one-month
(1M) SOFR as of period end was 5.34%. The three-month (3M) SOFR as of period end was 5.32%. The six-month (6M) SOFR as of period end was 5.25%. The Prime as of period end
was 8.50%. |
(3) |
Percentage of class held refers only to equity held, if any, calculated on a fully diluted basis.
|
(4) |
Controlled Investments are investments in those companies that are Controlled
Investments of the Company, as defined in the Investment Company Act. A company is deemed to be a Controlled Investment of the Company if the Company owns more than 25% of the voting securities of such company.
|
(5) |
Affiliate Investments are investments in those companies that are Affiliated Companies
of the Company, as defined in the Investment Company Act, which are not Controlled Investments. A company is deemed to be an Affiliate of the Company if the Company owns 5% or more, but less than 25%, of the voting securities
of such company. |
(6) |
Investments classified as Level 3 whereby fair value was determined by the Companys Board.
|
(7) |
Security pays, or has the option to pay, some or all of its interest in kind. As of June 30, 2024, the
Avation Capital SA secured bond, Maverick Gaming second out loan, New Wilkie Energy Pty Limited working capital facility and receivership loan, Nice-Pak Products, Inc. secured loan B, Ruby Tuesday Operations,
LLC secured loans, each of the Universal Fiber Systems term loans, and Vi-Jon secured loan pay all or a portion of their interest in-kind and the rates above reflect the
PIK interest rates. |
(8) |
Non-income producing security. |
(9) |
Investment was on non-accrual status as of period end.
|
(10) |
Indicates assets that the Company believes do not represent qualifying assets under
Section 55(a) of the Investment Company Act. Qualifying assets must represent at least 70% of the Companys total assets at the time of acquisition of any additional non-qualifying
assets. Of the Companys total assets, 26.34% were non-qualifying assets as of period end. |
(11) |
Security exempt from registration pursuant to Rule 144A under the Securities Act. Such security may be sold
in certain transactions (normally to qualified institutional buyers) and remain exempt from registration. |
(12) |
As a practical expedient, the Company uses net asset value to determine the fair value of this investment.
|
(13) |
As of period end, the aggregate gross unrealized appreciation for all securities in which there was an excess of
value over tax cost was $13,768; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $32,426; the net unrealized depreciation was $18,658; the aggregate cost of securities for
Federal income tax purposes was $336,739. |
* |
Represents less than 1%. |
62
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of our financial condition and results of operations should be read in conjunction with our financial
statements and the notes thereto contained elsewhere in this prospectus.
Overview
We are a BDC that seeks to generate both current income and capital appreciation through debt and income-generating equity investments, including investments
in specialty finance businesses. To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income generating equity investments in specialty finance companies, that we
believe offer sufficient downside protection and have the potential to generate attractive returns. We generally define middle market companies as companies with enterprise values between $100 million and $2 billion. We also make
investments throughout other portions of a companys capital structure, including subordinated debt, mezzanine debt, and equity or equity-linked securities. We source these transactions directly with
issuers and in the secondary markets through relationships with industry professionals.
On September 1, 2023, we contributed investments in certain
of our operating company subsidiaries and other specialty finance assets to our formerly wholly owned subsidiary, Great Elm Specialty Finance, LLC (GESF) in exchange for equity and subordinated indebtedness in GESF. In connection with
this contribution, a strategic investor purchased approximately 12.5% of the equity interests and subordinated indebtedness in GESF. Through its subsidiaries, GESF provides a variety of financing options along a continuum of lending to
middle-market borrowers including, receivables factoring, asset-based and asset-backed lending, lender finance, and equipment financing. GESF expects to generate both revenue and cost synergies across its specialty finance company subsidiaries. We
currently own approximately 87.5% of GESF.
On September 27, 2016, we and GECM entered into the Investment Management Agreement and the
Administration Agreement, and we began to accrue obligations to our external investment manager under those agreements. On August 1, 2022, upon receiving our stockholders approval, we and GECM entered into an amendment to the Investment
Management Agreement to reset the capital gains incentive fee to begin on April 1, 2022, which eliminated $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 in calculating future incentive fees. In
addition, the incentive fee based on income was amended to reset the mandatory deferral commencement date used in calculating deferred incentive fees to April 1, 2022. The Investment Management Agreement renews for successive annual periods,
subject to requisite approvals from our Board and/or stockholders.
We have elected to be treated as a RIC for U.S. federal income tax purposes. As a RIC,
we will not be taxed on our income to the extent that we distribute such income each year and satisfy other applicable income tax requirements. To qualify as a RIC, we must, among other things, meet source-of-income and asset diversification requirements and annually distribute to our stockholders generally at least 90% of our investment company taxable income on a timely basis. If we qualify as a RIC,
we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders.
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including, among others, the amount of debt
and equity capital available from other sources to middle-market companies, the level of merger and acquisition activity, pricing in the high yield and leveraged loan credit markets, our expectations of future investment opportunities, the general
economic environment as well as the competitive environment for the types of investments we make.
As a BDC, our investments and the composition of our
portfolio are required to comply with regulatory requirements.
63
Revenues
We generate revenue primarily from interest on the debt investments that we hold. We may also generate revenue from dividends on the equity investments that we
hold, capital gains on the disposition of investments, and lease, fee, and other income. Our investments in fixed income instruments generally have an expected maturity of three to five years, although we have no lower or upper constraint on
maturity. Our debt investments generally pay interest quarterly or semi-annually. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some
cases, our debt investments and preferred stock investments may defer payments of cash interest or dividends or PIK. In addition, we may generate revenue in the form of prepayment fees, commitment, origination, due diligence fees, end-of-term or exit fees, fees for providing significant managerial assistance, consulting fees and other investment-related income.
Expenses
Our primary operating expenses include
the payment of a base management fee, administration fees (including the allocable portion of overhead under the Administration Agreement), and, depending on our operating results, an incentive fee. The base management fee and incentive fee
remunerates GECM for work in identifying, evaluating, negotiating, closing and monitoring our investments. The Administration Agreement provides for reimbursement of costs and expenses incurred for office space rental, office equipment and utilities
allocable to us under the Administration Agreement, as well as certain costs and expenses incurred relating to non-investment advisory, administrative or operating services provided by GECM or its affiliates
to us. We also bear all other costs and expenses of our operations and transactions. In addition, our expenses include interest on our outstanding indebtedness.
Critical Accounting Policies and Estimates
Valuation of Portfolio Investments
We value our
portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our Board. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market
participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (1) are independent of us; (2) are knowledgeable, having a reasonable understanding about
the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary); (3) are able to transact for the asset; and (4) are willing to transact for the asset (that
is, they are motivated but not forced or otherwise compelled to do so).
Investments for which market quotations are readily available are valued at such
market quotations unless the quotations are deemed not to represent fair value. Debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value, are valued at
fair value using a valuation process consistent with our Board-approved policy.
Our Board approves in good faith the valuation of our portfolio as of the
end of each quarter. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that
would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and other events may impact the market
quotations used to value some of our investments.
Those investments for which market quotations are not readily available or for which market quotations
are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market
64
transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or
earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in
determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples, security
covenants, call protection provisions, information rights and the nature and realizable value of any collateral, the portfolio companys ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio
company does business, comparisons of financial ratios of peer companies that are public, and merger and acquisition comparables; and enterprise values.
We prefer the use of observable inputs and minimize the use of unobservable inputs in our valuation process. Inputs refer broadly to the assumptions that
market participants would use in pricing an asset. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset developed based on market data obtained from sources independent of us. Unobservable
inputs are inputs that reflect our assumptions about the assumptions market participants would use in pricing an asset developed based on the best information available in the circumstances.
Both observable and unobservable inputs are subject to some level of uncertainty and assumptions used bear the risk of change in the future. We utilize the
best information available to us, including the factors listed above, in preparing the fair valuations. In determining the fair value of any individual investment, we may use multiple inputs or utilize more than one approach to calculate the fair
value to assess the sensitivity to change and determine a reasonable range of fair value. In addition, our valuation procedures include an assessment of the current valuation as compared to the previous valuation for each investment and where
differences are material understanding the primary drivers of those changes, incorporating updates to our current valuation inputs and approaches as appropriate.
Revenue Recognition
Interest and dividend income,
including PIK income, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees, including OID, earned with respect to capital commitments are generally amortized or accreted into interest income over the
life of the respective debt investment, as are end-of-term or exit fees receivable upon repayment of a debt investment if such fees are fixed in nature. Other fees,
including certain amendment fees, prepayment fees and commitment fees on broken deals, and end-of-term or exit fees that have a contingency feature or are variable in
nature are recognized as earned. Prepayment fees and similar income due upon the early repayment of a loan or debt security are recognized when earned and are included in interest income.
We may purchase debt investments at a discount to their face value. Discounts on the acquisition of corporate debt instruments are generally amortized using
the effective-interest or constant-yield method unless there are material questions as to collectability.
We assess the outstanding accrued income
receivables for collectability at least quarterly, or more frequently if there is an event that indicates the underlying portfolio company may not be able to make the expected payments. If it is determined that amounts are not likely to be paid we
may establish a reserve against or reverse the income and put the investment on non-accrual status.
Net
Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation)
We measure realized gains or losses by the difference between the
net proceeds from the repayment or sale of an investment and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses are computed using the specific
identification method.
65
Net change in unrealized appreciation or depreciation reflects the net change in portfolio investment fair values
and portfolio investment cost bases during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
Portfolio and Investment Activity
The following is a
summary of our investment activity for the years ended December 31, 2023 and 2022 and the six months ended June 30, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Acquisitions(1) |
|
Dispositions(2) |
|
Weighted Average Yield End of Period(3) |
Quarter ended March 31, 2022 |
|
|
|
27,578 |
|
|
|
|
(29,723) |
|
|
|
|
10.38 |
% |
Quarter ended June 30, 2022 |
|
|
|
44,750 |
|
|
|
|
(34,014) |
|
|
|
|
10.27 |
% |
Quarter ended September 30, 2022 |
|
|
|
40,212 |
|
|
|
|
(28,430) |
|
|
|
|
11.59 |
% |
Quarter ended December 31, 2022 |
|
|
|
37,588 |
|
|
|
|
(20,461) |
|
|
|
|
12.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2022 |
|
|
$ |
150,128 |
|
|
|
$ |
(112,628) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2023 |
|
|
|
53,293 |
|
|
|
|
(57,175) |
|
|
|
|
13.06 |
% |
Quarter ended June 30, 2023 |
|
|
|
23,042 |
|
|
|
|
(15,975) |
|
|
|
|
13.47 |
% |
Quarter ended September 30, 2023 |
|
|
|
80,915 |
|
|
|
|
(87,268) |
|
|
|
|
13.36 |
% |
Quarter ended December 31, 2023 |
|
|
|
68,813 |
|
|
|
|
(75,152) |
|
|
|
|
13.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2023 |
|
|
$ |
226,063 |
|
|
|
$ |
(235,570) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2024 |
|
|
|
64,584 |
|
|
|
|
(29,289) |
|
|
|
|
12.84 |
% |
Quarter ended June 30, 2024 |
|
|
|
121,743 |
|
|
|
|
(83,159) |
|
|
|
|
12.58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2024 |
|
|
$ |
186,327 |
|
|
|
$ |
(112,448) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings
and capitalized PIK income. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, were excluded. |
(2) |
Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving
credit facilities). Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, were excluded. |
(3) |
Weighted average yield is based upon the stated coupon rate and fair value of outstanding debt securities at
the measurement date. Debt securities on non-accrual status are included in the calculation and are treated as having 0% as their applicable interest rate for purposes of this calculation, unless such debt
securities are valued at zero. |
66
Portfolio Reconciliation
The following is a reconciliation of the investment portfolio for the six months ended June 30, 2024 and the years ended December 31, 2023 and 2022.
Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
(in thousands) |
|
For the Six Months Ended June 30, 2024 |
|
|
2023 |
|
|
2022 |
|
Beginning Investment Portfolio, at fair value |
|
$ |
230,612 |
|
|
$ |
224,957 |
|
|
$ |
212,149 |
|
Portfolio Investments acquired(1) |
|
|
186,327 |
|
|
|
226,063 |
|
|
|
150,128 |
|
Amortization of premium and accretion of discount, net |
|
|
1,193 |
|
|
|
2,375 |
|
|
|
1,328 |
|
Portfolio Investments repaid or sold(2)
|
|
|
(112,448 |
) |
|
|
(235,570 |
) |
|
|
(112,628 |
) |
Net change in unrealized appreciation (depreciation) on investments |
|
|
(9,919 |
) |
|
|
17,485 |
|
|
|
100,016 |
|
Net realized gain (loss) on investments |
|
|
1,886 |
|
|
|
(4,698 |
) |
|
|
(126,036 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Investment Portfolio, at fair value |
|
$ |
297,651 |
|
|
$ |
230,612 |
|
|
$ |
224,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes new investments, additional fundings (inclusive of those on revolving credit facilities),
refinancings, and capitalized PIK income. |
(2) |
Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving
credit facilities). |
Portfolio Classification
The following table shows the fair value of our portfolio of investments by industry as of June 30, 2024 and December 31, 2023 and 2022 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
Industry |
|
Investments at Fair Value |
|
|
Percentage of Fair Value |
|
|
Investments at Fair Value |
|
|
Percentage of Fair Value |
|
|
Investments at Fair Value |
|
|
Percentage at Fair Value |
|
Specialty Finance |
|
$ |
44,761 |
|
|
|
15.04 |
% |
|
$ |
52,322 |
|
|
|
22.69 |
% |
|
$ |
58,250 |
|
|
|
25.89 |
% |
Structured Finance |
|
|
28,092 |
|
|
|
9.44 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Chemicals |
|
|
25,405 |
|
|
|
8.54 |
% |
|
|
27,023 |
|
|
|
11.72 |
% |
|
|
31,702 |
|
|
|
14.09 |
% |
Transportation Equipment Manufacturing |
|
|
24,017 |
|
|
|
8.07 |
% |
|
|
17,261 |
|
|
|
7.49 |
% |
|
|
11,803 |
|
|
|
5.25 |
% |
Consumer Products |
|
|
21,700 |
|
|
|
7.29 |
% |
|
|
20,211 |
|
|
|
8.76 |
% |
|
|
8,413 |
|
|
|
3.74 |
% |
Insurance |
|
|
20,459 |
|
|
|
6.87 |
% |
|
|
16,026 |
|
|
|
6.95 |
% |
|
|
2,340 |
|
|
|
1.04 |
% |
Technology |
|
|
18,997 |
|
|
|
6.38 |
% |
|
|
7,342 |
|
|
|
3.18 |
% |
|
|
(365 |
) |
|
|
(0.16 |
)% |
Closed-End Fund |
|
|
15,589 |
|
|
|
5.24 |
% |
|
|
6,770 |
|
|
|
2.94 |
% |
|
|
5,825 |
|
|
|
2.59 |
% |
Shipping |
|
|
14,740 |
|
|
|
4.95 |
% |
|
|
11,724 |
|
|
|
5.08 |
% |
|
|
7,206 |
|
|
|
3.20 |
% |
Oil & Gas Exploration & Production |
|
|
11,894 |
|
|
|
4.00 |
% |
|
|
11,420 |
|
|
|
4.95 |
% |
|
|
15,136 |
|
|
|
6.74 |
% |
Internet Media |
|
|
8,441 |
|
|
|
2.83 |
% |
|
|
13,732 |
|
|
|
5.95 |
% |
|
|
12,247 |
|
|
|
5.44 |
% |
Metals & Mining |
|
|
8,377 |
|
|
|
2.81 |
% |
|
|
9,538 |
|
|
|
4.14 |
% |
|
|
6,046 |
|
|
|
2.69 |
% |
Energy Services |
|
|
6,717 |
|
|
|
2.26 |
% |
|
|
6,930 |
|
|
|
3.01 |
% |
|
|
2,877 |
|
|
|
1.28 |
% |
Casinos & Gaming |
|
|
6,171 |
|
|
|
2.07 |
% |
|
|
4,252 |
|
|
|
1.84 |
% |
|
|
9,301 |
|
|
|
4.13 |
% |
Defense |
|
|
5,847 |
|
|
|
1.96 |
% |
|
|
1,945 |
|
|
|
0.84 |
% |
|
|
|
|
|
|
|
% |
Consumer Services |
|
|
4,961 |
|
|
|
1.67 |
% |
|
|
1,742 |
|
|
|
0.76 |
% |
|
|
|
|
|
|
|
% |
Food & Staples |
|
|
4,363 |
|
|
|
1.47 |
% |
|
|
7,199 |
|
|
|
3.12 |
% |
|
|
3,660 |
|
|
|
1.63 |
% |
Aircraft |
|
|
4,239 |
|
|
|
1.42 |
% |
|
|
3,958 |
|
|
|
1.72 |
% |
|
|
3,577 |
|
|
|
1.59 |
% |
Energy Midstream |
|
|
4,052 |
|
|
|
1.36 |
% |
|
|
1,996 |
|
|
|
0.87 |
% |
|
|
22,559 |
|
|
|
10.03 |
% |
Retail |
|
|
3,717 |
|
|
|
1.25 |
% |
|
|
54 |
|
|
|
0.02 |
% |
|
|
5 |
|
|
|
0.00 |
% |
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
Industry |
|
Investments at Fair Value |
|
|
Percentage of Fair Value |
|
|
Investments at Fair Value |
|
|
Percentage of Fair Value |
|
|
Investments at Fair Value |
|
|
Percentage at Fair Value |
|
Apparel |
|
|
3,680 |
|
|
|
1.24 |
% |
|
|
2,007 |
|
|
|
0.87 |
% |
|
|
2,371 |
|
|
|
1.05 |
% |
Restaurants |
|
|
3,467 |
|
|
|
1.16 |
% |
|
|
3,441 |
|
|
|
1.49 |
% |
|
|
3,110 |
|
|
|
1.38 |
% |
Industrial |
|
|
3,456 |
|
|
|
1.16 |
% |
|
|
3,719 |
|
|
|
1.61 |
% |
|
|
5,498 |
|
|
|
2.44 |
% |
Telecommunications |
|
|
1,801 |
|
|
|
0.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
Marketing Services |
|
|
1,757 |
|
|
|
0.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
Electronics Manufacturing |
|
|
951 |
|
|
|
0.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
Oil and Gas Refining |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
5,338 |
|
|
|
2.40 |
% |
Hospitality |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
4,998 |
|
|
|
2.22 |
% |
Wireless Telecommunication Services |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
2,997 |
|
|
|
1.33 |
% |
Special Purpose Acquisition Company |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
19 |
|
|
|
0.01 |
% |
Auto Manufacturer |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
2 |
|
|
|
0.00 |
% |
Biotechnology |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
1 |
|
|
|
0.00 |
% |
Household & Personal Products |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
1 |
|
|
|
0.00 |
% |
Total |
|
$ |
297,651 |
|
|
|
100.00 |
% |
|
$ |
230,612 |
|
|
|
100.00 |
% |
|
$ |
224,957 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
For the Year Ended December 31, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2022 |
|
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In thousands |
|
|
Per Share(3) |
|
|
In thousands |
|
|
Per Share(3) |
|
Total Investment Income |
|
$ |
9,548 |
|
|
$ |
1.00 |
|
|
$ |
8,977 |
|
|
$ |
1.18 |
|
|
$ |
18,457 |
|
|
$ |
2.03 |
|
|
$ |
17,387 |
|
|
$ |
2.29 |
|
|
$ |
35,825 |
|
|
$ |
4.71 |
|
|
$ |
24,429 |
|
|
$ |
3.91 |
|
Interest income |
|
|
7,763 |
|
|
|
0.81 |
|
|
|
7,081 |
|
|
|
0.93 |
|
|
|
15,344 |
|
|
|
1.69 |
|
|
|
13,711 |
|
|
|
1.80 |
|
|
|
28,901 |
|
|
|
3.80 |
|
|
|
18,684 |
|
|
|
2.99 |
|
Dividend income |
|
|
1,570 |
|
|
|
0.16 |
|
|
|
1,027 |
|
|
|
0.14 |
|
|
|
2,341 |
|
|
|
0.26 |
|
|
|
1,961 |
|
|
|
0.26 |
|
|
|
3,478 |
|
|
|
0.46 |
|
|
|
4,354 |
|
|
|
0.70 |
|
Other commitment fees |
|
|
175 |
|
|
|
0.02 |
|
|
|
802 |
|
|
|
0.11 |
|
|
|
700 |
|
|
|
0.08 |
|
|
|
1,604 |
|
|
|
0.21 |
|
|
|
3,075 |
|
|
|
0.40 |
|
|
|
1,155 |
|
|
|
0.18 |
|
Other income |
|
|
40 |
|
|
|
|
|
|
|
67 |
|
|
|
0.01 |
|
|
|
72 |
|
|
|
0.01 |
|
|
|
111 |
|
|
|
0.01 |
|
|
|
371 |
|
|
|
0.05 |
|
|
|
236 |
|
|
|
0.04 |
|
(1) |
The per share amounts are based on a weighted average of 9,551,037 and 9,105,190 outstanding common shares for
the three and six months ended June 30, 2024, respectively. |
(2) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the three and
six months ended June 30, 2023. |
(3) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended
December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022. These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on
February 28, 2022. Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fees,
commitment fees and funding fees on loans. |
Interest income increased for the three and six months ended June 30, 2024 as compared
to the corresponding period in the prior year primarily due to rising interest rates. As of June 30, 2024, the debt investment portfolio had an average coupon rate of 12.8% on approximately $216.8 million of principal as compared to 12.3%
on approximately $217.5 million of principal as of June 30, 2023, excluding positions on non-accrual in each period.
Dividend income increased for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 primarily due
to higher distributions from our investments in specialty finance portfolio companies.
68
Other commitment fees decreased for the three and six months ended June 30, 2024 as compared to the three
months ended June 30, 2023 attributable to exits from positions with revolver commitments.
Interest income increased for the year ended
December 31, 2023 as compared to the year ended December 31, 2022 primarily due to growth of the portfolio and rising interest rates.
Dividend
income decreased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 due to lower distributions from our investments in specialty finance portfolio companies.
Other commitment fees increased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is attributable to fees in
connection with the extensions of certain revolver commitments.
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
For the Year Ended December 31, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2022 |
|
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In Thousands |
|
|
Per Share(3) |
|
|
In Thousands |
|
|
Per Share(3) |
|
Total Expenses |
|
$ |
6,490 |
|
|
$ |
0.68 |
|
|
$ |
5,609 |
|
|
$ |
0.74 |
|
|
$ |
12,201 |
|
|
$ |
1.34 |
|
|
$ |
11,152 |
|
|
$ |
1.47 |
|
|
$ |
22,996 |
|
|
$ |
3.03 |
|
|
$ |
13,716 |
|
|
$ |
2.19 |
|
Management fees |
|
|
1,068 |
|
|
|
0.11 |
|
|
|
884 |
|
|
|
0.12 |
|
|
|
2,008 |
|
|
|
0.22 |
|
|
|
1,753 |
|
|
|
0.23 |
|
|
|
3,539 |
|
|
|
0.47 |
|
|
|
3,205 |
|
|
|
0.51 |
|
Incentive fees |
|
|
764 |
|
|
|
0.08 |
|
|
|
842 |
|
|
|
0.11 |
|
|
|
1,562 |
|
|
|
0.17 |
|
|
|
1,552 |
|
|
|
0.20 |
|
|
|
3,132 |
|
|
|
0.41 |
|
|
|
565 |
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive fee waiver |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,854 |
) |
|
|
(0.78 |
) |
Total advisory and management fees |
|
$ |
1,832 |
|
|
$ |
0.19 |
|
|
$ |
1,726 |
|
|
$ |
0.23 |
|
|
$ |
3,570 |
|
|
$ |
0.39 |
|
|
$ |
3,305 |
|
|
$ |
0.43 |
|
|
$ |
6,671 |
|
|
$ |
0.88 |
|
|
$ |
(1,084 |
) |
|
$ |
(0.17 |
) |
Administration fees |
|
|
396 |
|
|
|
0.04 |
|
|
|
341 |
|
|
|
0.04 |
|
|
|
781 |
|
|
|
0.09 |
|
|
|
636 |
|
|
|
0.08 |
|
|
|
1,522 |
|
|
|
0.20 |
|
|
|
938 |
|
|
|
0.15 |
|
Directors fees |
|
|
54 |
|
|
|
0.01 |
|
|
|
53 |
|
|
|
0.01 |
|
|
|
108 |
|
|
|
0.01 |
|
|
|
105 |
|
|
|
0.01 |
|
|
|
205 |
|
|
|
0.03 |
|
|
|
215 |
|
|
|
0.03 |
|
Interest expense |
|
|
3,473 |
|
|
|
0.37 |
|
|
|
2,769 |
|
|
|
0.36 |
|
|
|
6,280 |
|
|
|
0.69 |
|
|
|
5,590 |
|
|
|
0.74 |
|
|
|
11,742 |
|
|
|
1.54 |
|
|
|
10.690 |
|
|
|
1.71 |
|
Professional services |
|
|
413 |
|
|
|
0.04 |
|
|
|
434 |
|
|
|
0.06 |
|
|
|
801 |
|
|
|
0.09 |
|
|
|
970 |
|
|
|
0.13 |
|
|
|
1,772 |
|
|
|
0.23 |
|
|
|
1,967 |
|
|
|
0.31 |
|
Custody fees |
|
|
36 |
|
|
|
0.00 |
|
|
|
21 |
|
|
|
0.00 |
|
|
|
72 |
|
|
|
0.01 |
|
|
|
43 |
|
|
|
0.01 |
|
|
|
81 |
|
|
|
0.01 |
|
|
|
53 |
|
|
|
0.01 |
|
Other |
|
|
286 |
|
|
|
0.03 |
|
|
|
265 |
|
|
|
0.04 |
|
|
|
589 |
|
|
|
0.06 |
|
|
|
503 |
|
|
|
0.07 |
|
|
|
1,003 |
|
|
|
0.13 |
|
|
|
937 |
|
|
|
0.15 |
|
Income Tax Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
0.00 |
|
|
|
28 |
|
|
|
0.00 |
|
|
|
287 |
|
|
|
0.04 |
|
|
|
252 |
|
|
|
0.04 |
|
(1) |
The per share amounts are based on a weighted average of 9,551,037 and 9,105,190 outstanding common shares for
the three and six months ended June 30, 2024, respectively. |
(2) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the three and
six months ended June 30, 2023. |
(3) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended
December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022. These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on
February 28, 2022. |
Expenses are largely comprised of advisory fees and administration fees paid to GECM and interest expense on
our outstanding notes payable. See Liquidity and Capital Resources. Advisory fees include management fees and incentive fees calculated in accordance with the Investment Management Agreement, and administration fees include direct
costs reimbursable to GECM under the Administration Agreement and fees paid for sub-administration services.
Incentive fees decreased for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 due to decreased pre-incentive net investment income over the same period. Incentive fees increased for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 due to increased pre-incentive net
investment income over the same period.
69
Management fees increased for the three and six months ended June 30, 2024 as compared to the three and six
months ended June 30, 2023 due to increases in the underlying management fee assets which primarily consists of the fair value of the portfolio of investments. Administration fees increased in the three and six months ended June 30, 2024
as compared to the three and six months ended June 30, 2023 due to increased allocation of personnel costs as a result of additional resource time spent on GECC matters.
Professional services costs decreased for the three and six months ended June 30, 2024 as compared to the corresponding periods in the prior year,
primarily due to decreased legal expenses associated with specific transaction matters which have been partially offset by general rate increases for professional services including legal and accounting costs.
Interest expense increased for the three and six months ended June 30, 2024 as compared to the corresponding periods in the prior year primarily due to
the issuance of $34.5 million in aggregate principal amount of the GECCI Notes in April 2024.
Overall expenses for the year ended December 31,
2023 increased as compared to the year ended December 31, 2022 primarily driven by an increase in incentive fees compared to the year ended December 31, 2022 during which $4.9 million of incentive fees were waived by GECM. The
$0.6 million increase in administration fees for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is attributable to increased allocation of personnel costs from GECM as a result of additional resource
time spent on GECC matters.
Professional services costs decreased for the year ended December 31, 2023 as compared to the year ended
December 31, 2022 primarily due to decreased legal expenses associated with specific transaction matters. The $0.2 million decrease in professional services were partially offset by general rate increases for professional services
including legal and accounting costs.
For the year ended December 31, 2023, GECC recognized $3.1 million in incentive fees due to increased pre-incentive net investment income. For the year ended December 31, 2022, GECC recognized $0.6 million in incentive fees which was offset by $4.9 million in previously recognized incentive fees which
were waived by GECM as of March 31, 2022 resulting in a net reversal of $4.3 million for incentive fees as a result of income reversals, realized losses where proceeds did not cover the amortized cost basis, and the determination that
previously recognized incentive fees earned on certain non-accrual positions with significant write-downs should not be recognized as a liability.
Realized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
For the Year Ended December 31 |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2022 |
|
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In Thousands |
|
|
Per Share(3) |
|
|
In Thousands |
|
|
Per Share(3) |
|
Net Realized Gain (Loss) |
|
$ |
(470 |
) |
|
$ |
(0.05 |
) |
|
$ |
542 |
|
|
$ |
0.07 |
|
|
$ |
1,886 |
|
|
$ |
0.21 |
|
|
$ |
2,387 |
|
|
$ |
0.31 |
|
|
$ |
(4,707 |
) |
|
$ |
(0.62 |
) |
|
$ |
(126,046 |
) |
|
$ |
(20.16 |
) |
Gross realized gain |
|
|
515 |
|
|
|
0.05 |
|
|
|
600 |
|
|
|
0.08 |
|
|
|
2,885 |
|
|
|
0.32 |
|
|
|
2,502 |
|
|
|
0.33 |
|
|
|
11,702 |
|
|
|
1.54 |
|
|
|
6,207 |
|
|
|
0.99 |
|
Gross realized loss |
|
|
(985 |
) |
|
|
(0.10 |
) |
|
|
(58 |
) |
|
|
(0.01 |
) |
|
|
(999 |
) |
|
|
(0.11 |
) |
|
|
(115 |
) |
|
|
(0.02 |
) |
|
|
(16,409 |
) |
|
|
(2.16 |
) |
|
|
(132,253 |
) |
|
|
(21.15 |
) |
(1) |
The per share amounts are based on a weighted average of 9,551,037 and 9,105,190 outstanding common shares for
the three and six months ended June 30, 2024, respectively. |
(2) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the three and
six months ended June 30, 2023. |
(3) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended
December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022. These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on
February 28, 2022. |
70
For the three months ended June 30, 2024, net realized losses were primarily driven by the realization of
our investment in the Phillips Pet Food term loan of $0.6 million. During the six months ended June 30, 2024, net realized gains includes $0.9 million in gains from the partial sale of our investment in Blackstone Secured Lending
common equity and $0.8 million in gains from the partial sale of our investment in American Coastal Insurance Corp.
For the three months ended
June 30, 2023, net realized gains were primarily driven by the sales of our investments in the Perforce Software, Inc. (Perforce) first lien secured revolver and Equitrans Midstream Corp. preferred equity on which we realized gains
of $0.3 million and $0.2 million, respectively. During the six months ended June 30, 2023, net realized gains were primarily driven by sales of our investments in Crestwood Equity Partners LP preferred equity, the paydown of our
investment in Par Petroleum, LLC first lien secured bond and the sale of our investment in the Perforce first lien secured revolver resulting in realized gains of $0.7 million, $0.4 million, and $0.3 million, respectively.
Realized gain for the year ended December 31, 2023 includes $5.7 million in gains on the realization of our investment in Prestige Capital Finance,
LLC (Prestige) common equity in connection with the in-kind contribution to GESF and $0.9 million in gains from the partial sale of our investment in ACIC. Realized losses for the year ended
December 31, 2023 includes $7.0 million in loss on the sale of Lenders Funding, LLC (Lenders Funding) common equity and $4.6 million in loss related to the write off of investments in Avanti Communications Group plc
(Avanti Communications).
During the year ended December 31, 2022, net realized losses on investments were primarily driven by the
restructuring of Avanti Communications on which we realized approximately $111 million of previously recognized unrealized losses as a result of the April 2022 restructuring. In addition, we realized approximately $15.9 million and
$4.2 million of previously recognized unrealized losses as a result of the sales of our positions in Tru (UK) Asia Limited (Tru Taj) common stock and California Pizza Kitchen, Inc. (CPK) common stock, respectively. Such
realized losses are offset by the relief of those previously recognized unrealized losses as discussed under Change in Unrealized Appreciation (Depreciation) on Investments below.
During the year ended December 31, 2022, gross realized gains included approximately $2.2 million on sales of our investment in Crestwood Equity
Partners, LP preferred stock, $1.0 million on the sale of our investment in GAC HoldCo Inc. warrants and $0.9 million on the refinancing of our investment in Tensar Corporation 2nd Lien secured loan.
Change in Unrealized Appreciation (Depreciation) on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
For the Year Ended December 31, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2022 |
|
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In Thousands |
|
|
Per Share(1) |
|
|
In Thousands |
|
|
Per Share(2) |
|
|
In Thousands |
|
|
Per Share(3) |
|
|
In Thousands |
|
|
Per Share(3) |
|
Net change in unrealized appreciation/ (depreciation) |
|
$ |
(3,914 |
) |
|
$ |
(0.41 |
) |
|
$ |
1,292 |
|
|
$ |
0.17 |
|
|
$ |
(9,921 |
) |
|
$ |
(1.09 |
) |
|
$ |
4,768 |
|
|
$ |
0.63 |
|
|
$ |
17,498 |
|
|
$ |
2.30 |
|
|
$ |
100,002 |
|
|
$ |
16.00 |
|
Unrealized appreciation |
|
|
5,071 |
|
|
|
0.53 |
|
|
|
5,453 |
|
|
|
0.72 |
|
|
|
6,102 |
|
|
|
0.67 |
|
|
|
11,005 |
|
|
|
1.45 |
|
|
|
28,101 |
|
|
|
3.69 |
|
|
|
130,699 |
|
|
|
20.91 |
|
Unrealized depreciation |
|
|
(8,985 |
) |
|
|
(0.94 |
) |
|
|
(4,161 |
) |
|
|
(0.55 |
) |
|
|
(16,023 |
) |
|
|
(1.76 |
) |
|
|
(6,237 |
) |
|
|
(0.82 |
) |
|
|
(10,603 |
) |
|
|
(1.39 |
) |
|
|
(30,967 |
) |
|
|
(4.91 |
) |
(1) |
The per share amounts are based on a weighted average of 9,551,037 and 9,105,190 outstanding common shares for
the three and six months ended June 30, 2024, respectively. |
(2) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the three and
six months ended June 30, 2023. |
(3) |
The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended
December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the |
71
|
year ended December 31, 2022. These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on February 28, 2022. |
For the three months ended June 30, 2024, unrealized appreciation was due to an increase in fair value on our investment in NICE-PAK Products, Inc. warrants of $0.9 million and due to the reversal of approximately $0.8 million in previously recognized unrealized depreciation on our investment in Phillips Pet Food term loan which was
reclassified to realized loss upon the sale of our position. Unrealized depreciation for the three months ended June 30, 2024 was primarily due to decreases in fair value on our investments in New Wilkie Energy Pty Limited (New Wilkie
Energy) of $2.0 million, Research Now Group, Inc. (Research Now) of $1.1 million, and GESF common equity of $0.8 million. The mark downs on our investments in Research Now are due to a slowdown in the demand for
their services from a weak mergers and acquisitions environment leading to a bankruptcy filing in May 2024 and New Wilkie Energy are due to poor performance. The decrease in fair value on GESF was attributable to weaker than planned new deal
originations in the first half of the year.
Net unrealized depreciation for the six months ended June 30, 2024 was primarily driven by decreases in the
fair value of our investment in Research Now, GESF, and New Wilkie Energy of $5.6 million, $2.4 million, and $2.3 million, respectively. These losses were partially offset by unrealized appreciation due to increases in fair value of
our investments in NICE-PAK Products, Inc. warrants and Greenfire Resources Ltd. first lien secured bond of $1.6 million and $0.5 million, respectively.
For the three months ended June 30, 2023, net unrealized appreciation was primarily driven by increases in the fair value of our investment in United
Insurance Holding Corp. (UIHC) unsecured bonds, Maverick Gaming, LLC term loan, and Nice-Pak Products, Inc. promissory notes on which we recognized appreciation of $1.3 million,
$0.7 million, and $0.5 million, respectively. These gains were partially offset by unrealized depreciation of $1.7 million, $0.6 million and $0.5 million due to decreases in the fair value of our investments in Lenders
Funding, LLC (Lenders Funding) common equity, Research Now second lien secured loan and Research Now revolver, respectively.
Net unrealized
appreciation for the six months ended June 30, 2023 was primarily driven by increases in the fair value of our investment in UIHC unsecured bonds, Prestige Capital Finance, LLC common equity, and Blackstone Secured Lending common equity on which we
recognized appreciation of $4.4 million, $1.2 million, and $1.0 million, respectively. These gains were partially offset by unrealized depreciation of $2.0 million, $0.7 million and $0.7 million due to decreases in fair
value of our investment in Lenders Funding common equity, Research Now second lien secured loan and First Brands, Inc. second lien secured loan, respectively.
For the year ended December 31, 2023, unrealized appreciation was primarily driven by reversal of approximately $7.0 million in previously
recognized unrealized depreciation on our investment in Lenders Funding common equity which was reclassified to realized loss upon the sale of our position and $4.6 million in previously recognized unrealized depreciation on our investment in
Avanti Communications which was reclassified to realized loss upon the write off of the position. Unrealized depreciation for the year ended December 31, 2023 was primarily driven by the reversal of approximately $3.9 million in previously
recognized unrealized appreciation on our investment in Prestige common equity which was reclassified to realized gain upon the in-kind contribution to GESF.
For the year ended December 31, 2022, net unrealized appreciation was attributable to the relief of previously recognized unrealized depreciation as a
result of sales of our investments in Tru Taj and CPK and the restructuring of our investments in Avanti Communications, as discussed under Realized Gains (Losses) above. Unrealized depreciation for the year ended December 31, 2022
includes approximately $7.0 million in decrease in fair value of our investment in Avanti Space Limited junior priority notes received in the April 2022 restructuring of Avanti Communications and $5.1 million in decrease in fair value of
our equity investment in Lenders Funding.
Liquidity and Capital Resources
We generate liquidity through our operations with cash received from investment income and sales and paydowns on investments. Such proceeds are generally
reinvested in new investment opportunities, distributed to shareholders in the
72
form of dividends, or used to pay operating expenses. We also receive proceeds from our issuances of notes payable and our revolving credit facility and from time to time may raise additional
equity capital. See Revolver and Notes Payable below for more information regarding our outstanding credit facility and notes.
As of June 30, 2024, we had approximately $2.6 million of cash and cash equivalents and approximately $0.5 million of money market fund
investments at fair value. As of June 30, 2024, we had investments in 51 debt instruments across 41 companies, totaling approximately $219.8 million at fair value and 15 equity investments in 14 companies, with an aggregate fair value of
approximately $77.9 million.
In the normal course of business, we may enter into investment agreements under which we commit to make an investment
in a portfolio company at some future date or over a specified period of time. As of June 30, 2024, we had approximately $17.9 million in unfunded commitments to provide financing to certain of our portfolio companies. We had sufficient
cash and other liquid assets on our June 30, 2024 balance sheet to satisfy the unfunded commitments.
For the six months ended June 30, 2024, net
cash used for operating activities was approximately $59.7 million, reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to accretion
of discount and PIK income and proceeds from sales of investments and principal payments received. Net cash provided by purchases and proceeds from sales of investments was approximately $52.8 million, reflecting payments for additional
investments of $165.7 million, offset by proceeds from principal repayments and sales of $112.9 million. Such amounts include draws and repayments on investments in revolving credit facilities.
For the six months ended June 30, 2024, net cash provided by financing activities was $61.3 million, consisting of $35.7 million in proceeds
from our issuance of shares of our common stock, net of related expenses, $33.0 million in net proceeds from the issuance of the GECCI Notes, and $7.4 million in distributions to stockholders.
As of December 31, 2023, we had approximately $1.0 million of cash and cash equivalents and approximately $10.8 million of money market fund
investments at fair value. As of December 31, 2023, we had investments in 38 debt instruments across 32 companies, totaling approximately $200.7 million at fair value and 10 equity investments in 10 companies, with an aggregate fair value
of approximately $29.9 million.
In the normal course of business, we may enter into investment agreements under which we commit to make an
investment in a portfolio company at some future date or over a specified period of time. As of December 31, 2023, we had approximately $8.9 million in unfunded loan commitments to provide debt financing to certain of our portfolio
companies. We had sufficient cash and other liquid assets on our December 31, 2023 balance sheet to satisfy the unfunded commitments.
For the year
ended December 31, 2023, net cash provided by operating activities was approximately $25.7 million, reflecting the purchases and proceeds from sales of investments and principal repayments of investments offset by net investment income,
including non-cash income related to accretion of discount and PIK income and proceeds from sales of investments and principal payments received. Net cash provided by purchases and proceeds from sales of
investments was approximately $14.6 million, reflecting payments for additional investments of $220.5 million, offset by proceeds from principal repayments and sales of $235.1 million. Such amounts include draws and repayments on
revolving credit facilities.
For the year ended December 31, 2022, net cash used in operating activities was approximately $41.8 million,
reflecting the purchases and proceeds from sales of investments and principal repayments of investments offset by net investment income, including non-cash income related to accretion of discount and PIK
income and proceeds from sales of investments and principal payments received. Net cash used in purchases and proceeds from sales of investments was approximately $36.5 million, reflecting payments for additional investments of
$149.5 million, offset by proceeds from principal repayments and sales of $113.0 million. Such amounts include draws and repayments on revolving credit facilities.
73
For the year ended December 31, 2023, cash used for financing activities was $25.3 million, which
consisted of $38.4 million in net proceeds from the issuance of the GECCZ Notes which was offset by $42.8 million in payments to retire the GECCN Notes, $10.0 million in net repayments on the revolving credit facility and
$10.6 million in distributions to stockholders.
For the year ended December 31, 2022, cash provided by financing activities was
$33.2 million, which consisted of $37.5 million in proceeds from issuance of common stock and $10.0 million in borrowings under credit facility offset by $13.0 million in distributions and $1.3 million in payments of
deferred financing costs.
We believe we have sufficient liquidity available to meet our short-term and long-term obligations for at least the next 12
months and for the foreseeable future thereafter.
Contractual Obligations and Cash Requirements
A summary of our material contractual payment and other cash obligations as of June 30, 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
Contractual and Other Cash Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCM Notes |
|
|
45,573 |
|
|
|
45,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GECCO Notes |
|
|
57,500 |
|
|
|
|
|
|
|
57,500 |
|
|
|
|
|
|
|
|
|
GECCZ Notes |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
GECCI Notes |
|
|
34,500 |
|
|
|
|
|
|
|
|
|
|
|
34,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
177,573 |
|
|
$ |
45,573 |
|
|
$ |
57,500 |
|
|
$ |
74,500 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Revolver and Notes Payable below for more information regarding our credit facility
and outstanding notes.
We have certain contracts under which we have material future commitments. Under the Investment Management Agreement, GECM
provides investment advisory services to us. For providing these services, we pay GECM a fee, consisting of two components: (1) a base management fee based on the average value of our total assets and (2) an incentive fee based on our
performance. On August 1, 2022, our stockholders approved an amendment to the Investment Management Agreement to eliminate $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 from the calculation of future
capital gains incentive fees and reset the capital gain incentive fee and mandatory deferral periods in Sections 4.4 and 4.5, respectively, of the Investment Management Agreement to begin on April 1, 2022.
We are also party to the Administration Agreement with GECM. Under the Administration Agreement, GECM furnishes us with, or otherwise arranges for the
provision of, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and other such services as our administrator.
If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we
would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement and our Administration Agreement. Any new investment management agreement would
also be subject to approval by our stockholders.
Both the Investment Management Agreement and the Administration Agreement may be terminated by either
party without penalty upon no fewer than 60 days written notice to the other.
Revolver
On May 5, 2021, we entered into the Loan Agreement with CNB. The Loan Agreement provides for a senior secured revolving line of credit (the
Revolver) of up to $25 million (subject to a borrowing base as defined in
74
the Loan Agreement). We may request to increase the revolving line in an aggregate amount not to exceed $25 million, which increase is subject to the sole discretion of CNB. In November
2023, the Company entered into an amendment to the Loan Agreement extending the maturity date of the revolving line to May 5, 2027. Borrowings under the revolving line bear interest at a rate equal to (i) the SOFR plus 3.00% (reduced from
SOFR plus 3.50% prior to the November 2023 amendment), (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by us. Additionally, we are required to pay a commitment fee of 0.50% per annum on any unused portion of the
revolving line of credit. As of June 30, 2024, there were no borrowings outstanding under the revolving line.
Borrowings under the revolving line
are secured by a first priority security interest in substantially all of our assets, subject to certain specified exceptions. We have made customary representations and warranties and are required to comply with various affirmative and negative
covenants, reporting requirements and other customary requirements for similar loan agreements. In addition, the Loan Agreement contains financial covenants requiring (i) net assets of not less than $65 million, (ii) asset coverage
equal to or greater than 150% and (iii) bank asset coverage equal to or greater than 300%, in each case tested as of the last day of each fiscal quarter of the Company. Borrowings are also subject to the leverage restrictions contained in the
Investment Company Act.
Notes Payable
On
January 11, 2018, we issued $43.0 million in aggregate principal amount of the GECCM Notes. On January 19, 2018 and February 9, 2018, we issued an additional $1.9 million and $1.5 million, respectively, of the GECCM
Notes upon partial exercise of the underwriters over-allotment option. The aggregate principal balance of the GECCM Notes outstanding as of June 30, 2024 is $45.6 million.
On June 18, 2019, we issued $42.5 million in aggregate principal amount of 6.50% Notes due 2024 (the GECCN Notes), which included $2.5
million of GECCN Notes issued in connection with the partial exercise of the underwriters over-allotment option. On July 5, 2019, we issued an additional $2.5 million of the GECCN Notes upon another partial exercise of the
underwriters over-allotment option.
On August 8, 2023, we caused redemption notices to be issued to the holders of the GECCN Notes regarding
the Companys exercise of its option to redeem, in whole, the issued and outstanding GECCN Notes. We redeemed all of the issued and outstanding GECCN Notes on September 7, 2023 at 100% of the principal amount plus accrued and unpaid
interest thereon from June 30, 2023 through, but excluding, the redemption date, September 7, 2023.
On June 23, 2021, we issued
$50.0 million in aggregate principal amount of the GECCO Notes. On July 9, 2021, we issued an additional $7.5 million of the GECCO Notes upon full exercise of the underwriters over-allotment option. The aggregate principal
balance of the GECCO Notes outstanding as of June 30, 2024 is $57.5 million.
On August 16, 2023, we issued $40.0 million in aggregate
principal amount of the GECCZ Notes. The aggregate principal balance of the GECCZ Notes outstanding as of June 30, 2024 is $40.0 million.
On
April 17, 2024, we issued $30.0 million in aggregate principal amount of the GECCI Notes. On April 25, 2024, we issued an additional $4.5 million of the GECCI Notes upon full exercise of the underwriters over-allotment
option. The aggregate principal balance of the GECCI Notes outstanding as of June 30, 2024 is $34.5 million.
The GECCZ Notes, the GECCM Notes,
and the GECCO Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our
Loan Agreement and any other future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other
75
obligations of our subsidiaries. We pay interest on the GECCZ Notes, the GECCM Notes, and the GECCO Notes on March 31, June 30, September 30 and December 31 of each year. The
GECCM Notes, GECCO Notes, GECCZ Notes, and GECCI Notes will mature on January 31, 2025, June 30, 2026, September 30, 2028, and April 30, 2029, respectively. The GECCM Notes and GECCO Notes are currently callable at the
Companys option and the GECCZ Notes and GECCI Notes can be called on, or after, September 30, 2025 and April 30, 2026, respectively. Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity
date. The Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.
We may repurchase the GECCZ Notes, the GECCM
Notes, and the GECCO Notes in accordance with the Investment Company Act and the rules promulgated thereunder.
As of June 30, 2024, our asset
coverage ratio was approximately 171.0%. Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%.
Recent
Developments
Distribution
Our board set
the distribution for the quarter ending September 30, 2024 at a rate of $0.35 per share. The full amount of each distribution will be from distributable earnings. The schedule of distribution payments will be established by GECC pursuant to
authority granted by our Board. The distribution will be paid in cash.
Notes Issuance
On July 9, 2024, we issued an additional $22.0 million in aggregate principal amount of the GECCI Notes in a direct placement. The additional GECCI Notes are
identical to the previously issued and outstanding GECCI Notes, other than with respect to the date of issuance and issue price.
Interest Rate Risk
We are also subject to financial risks, including changes in market interest rates. As of June 30, 2024, approximately $174.3 million in
principal amount of our debt investments bore interest at variable rates, which are generally based on SOFR or US prime rate, and many of which are subject to certain floors. Recently, interest rates have risen and a prolonged increase in interest
rates will increase our gross investment income and could result in an increase in our net investment income if such increases in interest rates are not offset by a corresponding decrease in the spread over variable rates that we earn on any
portfolio investments or an increase in our operating expenses. See Item 3. Quantitative and Qualitative Disclosures About Market Risk in Form 10-Q for the quarterly period ended June 30,
2024, filed on August 1, 2024 for an analysis of the impact of hypothetical base rate changes in interest rates.
76
THE COMPANY
Overview
We are a Maryland corporation that was formed
in April 2016. We operate as a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a BDC under the
Investment Company Act. In addition, for tax purposes, we elected to be treated as a RIC under the Code, beginning with our tax year starting October 1, 2016.
We seek to generate both income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance
businesses. To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe offer sufficient
downside protection and have the potential to generate attractive returns. We generally define middle market companies as companies with enterprise values between $100 million and $2 billion. We also make investments throughout other
portions of a companys capital structure, including subordinated debt, mezzanine debt, and equity or equity-linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry
professionals.
Our Portfolio as of June 30, 2024
A list of the industries in which we have invested as of June 30, 2024 may be found in Managements Discussion and Analysis of Financial
Condition and Results of Operations. Set forth below is a brief description of each company representing greater than 5% of our assets as of June 30, 2024.
First Brands, Inc.
First Brands, Inc.
(First Brands) is a global automotive parts company that develops, markets and sells premium products through a portfolio of market- leading brands, offering
best-in-class technology, industry-leading engineering capabilities and superior customer service. First Brands manufactures automotive and industrial components for the
automotive aftermarket, original equipment and industrial markets and has built long standing relationships with key aftermarket customers including multiple national retail chains and automotive and industrial equipment makers. First Brands stands
as a market leader in the expansive and stable automotive aftermarket industry. First Brands Brake Component segment leads the market with its Centric, Raybestos, Specialty and private label offerings, capturing around 26% of the aftermarket
brake components market. First Brands Filter Products segment also holds a leading market position, thanks to its FRAM and Champion Laboratory and private label brands, which together hold a 30% market share. First Brands Wiper Segment
is the top supplier of aftermarket wiper blades, boasting a commanding 37% market share through its Trico, ANCO, Michelin and private label products.
Great Elm Specialty Finance, LLC
GESF is a
specialty finance company and through its subsidiaries, provides a variety of financing options along a continuum of lending to middle-market borrowers, including receivables factoring, asset-based and asset-backed lending, lender
finance and equipment financing. GESF expects to generate both revenue and cost synergies across its specialty finance company subsidiaries.
CLO
Formation JV, LLC
CLO Formation JV, LLC is a joint venture owned 75% by the Company and 25% by a strategic partner that was formed in April 2024
to make investments in collateralized loan obligation entities and related warehouse facilities.
77
Investment Manager and Administrator
GECMs investment team has more than 100 years of experience in the aggregate financing and investing in leveraged middle-market companies. GECMs
team is led by Matt Kaplan, GECMs Portfolio Manager and our President and Chief Executive Officer. GECMs investment committee includes Matt Kaplan, Adam M. Kleinman, Jason W. Reese, Nichole Milz and Dan Cubell. GEG is the parent company
of GECM. The address for GECM is 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410.
Investment Selection
GECM employs a team of investment professionals with experience in leveraged and specialty finance. The research team performs fundamental research at both the
industry and company level. Through in-depth industry coverage, GECMs investment team seeks to develop a thorough understanding of the fundamental market, sector drivers, mergers and acquisition
activity, security pricing and trading and new issue trends. GECMs investment team believes that understanding industry trends is an important element of investment success.
We have recently expanded our investment allocation in specialty finance companies as well as in participation opportunities generated by both unrelated and
related specialty finance companies. GECM believes investments in specialty finance companies along the continuum of lending provide attractive risk adjusted returns that are expected to be largely uncorrelated to the liquid credit
markets. The continuum of lending as seen by GECM is the various stages of capital that are provided to under-banked small and medium sized businesses and includes inventory and purchase order financing, receivables factoring,
asset-based and asset-backed lending, and equipment financing. GECM believes that ownership interests in multiple specialty finance companies will create a natural competitive advantage for each business and generate both revenue and cost synergies
across companies.
Idea Generation, Origination and Refinement
Idea generation and origination is maximized through long-standing and extensive relationships with industry contacts, brokers, commercial and investment
bankers, as well as current and former clients, portfolio companies and investors. GECMs investment team is expected to supplement these lead sources by also utilizing broader research efforts, such as attendance at prospective borrower
industry conferences and an active calling effort to brokers and investment bankers. GECMs investment team focuses their idea generation and origination efforts on middle-market companies. In screening potential investments, GECMs
investment team utilizes a value-oriented investment philosophy with analysis and research focused on the preservation of capital. GECM has identified several criteria that it believes are important in identifying and investing in prospective
portfolio companies. GECMs process requires focus on the terms of the applicable contracts and instruments. GECMs criteria provide general guidelines for GECMs investment committees decisions; however, not all of these
criteria will be met by each prospective portfolio company in which they choose to invest.
Asset Based Investments. Investments in businesses
based on the value of the collateral or the issuers assets. This type of investment focuses on expected realizable value of the issuers assets.
Enterprise Value Investments. Investments in businesses whose enterprise value represents the opportunity for principal to be repaid by refinancing or
in connection with a merger or acquisition transaction. These investments focus on the going concern value of the enterprise.
Other Debt Investments.
Investments in businesses which have the ability to pay interest and principal on outstanding debt out of expected free cash flow from their business. These investments focus on the sustainability and defensibility of cash flows from the
business.
78
Due Diligence
GECMs due diligence typically includes:
|
|
|
analysis of the credit documents by GECMs investment team (including the members of the team with legal
training and years of professional experience). GECM will engage outside counsel when necessary as well; |
|
|
|
review of historical and prospective financial information; |
|
|
|
research relating to the prospective portfolio companys management, industry, markets, customers, products
and services and competitors and customers; |
|
|
|
verification of collateral or assets; |
|
|
|
interviews with management, employees, customers and vendors of the prospective portfolio company; and
|
|
|
|
informal or formal background and reference checks. |
Upon the completion of due diligence and a decision to proceed with an investment in a company, the investment professionals leading the diligence process
present the opportunity to GECMs investment committee, which then determines whether to pursue the potential investment.
Approval of Investment
Transactions
GECMs procedures call for each new investment under consideration by the GECM analysts to be preliminarily reviewed at periodic
meetings of GECMs investment team. GECMs investment team then prepares a summary of the investment, including a financial model and risk cases and a legal review checklist. GECMs investment committee then will hold a formal review
meeting, and following approval of a specific investment, authorization is given to GECMs trader, including execution guidelines.
GECMs
investment analysts provide regular updates of the positions for which they are responsible to members of GECMs investment committee.
GECMs
investment analysts and portfolio manager will jointly decide when to sell a position in consultation with members of the GECM investment committee. The sale decision will then be given to GECMs trader, who will execute the trade.
Ongoing Relationship with Portfolio Companies
As a BDC,
we offer, and sometimes provide upon request, significant managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board
and management meetings, consulting with and advising officers of our portfolio companies and providing other organizational and financial guidance.
GECMs investment team monitors our portfolio companies on an ongoing basis. They monitor the financial trends of each portfolio company and its
respective industry to assess the appropriate course of action for each investment. GECMs ongoing monitoring of a portfolio company will include both a qualitative and quantitative analysis of the company and its industry.
Valuation Procedures
We value our assets, an essential
input in the determination of our NAV, consistent with GAAP and as required by the Investment Company Act.
79
Staffing
We
do not currently have any employees. Mr. Kaplan is our President and Chief Executive Officer and Portfolio Manager for GECM, as well as a Managing Director of ICAM. Under the Administration Agreement, by and between us and GECM, GECM provides
the services of our Chief Financial Officer and Chief Compliance Officer.
GECM has entered into a shared services agreement with ICAM, pursuant to which
ICAM will make available to GECM certain employees of ICAM to provide services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees time.
Competition
We compete for investments with other BDCs
and investment funds (including private equity funds, hedge funds, mutual funds, mezzanine funds and small business investment companies), as well as traditional financial services companies such as commercial banks, direct lending funds and other
sources of funding. Additionally, because there is competition for investment opportunities among alternative investment vehicles, those entities have begun to invest in areas they have not traditionally invested in, including making investments in
the types of portfolio companies we target. Many of these entities have greater financial and managerial resources than we do.
Exemptive Relief
We have received exemptive relief from the SEC that will allow us to co-invest, together with other investment
vehicles managed by GECM, in specific investment opportunities in accordance with the terms and conditions of the Exemptive Relief Order.
Investment
Management Agreement
Management Services
GECM
serves as our investment adviser and is registered as an investment adviser under the Advisers Act. Subject to the overall supervision of our Board, GECM manages our
day-to-day operations and provides investment advisory and management services to us. Under the terms of the Investment Management Agreement by and between us and GECM,
GECM:
|
|
|
determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner
of implementing such changes; |
|
|
|
identifies, evaluates and negotiates the structure of our investments (including performing due diligence on our
prospective portfolio companies); |
|
|
|
closes and monitors our investments; and |
|
|
|
determines the securities and other assets that we purchase, retain or sell. |
GECMs services to us under the Investment Management Agreement are not exclusive, and GECM is free to furnish similar services to other entities.
Management and Incentive Fees
Under the Investment
Management Agreement, GECM receives a fee from us, consisting of two components: (1) a base management fee and (2) an incentive fee.
The base
management fee is calculated at an annual rate of 1.50% of our average adjusted gross assets, including assets purchased with borrowed funds. The base management fee is payable quarterly in arrears. The base
80
management fee is calculated based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters, and
appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Base management fees for any partial quarter are prorated.
The incentive fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not.
One component of the incentive fee is the Income Incentive Fee and the other component is the Capital Gains Incentive Fee.
Income Incentive Fee
The Income Incentive Fee is calculated and payable quarterly in arrears based on our pre-incentive fee net
investment income for the quarter. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, diligence and
consulting fees or other fees that we receive from portfolio companies, but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any
expenses payable under the Administration Agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income
includes any accretion of original issue discount, market discount, PIK interest, PIK dividends or other types of deferred or accrued income, including in connection with zero coupon securities, that we and our consolidated subsidiaries have
recognized in accordance with GAAP, but have not yet received in cash (collectively, Accrued Unpaid Income).
Pre-incentive fee net investment income does not include any realized capital gains or unrealized capital appreciation
or depreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive fee net investment
income in excess of the hurdle rate (as defined below) for a quarter, we will pay the applicable incentive fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses.
Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined in
accordance with GAAP) at the end of the immediately preceding calendar quarter, is compared to a fixed hurdle rate of 1.75% per quarter (7.00% annualized). If market interest rates rise, we may be able to invest in debt instruments that
provide for a higher return, which would increase our pre-incentive fee net investment income and make it easier for GECM to surpass the fixed hurdle rate and receive an incentive fee based on such net
investment income.
We pay the incentive fee with respect to our pre-incentive fee net investment income in each
calendar quarter as follows:
|
|
|
no incentive fee in any calendar quarter in which the pre-incentive fee
net investment income does not exceed the hurdle rate; |
|
|
|
100% of our pre-incentive fee net investment income with respect to that
portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate, but is less than 2.1875% in any calendar quarter (8.75% annualized). We refer to this portion of our pre-incentive fee net investment income as the catch up provision. The catch up is meant to provide GECM with 20% of the pre-incentive fee net
investment income as if a hurdle rate did not apply if our net investment income exceeds 2.1875% in any calendar quarter; and |
81
|
|
|
20% of the amount of our pre-incentive fee net investment income, if any,
that exceeds 2.1875% in any calendar quarter (8.75% annualized). The following is a graphical representation of the calculation of the income related portion of the incentive fee: |
These calculations are adjusted for any share issuances or repurchases during the quarter and will be appropriately
prorated for any period of less than three months. Any Income Incentive Fee otherwise payable with respect to Accrued Unpaid Income (collectively, the Accrued Unpaid Income Incentive Fees) will be deferred, on a security by security
basis, and will become payable only if, as, when and to the extent cash is received by us or our consolidated subsidiaries in respect thereof. Any Accrued Unpaid Income that is subsequently reversed in connection with a write-down, write-off, impairment or similar treatment of the investment giving rise to such Accrued Unpaid Income will, in the applicable period of reversal, (1) reduce
pre-incentive fee net investment income and (2) reduce the amount of Accrued Unpaid Income deferred pursuant to the terms of the Investment Management Agreement. Subsequent payments of Income Incentive
Fees deferred pursuant to this paragraph do not reduce the amounts payable for any quarter pursuant to the other terms of the Investment Management Agreement.
We will defer cash payment of any Income Incentive Fee otherwise payable to the investment adviser in any quarter (excluding Accrued Unpaid Income Incentive
Fees with respect to such quarter) that exceeds (1) 20% of the Cumulative Pre-Incentive Fee Net Return (as defined below) during the most recent twelve full calendar quarter period ending on or prior to the
date such payment is to be made (the Trailing Twelve Quarters) less (2) the aggregate incentive fees that were previously paid to the investment adviser during such Trailing Twelve Quarters (excluding Accrued Unpaid Income Incentive
Fees during such Trailing Twelve Quarters and not subsequently paid). Cumulative Pre-Incentive Fee Net Return during the relevant Trailing Twelve Quarters means the sum of (a) pre-incentive fee net investment income in respect of such Trailing Twelve Quarters less (b) net realized capital losses and net unrealized capital depreciation, if any, in each case calculated in
accordance with GAAP, in respect of such Trailing Twelve Quarters.
Capital Gains Incentive Fee
The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management
Agreement, as of the termination date), commencing with the partial calendar year from April 1, 2022 to December 31, 2022, and is calculated at the end of each applicable year by subtracting (a) the sum of our and our consolidated
subsidiaries cumulative aggregate realized capital losses (excluding, for the avoidance of doubt, any realized capital losses arising from unrealized capital depreciation occurring prior to April 1, 2022) and aggregate unrealized capital
depreciation from (b) our and our consolidated subsidiaries cumulative aggregate realized capital gains, in each case calculated from and after April 1, 2022 (the Capital Gains Commencement Date). If such amount is
negative, then there is no Capital Gains Incentive Fee for such year. If such amount is positive at the end of such year, then the Capital Gains Incentive Fee for such year is equal to 20% of such amount, less the aggregate amount of Capital Gains
Incentive Fees paid in all prior years.
The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive,
between (a) the net sales price of each investment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment. The cumulative aggregate realized capital losses are calculated as the sum of the amounts by
which (a) the net sales price of each investment in our portfolio when sold is less than (b) the accreted or amortized cost basis of such investment. The aggregate unrealized capital depreciation is calculated as the sum of the
differences, if negative, between (a) the fair value of each investment in our portfolio as of the applicable Capital Gains Incentive Fee calculation date and (b) the accreted or amortized cost basis of such investment.
82
Examples of Quarterly Incentive Fee Calculations
The following hypothetical calculations illustrate the calculation of the Income Incentive Fee under the Investment Management Agreement. Amounts shown are a
percentage of total net assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption 1 |
|
|
Assumption 2 |
|
|
Assumption 3 |
|
Investment income(1) |
|
|
6.39 |
% |
|
|
7.54 |
% |
|
|
8.39 |
% |
Hurdle rate (7% annualized) |
|
|
1.75 |
% |
|
|
1.75 |
% |
|
|
1.75 |
% |
Catch up provision (8.75% annualized) |
|
|
2.19 |
% |
|
|
2.19 |
% |
|
|
2.19 |
% |
Pre-incentive fee net investment income(2) |
|
|
1.00 |
% |
|
|
2.15 |
% |
|
|
3.00 |
% |
Incentive fee |
|
|
|
%(3) |
|
|
0.40 |
%(4) |
|
|
0.60 |
%(5) |
(1) |
Investment income includes interest income, dividends and other fee income. |
(2) |
Pre-incentive fee net investment income is net of management fees and
other expenses and excludes organizational and offering expenses. In these examples, management fees are 0.38% (1.50% annualized) of net assets and other expenses are assumed to be 5.02% of net assets. |
(3) |
The pre-incentive fee net investment income is below the hurdle rate
and thus no incentive fee is earned. |
(4) |
The pre-incentive fee net investment income ratio of 2.15% is between
the hurdle rate and the top of the catch up provision thus the corresponding incentive fee is calculated as 100% X (2.15%1.75%). |
(5) |
The pre-incentive fee net investment income ratio of 3.00% is greater
than both the hurdle rate and the catch up provision thus the corresponding incentive fee is calculated as (i) 100% X (2.1875%1.75%) or 0.4375% (the catch up); plus (ii) 20% X (3.00%2.1875%).
|
The following hypothetical calculations illustrate the calculation of the Capital Gains Incentive Fee under the Investment Management
Agreement.
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
|
|
Assumption 1 |
|
|
Assumption 2 |
|
Year 1 |
|
|
|
|
|
|
|
|
Investment in Company A |
|
|
20.0 |
|
|
|
20.0 |
|
Investment in Company B |
|
|
30.0 |
|
|
|
30.0 |
|
Investment in Company C |
|
|
|
|
|
|
25.0 |
|
|
|
|
Year 2 |
|
|
|
|
|
|
|
|
Proceeds from sale of investment in Company A |
|
|
50.0 |
|
|
|
50.0 |
|
Fair market value (FMV) of investment in Company B |
|
|
32.0 |
|
|
|
25.0 |
|
FMV of investment in Company C |
|
|
|
|
|
|
25.0 |
|
|
|
|
Year 3 |
|
|
|
|
|
|
|
|
Proceeds from sale of investment in Company C |
|
|
|
|
|
|
30.0 |
|
FMV of investment in Company B |
|
|
25.0 |
|
|
|
24.0 |
|
|
|
|
Year 4 |
|
|
|
|
|
|
|
|
Proceeds from sale of investment in Company B |
|
|
31.0 |
|
|
|
|
|
FMV of investment in Company B |
|
|
|
|
|
|
35.0 |
|
|
|
|
Year 5 |
|
|
|
|
|
|
|
|
Proceeds from sale of investment in Company B |
|
|
|
(1) |
|
|
20.0 |
|
|
|
|
Capital Gains Incentive Fee: |
|
|
|
|
|
|
|
|
Year 1 |
|
|
|
(1) |
|
|
|
(1) |
Year 2 |
|
|
6.0 |
(2) |
|
|
5.0 |
(6) |
Year 3 |
|
|
|
(3) |
|
|
0.8 |
(7) |
Year 4 |
|
|
0.2 |
(4) |
|
|
1.2 |
(8) |
Year 5 |
|
|
|
(5) |
|
|
|
(9) |
83
(1) |
There is no Capital Gains Incentive Fee in Year 1 as there have been no realized capital gains.
|
(2) |
Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses or
aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as $30.0 million X 20%. |
(3) |
Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses and
there is $5.0 million in aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($30.0 million - $5.0 million) X 20% less $6.0 million (aggregate Capital Gains
Incentive Fee paid in prior years). |
(4) |
Aggregate realized capital gains are $31.0 million. There are no aggregate realized capital losses or
aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) $31.0 million X 20% less $6.0 million (aggregate Capital Gains Incentive Fee paid in prior years).
|
(5) |
There is no Capital Gains Incentive Fee in Year 5 as there are no aggregate realized capital gains for which
Capital Gains Incentive Fee has not already been paid in prior years. |
(6) |
Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses and
there is $5.0 million in aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($30.0 million - $5.0 million) X 20%. There have been no Capital Gains Incentive Fees
paid in prior years. |
(7) |
Aggregate realized capital gains are $35.0 million. There are no aggregate realized capital losses and
there is $6.0 million in aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($35.0 million - $6.0 million) X 20% less $5.0 million (aggregate Capital Gains
Incentive Fee paid in prior years). |
(8) |
Aggregate realized capital gains are $35.0 million. There are no aggregate realized capital losses or
aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) $35.0 million X 20% less $5.8 million (aggregate Capital Gains Incentive Fee paid in prior years).
|
(9) |
Aggregate realized capital gains are $35.0 million. Aggregate realized capital losses are
$10.0 million. There is no aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($35.0 million - $10.0 million) X 20% less $7.0 million (aggregate Capital Gains
Incentive Fee paid in prior years). |
As illustrated in Year 3 of Assumption 1 above, if GECC were to be wound up on a date other than
December 31 of any year, we may have paid aggregate capital gain incentive fees that are more than the amount of such fees that would be payable if GECC had been wound up on December 31 of such year.
For the year ended December 31, 2023, we incurred $3.5 million in base management fees and $3.1 million in income-based fees accrued during the
period. There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2023.
For the year ended December 31, 2022, we incurred $3.2 million in base management fees and $0.6 million in income-based fees accrued during the
period, exclusive of the waiver granted by GECM of $4.9 million in incentive fees earned in previous periods. The incentive fees were deferred in accordance with the Investment Management Agreement. There were no capital gains incentive fees
earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2022.
For the year ended December 31,
2021, we incurred $3.2 million in base management fees and $(4.3) million in income-based fees accrued during the period. The incentive fees were deferred in accordance with the Investment Management Agreement. There were no capital gains
incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2021.
Payment of Expenses
The services of all investment professionals and staff of GECM, when and to the extent engaged in providing investment advisory and management
services, and the compensation and routine overhead expenses of such
84
personnel allocable to such services, are provided and paid for by GECM. GECM has policies and procedures in place to calculate reimbursement of administrative expenses insofar as they relate to
compensation and overhead of administrator personnel and rent on a quarterly basis. Compensation of administrator personnel is allocated based on time allocation for the period. Other overhead expenses are based on a combination of time allocation
and total headcount. We bear all other costs and expenses of our operations and transactions, including (without limitation):
|
|
|
our organizational expenses; |
|
|
|
fees and expenses, including reasonable travel expenses, actually incurred by GECM or payable to third parties
related to our investments, including, among others, professional fees (including the fees and expenses of counsel, consultants and experts) and fees and expenses relating to, or associated with, evaluating, monitoring, researching and performing
due diligence on investments and prospective investments (including payments to third party vendors for financial information services); |
|
|
|
out-of-pocket fees and expenses,
including reasonable travel expenses, actually incurred by GECM or payable to third parties related to the provision of managerial assistance to our portfolio companies that we agree to provide such services to under the Investment Company Act
(exclusive of the compensation of any investment professionals of GECM); |
|
|
|
interest or other costs associated with debt, if any, incurred to finance our business; |
|
|
|
fees and expenses incurred in connection with our membership in investment company organizations;
|
|
|
|
investment advisory and management fees; |
|
|
|
fees and expenses associated with calculating our NAV (including the costs and expenses of any independent
valuation firm); |
|
|
|
fees and expenses relating to offerings of our common stock and other securities; |
|
|
|
legal, auditing or accounting expenses; |
|
|
|
federal, state and local taxes and other governmental fees; |
|
|
|
the fees and expenses of GECM, in its role as the administrator, and any
sub-administrator, our transfer agent or sub-transfer agent, and any other amounts payable under the Administration Agreement, or any similar administration agreement or
sub-administration agreement to which we may become a party; |
|
|
|
the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption
or repurchase of our securities; |
|
|
|
the expenses of and fees for registering or qualifying our common stock for sale and of maintaining our
registration and registering us as a broker or a dealer; |
|
|
|
the fees and expenses of our directors who are not interested persons (as defined in the Investment Company Act);
|
|
|
|
the cost of preparing and distributing reports, proxy statements and notices to stockholders, the SEC and other
governmental or regulatory authorities; |
|
|
|
costs of holding stockholders meetings; |
|
|
|
the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any
obligations enumerated by our bylaws or amended and restated articles of incorporation insofar as they govern agreements with any such custodian; |
85
|
|
|
our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and
any other insurance premiums; |
|
|
|
our allocable portion of the costs associated with maintaining any computer software, hardware or information
technology services (including information systems, Bloomberg or similar terminals, cyber security and related consultants and email retention) that are used by us or by GECM or its respective affiliates on our behalf (which allocable portion shall
exclude any such costs related to investment professionals of GECM providing services to us); |
|
|
|
direct costs and expenses incurred by us or GECM in connection with the performance of administrative services on
our behalf, including printing, mailing, long distance telephone, cellular phone and data service, copying, secretarial and other staff, independent auditors and outside legal costs; |
|
|
|
all other expenses incurred by us or GECM in connection with administering our business (including payments under
the Administration Agreement) based upon our allocable portion of GECMs overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Financial Officer and Chief
Compliance Officer and their respective staffs (including reasonable travel expenses); and |
|
|
|
costs incurred by us in connection with any claim, litigation, arbitration, mediation, government investigation
or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and
other extraordinary expenses not incurred in the ordinary course of our business. |
Duration and Termination
Our Board initially approved the Investment Management Agreement on August 8, 2016, and most recently approved the Investment Management Agreement on
July 23, 2024. The Investment Management Agreement renews for successive annual periods subject to annual approval by our Board or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either
case, approval by a majority of our directors who are not interested persons. The Investment Management Agreement will automatically terminate if it is assigned. The Investment Management Agreement may be terminated by either party
without penalty upon 60 days written notice to the other. The Investment Management Agreement is currently in effect.
Conflicts of interest may
arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms for compensation. Except in limited circumstances, any material change to the Investment Management Agreement must be submitted to
stockholders for approval under the Investment Company Act and we may from time to time decide it is appropriate to seek stockholder approval to change the terms of the Investment Management Agreement.
Indemnification
We agreed to indemnify GECM, its
stockholders and their respective officers, managers, partners, agents, employees, controlling persons, members and any other person affiliated with it, to the fullest extent permitted by law, absent willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement)
arising from the rendering of GECMs services under the Investment Management Agreement or otherwise as our investment adviser.
Organization of
the Investment Adviser
GECM is a Delaware limited liability company and is registered as an investment adviser under the Advisers Act. GECMs
principal executive offices are located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410.
86
Board Approval of the Investment Management Agreement
On July 23, 2024, our Board approved the renewal of the Investment Management Agreement through September 26, 2025. In its consideration of the Investment
Management Agreement, our Board focused on information it had received relating to, among other things:
|
|
|
the nature, quality and extent of the advisory and other services to be provided to us by GECM;
|
|
|
|
the investment performance of us and GECM; |
|
|
|
the extent to which economies of scale would be realized as we grow, and whether the fees payable under the
Investment Management Agreement reflect these economies of scale for the benefit of our stockholders; |
|
|
|
comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment
objectives; |
|
|
|
our projected operating expenses and expense ratio compared to BDCs with similar investment objectives;
|
|
|
|
existing and potential sources of indirect income to GECM from its relationship with us and the profitability of
those income sources; |
|
|
|
information about the services to be performed and the personnel performing such services under the Investment
Management Agreement; |
|
|
|
the organizational capability and financial condition of GECM and its affiliates; and |
|
|
|
the possibility of obtaining similar services from other third party service providers or through an internally
managed structure. |
In connection with their consideration of the renewal of the Investment Management Agreement, our Board gave weight
to each of the factors described above, but did not identify any one particular factor as controlling their decision. After deliberation and consideration of all of the information provided, including the factors described above, the Board,
including all of its independent members, concluded that the Investment Management Agreement should be approved and continued.
Regulation as a
Business Development Company
We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized
by the vote of a majority of the outstanding voting securities, as required by the Investment Company Act. A vote of a majority of the outstanding voting securities of a company is defined under the Investment Company Act as
the lesser of:
|
|
|
67% or more of such companys voting securities present at a meeting if more than 50% of the outstanding
voting securities of such company are present or represented by proxy, or |
|
|
|
more than 50% of the outstanding voting securities of such company. |
A majority of our directors must be persons who are not interested persons, as that term is defined in the Investment Company Act. Additionally,
we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders
arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such persons office.
We are required to meet a coverage ratio of the value of total assets to total senior securities, which include all of our borrowings and any preferred stock
we may issue in the future, of at least 150%. We may also be prohibited under the Investment Company Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested
persons and, in some cases, prior approval by the SEC.
87
For example, we may sell shares of our common stock at a price below the then current NAV of our common stock if
our Board determines that such sale is in our and our stockholders best interests, and our stockholders approve our policy and practice of making such sales. In any such case, under such circumstances, the price at which shares of our common
stock are sold may be the fair value of such shares of common stock. We may be examined by the SEC for compliance with the Investment Company Act.
We are
generally unable to sell shares of our common stock at a price below NAV per share. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage. We may, however, sell shares of
our common stock at a price below NAV per share:
|
|
|
in connection with a rights offering to our existing stockholders, |
|
|
|
with the consent of the majority of our common stockholders, or |
|
|
|
under such other circumstances as the SEC may permit. |
We may not acquire any assets other than qualifying assets unless, at the time we make such acquisition, the value of our qualifying assets
represents at least 70% of the value of our total assets. The principal categories of qualifying assets relevant to our business are:
|
|
|
securities purchased in transactions not involving any public offering, the issuer of which is an eligible
portfolio company; |
|
|
|
securities received in exchange for or distributed with respect to securities described in the bullet above or
pursuant to the exercise of options, warrants or rights relating to such securities; and |
|
|
|
cash, cash items, government securities or high quality debt securities (within the meaning of the Investment
Company Act), maturing in one year or less from the time of investment. |
An eligible portfolio company is generally a U.S.
domestic company that is not an investment company (other than a small business investment company wholly-owned by a BDC) and that:
|
|
|
does not have a class of securities with respect to which a broker may extend margin credit at the time the
acquisition is made; |
|
|
|
is controlled by the BDC and has an affiliate of the BDC on its board of directors; |
|
|
|
does not have any class of securities listed on a national securities exchange; |
|
|
|
is a public company that lists its securities on a national securities exchange with a market capitalization of
less than $250.0 million; or |
|
|
|
meets such other criteria as may be established by the SEC. |
Control, as defined by the Investment Company Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting
securities of the portfolio company.
In addition, a BDC must have been organized and have its principal place of business in the United States and must
be operated for the purpose of making investments in eligible portfolio companies, or in other securities that are consistent with its purpose as a BDC.
To include certain securities described above as qualifying assets for the purpose of the 70% test, a BDC must offer to the issuer of those
securities managerial assistance such as providing guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We offer to provide managerial assistance to our portfolio companies.
Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government
securities or high-quality debt securities maturing in one year or less
88
from the time of investment, which are referred to, collectively, as temporary investments, so that 70% of our assets, as applicable, are qualifying assets. We make purchases that are
consistent with our purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the Investment Company Act. We will invest in U.S. Treasury bills or in repurchase agreements that are fully collateralized
by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and
at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than
25% of our gross assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for U.S. federal income tax purposes. Thus, we do not intend to enter into repurchase
agreements with a single counterparty in excess of this limit.
We are permitted, under specified conditions, to issue multiple classes of indebtedness
and one class of stock senior to our common stock, if our asset coverage, as defined in the Investment Company Act, is at least equal to 150% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must
make provisions to prohibit cash distributions to our stockholders or the repurchase of our common stock unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the
value of our gross assets for temporary or emergency purposes without regard to asset coverage.
Code of Ethics
We and GECM have each adopted a code of ethics, which applies to the management at each company, respectively, pursuant to Rule
17j-l under the Investment Company Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain
transactions by our or GECMs personnel, respectively. Each code of ethics is included as an exhibit to this prospectus and available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. You may also obtain copies of the
respective codes of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov.
Proxy Voting
Policies and Procedures
We have delegated our proxy voting responsibility to GECM. The Proxy Voting Policies and Procedures of GECM are set forth
below. The guidelines are reviewed periodically by GECM and our non-interested directors, and, accordingly, are subject to change. For purposes of these Proxy Voting Policies and Procedures described below,
we, our and us refers to GECM.
Introduction
As an investment adviser registered under the Advisers Act, GECM has a fiduciary duty to act solely in the best interests of its clients. As part of this duty,
GECM recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients.
These
policies and procedures for voting proxies for GECMs investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
Proxy Policies
GECM votes proxies relating to our
portfolio securities in what it perceives to be the best interest of its clients. GECM reviews on a case-by-case basis each proposal submitted to a stockholder vote to
determine its impact on the portfolio securities held by its clients. Although GECM generally votes against proposals that may have a negative impact on its clients portfolio securities, GECM may vote for such a proposal if there exists
compelling long-term reasons to do so.
89
GECM proxy voting decisions are made by the senior officers who are responsible for monitoring each of its
clients investments. To ensure that our vote is not the product of a conflict of interest, GECM requires that: (i) anyone involved in the decision-making process disclose to our Chief Compliance Officer any potential conflict that he or
she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (ii) employees involved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a
proposal in order to reduce any attempted influence from interested parties.
Proxy Voting Records
You may obtain information about how GECM voted proxies during the twelve-month period ended March 31, 2024 without charge, upon request, by making a
written request for proxy voting information to: Chief Compliance Officer, Great Elm Capital Corp., c/o Great Elm Capital Management, LLC, 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410, or by calling (617) 375-3006, and on the SECs website at http://www.sec.gov.
Certain U.S. Federal Income Tax Matters
We currently qualify as a RIC under the Code. To continue to qualify as a RIC, we must, among other things, (a) derive in each taxable year at least 90%
of our gross income from dividends, interest (including tax-exempt interest), payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign
currencies, other income (including but not limited to gain from options, futures and forward contracts) derived with respect to our business of investing in stock, securities or currencies, or net income derived from an interest in a
qualified publicly traded partnership (a QPTP); and (b) diversify our holdings so that, at the end of each quarter of each taxable year (i) at least 50% of the market value of our total assets is represented by cash
and cash items, U.S. Government securities, the securities of other RICs and other securities, with other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of our total assets and not more than 10% of
the outstanding voting securities of such issuer (subject to the exception described below), and (ii) not more than 25% of the market value of our total assets is invested in the securities (other than U.S. Government securities and the
securities of other regulated investment companies) (A) of any one issuer, (B) of any two or more issuers that we control and that are determined to be engaged in the same business or similar or related trades or businesses, or (C) of
one or more QPTPs. We may generate certain income that might not qualify as good income for purposes of the 90% annual gross income requirement described above. We will monitor our transactions to endeavor to prevent our disqualification as a RIC.
If we fail to satisfy the 90% annual gross income requirement or the asset diversification requirements discussed above in any taxable year, we may be
eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements and the failures are otherwise cured. Additionally,
relief is provided for certain de minimis failures of the asset diversification requirements where we correct the failure within a specified period. If the applicable relief provisions are not available or cannot be met, all of our income would be
subject to corporate-level U.S. federal income tax as described below. We cannot provide assurance that we would qualify for any such relief should we fail the 90% annual gross income requirement or the asset diversification requirements discussed
above.
As a RIC, in any taxable year with respect to which we timely distribute at least 90% of the sum of:
|
|
|
our investment company taxable income (which includes, among other items, dividends, interest and the excess of
any net short-term capital gain over net long-term capital loss and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid; and
|
|
|
|
net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain
disallowed deductions) (the Annual Distribution Requirement). |
90
We (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company
taxable income and net capital gain (generally, net long-term capital gain in excess of short-term capital loss) that we distribute to our stockholders. However, due to limits on the deductibility of certain expenses, we may, in certain years, have
aggregate taxable income subject to the Annual Distribution Requirement that is in excess of the aggregate net income actually earned by us in those years.
We intend to distribute annually all or substantially all of such income on a timely basis.
To the extent that we retain our net capital gains for investment or any investment company taxable income, we will be subject to U.S. federal income tax at
the regular corporate income tax rates. We may choose to retain our net capital gains for investment or any investment company taxable income, and pay the associated federal corporate income tax, including the federal excise tax described below.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal
excise tax payable by us. To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of:
|
|
|
at least 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;
|
|
|
|
at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year); and |
|
|
|
certain undistributed amounts from previous years on which we paid no U.S. federal income tax (the Excise
Tax Avoidance Requirement). |
While we intend to distribute any income and capital gains in the manner necessary to minimize
imposition of the 4% federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do
not meet the Excise Tax Avoidance Requirement.
If, in any particular taxable year, we do not satisfy the Annual Distribution Requirement or otherwise
were to fail to qualify as a RIC (for example, because we fail the 90% annual gross income requirement described above), and relief is not available as discussed above, all of our taxable income (including our net capital gains) will be subject to
tax at regular corporate rates without any deduction for distributions to stockholders, and distributions generally will be taxable to the stockholders as ordinary dividends to the extent of our current and accumulated earnings and profits.
We may decide to be taxed as a regular corporation even if we would otherwise qualify as a RIC if we determine that treatment as a corporation for a
particular year would be in our best interests.
If we realize a net capital loss, the excess of our net short-term capital loss over our net long-term
capital gain is treated as a short-term capital loss arising on the first day of our next taxable year and the excess of our net long-term capital loss over our net short-term capital gain is treated as a long-term capital loss arising on the first
day of our next taxable year. If future capital gain is offset by carried forward capital losses, such future capital gain is not subject to fund-level U.S. federal income tax, regardless of whether amounts corresponding to such gain are distributed
to stockholders. Accordingly, we do not expect to distribute any such offsetting capital gain. A RIC cannot carry back or carry forward any net operating losses to offset its investment company taxable income.
91
Our Investments
Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things:
|
|
|
disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends
received deduction, net capital losses, business interest expenses and certain underwriting and similar fees; |
|
|
|
convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital
gain or ordinary income; |
|
|
|
convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited);
|
|
|
|
cause us to recognize income or gain without a corresponding receipt of cash; |
|
|
|
adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur;
|
|
|
|
adversely alter the characterization of certain complex financial transactions; and |
|
|
|
produce income that will not qualify as good income for purposes of the 90% annual gross income
requirement described above. |
We will monitor our transactions and may make certain tax elections and may be required to borrow money or
dispose of securities (even if it is not advantageous to dispose of such securities) to mitigate the effect of these rules and prevent disqualification of us as a RIC. However, no assurances can be given as to our eligibility for any such tax
elections or that any such tax elections that are made will fully mitigate the effects of these rules.
Investments we make in securities issued at a
discount or providing for deferred interest or PIK interest are subject to special tax rules that will affect the amount, timing and character of distributions to stockholders. For example, with respect to securities issued at a discount, we will
generally be required to accrue daily as income a portion of the discount and to distribute such income on a timely basis each year to maintain our qualification as a RIC and to avoid U.S. federal income and excise taxes. Since in certain
circumstances we may recognize income before or without receiving cash representing such income or incur expenses that are not fully deductible for tax purposes, we may have difficulty making distributions in the amounts necessary to satisfy the
requirements for maintaining RIC status and for avoiding U.S. federal income and excise taxes. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce
new investment originations to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify as a RIC and thereby be subject to corporate-level income tax.
Furthermore, a portfolio company in which we invest may face financial difficulty that requires us to work-out, modify
or otherwise restructure our investment in the portfolio company. Any such restructuring may result in unusable capital losses and future non-cash income. Any such restructuring may also result in our
recognition of a substantial amount of non-qualifying income for purposes of the 90% gross income requirement or our receiving assets that would not count toward the asset diversification requirements.
Gain or loss recognized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital
gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.
If we invest in foreign
securities, we may be subject to withholding and other foreign taxes with respect to those securities. Stockholders will generally not be entitled to claim a U.S. foreign tax credit or deduction with respect to foreign taxes paid by us.
If we acquire shares in a passive foreign investment company (a PFIC), we may be subject to U.S. federal income tax on a portion of
any excess distribution or gain from the disposition of such shares even if such
92
income is distributed as a taxable dividend by us to our stockholders. Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such
distributions or gains. If we invest in a PFIC and elect to treat the PFIC as a qualified electing fund under the Code (a QEF), in lieu of the foregoing requirements, we will be required to include in income each year a
portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us. Alternatively, we can elect to mark- to-market at the end of each taxable year our shares in a
PFIC; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income. Our ability to make either
election will depend on factors beyond our control. Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income
will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% excise tax.
If we hold more
than 10% of the shares (by vote or value) in a foreign corporation that is treated as a controlled foreign corporation (CFC), we may be required to include in our gross income our pro rata share of such CFCs subpart F
income and global intangible low-taxed income, whether or not the corporation makes an actual distribution during such year. In general, a foreign corporation will be classified as a CFC if
more than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution) by U.S. Stockholders. A U.S. Stockholder, for purposes of this paragraph, is any
U.S. person that possesses (actually or constructively) 10% or more of the combined voting power of all classes of shares or 10% or more of the value of a corporation. If we are treated as receiving a deemed distribution from a CFC, we will be
required to include such distribution in our investment company taxable income regardless of whether we receive any actual distributions from such CFC, and we must distribute such income to satisfy the Annual Distribution Requirement and the Excise
Tax Avoidance Requirement.
Although the Code generally provides that income inclusions from QEFs and deemed distributions of subpart F income and global
intangible low-taxed income from CFCs will be good income for purposes of the 90% gross income requirement to the extent such income is distributed to a RIC in the year it is included in the
RICs income, the Code does not specifically provide whether income inclusions from a QEF or deemed distributions from a CFC during the RICs taxable year with respect to which no distribution is received would be good income
for the 90% gross income requirement. The U.S. Treasury, however, has issued regulations that treat such income as being good income for purposes of the 90% gross income requirement, provided the income is derived with respect to a
corporations business of investing in stock, securities or currencies.
Our functional currency is the U.S. dollar for U.S. federal income tax
purposes. Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time we accrue income, expenses or other liabilities denominated in a foreign currency and the time we actually collect such
income or pay such expenses or liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts and the disposition of debt denominated in a foreign currency, to the extent attributable
to fluctuations in exchange rates between the acquisition and disposition dates, are also generally treated as ordinary income or loss.
If we borrow
money, we may be prevented by loan covenants from declaring and paying dividends in certain circumstances. Limits on our payment of dividends may prevent us from meeting the Annual Distribution Requirement, and may, therefore, jeopardize our
qualification for taxation as a RIC, or subject us to the 4% excise tax.
Even if we are authorized to borrow funds and to sell assets in order to satisfy
distribution requirements, under the Investment Company Act, we are not permitted to make cash distributions to our stockholders while our debt obligations and senior securities are outstanding unless certain asset coverage tests are
met. This may also jeopardize our qualification for taxation as a RIC or subject us to the 4% excise tax.
93
Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the
illiquid nature of our portfolio and (2) other requirements relating to our status as a RIC, including the asset diversification requirements. If we dispose of assets to meet the Annual Distribution Requirement, the asset diversification
requirements, or the 4% excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
Some of the income
that we might otherwise earn, such as lease income, management fees, or income recognized in a work-out or restructuring of a portfolio investment, may not satisfy the 90% gross income requirement. To manage
the risk that such income might disqualify us as a RIC for a failure to satisfy the 90% gross income requirement, one or more of our subsidiaries treated as U.S. corporations for U.S. federal income tax purposes may be employed to earn such income.
Such corporations will be required to pay U.S. corporate income tax (and possible state or local tax) on their earnings, which ultimately will reduce the yield to our stockholders on such income and fees.
Failure to Qualify as a RIC
If we were unable to qualify
for treatment as a RIC, and relief is not available as discussed above, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders nor would we be required to make
distributions for tax purposes. Distributions would generally be taxable to our stockholders as ordinary dividend income eligible for reduced maximum rates for non-corporate stockholders to the extent of our
current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate U.S. stockholders would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and
profits would be treated first as a return of capital to the extent of the stockholders tax basis, and any remaining distributions would be treated as a capital gain. If we were to fail to meet the RIC requirements for more than two
consecutive years and then to seek to requalify as a RIC, we would be required to recognize gain to the extent of any unrealized appreciation in our assets unless we made a special election to pay corporate level tax on any such unrealized
appreciation recognized during the succeeding five-year period. Our qualification and taxation as a RIC depends upon our ability to satisfy on a continuing basis, through actual, annual operating results, distribution, income and asset, and other
requirements imposed under the Code. However, no assurance can be given that we will be able to meet the complex and varied tests required to qualify as a RIC or to avoid corporate level tax. In addition, because the relevant laws may change,
compliance with one or more of the RIC requirements may become impossible or impracticable.
Administration Agreement
Our Board approved the Administration Agreement on August 8, 2016. Pursuant to the Administration Agreement, GECM furnishes us with, or otherwise arranges
for the provision of, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and other such services as the administrator. Under the Administration Agreement, GECM
will, from time to time, provide, or otherwise arrange for the provision of, other services GECM determines to be necessary or useful to perform its obligations under the Administration Agreement, including retaining the services of financial,
compliance, accounting and administrative personnel that perform services on our behalf, including personnel to serve as our Chief Financial Officer and Chief Compliance Officer. Under the Administration Agreement, GECM also performs, or oversees
the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In
addition, GECM assists us in determining and publishing our NAV, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the
performance of administrative and professional services rendered to us by others. Payments made by us to GECM under the Administration Agreement are equal to an amount based upon our allocable portion of GECMs overhead in performing its
obligations under the Administration Agreement, including our allocable portion of the cost of our
94
officers (including our Chief Compliance Officer, Chief Financial Officer and their respective staffs). The Administration Agreement may be terminated by either party without penalty upon 60
days written notice to the other party.
We bear all costs and expenses, including rental expenses, that are incurred in our operation and
transactions and not specifically assumed by GECM pursuant to the Investment Management Agreement.
The Administration Agreement provides that, to the
fullest extent permitted by law, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GECM, its stockholders and their respective officers,
managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys fees
and amounts reasonably paid in settlement) arising from or otherwise based upon the rendering of GECMs services under the Administration Agreement or otherwise as our administrator.
Great Elm License Agreement
We have a license agreement
with GEG pursuant to which GEG grants us a non-exclusive, royalty-free license to use the name Great Elm Capital Corp. Under the license agreement, we have a right to use the Great Elm Capital
Corp. name and the logo for so long as GECM, or an affiliate thereof, remains our investment adviser. Other than with respect to this limited license, we have no legal right to the Great Elm Capital Corp. name. The license agreement may
be terminated by either party without penalty upon 60 days written notice to the other.
Brokerage Allocation and Other Practices
Since we acquire and dispose of many of our investments in privately negotiated transactions, many of the transactions that we engage in do not require the use
of brokers or the payment of brokerage commissions. Subject to policies established by our Board, GECM is primarily responsible for selecting brokers and dealers to execute transactions with respect to the publicly traded securities portion of our
portfolio transactions and the allocation of brokerage commissions. GECM does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for us under the circumstances, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firms risk and skill in positioning blocks of securities.
The aggregate amount of brokerage commissions paid by us during the three most recent fiscal years is approximately $142,000. Such commissions include
approximately $141,000 in brokerage commissions paid to Imperial Capital, LLC, an affiliated person of ICAM, beginning when ICAM became an affiliated person of the Company during the quarter ended December 31, 2021 through December 31,
2023. Brokerage commissions paid to Imperial Capital, LLC represent nearly 100% of our aggregate brokerage commissions during the most recent fiscal year and the dollar amount of transactions on which such brokerage commissions were paid represents
nearly 100% of the aggregate dollar amount of transactions involving the payment of commissions during such fiscal year.
Properties
Our executive offices are located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410, and are provided by GECM in accordance with the terms of the
Administration Agreement.
Legal Proceedings
From
time to time, we, our investment adviser or administrator may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies.
95
We are named as a defendant in a lawsuit filed on March 5, 2016, and captioned Intrepid Investments, LLC v.
London Bay Capital, which is pending in the Delaware Court of Chancery (the Court). The plaintiff immediately agreed to stay the action in light of an ongoing mediation among parties other than us. This lawsuit was brought by a member of
Speedwell Holdings (formerly known as The Selling Source, LLC), one of our portfolio investments, against various members of and lenders to Speedwell Holdings. The plaintiff asserts claims of aiding and abetting, breaches of fiduciary duty, and
tortious interference against us. In June 2018, Intrepid Investments, LLC (Intrepid) sent notice to the court and defendants effectively lifting the stay and triggering defendants obligation to respond to the Intrepid complaint. In
September 2018, we joined the other defendants in a motion to dismiss on various grounds. In February 2019, Intrepid filed a second amended complaint to which defendants filed a renewed motion to dismiss in March 2019. In June 2023, the Court
granted in part and denied in part defendants motion to dismiss. The parties are currently involved in pre-trial discovery on the surviving claims.
Privacy Principles
We are committed to maintaining the
privacy of our stockholders and to safeguarding their nonpublic personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we
may share information with select other parties.
Generally, we do not receive any nonpublic personal information relating to our stockholders, although
certain nonpublic personal information of our stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in
order to service stockholder accounts (for example, to a transfer agent or third-party administrator).
We restrict access to nonpublic personal
information about our stockholders to employees of GECM and its affiliates with a legitimate business need for the information. We intend to maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal
information of our stockholders.
96
MANAGEMENT
Board of Directors
Our Board is divided into three
classes. Directors are elected for staggered terms, with the term of office of one of the three classes of directors expiring at each annual meeting of stockholders. Each director is elected for a three-year term ending at the third annual meeting
of stockholders following his election and until his successor is duly elected and qualifies. Our directors have been divided into two groups-interested directors and independent directors. An interested director is an interested person
as defined in Section 2(a)(19) of the Investment Company Act of the Company.
The address for each of our directors is c/o Great Elm Capital Corp.,
3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410.
Independent Directors
|
|
|
|
|
|
|
|
|
|
|
Name,
Address
and Age |
|
Position(s) Held
with GECC |
|
Term of
Office
(Length of
Time Served) |
|
Principal
Occupation(s)
During Past 5
Years |
|
Number of
Portfolios in
Fund Complex
Overseen by
Director |
|
Other
Directorships
Held by Director
During Past 5
Years |
Mark Kuperschmid (61) |
|
Director |
|
Until 2026 (since inception) |
|
Managing MemberBenmark Investments LLC |
|
N/A |
|
None |
|
|
|
|
|
|
Richard M. Cohen (73) |
|
Director |
|
Until 2026 (since 2022) |
|
PresidentRichard M. Cohen Consultants |
|
N/A |
|
Direct Digital Holdings Ondas Network, Smart For Life |
|
|
|
|
|
|
Chad Perry (52) |
|
Director |
|
Until 2025 (since 2022) |
|
Executive Vice President and General CounselRLJ Lodging Trust; Executive Vice President and General CounselTanger Factory Outlet Centers, Inc. |
|
N/A |
|
DWS Fund Complex |
Interested Directors
|
|
|
|
|
|
|
|
|
|
|
Name, Address and Age |
|
Position(s) Held
with GECC |
|
Term of
Office
(Length of
Time Served) |
|
Principal
Occupation(s)
During Past 5
Years |
|
Number of
Portfolios in
Fund Complex
Overseen by
Director |
|
Other
Directorships
Held by Director
During Past 5
Years |
Matthew A. Drapkin (51)(1) |
|
Chairman of the Board |
|
Until 2027 (since 2022) |
|
Chief Executive OfficerNorthern Right |
|
N/A |
|
Northern Right, GEG, PRGX, Intevac |
|
|
|
|
|
|
Erik A. Falk (54)(2) |
|
Director |
|
Until 2027 (since 2021) |
|
Head of StrategyMagnetar Capital |
|
N/A |
|
None |
(1) |
Mr. Drapkin is an interested person of the Company due to his and Northern Right Capital Management,
L.P.s (Northern Right) ownership of GEGs common stock and GEGs Senior Convertible PIK Notes |
97
|
due 2030 (GEG PIK Notes). Mr. Drapkin is also the managing member of the general partner of BC Advisors, LLC (BCA), the General Partner of Northern Right. Northern
Right is the general partner of Northern Right Capital (QP), L.P. (Northern Right QP). Therefore, Northern Right has control of both entities. Northern Right also has investment management agreements with two separately managed accounts
giving Northern Right the power to vote, acquire or dispose of securities. |
(2) |
Mr. Falk is an interested person of the Company due to his ownership of GEGs common stock and GEG
PIK Notes. |
Independent Directors
Mark Kuperschmid is our Lead Independent Director. Mr. Kuperschmid has served as managing member of Benmark Investments LLC since May 2006 and has
been a private investor/advisor across a variety of industries, and has served in operating roles or provided strategic consulting services with respect to several investments. He previously served as Co-Head
of Technology Investment Banking for Banc of America Securities and ran Trammell Crow Companys Northern California commercial real estate operation. He began his career as a financial analyst with Morgan Stanley in New York.
Mr. Kuperschmid holds a B.S./B.A. with honors from the University of Pennsylvania (Wharton) and an M.B.A. from Stanford University.
Richard Cohen
has been the President of Richard M. Cohen Consultants since 1996, a company providing financial consulting services to both public and private companies. He has served as a Director of Ondas Holdings (NASDAQ: ONDS) since 2018, Direct Digital
(NASDAQ: DRCT) since November 2021 and Smart For Life, Inc. (NASDAQ: SMFL) from February 2022 to August 2022. From March 2012 to July 2015, he was the Founder and Managing Partner of Chord Advisors, a firm providing outsourced CFO services to both
public and private companies. From May 2012 to August 2013, he was the Interim CEO and member of the Board of CorMedix Inc. (NYSE: CRMD). From July 2008 to August 2012, Mr. Cohen was a member of the Audit Committee of Rodman and Renshaw, an
investment banking firm. From July 2001 to August 2012, he was a partner with Novation Capital until its sale to a private equity firm. Mr. Cohen holds a B.S. with honors from the University of Pennsylvania (Wharton), an M.B.A. from Stanford
University and a CPA from New York State (inactive).
Chad Perry currently serves as Executive Vice President and General Counsel at RLJ Lodging
Trust. Mr. Perry previously served at Tanger Factory Outlet Centers, Inc. from December 2011 to April 2023 as Executive Vice PresidentGeneral Counsel and was named Secretary in May 2012. His responsibilities included corporate governance,
compliance, management of the in-house legal department and other legal matters, as well as Human Resources, Business Development and Real Estate Development. He was Executive Vice President and Deputy General
Counsel of LPL Financial Corporation from May 2006 to December 2011. Previously, he was Senior Corporate Counsel of EMC Corporation. Mr. Perry began his legal career with international law firm Ropes & Gray LLP. Mr. Perry is a
graduate of Princeton University, and earned a J.D. from Columbia University, where he was a Harlan Fiske Stone Scholar. He is a member of both the Massachusetts and California bar associations.
Interested Directors
Matthew A. Drapkin is the
Chairman of our Board. He has been a member of our Board since March 2022. Mr. Drapkin is Chief Executive Officer & Portfolio Manager of Northern Right Capital, an alternative asset manager focused on small and mid-cap public companies.
Mr. Drapkin currently serves as Executive Chairman of Boardroom Alpha, Inc., an
analytics company, and as the Vice Chairman of the board of directors of GEG. Mr. Drapkin previously served on the board of directors of Intevac, a publicly-traded provider of equipment solutions to the hard-disk drive industry and
high-sensitivity imaging products, primarily for the defense market, as Chairman of the Board of Ruby Tuesday, a restaurant operator, Lead Independent Director of Hot Topic, a specialty retailer, and a director of Xura (formerly known as Comverse),
a provider of telecommunications businesses solutions, Glu Mobile, a mobile gaming company,
98
Plato Learning, a provider of curriculum management, and Alloy, a diversified media company. Before joining Northern Right Capital in December 2009, Mr. Drapkin had extensive investment
experience, including his work as Head of Research, Special Situations, and Private Equity at ENSO Capital, a New York-based hedge fund, and Senior VP of Corporate Development at MacAndrews & Forbes, where he participated in more than
$3 billion of transactions, including Scientific Games, Deluxe Entertainment Services, AM General, and Scantron. Prior to MacAndrews & Forbes, Mr. Drapkin served as General Manager of two of Condé Nast Publications
wholly-owned Internet sites, Epicurious.com and Concierge.com, and headed Condé Nasts Internet venture investment effort. Mr. Drapkin began his career as an investment banker at The Goldman Sachs Group, Inc. where he advised
companies on corporate finance and M&A matters. He holds a J.D. from Columbia Law School, an M.B.A. from Columbia Business School, and a B.A. in American History from Princeton University.
Erik A. Falk currently serves as Head of Strategy at Magnetar Capital, an alternative asset manager with approximately $14.8 billion in assets
under management. His primary focus is developing and implementing strategic initiatives within the firms Alternative Credit and Fixed Income business. Mr. Falk has served on the boards of various companies on behalf of Deutsche Bank.
Mr. Falk holds a B.S. and an M.S. from Stanford University.
Executive Officers
The address for each executive officer is c/o Great Elm Capital Corp., 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410.
|
|
|
|
|
|
|
Name, Address
and Age |
|
Position(s) Held
with GECC |
|
Term of Office
(Length of
Time Served) |
|
Principal Occupation(s) During Past 5 Years |
Matt Kaplan (37) |
|
President and Chief Executive Officer |
|
Since March 2022 |
|
President and Chief Executive OfficerGECC Portfolio Manager and PresidentGECM
Managing DirectorICAM AnalystCitadel
LLC |
|
|
|
|
Keri A. Davis (40) |
|
Chief Financial Officer and Treasurer |
|
Since March 2019 |
|
Chief Financial OfficerGEG SEC Reporting
ManagerGECM |
|
|
|
|
Adam M. Kleinman (49) |
|
Chief Compliance Officer and Secretary |
|
Since October 2017 |
|
General Counsel and Chief Compliance OfficerGECM
President, General Counsel and Chief Compliance OfficerGEG |
Matt Kaplan has been our President and Chief Executive Officer since March 2022. Mr. Kaplan has served as a
Portfolio Manager since October 2020 and as President since August 2023 for GECM, as well as a Managing Director of ICAM focused on investment opportunities across the capital structure. Mr. Kaplan joined ICAM in 2020 after spending four years
at Citadel LLC from 2015 to 2019 investing in special situations and event-driven credit and equities. Previously, Mr. Kaplan served as a Senior Vice President of Imperial Capital UK from 2014 to 2015, advising on special situations and complex
transactions, including the liquidation of a failed bank. Prior to Imperial Capital UK, Mr. Kaplan worked in research with Imperial Capital US from 2007 to 2014. Mr. Kaplan earned a B.S. in Managerial Economics from the University of
California, Davis and holds the Chartered Financial Analyst designation from the CFA Institute.
Keri A. Davis has been our Chief Financial Officer
and Treasurer since March 2019. Ms. Davis also has been the Chief Financial Officer of GEG since May 2023. Prior to serving in these positions, Ms. Davis served as SEC Reporting Manager of GECM since June 2018. Prior to joining GECC,
Ms. Davis served as a senior manager in the audit practice at PricewaterhouseCoopers LLP (PwC), a multinational professional services firm focusing on audit and assurance, tax and consulting services. She was employed in various
capacities in the audit practice at PwC from 2005 to 2017. Ms. Davis holds a B.B.A in Accounting from the University of Massachusetts Amherst.
99
Adam M. Kleinman has been our Chief Compliance Officer and Secretary since September 2017.
Mr. Kleinman has served as GEGs President, General Counsel and Chief Compliance Officer since March 2018, as GEGs Chief Operating Officer from March 2018 to August 2022, and as GECMs General Counsel and Chief Compliance
Officer since November 2016. Mr. Kleinman was a Partner, Chief Operating Officer and General Counsel of MAST Capital from March 2009 to September 2017. Prior to joining MAST Capital, Mr. Kleinman was an associate in the Banking and
Leverage Finance group at Bingham McCutchen LLP, where he represented financial institutions, hedge funds and corporate borrowers in a broad range of commercial finance transactions. He holds a J.D. from the University of Virginia School of Law and
a B.A. in History from Haverford College.
Corporate Governance
Code of Business Conduct and Ethics
We adopted a code of
business conduct and ethics which applies to, among others, our executive officers, including our President and Chief Executive Officer and our Chief Financial Officer. Our code of conduct can be accessed via our website at www.greatelmcc.com.
Information on our website is not incorporated by reference in, and does not form a part of, this prospectus. We intend to disclose any amendments to or waivers of required provisions of the code by filing reports on Form 8-K.
Director Independence
The Nasdaq Rules require listed companies to have a board of directors with at least a majority of Independent Directors (as such term is defined
in the Nasdaq Rules). Under the Nasdaq Rules, in order for a director to be deemed independent, the board of directors must determine that the individual does not have a relationship that would interfere with the directors exercise of
independent judgment in carrying out his or her responsibilities.
In accordance with the Nasdaq Rules, our Board annually determines each directors
independence. We do not consider a director independent unless our Board determines that he or she has no material relationship with us or GECM. We monitor the relationships of our directors and officers through a questionnaire that each director
completes no less frequently than annually and updates periodically as information provided in the most recent questionnaire changes. In order to evaluate the materiality of any such relationship, our Board uses the definition in Nasdaq Rule
5605(a)(2), which provides that a director of a BDC shall be considered to be independent if he or she is not an interested person of the BDC, as defined in Section 2(a)(19) of the Investment Company Act. Our Board determined that
each of the directors is independent and has no relationship with us, except as a director and stockholder, with the exception of Mr. Drapkin and Mr. Falk.
Any member of our Board who has previously been determined to be independent must inform the Chairman of our Board, the Chairman of the Nominating and
Corporate Governance Committee and our Corporate Secretary of any change in circumstance that may cause his or her status as an Independent Director to change. Our Board limits membership on the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee to Independent Directors.
Risk Oversight
As is the case with virtually all investment companies, including externally managed BDCs such as us (as distinguished from operating companies), our service
providers, primarily GECM (located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410), have responsibility for our day-to-day management, which includes
responsibility for risk management (including management of investment performance and investment risk, valuation risk, issuer and counterparty credit risk, compliance risk and operational risk).
Our Audit Committee (which consists only of Independent Directors) meets regularly, and between meetings the Audit Committee Chair maintains contact with our
independent registered public accounting firm and our
100
Chief Financial Officer. In addition, our Audit Committee from time to time meets with the independent valuation services that evaluate certain of our securities holdings for which there are
not readily available market values. Our Board also receives periodic presentations from senior personnel of GECM regarding risk management generally, as well as periodic presentations regarding specific operational, compliance or investment areas
such as business continuity, personal trading, valuation, credit and investment research. In addition, our Board, GECM and our other service providers adopted a variety of policies, procedures and controls designed to address particular risks to us.
However, it is not possible to eliminate all of the risks. Our Board also receives reports from our legal counsel or lawyers of GECM regarding regulatory compliance and governance matters. The Boards oversight role does not make our Board a
guarantor of our investments or activities or the activities of any of our service providers.
Our Board also performs its risk oversight responsibilities
with the assistance of the Chief Compliance Officer. Our Board annually reviews a written report from our Chief Compliance Officer discussing the adequacy and effectiveness of our and our service providers respective compliance policies and
procedures.
Our Board believes its role in risk oversight is effective and appropriate given the extensive regulation to which it is already subject as a
BDC. As a BDC, we are required to comply with regulatory requirements that control the levels of risk in our business and operations. For example, our ability to incur indebtedness is limited such that our asset coverage must equal at least 150%
immediately after each time we incur indebtedness and we generally have to invest at least 70% of our gross assets in qualifying assets.
Board Composition and Leadership Structure
The
Investment Company Act requires that at least a majority of the members of our Board be independent directors. Currently, three of our five directors are independent directors. Our Board has designated Mark Kuperschmid as our Lead Independent
Director. As Lead Independent Director, Mr. Kuperschmid is responsible for coordinating the activities of the other independent directors and for such other responsibilities as are assigned, from time to time, by our Board. Our Board determined
that its leadership structure is appropriate in light of the services that GECM and its affiliates provide to us and the potential conflicts of interest that could arise from these relationships.
Director Experience, Qualifications, Attributes and Skills
Our Board believes that the significance of each directors experience, qualifications, attributes or skills is an individual matter (meaning that
experience that is important for one director may not have the same value for another) and that these factors are best evaluated at the board level, with no single director, or particular factor, being indicative of board effectiveness. However, our
Board believes that directors need to have the ability to critically review, evaluate, question and discuss information provided to them, and to interact effectively with our management, service providers and counsel, in order to exercise effective
business judgment in the performance of their dutiesour Board believes that its members satisfy this standard. Experience relevant to having this ability may be achieved through a directors educational background; business, professional
training or practice (e.g., finance, accounting or law), public service or academic positions; experience from service as a board member (including our Board) or as an executive of investment funds, public companies or significant private or not-for-profit entities or other organizations; and/or other life experiences. To assist them in evaluating matters under federal and state law, the directors are counseled by
our internal and outside legal counsel, who interact with GECM, and also may benefit from information provided by our or GECMs legal counsel. Our Board and its committees have the ability to engage their own legal counsel and other experts as
appropriate. The Board is required to evaluate its performance on an annual basis.
Board Committees
As of December 31, 2023, GECC maintains an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee. Our standing
committee charters, including our Audit, Nominating
101
and Corporate Governance and Compensation Committee charters, are posted on our website at www.greatelmcc.com. Paper copies may be obtained upon request by writing to: Corporate Secretary, Great
Elm Capital Corp., 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410.
For the fiscal year ended December 31, 2023, our Board held
four Board meetings, five Audit Committee meetings, one Nominating and Corporate Governance Committee meeting and one Compensation Committee meeting. All directors who were directors during the fiscal year ended December 31, 2023 attended at
least 75% of the meetings of our Board and of the committees on which they served, during the period in which they served. One member of our Board, serving as of December 31, 2023, attended our 2023 annual meeting of stockholders.
We require each director to make a diligent effort to attend all Board and committee meetings, and encourage directors to attend the annual meeting of
stockholders.
Audit Committee
The Audit Committee
is a standing committee established in accordance with section 3(a)(58)(A) of the Exchange Act that operates pursuant to an Audit Committee Charter approved by our Board. The Audit Committee Charter sets forth the responsibilities of the Audit
Committee, which include selecting or retaining each year an independent registered public accounting firm (the auditors) to audit our annual financial statements; reviewing and discussing with management and the auditors our annual
audited financial statements, including disclosures made in managements discussion and analysis, and recommending to our Board whether the audited financial statements should be included in our annual report on Form 10-K; reviewing and discussing with management and the auditors our quarterly financial statements prior to the filing of our quarterly reports on Form 10-Q; pre-approving our auditors engagement to render audit and/or permissible non-audit services; evaluating the qualifications, performance and independence of the auditors;
and reviewing preliminary valuations of the investment adviser and independent valuation firms and recommending valuations to our Board.
Our Audit
Committee is currently composed of three persons: Mr. Cohen, Mr. Kuperschmid and Mr. Perry, all of whom are considered independent directors under Nasdaq Rule 5605(a)(2). Mr. Cohen currently serves as Chair of the Audit
Committee. Our Board determined that Mr. Cohen qualifies as an audit committee financial expert as that term is defined under Item 407 of Regulation S-K under the Exchange Act.
The responsibilities and activities of our Audit Committee are described in greater detail in our Audit Committee charter.
Nominating and Corporate Governance Committee
The
Nominating and Corporate Governance Committee is responsible for selecting qualified nominees to be elected to our Board by stockholders; identifying, selecting or recommending qualified nominees to fill any vacancies on our Board or a committee
thereof; developing and recommending to our Board a set of corporate governance principles applicable to the Company; overseeing the evaluation of our Board and management; and undertaking such other duties and responsibilities as may from time to
time be delegated by our Board to the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is composed of three persons: Mr. Cohen, Mr. Kuperschmid and Mr. Perry, all of whom are considered
independent directors under Nasdaq Rule 5605(a)(2). Mr. Kuperschmid currently serves as the Chair of the Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee considers stockholder nominations for possible nominees for election as directors when such nominations are
submitted in accordance with our Bylaws, the Nominating and Corporate Governance Committee Charter and any applicable law, rule or regulation regarding director nominations. Nominations should be sent to Corporate Secretary, Great Elm Capital Corp.,
3801 PGA
102
Boulevard, Suite 603, Palm Beach Gardens, Florida 33410. To have a candidate considered by our Nominating and Corporate Governance Committee, a stockholder should submit the nomination in writing
and must include the information required by, and follow the procedures specified in, our Bylaws to the address in the previous sentence.
Criteria
considered by the Nominating and Corporate Governance Committee in evaluating the qualifications of individuals for election as members of our Board include, to the extent required, compliance with the independence and other applicable requirements
of the federal securities laws, the Nasdaq Rules, and any other applicable laws, rules, or regulations; the ability to contribute to the effective management of GECC, taking into account the ability to critically review, evaluate, question and
discuss information provided to them, and to interact effectively with our management, service providers and counsel, in order to exercise effective business judgment in the performance of their duties; educational background, business, professional
training or practice (e.g., finance, accounting or law), public service or academic positions, experience from service as a board member (including our Board) or as an executive of investment funds, public companies or significant private or not-for-profit entities or other organizations, and/or other life experiences; and personal and professional integrity, character, time availability in light of other
commitments, dedication, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate. Our Board also believes it is appropriate for members of our management to serve as a member
of our Board. In addition, although our Nominating and Corporate Governance Committee does not have a formal policy with regard to consideration of diversity in identifying director candidates, our Nominating and Corporate Governance Committee may
consider whether a potential candidates professional experience, education, skills and other individual qualities and attributes, including gender, race or national origin, would provide beneficial diversity of skills, experience or
perspective to our Boards membership and collective attributes. Such considerations will vary based on our Boards existing membership and other factors, such as the strength of a potential nominees overall qualifications relative
to diversity considerations.
The responsibilities and activities of our Nominating and Corporate Governance Committee are described in greater detail in
our Nominating and Corporate Governance Committee charter.
Compensation Committee
The Compensation Committee is responsible for determining, or recommending to our Board for determining, the compensation of our Chief Compliance Officer paid
directly by us, if any. Additionally, the Compensation Committee assists our Board with all matters related to compensation, as directed by our Board. The Compensation Committee may delegate any of its responsibilities to a subcommittee comprised of
one or more members of the Compensation Committee. The current members of the Compensation Committee are Mr. Cohen, Mr. Kuperschmid and Mr. Perry, all of whom are considered independent directors under Nasdaq Rule 5605(a)(2).
Mr. Perry currently serves as the Chair of the Compensation Committee. None of our executive officers is directly compensated by us and, as a result, the Compensation Committee does not produce and/or review and report on executive compensation
practices. Our executive officers do not have a role in determining or recommending director compensation.
The responsibilities and activities of our
Compensation Committee are described in greater detail in our Compensation Committee charter.
103
Compensation of Directors
The following table shows information regarding the compensation received by our directors for the fiscal year ended December 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Fees Earned or Paid in Cash |
|
|
All Other Name Fees Earned or Paid in Cash
Compensation(1) |
|
|
Total |
|
Independent Directors |
|
|
|
|
|
|
|
|
|
|
|
|
Mark Kuperschmid |
|
$ |
65,000 |
|
|
$ |
|
|
|
$ |
65,000 |
|
Richard Cohen |
|
$ |
65,000 |
|
|
$ |
|
|
|
$ |
65,000 |
|
Chad Perry |
|
$ |
65,000 |
|
|
$ |
|
|
|
$ |
65,000 |
|
Interested Directors |
|
|
|
|
|
|
|
|
|
|
|
|
Matthew A. Drapkin |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Erik A. Falk |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
In fiscal year 2023, we did not maintain a stock or option plan,
non-equity incentive plan or pension plan or other retirement benefits for our directors. |
No
compensation is paid by us to Mr. Drapkin or Mr. Falk in their roles as director. Our other directors receive an annual fee of $45,000. All of our directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and each committee meeting. In addition, the chairman of each of our Boards standing committees receives an annual fee of
$10,000 for his additional services in these capacities. Each member of these committees receives a $5,000 annual fee for serving on these committees. In addition, we purchased directors and officers liability insurance on behalf of our
directors and officers.
Compensation of Executive Officers
We do not provide direct compensation to our officers. Mr. Kaplan, Ms. Davis and Mr. Kleinman are paid by GECM, subject to reimbursement by us
for our allocable portion of Ms. Daviss and Mr. Kleinmans compensation under the Administration Agreement, by and between us and GECM.
Compensation Committee Interlocks and Insider Participation
Mr. Kuperschmid, Mr. Cohen and Mr. Perry served on our Compensation Committee during fiscal year 2023. Currently, none of our executive officers
are compensated by us, and as such, our Compensation Committee is not required to produce a report on executive officer compensation for inclusion herein. No current or past executive officers or employees of ours or our affiliates serve on our
Compensation Committee.
Our Portfolio Manager
GECM
manages our portfolio. We consider Matt Kaplan, our President and Chief Executive Officer, to be our portfolio manager. GECMs investment team does not receive any direct compensation from us in connection with the management of our portfolio.
GECMs investment personnel may be compensated through: (1) annual base salary; (2) cash bonuses; and (3) equity in GEG.
Matt
Kaplan. See -Executive Officers above.
104
Other Accounts Managed
As of December 31, 2023, Matt Kaplan was primarily responsible for the
day-to-day management of two pooled investment funds for institutional investors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Investment
Committee Voting
Member |
|
Type of Accounts |
|
Total No. of Other Accounts Managed |
|
|
Total Other Assets (in millions) |
|
|
No. of Other Accounts where Advisory Fee is Based on Performance |
|
|
Total Assets in Other Accounts where Advisory Fee is Based on Performance (in
millions) |
|
Matt Kaplan |
|
Registered Investment Companies: |
|
|
None |
|
|
|
None |
|
|
|
None |
|
|
|
None |
|
|
|
Other Pooled Investment Vehicles: |
|
|
2 |
|
|
$ |
21.4 |
|
|
|
1 |
|
|
$ |
14.0 |
|
|
|
Other Accounts: |
|
|
None |
|
|
|
None |
|
|
|
None |
|
|
|
None |
|
Portfolio Managers Material Conflicts of Interest
Certain of our executive officers and directors, and the members of the investment committee of GECM, serve or may serve as officers, directors or principals
of entities, including ICAM or funds managed by ICAM, that operate in the same or related lines of business as GECC or of investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities that may
require them to devote time to services for other entities, which could interfere with the time available to provide services to us. Further, we may not be given the opportunity to participate in certain investments made by investment funds managed
by advisers affiliated with GECM and any advisers that may in the future become affiliated with GEG. GECCs participation in any negotiated co-investment opportunities (other than those in which the only
term negotiated is price) with investment funds managed by investment managers under common control with GECM is subject to compliance with the Exemptive Relief Order.
Although funds managed by GECM may have different primary investment objectives than us, they may from time to time invest in asset classes similar to those
we target. GECM is not restricted from raising an investment fund with investment objectives similar to ours. Any such funds may also, from time to time, invest in asset classes similar to those we target. GECM will endeavor to allocate investment
opportunities in a fair and equitable manner, and in any event consistent with any duties owed to us and such other funds. Nevertheless, it is possible that we may not be given the opportunity to participate in investments made by investment funds
managed by investment managers affiliated with GECM. We have received exemptive relief from the SEC that allows us to co-invest, together with other investment vehicles managed by GECM, in specific investment
opportunities in accordance with the Exemptive Relief Order.
We pay management and incentive fees to GECM and reimburse GECM for certain expenses it
incurs. In addition, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments.
GECMs management fee is based on a percentage of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds and other forms of leverage) and GECM may have conflicts of interest in connection with
decisions that could affect our total assets, such as decisions as to whether to incur indebtedness.
The part of the incentive fee payable by us that
relates to our pre-incentive fee net investment income is computed on income that may include interest that is accrued but not yet received in cash, but payment is made on such accrual only once corresponding
income is received in cash. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible, which would
result in the reversal of any previously accrued and unpaid incentive fees.
105
The Investment Management Agreement renews for successive annual periods if approved by our Board or by the
affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. However, we and GECM each have the right to terminate the
agreement without penalty upon 60-days written notice to the other party. Moreover, conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including,
for example, the terms for compensation. Except in limited circumstances, any material change to the Investment Management Agreement must be submitted to our stockholders for approval under the Investment Company Act, and we may from time to time
decide it is appropriate to seek stockholder approval to change the terms of the agreement.
As a result of the arrangements described above, there may be
times when our management team has interests that differ from those of our stockholders, giving rise to a conflict.
Our stockholders may have conflicting
investment, tax and other objectives with respect to their investments in us. The conflicting interests of individual stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of
our investments, and the timing of disposition of our investments. As a consequence, conflicts of interest may arise in connection with decisions we make, including with respect to the nature or structuring of our investments, that may be more
beneficial for one stockholder than for another stockholder, especially with respect to stockholders individual tax situations. In selecting and structuring investments appropriate for us, GECM will consider our investment and tax objectives
and our stockholders, as a whole, not the investment, tax or other objectives of any stockholder individually.
We may also have conflicts of interest
arising out of the investment advisory activities of GECM. GECM may in the future manage other investment funds, accounts or investment vehicles that invest or may invest in assets eligible for purchase by us. To the extent that we compete with
entities managed by GECM or any of its affiliates for a particular investment opportunity, GECM will allocate investment opportunities across the entities for which such opportunities are appropriate, consistent with (1) its internal investment
allocation policies, (2) the requirements of the Advisers Act and (3) restrictions under the Investment Company Act regarding co-investments with affiliates, including the requirements of the
Exemptive Relief Order.
Ownership of Securities
As
of December 31, 2023, Matt Kaplan owned between $500,001 and $1,000,000 of shares of our common stock, which is calculated based on the closing price for shares of our common stock of $10.65 on December 30, 2023.
As of June 30, 2024, Matt Kaplan owned between $500,001 and $1,000,000 of shares of our common stock, which is calculated based on the closing price for
shares of our common stock of $10.68 on June 28, 2024.
106
RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS
Mr. Kaplan serves as a Portfolio Manager and as President for GECM. Mr. Drapkin serves as Vice Chairman of the board of directors of GEG.
Mr. Kleinman serves as General Counsel and Chief Compliance Officer of GECM and President, General Counsel and Chief Compliance Officer of GEG, the parent company of GECM, in addition to being our Chief Compliance Officer and Secretary. GEG
owns approximately 14.5% of our outstanding shares of common stock as of July 31, 2024.
Certain of our executive officers and directors, and the
members of the investment committee of GECM, serve or may serve as officers, directors or principals of entities, including ICAM or funds managed by ICAM, that operate in the same or related lines of business as GECC or of investment funds managed
by our affiliates. Accordingly, they may have obligations to investors in those entities that may require them to devote time to services for other entities, which could interfere with the time available to provide services to us. Further, we may
not be given the opportunity to participate in certain investments made by investment funds managed by advisers affiliated with GECM and any advisers that may in the future become affiliated with GEG. GECCs participation in any negotiated co-investment opportunities (other than those in which the only term negotiated is price) with investment funds managed by investment managers under common control with GECM is subject to compliance with the
Exemptive Relief Order.
Mr. Drapkin is a director of GEG and the Chief Executive Officer & Portfolio Manager of Northern Right, a
beneficial owner of more than 5% of GEGs common stock and an owner of GEG PIK notes. Mr. Drapkin does not receive compensation from us in his role as a director and is an interested person as defined under
Section 2(a)(19) of the Investment Company Act.
We entered into a license agreement with GEG pursuant to which GEG granted us a non-exclusive, royalty-free license to use the name Great Elm Capital Corp. Under the license agreement, we have a right to use the Great Elm Capital Corp. name and logo for so long as GECM,
or an affiliate thereof, remains our investment adviser.
We are party to the Investment Management Agreement with GECM, which is wholly-owned by GEG.
Subject to the overall supervision of our Board, GECM manages our day-to-day operations and provides investment advisory and management services to us pursuant to the
Investment Management Agreement. We pay GECM a fee for investment management services, which consisted of (1) base management fees of $3.5 million and $3.2 million for the years ended December 31, 2023 and 2022, respectively, and
(2) an accrued and unpaid aggregate incentive fee of approximately $1.6 million as of June 30, 2024. For the year ended December 31, 2023, we incurred $3.1 million in Income Incentive Fees accrued during the period. There
were no Capital Gains Incentive Fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2023. For the year ended December 31, 2022, we incurred $0.6 million in Income Incentive Fees
accrued during the period, exclusive of the waiver granted by the investment manager of $4.9 million in incentive fees earned in previous periods. There were no Capital Gains Incentive Fees earned by GECM as calculated under the Investment
Management Agreement for the year ended December 31, 2022. GECM waived all accrued and unpaid incentive fees pursuant to the Investment Management Agreement as of March 31, 2022. In connection with the incentive fee waiver, we recognized
the reversal of these accrued fees during the period ending March 31, 2022, resulting in a corresponding increase in net income and increase in NAV in such period (subject to any offsetting additional expenses or losses).
We are also party to the Administration Agreement with GECM. Pursuant to the Administration Agreement, GECM furnishes us with, or otherwise arranges for the
provision of, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and other such services as our administrator. We bear all costs and expenses that are incurred
in our operation and transactions and not specifically assumed by GECM pursuant to the Investment Management Agreement. For the fiscal years ended December 31, 2023 and 2022 we reimbursed GECM in the amount of $1.1 million and
$0.9 million, respectively, for services provided under the Administration Agreement. For the six months ended June 30, 2024
107
and 2023, we reimbursed GECM in the amount of $0.7 and $0.6 million, respectively, for services provided under the Administration Agreement.
GEG, the parent company of GECM, may purchase Notes from the underwriters in connection with this offering at the public offering price. No underwriting
discount or commissions (sales load) will be paid to the underwriters in connection with Notes they may sell to GEG.
On August 16, 2023, GEG, the parent
company of GECM, purchased $4.5 million of GECCZ Notes from the underwriters in an SEC registered offering at the public offering price. No underwriting discount or commissions (sales load) was paid to the underwriters in connection with GECCZ
Notes they sold to GEG. As of March 11, 2024, GEG no longer holds any GECCZ Notes.
On February 8, 2024, we entered into a Share Purchase Agreement
with GESP, pursuant to which GESP purchased, and we issued, 1,850,424 shares of our common stock, par value $0.01, at a price of $12.97 per share, which represented our net asset value per share as of February 7, 2024, for an aggregate purchase
price of $24 million. GESP is a special purpose vehicle which is owned 25% by GEG. GECM, the investment manager of GECC, is a wholly-owned subsidiary of GEG. GESP has agreed that, for as long as it owns more than 3% of our common stock and to
the extent required by the Investment Company Act, it will vote the shares it holds in the same proportion as the vote of all other holders of our common stock.
On June 21, 2024, we entered into a Share Purchase Agreement with PPH, pursuant to which PPH purchased, and we issued, 997,506 shares of our common stock, par
value $0.01, at a price of $12.03 per share, which represented our net asset value per share as of June 20, 2024, for an aggregate purchase price of approximately $12 million. PPH is a special purpose vehicle which is owned 25% by GEG. GECM,
the investment manager of GECC, is a wholly-owned subsidiary of GEG. PHH has agreed that, for as long as it owns more than 3% of our common stock and to the extent required by the Investment Company Act, it will vote the shares it holds in the same
proportion as the vote of all other holders of our common stock.
GECM has entered into the Shared Services Agreement, pursuant to which ICAM makes
available to GECM certain back-office employees of ICAM to provide services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees time. Pursuant to the Shared Services Agreement, GECM also makes available to
ICAM certain employees of GECM to provide services to ICAM in exchange for reimbursement by ICAM of the allocated portion of such employees time. Affiliates of ICAM beneficially own more than 5% of our Companys outstanding common stock.
We have established a written policy to govern the review of potential related party transactions. GECM, our Chief Compliance Officer, and any other
officers designated by us are required to review the facts and circumstances of transactions with certain affiliates, and to screen any such transactions, for potential compliance issues under Section 57(h) of the Investment Company Act.
108
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the close of business on July 31, 2024, certain information regarding the beneficial ownership of our common stock
by:
|
|
|
each of the directors and executive officers; |
|
|
|
all of our current executive officers and directors as a group; and |
|
|
|
each person known by us to be beneficial owners of 5% or more of our outstanding common stock.
|
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act,
and includes voting or investment power with respect to the securities. Ownership information for those persons who beneficially own more than 5% of our common stock is based upon Schedule 13G and Schedule 13D filings filed by such persons with the
SEC and other information obtained from such persons, if available.
Except as indicated in the footnotes to this table and under applicable community
property laws, to our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock. For the purposes of calculating percent ownership, as of the close of business on July 31, 2024,
10,449,888 shares of common stock were issued and outstanding.
The address for each of our current directors and executive officers is c/o Great Elm
Capital Corp., 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410.
|
|
|
|
|
|
|
Shares Beneficially Owned |
|
Percent of Class |
Interested Directors |
|
|
|
|
Erik A. Falk |
|
|
|
* |
Matthew A. Drapkin(1) |
|
860,088 |
|
8.2% |
Independent Directors |
|
|
|
|
Mark Kuperschmid(2) |
|
16,972 |
|
* |
Richard Cohen |
|
2,612 |
|
* |
Chad Perry |
|
|
|
* |
|
|
|
Executive Officers |
|
|
|
|
Matt Kaplan |
|
50,668 |
|
* |
Adam Kleinman |
|
20,558 |
|
* |
Keri Davis |
|
14,815 |
|
* |
Directors and executive officers as a group (8 persons) |
|
965,713 |
|
9.2% |
|
|
|
5% Beneficial Owners |
|
|
|
|
Great Elm Strategic Partnership I, LLC(3)
|
|
1,850,424 |
|
17.7% |
Great Elm Group, Inc.(4) |
|
1,516,932 |
|
14.5% |
Prosper Peak Holdings, LLC(5) |
|
997,506 |
|
9.5% |
Entities affiliated with Northern Right Capital Management, L.P.(6) |
|
798,471 |
|
7.6% |
Entities affiliated with Imperial Capital Asset Management, LLC(7) |
|
711,626 |
|
6.8% |
(1) |
Includes the 798,471 shares identified in footnote (6) below. |
(2) |
Includes 13,972 shares held by Benmark Investments LLC (1568 Columbus Ave., Burlingame, California 94010).
Mr. Kuperschmid disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. |
109
(3) |
Based on information provided to the Company and furnished in a Schedule 13G filed with the SEC on
February 13, 2024 by GESP. GESP reported sole voting and dispositive power over 1,850,424 shares of our common stock. The address for GESP is 800 South Street, Suite 230, Waltham, Massachusetts 02453. |
(4) |
Based on information provided to the Company and furnished in a Schedule 13D/A filed with the SEC on June 24,
2024 by GEG. GEG reported sole voting and dispositive power over 1,516,932 shares of our common stock. The address for GEG is 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410. |
(5) |
Based on information provided to the Company and furnished in a Schedule 13G filed with the SEC on
June 24, 2024 by PPH. PPH reported sole voting and dispositive power over 997,506 shares of our common stock. The address for PPH is 800 South Street, Suite 230, Waltham, Massachusetts 02453. |
(6) |
Based on information provided to the Company and furnished in a Schedule 13D/A filed with the SEC on February
13, 2024, jointly by Northern Right, Northern Right QP, BCA and Matthew A. Drapkin. Each of BCA and Mr. Drapkin reported shared voting and dispositive power over 798,471 shares of our common stock and each of Northern Right and Northern Right
QP reported shared voting and dispositive power over 429,331 shares of our common stock. The address for Northern Right is 9 Old Kings Hwy S., 4th Floor, Darien, CT 06820. |
(7) |
Based on information provided to the Company and furnished in a Schedule 13G/A filed with the SEC on
February 14, 2024, jointly by ICAM, Long Ball Partners, LLC (Long Ball), IC Leverage Income Fund, LLC (IC Leverage), Imperial Capital Group Holdings II, LLC (Imperial Holdings II) and Jason Reese. ICAM and
Long Ball reported shared voting and dispositive power over 145,189 shares of our common stock; IC Leverage reported shared voting and dispositive power over 167,375 shares of our common stock; Imperial Holdings II reported shared voting and
dispositive power over 399,062 shares of our common stock; and Mr. Reese reported shared voting and dispositive power over 711,626 shares of our common stock. The address for ICAM is 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, FL 33410.
|
Set forth below is the dollar range of equity securities beneficially owned by each of our directors as of December 31, 2023. We are
not part of a family of investment companies, as that term is defined in the Investment Company Act.
|
|
|
|
|
Name of Director |
|
Dollar Range of Equity Securities of GECC(1)(2) |
|
Independent Directors |
|
|
|
|
Mark Kuperschmid |
|
|
Over $100,000 |
|
Richard Cohen |
|
|
$10,001$50,000 |
|
Chad Perry |
|
|
None |
|
Interested Directors |
|
|
|
|
Matthew A. Drapkin |
|
|
Over $100,000 |
|
Erik A. Falk |
|
|
None |
|
(1) |
Dollar ranges are as follows: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000. |
(2) |
The dollar range of equity securities beneficially owned is based on the closing price for our common stock of
$10.65 on December 29, 2023. |
110
DETERMINATION OF NET ASSET VALUE
We determine our NAV each quarter by subtracting our total liabilities from the fair value of our gross assets.
We value our portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our Board. Fair value is
defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that
(1) are independent of us; (2) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and
customary); (3) are able to transact for the asset; and (4) are willing to transact for the asset (that is, they are motivated but not forced or otherwise compelled to do so).
Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair
value. We generally obtain market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker-dealers or market makers. However, short-term debt investments with remaining maturities within 90
days are generally valued at amortized cost, which approximates fair value.
Debt and equity securities for which market quotations are not readily
available or for which market quotations are deemed not to represent fair value, are valued at fair value using a valuation process consistent with our Board-approved policy. Our Board approves in good faith the valuation of our portfolio as of the
end of each quarter. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that
would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and other events may impact the market
quotations used to value some of our investments.
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our
financial statements will express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.
111
DIVIDEND REINVESTMENT PLAN
We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a
stockholder elects to receive cash as provided below. As a result, if our Board authorizes, and we declare, a cash distribution, our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions (net of any
applicable withholding tax) automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.
No action
will be required on the part of a registered stockholder to have his or her cash distribution reinvested in our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying Equiniti Trust Company, LLC, the
plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. The plan administrator will set up an account for common
stock acquired through the plan for each stockholder who has not elected to receive distributions in cash and hold such common stock in non-certificated form. Upon request by a stockholder participating in the
plan, received in writing not less than 10 days prior to each applicable record date, the plan administrator will, instead of crediting shares to the participants account, issue a certificate registered in the participants name for the
number of whole shares of our common stock and a check for any fractional share.
Those stockholders whose common stock are held by a broker or other
financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
We intend to use
primarily newly issued common stock to implement the plan to the extent our common stock is trading at a premium to NAV per share of the common stock. In the case that such newly issued common stock is used to implement the plan, the number of
common stock to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by 95% of the market price per share of our common stock at the close of trading on the date fixed by the
Board for such purposes. Market price per share on that date will be the closing price for such common stock on the national securities exchange on which our common stock is then listed or, if no sale is reported for such day, at the average of
their electronically reported bid and asked prices. Notwithstanding the foregoing, we reserve the right to instruct the plan administrator to purchase our common stock in the open market in connection with our implementation of the plan. Shares
purchased in open market transactions by the plan administrator will be allocated to each stockholder who has not so elected to receive cash distributions in cash in the manner set forth above for issuance of new common stock, substituting where
applicable the average purchase price, excluding any brokerage charges or other charges, of all common stock purchased in the open market in lieu of the market price per share. The number of shares of our common stock to be outstanding after giving
effect to payment of the distribution cannot be established until the value per share at which additional common stock will be issued has been determined and elections of our stockholders have been tabulated.
The plan administrators fees under the plan will be paid by us. If a participant elects by written notice to the plan administrator to have the plan
administrator sell part or all of the common stock held by the plan administrator in the participants account and remit the proceeds to the participant, the plan administrator is authorized to deduct a transaction fee of $15 plus a per share
brokerage commission from the proceeds.
Stockholders who receive distributions in the form of stock are generally subject to the same federal, state and
local tax consequences as are stockholders who elect to receive their distributions in cash. A stockholders basis for determining gain or loss upon the sale of stock received in a distribution from us generally will be equal to the total
dollar amount of the distribution payable to the stockholder. Any stock received in a distribution will have a new holding period for tax purposes commencing on the day following the day on which the common stock is credited to the U.S.
stockholders account.
We may terminate the plan upon notice in writing mailed to each participant at least 30 days prior to any record date for the
payment of any distribution by us. All correspondence concerning the plan should be directed to the plan administrator by mail at 48 Wall Street, Floor 23, New York, NY 10005 or by phone at (800) 937-5449.
112
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material U.S. federal income tax consequences to U.S. Holders and Non-U.S.
Holders (as defined below) of the ownership and disposition of the Notes that we are offering. The following discussion is not exhaustive of all possible tax consequences. This summary is based upon the Code, U.S. Treasury Department (the U.S.
Treasury) regulations (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncements of the IRS, and judicial decisions, all as currently in effect and all of which are subject to
differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to those discussed below.
This summary is for general information only, and does not purport to discuss all aspects of U.S. federal income taxation that may be important to a
particular holder in light of its investment or tax circumstances (such as the effects of Section 451(b) of the Code or any alternative minimum tax consequences) or to holders subject to special tax rules, such as partnerships, subchapter S
corporations or other pass-through entities (and holders of interests in such entities), any government (or instrumentality or agency thereof), banks, financial institutions, tax-exempt entities, insurance
companies, regulated investment companies, real estate investment trusts, controlled foreign corporations, passive foreign investment companies and stockholders of such corporations, trusts and estates, dealers in securities, traders in securities
that have elected to use the mark-to-market method of accounting for their securities, persons holding the Notes as part of an integrated investment, including a
straddle, constructive sale, or conversion transaction, persons (other than Non-U.S. Holders (as defined below)) whose functional currency for tax purposes is not the U.S.
dollar and persons who participate in this offering and are also beneficial owners of the GECCM Notes, the GECCO Notes, the GECCZ Notes or the GECCI Notes which are redeemed with the proceeds of this offering as described in Use of
Proceeds. This summary does not include any discussion of the tax laws of any state, local or non-U.S. government that may be applicable to a particular holder nor does it discuss any U.S. federal tax consequences other than U.S. federal
income tax consequences (such as U.S. federal estate or gift tax consequences).
This summary is directed solely to U.S. Holders and Non-U.S. Holders (as defined below) that will purchase the Notes offered in this prospectus at their issue price (i.e., the first price at which a substantial amount of the Notes is sold for money to
investors, other than to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers) and will hold such Notes as capital assets within the meaning of Section 1221 of the
Code, which generally means as property held for investment.
You should consult your own tax advisor concerning the U.S. federal income tax
consequences to you of acquiring, owning and disposing of the Notes, as well as any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax
laws.
As used in this prospectus, the term U.S. Holder means a beneficial owner of a Note offered in this prospectus that is for U.S.
federal income tax purposes:
|
|
|
an individual who is a citizen or resident of the United States; |
|
|
|
a corporation created or organized in or under the laws of the United States, any state therein or the
District of Columbia; or |
|
|
|
an estate or trust, the income of which is subject to U.S. federal income taxation regardless of its
source. |
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds the Notes offered in this
prospectus, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership, and accordingly, this summary does not apply to partnerships. A partner of a partnership
holding the Notes should consult its own tax advisor regarding the U.S. federal income tax consequences to the partner of the acquisition, ownership and disposition by the partnership of the Notes.
113
U.S. Holders
If the stated principal amount of the Notes exceeds their issue price (as defined above) by more than a statutorily defined de minimis
amount, a U.S. Holder (whether a cash method or accrual method taxpayer) will be required to include the excess in gross income as original issue discount (OID), as it accrues, in accordance with a constant
yield-to-maturity method (unless otherwise accelerated), in advance of receipt of the cash payments to which such OID is attributable. U.S. Holders should consult their
own tax advisors regarding the possible application of the OID rules. It is expected, and the remainder of this discussion assumes, that the Notes will not be treated as issued with OID of more than a de minimis amount for U.S. federal income tax
purposes.
Payment of Interest. Interest on a Note generally will be included in the income of a U.S. Holder as interest income at the time it is
accrued or is received in accordance with the U.S. Holders regular method of accounting for U.S. federal income tax purposes and will be ordinary income.
Sale, Exchange, or Retirement of the Notes. Upon the sale, exchange, retirement, or other taxable disposition of a Note, a U.S. Holder will recognize
gain or loss equal to the difference between the amount realized upon the sale, exchange, retirement, or other taxable disposition (other than amounts attributable to accrued but unpaid interest, which will be taxed as such) and the U.S.
Holders adjusted tax basis in the Note. A U.S. Holders adjusted tax basis in a Note generally will be the cost of the Note to such U.S. Holder. Gain or loss realized on the sale, exchange, retirement, or other taxable disposition of a
Note generally will be capital gain or loss and will be long-term capital gain or loss if the Note has been held for more than one year. The deductibility of capital losses is subject to limitations under the Code.
Additional Medicare Tax on Unearned Income. A tax of 3.8% is imposed on certain net investment income (or undistributed net
investment income, in the case of estates and trusts) received by taxpayers with adjusted gross income above certain threshold amounts. Net investment income as defined for U.S. federal Medicare contribution purposes generally
includes interest payments on, and gain recognized from the sale or other disposition of, the Notes. U.S. Holders should consult their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of the Notes.
Non-U.S. Holders
This discussion applies to you if you are a Non-U.S. Holder. A
Non-U.S. Holder is a beneficial owner of a Note that is neither a U.S. Holder nor an entity treated as a partnership for U.S. federal income tax purposes.
Payment of Interest. Subject to the discussions below concerning backup withholding and Sections 1471 through 1474 of the Code and related U.S.
Treasury guidance (collectively referred to as FATCA), interest payments that a Non-U.S. Holder receives from us or our agent and that are not effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States, or a permanent establishment maintained in the United States if certain tax treaties apply, generally will not be subject to U.S. federal income or
withholding tax unless:
|
|
|
the Non-U.S. Holder is a
10-percent shareholder of us within the meaning of Section 871(h)(3) of the Code; |
|
|
|
the Non-U.S. Holder is a controlled foreign
corporation for U.S. federal income tax purposes that is related to us (directly or indirectly) through stock ownership; |
|
|
|
the Non-U.S. Holder is a bank extending credit under a loan
agreement in the ordinary course of its trade or business; or |
|
|
|
the Non-U.S. Holder does not satisfy the certification
requirements described below. |
A Non-U.S. Holder generally will satisfy the certification
requirements if it certifies, under penalties of perjury, that it is not a U.S. person (on a properly executed IRS Form W-8BEN or
W-8BEN-E or other applicable form), or holds its Notes through certain foreign intermediaries and satisfies the certification requirements of applicable U.S. Treasury
regulations.
114
Interest payments not meeting the requirements set forth above may be subject to withholding tax at the rate of
30% (or lower applicable treaty rate). Interest effectively connected with a Non-U.S. Holders conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a
U.S. permanent establishment or fixed base maintained by the U.S. Holder in the United States), however, would not be subject to withholding tax as long as the Non-U.S. Holder provides us or our paying agent
with an adequate certification (currently on IRS Form W-8ECI). To claim benefits under an income tax treaty, a Non-U.S. Holder must obtain a taxpayer identification
number and provide a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable form) to us or our paying agent before
the payment of interest. In addition, special rules may apply to claims for treaty benefits made by Non-U.S. Holders that are entities rather than individuals. A
Non-U.S. Holder that is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
Sale, Exchange, or Retirement of the Notes. A Non-U.S. Holder generally will not be subject
to U.S. federal income or withholding tax on any gain realized on the sale, exchange, retirement, or other taxable disposition of the Notes (except with respect to accrued and unpaid interest, which would be taxed as described under - Payment
of Interest above), provided that:
|
|
|
the gain is not effectively connected with the conduct of a trade or business within the United States, or
a permanent establishment maintained in the United States if certain tax treaties apply; |
|
|
|
in the case of a Non-U.S. Holder that is an individual, the Non-U.S. Holder is not present in the United States for 183 days or more in the taxable year of the sale, exchange, or other disposition of the Notes; and |
|
|
|
the Non-U.S. Holder is not subject to tax pursuant to certain
provisions of U.S. federal income tax law applicable to certain expatriates. |
An individual
Non-U.S. Holder who is present in the United States for 183 days or more in the taxable year of sale, exchange, or other disposition of a Note, and if certain other conditions are met, will be subject to U.S.
federal income tax at a rate of 30% on the gain realized on the sale, exchange, or other taxable disposition of such Note, which may be offset by U.S. source capital losses.
Income Effectively Connected with a Trade or Business within the United States. If a Non-U.S. Holder of a Note
is engaged in the conduct of a trade or business within the United States and if interest on a Note, or gain realized on the sale, exchange, or other taxable disposition of the Note, is effectively connected with the conduct of such trade or
business (and, if certain tax treaties apply, is attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States), the
Non-U.S. Holder generally will be subject to U.S. federal income tax on such interest or gain on a net income basis in the same manner as if it were a U.S. Holder (but without regard to the Medicare tax on net
investment income discussed above). In addition, if any such Non-U.S. Holder is a foreign corporation, it may also be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of its
earnings and profits for the taxable year that are effectively connected with its conduct of a trade or business in the United States, subject to certain adjustments.
Backup Withholding and Information Reporting
Payments of
interest on, or the proceeds of the sale or other disposition of, a Note held by a U.S. Holder are generally subject to information reporting unless the U.S. Holder is an exempt recipient (such as a corporation). Such payments, along with principal
payments on the Note, may also be subject to U.S. federal backup withholding at the applicable rate if the recipient of such payment fails to supply a taxpayer identification number, certified under penalties of perjury, as well as certain other
information or otherwise fails to establish an exemption from backup withholding.
A Non-U.S. Holder may be
required to comply with certain certification procedures to establish that the holder is not a U.S. person in order to avoid backup withholding with respect to our payment of principal and interest on,
115
or the proceeds of the sale or other disposition of, a Note. In certain circumstances, the name and address of the beneficial owner and the amount of interest paid on a Note, as well as the
amount, if any, of tax withheld, may be reported to the IRS. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides.
Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against a holders U.S. federal income tax liability provided the required information is timely furnished to the IRS.
FATCA
FATCA imposes U.S. federal withholding tax at a rate of 30% on payments to certain foreign entities of (i) U.S. source interest (including interest paid
on the Notes) and (ii) subject to the proposed U.S. Treasury regulations described below, the gross proceeds from the sale or other disposition of an obligation that produces U.S. source interest (including a disposition of the Notes). This
withholding tax applies to a foreign entity, whether acting as a beneficial owner or an intermediary, unless such foreign entity complies with (i) certain information reporting requirements regarding its U.S. account holders and its U.S. owners
and (ii) certain withholding obligations regarding certain payments to its account holders and certain other persons. Additionally, in order to be treated as FATCA compliant, a Non-U.S. Holder must
provide certain documentation (usually an IRS Form W-8BEN or W-8BEN-E) containing information about its identity, its FATCA
status, and if required, its direct and indirect U.S. owners.
Accordingly, the entity through which a U.S. Holder or a
Non-U.S. Holder holds the Notes will affect the determination of whether such withholding is required. Foreign entities located in jurisdictions that have an intergovernmental agreement with the United States
with respect to FATCA may be subject to different rules. We will not pay any additional amounts to U.S. Holders or Non-U.S. Holders in respect of any amounts withheld, whether in respect of FATCA or otherwise.
The U.S. Treasury has released proposed U.S. Treasury regulations which, if finalized in their present form, would eliminate the application of this regime with respect to payments of gross proceeds (but not interest). Pursuant to the preamble to
these proposed U.S. Treasury regulations, the issuer and any other applicable withholding agent may (but is not required to) rely on this proposed change to FATCA withholding until final regulations are issued or until such proposed U.S. Treasury
regulations are rescinded. U.S. Holders that own their interests in a Note through a foreign entity or intermediary, and Non-U.S. Holders, should consult their tax advisors regarding the applicability of
FATCA.
The U.S. federal income tax discussion set forth above is included for general information only and may not be applicable depending upon a
holders particular situation. You should consult your own tax advisors with respect to the tax consequences to you of the acquisition, ownership and disposition of the Notes, including the tax consequences under state, local, foreign and other
tax laws and the possible effects of changes in U.S. federal or other tax laws.
116
DESCRIPTION OF OUR COMMON STOCK
The following description is based on relevant portions of the Maryland General Corporation Law and our charter (Charter) and bylaws
(Bylaws). This summary is not necessarily complete, and we refer you to the Maryland General Corporation Law and our charter and bylaws for a more detailed description of the provisions summarized below.
Our authorized stock consists of 100,000,000 shares of stock, par value $0.01 per share, all of which are initially designated as common stock. Our common
stock is listed on Nasdaq under the ticker symbol GECC. There are no outstanding options or warrants to purchase our common stock. No common stock has been authorized for issuance under any equity compensation plans. Our fiscal year-end is December 31. Under Maryland law, our stockholders generally are not personally liable for our debts or obligations.
The following are our outstanding classes of securities as of July 31, 2024:
|
|
|
|
|
|
|
Title of Class |
|
Amount Authorized |
|
Amount Held by GECC or for GECCs Account |
|
Amount Outstanding Exclusive of Amounts Shown in the Adjacent Column |
Common Stock |
|
100,000,000 |
|
|
|
10,449,888 |
GECCM Notes |
|
|
|
|
|
$45.6 million |
GECCO Notes |
|
|
|
|
|
$57.5 million |
GECCZ Notes |
|
|
|
|
|
$40.0 million |
GECCI Notes |
|
|
|
|
|
$56.5 million |
Under our Charter, our Board is authorized to classify and reclassify any unissued stock into other classes or series of
stock, including a class or series of preferred stock, without obtaining stockholder approval. As permitted by the Maryland General Corporation Law, our Charter provides that a majority of our entire Board, without any action by our stockholders,
may amend the Charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.
Common Stock
All of our common stock has equal rights as
to earnings, assets, voting, and dividends and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized by our Board and
declared by us out of assets legally available therefor. Shares of our common stock have no preemptive, conversion or redemption rights, generally have no appraisal rights and are freely transferable, except where their transfer is restricted by
federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we
pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock is entitled to one vote on all matters submitted to a
vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of
directors, which means that holders of a majority of the outstanding shares of common stock can elect all of our directors, and holders of less than a majority of such common stock will be unable to elect any director.
Preferred Stock
Our Charter authorizes our Board to
classify and reclassify any unissued common stock into other classes or series of stock, including preferred stock. The cost of any such reclassification would be indirectly borne by our
117
existing stockholders. Under the terms of our Charter, our Board is authorized to issue preferred stock in one or more classes or series without stockholder approval. Prior to issuance of
preferred stock of each class or series, the Board is required by Maryland law and by our Charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each class or series. Thus, the Board could authorize the issuance of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction
or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the Investment
Company Act. The Investment Company Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of our common stock is
made, the aggregate involuntary liquidation preference of such preferred stock, together with the aggregate involuntary liquidation preference or aggregate value of all other senior securities, must not exceed an amount equal to 50% of our gross
assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a
majority of the directors if distributions on such preferred stock are in arrears by two full years or more. Certain matters under the Investment Company Act require the separate vote of the holders of any issued and outstanding preferred stock. For
example, holders of preferred stock, if any, would vote as a separate class from the holders of common stock on a proposal to cease operations as a BDC. We believe that the availability for issuance of preferred stock will provide us with increased
flexibility in structuring future financings and acquisitions. However, we do not currently have any plans to issue preferred stock.
Limitation on
Liability of Directors and Officers; Indemnification and Advance of Expenses
Maryland law permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services
or (b) active and deliberate dishonesty established by a final judgment and that is material to the cause of action. Our Charter contains such a provision which eliminates directors and officers liability to the maximum extent
permitted by Maryland law, subject to the requirements of the Investment Company Act.
Our Charter authorizes us, and our Bylaws obligate us, to the
maximum extent permitted by Maryland law and subject to the requirements of the Investment Company Act, to indemnify any present or former director or officer of GECC or any individual who, while a director or officer of GECC and at our request,
serves or has served another corporation, partnership, limited liability company, real estate investment trust, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, member, manager or trustee, who is made,
or threatened to be made, a party to, or witness in, a proceeding by reason of his or her service in such capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her
status as such and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. Our Charter and Bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of ours in any of
the capacities described above and any of our employees or agents or any employees or agents of our predecessor. In accordance with the Investment Company Act, we will not indemnify any person for any liability to which such person would be subject
by reason of such persons willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Maryland law requires a corporation (unless its charter requires otherwise, which ours does not) to indemnify a director or officer who has been successful,
on the merits or otherwise, in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with
118
any proceeding to or in which they may be made, or threatened to be made, a party or witness by reason of their service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. Under Maryland law, a Maryland
corporation may not indemnify a director or officer in a suit by the corporation or in its right in which the director or officer was adjudged liable to the corporation or in a suit in which the director or officer was adjudged liable on the basis
that a personal benefit was improperly received. Nevertheless, a court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the
prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by the corporation or in its right, or for a judgment of liability on the
basis that a personal benefit was improperly received, is limited to expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporations receipt of (a) a written
affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay
the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.
Our insurance policy does not
currently provide coverage for claims, liabilities and expenses that may arise out of activities that our present or former directors or officers have performed for another entity at our request. There is no assurance that such entities will in fact
carry such insurance. However, in the event that our present or former directors or officers serve another entity as a director, officer, partner or trustee, we expect to obtain insurance providing coverage for such persons for any claims,
liabilities or expenses that may arise out of their activities while serving in such capacities.
Certain Provisions of the Maryland General
Corporation Law and Our Charter and Bylaws
The Maryland General Corporation Law and our Charter and Bylaws contain provisions that could make it more
difficult for a potential acquirer to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to negotiate first with our Board. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such
proposals may improve their terms.
Classified Board of Directors
Our Board is divided into three classes of directors serving staggered three-year terms. Upon expiration of their terms, directors of each class will be
elected to serve for a three-year term ending at the third annual meeting of stockholders following his or her election and until his or her successor is duly elected and qualifies. Each year, one class of directors will be elected by the
stockholders. A classified board may render a change in control of us or removal of our incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified Board will help to ensure the
continuity and stability of our management and policies.
Election of Directors
Our Charter and Bylaws provide that the affirmative vote of a plurality of the votes cast in the election of directors at a meeting of stockholders duly called
and at which a quorum is present will be required to elect a director. Our Board has the exclusive right to amend the Bylaws to alter the vote required to elect directors.
119
Number of Directors; Vacancies; Removal
Our Charter provides that the number of directors will be set only by the Board in accordance with our Bylaws. Our Bylaws provide that a majority of our entire
Board may at any time increase or decrease the number of directors. However, unless our Bylaws are amended, the number of directors may never be less than one nor more than nine. We have elected to be subject to the provision of Subtitle 8 of Title
3 of the Maryland General Corporation Law regarding the filling of vacancies on the Board. Accordingly, except as may be provided by our Board in setting the terms of any class or series of preferred stock, any and all vacancies on our Board may be
filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the
directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the Investment Company Act.
Our Charter provides that, subject to the rights of holders of preferred stock, a director may be removed only for cause, as defined in our Charter, and then
only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors.
Action by Stockholders
Under the Maryland General
Corporation Law, unless a corporations charter provides otherwise (which our Charter does not), stockholder action can be taken only at an annual or special meeting of stockholders or by unanimous written consent in lieu of a meeting. These
provisions, combined with the requirements of our Bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual
meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
Our Bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to our Board and the proposal of business to be
considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our Board or (3) by a stockholder who was a stockholder of record at the record date set by our Board for the purpose
of determining stockholders entitled to vote at the meeting, at the time of giving notice by the stockholders as provided for in our Bylaws and at the time of the meeting (and any postponement or adjournment thereof), who is entitled to vote at the
meeting in the election of each individual so nominated or on such other business and who has complied with the advance notice provisions of our Bylaws. With respect to special meetings of stockholders, only the business specified in our notice of
the meeting may be brought before the meeting. Nominations of persons for election to the Board at a special meeting may be made only (1) by or at the direction of our Board or (2) provided that the meeting has been called for the purpose
of electing directors, by a stockholder who was a stockholder of record at the record date set by our Board for the purpose of determining stockholders entitled to vote at the special meeting, at the time of giving notice as provided for in our
Bylaws and at the time of the meeting (and any postponement or adjournment thereof), who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice provisions of the Bylaws. The
purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business
and, to the extent deemed necessary or desirable by our Board, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although
our Bylaws do not give our Board any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the
consideration of stockholder proposals if proper procedures are not followed. They may also have the effect of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its
own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
120
Calling of Special Meetings of Stockholders
Our Bylaws provide that special meetings of stockholders may be called by our Board and certain of our officers. Additionally, our Bylaws provide that, subject
to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by the secretary of the corporation upon the written request of stockholders
entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.
Approval of Extraordinary Corporate Action; Amendment
of Charter and Bylaws
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert to another form of
entity, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the
votes entitled to be cast on the matter. Our Charter generally provides for approval of amendments and extraordinary transactions by stockholders entitled to cast a majority of the votes entitled to be cast on the matter.
However, our Charter provides that approval of the following matters requires the affirmative vote of stockholders entitled to cast at least 80% of the votes
entitled to be cast on the matter:
|
|
|
amendments to the provisions of our Charter relating to the classification of our Board, the power of our Board
to fix the number of directors and to fill vacancies on our Board, the vote required to elect or remove a director, the vote required to approve our dissolution, amendments to our Charter and extraordinary transactions and our Board exclusive power
to amend our Bylaws; |
|
|
|
Charter amendments that would convert us from a closed-end company to an open-end company or make our common stock a redeemable security (within the meaning of the Investment Company Act); |
|
|
|
our liquidation or dissolution or any amendment to our Charter to effect any such liquidation or dissolution;
|
|
|
|
any merger, consolidation, conversion, share exchange or sale or exchange of all or substantially all of our
assets that the Maryland General Corporation Law requires be approved by our stockholders; or |
|
|
|
any transaction between us, on the one hand, and any person or group of persons acting together that is entitled
to exercise or direct the exercise, or acquire the right to exercise or direct the exercise, directly or indirectly (other than solely by virtue of a revocable proxy), of one-tenth or more of the voting power
in the election of our directors generally, or any person controlling, controlled by or under common control with, employed by or acting as an agent of, any such person or member of such group, on the other hand. |
However, if such amendment, proposal or transaction is approved by a majority of our continuing directors (in addition to approval by our Board), such
amendment, proposal or transaction may be approved by a majority of the votes entitled to be cast on such a matter, except that any transaction that would not otherwise require stockholder approval under the Maryland General Corporation Law will not
require further stockholder approval unless our Charter, our Bylaws or the Maryland General Corporation Law requires such approval. In either event, in accordance with the requirements of the Investment Company Act, any such amendment, proposal or
transaction that would have the effect of changing the nature of our business so as to cause us to cease to be, or to withdraw our election as, a BDC would be required to be approved by a majority of our outstanding voting securities, as defined
under the Investment Company Act. The continuing directors are defined in our Charter as (1) certain of our current directors named therein or (2) any successor directors whose nomination for election by the stockholders or
whose election by the directors to fill vacancies is approved by a majority of continuing directors or the successor continuing directors then in office.
121
Our Charter and Bylaws provide that our Board will have the exclusive power to make, alter, amend or repeal any
provision of our Bylaws.
No Appraisal Rights
Except
with respect to appraisal rights arising in connection with the Maryland Control Acquisition Share Act discussed below, as permitted by the Maryland General Corporation Law, our Charter provides that stockholders will not be entitled to exercise
appraisal rights unless a majority of our entire Board determines that such rights shall apply.
Control Share Acquisitions
The Maryland Control Share Acquisition Act provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights
except to the extent approved by the affirmative vote of stockholders entitled to cast two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, by officers or by directors who
are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able
to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:
|
|
|
one-tenth or more but less than one-third; |
|
|
|
one-third or more but less than a majority; or |
|
|
|
a majority or more of all voting power. |
The requisite stockholder approval must be obtained each time an acquirer crosses one of the thresholds of voting power set forth above. Control shares do not
include shares that the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of issued and outstanding control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special
meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the
expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting
rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which
voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations, including, as provided in our Bylaws, compliance with the Investment Company Act. Fair value is
determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or, if a meeting of stockholders at which the voting rights of the shares are considered and not
approved is held, as of the date of such meeting. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The Maryland Control Share Acquisition Act does not apply (a) to stock acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our Bylaws contain a provision exempting from the Maryland Control
122
Share Acquisition Act any and all acquisitions by any person of our common stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future.
Business Combinations
Under Maryland law, the Maryland
Business Combination Act provides that certain business combinations between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on
which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of
equity securities. An interested stockholder is defined as:
|
|
|
any person who beneficially owns 10% or more of the voting power of the corporations outstanding voting
stock; or |
|
|
|
an affiliate or associate of the corporation who, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder under this statute if the Board approved in advance the transaction by which the stockholder otherwise would have
become an interested stockholder. However, in approving a transaction, the Board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the
board of directors of the corporation and approved by the affirmative vote of at least:
|
|
|
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
|
|
|
|
two-thirds of the votes entitled to be cast by holders of voting stock of
the corporation other than common stock held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. |
These super-majority vote requirements do not apply if the corporations common stockholders receive a minimum price, as defined under Maryland law, for
their stock in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its stock.
The Maryland
Business Combination Act permits various exemptions from its provisions, including business combinations that are exempted by the Board before the time that the interested stockholder becomes an interested stockholder. Our Board has adopted a
resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the Board, including a majority of the directors
who are not interested persons as defined in the Investment Company Act. This resolution may be altered or repealed in whole or in part at any time; however, our Board will adopt resolutions so as to make us subject to the provisions of the Maryland
Business Combination Act only if our Board determines that it would be in our best interests and if the SEC staff does not object to our determination that GECC being subject to the Business Combination Act does not conflict with the Investment
Company Act. If this resolution is repealed, or the Board does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of GECC and increase the difficulty of consummating any offer.
123
Forum Selection Clause
Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (a) any derivative action
or proceeding brought on our behalf, (b) any action asserting a claim of breach of any duty owed by any of our directors or officers or other employees to us or to our stockholders, (c) any action asserting a claim against us or any of our
directors or officers or other employees arising pursuant to any provision of the Maryland General Corporation Law or our Charter or Bylaws or (d) any action asserting a claim against us or any of our directors or officers or other employees
that is governed by the internal affairs doctrine shall be, in each case, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore
Division.
Waiver of Corporate Opportunity Doctrine
Our Charter provides that, we, by resolution of our Board, may renounce any interest or expectancy of ours in (or in being offered an opportunity to
participate in) business opportunities that are presented to us or developed by or presented to one of more of our directors or officers.
Conflict
with Investment Company Act
Our Bylaws provide that, if and to the extent that any provision of the Maryland General Corporation Law, including,
without limitation, the Maryland Control Share Acquisition Act (if we amend our Bylaws to be subject to such Act) and the Maryland Business Combination Act, or any provision of our Charter or Bylaws conflicts with any provision of the Investment
Company Act, the applicable provision of the Investment Company Act will control.
124
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement dated , 2024 between us and Lucid Capital Markets, LLC, acting as representative of
the underwriters of this offering, we have agreed to sell to the underwriters, and the underwriters have severally agreed to purchase from us, the aggregate principal amount of Notes indicated in the table below:
|
|
|
|
|
Underwriters |
|
Principal Amount of Notes |
|
Lucid Capital Markets, LLC |
|
|
|
|
Total |
|
$ |
|
|
The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions
precedent such as the receipt by the underwriters of officers certificates and legal opinions and approval of certain legal matters by their counsel. The underwriting agreement provides that the underwriters will purchase all of the Notes if
any of these Notes are purchased. If an underwriter defaults, the underwriting agreement provides that, under the circumstances, the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their
controlling persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters have advised us that they currently intend to make a market in the Notes. However, the underwriters are not obligated to do so and may
discontinue any market-making activities at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes.
The underwriters are offering the Notes, subject to their acceptance of the Notes from us and subject to prior sale. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Expenses
The underwriters have advised us that they propose to offer the Notes to the public at the public offering price set forth on the cover page of this prospectus
and to certain dealers at a price less a concession not in excess of $ per Note. GEG, the parent company of GECM, may purchase Notes from the underwriters in connection with this offering at the public offering price. No underwriting discount or
commissions (sales load) will be paid to the underwriters in connection with Notes they may sell to GEG. The underwriters may allow, and the dealers may reallow, a discount from the concession not in excess of $ per Note to certain broker dealers.
After the public offering price, concessions and reallowance to dealers may be reduced by the representative. No such reduction will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.
The following table shows the public offering price, the underwriting discounts and commissions that we are to pay to the underwriters and the proceeds,
before expenses, to us in connection with this offering (expressed as a percentage of the principal amount of the Notes). The information assumes either no exercise or full exercise of the underwriters over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Note |
|
|
Without Over-allotment Option |
|
|
With Over-allotment Option |
|
Public offering price |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Underwriting discounts and commissions ( % of public offering price) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Proceeds (before expenses) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions
referred to above, will be approximately $ million.
125
Determination of Offering Price
Prior to the offering, there has not been a public market for the Notes. Consequently, the public offering price for the Notes will be determined by
negotiations between us and the underwriters. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be
comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.
We and the underwriters
offer no assurances that the public offering price will correspond to the price at which the Notes will trade in the public market subsequent to the offering or that an active trading market for the Notes will develop and continue after the
offering.
Listing
We intend to list the Notes on
Nasdaq. We expect trading in the Notes on Nasdaq to begin within 30 days after the original issue date under the trading symbol GECCH.
Over-allotment Option
We have granted to the
underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an additional $ aggregate principal amount of the Notes at the public offering price set forth on the cover of this prospectus less underwriting
discounts and commissions solely to cover over-allotments, if any. If the underwriters exercise this option, each will be obligated, subject to the specified conditions, to purchase an additional aggregate principal amount of Notes proportionate to
that underwriters initial principal amount reflected in the table above.
No Sales of Similar Securities
Subject to certain exceptions, we have agreed not to directly or indirectly, offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise transfer or dispose of any debt securities issued by the Company or any securities convertible into or exercisable or exchangeable for debt securities issued by the Company for a period of 90 days after the date of this prospectus without
first obtaining the written consent of Lucid Capital Markets, LLC. This consent may be given at any time without public notice.
Stabilization
Certain of the underwriters have advised us that, pursuant to Regulation M under the Exchange Act, certain persons participating in the offering may engage in
transactions including over-allotment, covering transactions and stabilizing transactions, which may have the effect of stabilizing or maintaining the market price of the Notes at a level above that which might otherwise prevail in the open market.
Over-allotment involves syndicate sales of securities in excess of the aggregate principal amount of securities to be purchased by the underwriters in the offering, which creates a short position for the underwriters. Covering transactions involve
purchases of the securities in the open market after the distribution has been completed in order to cover short positions.
A stabilizing bid is a bid
for the purchase of Notes on behalf of the underwriters for the purpose of fixing or maintaining the price of the Notes. A syndicate covering transaction is the bid for or the purchase of Notes on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriters purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our
Notes or preventing or retarding a decline in the market price of our Notes. As a result, the price of our Notes may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters
to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the Notes originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been
effectively placed by such syndicate member.
126
Neither we, nor any of the underwriters makes any representation or prediction as to the direction or magnitude
of any effect that the transactions described above may have on the price of the Notes. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.
Electronic Distribution
A prospectus in electronic
format may be made available by e-mail or on the web sites or through online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their
affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us
to allocate a limited principal amount of the Notes for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in
electronic format, information on the underwriters web sites and any information contained in any other web sites maintained by any of the underwriters or selling group members is not part of this prospectus or the registration statement of
which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters and should not be relied on by investors.
Other
Relationships
Certain of the underwriters and their affiliates have provided in the past and may provide from time to time in the future in the
ordinary course of their business certain commercial banking, financial advisory, investment banking and other services to us, our portfolio companies or our affiliates for which they have received or will be entitled to receive separate fees. In
particular, the underwriters or their affiliates may execute transactions with us, on behalf of us, any of our portfolio companies or our affiliates. In addition, the underwriters or their affiliates may act as arrangers, underwriters or placement
agents for companies whose securities are sold to or whose loans are syndicated to us, our portfolio companies or our affiliates. The underwriters or their affiliates may also trade in our securities, securities of our portfolio companies or other
financial instruments related thereto for their own accounts or for the account of others and may extend loans or financing directly or through derivative transactions to us, any of our portfolio companies or our affiliates.
After the date of this prospectus, the underwriters and their affiliates may from time to time obtain information regarding specific portfolio companies or us
that may not be available to the general public. Any such information is obtained by the underwriters and their affiliates in the ordinary course of their business and not in connection with the offering of the Notes. In addition, after the offering
period for the sale of the Notes, the underwriters or their affiliates may develop analyses or opinions related to us or our portfolio companies and buy or sell interests in one or more of our portfolio companies on behalf of their proprietary or
client accounts and may engage in competitive activities. There is no obligation on behalf of these parties to disclose their respective analyses, opinions or purchase and sale activities regarding any portfolio company or regarding us to our
noteholders or any other persons.
In the ordinary course of their various business activities, the underwriters and their respective affiliates may make
or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers. Such investments
and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the underwriters and their affiliates that may have a lending relationship with us may routinely hedge their credit exposure to us consistent
with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such exposure by entering into transactions that consist of either the purchase of credit default swaps or the creation of short positions
in our securities, including potentially the Notes offered hereby. Any such short positions could adversely affect future trading prices of the Notes offered hereby. The underwriters and their affiliates may also make investment recommendations
and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
127
The principal business addresses of the underwriters are: 570 Lexington Avenue, 40th Floor, New York, NY 10022; and .
Alternative Settlement Cycle
We expect that delivery of the Notes will be made against payment therefor on or about , 2024, which will be the business day following the trade date for the
issuance of the Notes (such settlement being herein referred to as ). Under Rule 15c6-1 promulgated under the Exchange Act, trades in the secondary market generally are required to settle in one
business day, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes more than one business day prior to the issue date will be required to specify alternative settlement arrangements to
prevent a failed settlement.
Other Jurisdictions
The Notes offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such Notes be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons
into whose possession this prospectus comes are advised to inform themselves about and to observe any restriction relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the Notes offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
128
CUSTODIAN, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR
Our securities and cash are held in safekeeping by The Northern Trust Company located at 50 South LaSalle Street, Chicago, Illinois 60603. Equiniti
Trust Company, LLC acts as our transfer agent, distribution paying agent and registrar. The principal business address of our transfer agent is 48 Wall Street, Floor 23, New York, NY 10005.
129
LEGAL MATTERS
Certain legal matters with respect to the Notes offered hereby will be passed upon for us by Davis Polk & Wardwell LLP, Washington, D.C., and Venable
LLP, Baltimore, Maryland. Certain legal matters in connection with this offering will be passed upon for the underwriters by Kirkland & Ellis LLP, Washington, D.C., who may rely as to certain matters of Maryland law upon the opinion of
Venable LLP.
130
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our consolidated statement of assets and liabilities, including the consolidated schedule of investments, as of December 31, 2023 and December 31,
2022, and our related statements of operations, changes in net assets, cash flows for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 and financial highlights for each of the five years in the period then
ended, have been audited by [ ], an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference from our Annual Report on Form
10-K for the fiscal year ended December 31, 2023, filed on February 29, 2024. Such financial statements are incorporated by reference in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing. The principal business address of [ ] is [ ].
131
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits,
under the Securities Act, with respect to the Notes offered by this prospectus. The registration statement contains additional information about us and the Notes being offered by this prospectus.
We file annual, quarterly and current reports, proxy statements and other information about us with the SEC. You may also obtain free copies of our annual and
quarterly reports and make stockholder inquiries by contacting us at Great Elm Capital Corp., 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410 or by calling us collect at (617) 375-3006. We
maintain a website at http://www.greatelmcc.com and we make all of our annual, quarterly and current reports, proxy statements and other publicly filed information, and all information incorporated by reference herein, available, free of charge, on
or through such website. Information on our website is not incorporated or a part of this prospectus. The SEC also maintains a website at http://www.sec.gov where such information is available without charge.
132
INCORPORATION BY REFERENCE
We incorporate by reference the Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements
contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (File No. 814-01211), which includes the Financial Highlights for years
ended December
31, 2023, 2022, 2021, 2020, 2019, 2018, 2017, and 2016, filed on February 29, 2024 as well as our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, which includes the Financial Highlights for the six months ended
June 30, 2024, filed on August 1, 2024.
We will also provide to each person, including any beneficial owner, to whom this prospectus is
delivered, a copy of any and all documents that have been incorporated by reference, upon written or oral request at no charge.
You should direct
requests for documents by writing to Great Elm Capital Corp., 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410 or by calling us at (617) 375-3006. This prospectus and any documents incorporated
by reference herein are also available on our website at http://www.greatelmcc.com. Information on our website is not incorporated or a part of this prospectus.
133
$
GREAT ELM CAPITAL CORP.
% Notes due 2029
PRELIMINARY
PROSPECTUS
Lucid Capital Markets
, 2024
PART COTHER INFORMATION
Item 25. |
Financial Statements and Exhibits |
Financial Statements
The consolidated financial
statements of Great Elm Capital Corp. (the Registrant) included in the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which includes the Financial
Highlights for years ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016, and the Registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, are
incorporated by reference in Part A of this registration statement.
Exhibits
Unless otherwise indicated, all references are to exhibits to the applicable filing by the Registrant under File
No. 814-01211 with the Securities and Exchange Commission (the SEC).
|
|
|
Exhibit Number |
|
Description |
|
|
(a) |
|
Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on November 7, 2016) |
|
|
(a)(1) |
|
Amendment to Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on March 2, 2022) |
|
|
(b) |
|
Bylaws of the Registrant (incorporated by reference to Exhibit 2 to the Registration Statement on Form N-14 (File No. 333-212817) filed on August 1, 2016) |
|
|
(d)(1)** |
|
Form of global certificate for the Notes (included in Exhibit (d)(3)) |
|
|
(d)(2) |
|
Indenture, dated as of September 18, 2017, by and between the Registrant and Equiniti Trust Company, LLC (formerly known as American Stock Transfer & Trust Company, LLC), as trustee (the Trustee) (incorporated by reference to Exhibit 4.1 to the Form 8-K/A filed on September 21, 2017) |
|
|
(d)(3)** |
|
Form of Seventh Supplemental Indenture, by and between the Registrant and the Trustee |
|
|
(d)(4)** |
|
Form T-1 of the Trustee |
|
|
(d)(5) |
|
Form of certificate of the Registrants common stock (incorporated by reference to Exhibit 5 to the Registration Statement on Form N-14 (File No. 333-212817) filed on August 1, 2016) |
|
|
(d)(6) |
|
Global Note (6.75% Notes due 2025), dated January 19, 2018 (incorporated by reference to Exhibit (D)(1) to the post-effective amendment to the Registration Statement on Form N-2 (File No. 333-221882) filed on January 19, 2018) |
|
|
(d)(7) |
|
Second Supplemental Indenture, dated as of January 19, 2018, by and between the Registrant and the Trustee (incorporated by reference to Exhibit (d)(3) to the post-effective amendment to the Registration Statement on Form N-2 (File No. 333-221882) filed on January 19, 2018) |
|
|
(d)(8) |
|
Global Note (5.875% Notes due 2026), dated as of June 23, 2021 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on June 23, 2021) |
|
|
(d)(9) |
|
Fourth Supplemental Indenture, dated as of June 23, 2021 by and between the Registrant and the Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on June 23, 2021) |
|
|
(d)(10) |
|
Global Note (8.75% Notes due 2028), dated as of August 16, 2023 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on August 16, 2023) |
C-1
|
|
|
Exhibit
Number |
|
Description |
|
|
(d)(11) |
|
Fifth Supplemental Indenture, dated as of August 16, 2023, by and between the Registrant and the Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on August 16, 2023) |
|
|
(d)(12) |
|
Global Note (8.50% Notes due 2029), dated April 17, 2024 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on April 17, 2024) |
|
|
(d)(13) |
|
Global Note (8.50% Notes due 2029), dated July 9, 2024 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on July 9, 2024) |
|
|
(d)(14) |
|
Sixth Supplemental Indenture, dated as of April 17, 2024, by and between the Registrant and the Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on April 17, 2024) |
|
|
(d)(15) |
|
Description of Registered Securities (incorporated by reference to Exhibit 4.11 to the Annual Report on Form 10-K filed on February 29, 2024) |
|
|
(e) |
|
Form of Dividend Reinvestment Plan (incorporated by reference to Exhibit 13(d) to the pre-effective amendment to the Registration Statement on Form N-14 (File No. 333-212817) filed on September 26, 2016) |
|
|
(g) |
|
Amended and Restated Investment Management Agreement (incorporated by reference to Exhibit (g) to the Registration Statement on Form N-2 (File No. 333-272790) filed on June 16, 2023) |
|
|
(h)** |
|
Form of Underwriting Agreement |
|
|
(j) |
|
Custody Agreement, dated as of July 1, 2023, by and between the Registrant and The Northern Trust Company (incorporated by reference to Exhibit 10.5 to the Form 10-K filed on February 29, 2024) |
|
|
(k)(1) |
|
Administration Agreement, dated as of September 27, 2016, by and between the Registrant and GECM (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November 7, 2016) |
|
|
(k)(2) |
|
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Form 8-K filed on November 7, 2016) |
|
|
(k)(3) |
|
Loan, Guarantee and Security Agreement, dated May 5, 2021, between the Registrant and City National Bank (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 6, 2021) |
|
|
(k)(4) |
|
Third Amendment, dated as of November 22, 2023 to Loan, Guarantee and Security Agreement, as of May 5, 2021, by and among the Registrant and City National Bank, as amended (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on November 27, 2023) |
|
|
(k)(5) |
|
Amended and Restated Limited Liability Company Agreement of CLO Formation JV, LLC dated as of April 23, 2024 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on April 24, 2024) |
|
|
(l)(1)** |
|
Opinion of Davis Polk & Wardwell LLP |
|
|
(l)(2)** |
|
Opinion of Venable LLP |
|
|
(n)(1)** |
|
Consent of [ ], Registered Independent Accounting Firm. |
|
|
(n)(2)** |
|
Consent of Davis Polk & Wardwell LLP (included in Exhibit (l)(1)) |
|
|
(n)(3)** |
|
Consent of Venable LLP (included in Exhibit (l)(2)) |
|
|
(n)(4) |
|
Power of Attorney (included on signature page hereto) |
|
|
(r)(1) |
|
Code of Ethics of Registrant (incorporated by reference to Exhibit 14.1 to the Form 10-K filed on February 29, 2024) |
C-2
** |
To be filed by amendment. |
The agreements included or incorporated by reference as exhibits to this registration statement contain representations and warranties by each of the parties
to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way
of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable
agreement; (iii) may apply contract standards of materiality that are different from materiality under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other
date or dates as may be specified in the agreement.
Item 26. |
Marketing Arrangements |
The information contained under the heading Underwriting in the prospectus is incorporated herein by reference.
Item 27. |
Other Expenses of Issuance and Distribution** |
|
|
|
|
|
SEC registration fee |
|
$ |
* |
|
Nasdaq Listing Fees |
|
|
* |
|
Accounting fees and expenses |
|
|
46,500 |
|
Legal fees and expenses |
|
|
340,000 |
|
Printing and engraving |
|
|
53,000 |
|
Miscellaneous fees and expenses |
|
|
67,000 |
|
|
|
|
|
|
Total |
|
$ |
* |
|
* |
To be completed by amendment. |
** |
These amounts (other than the SEC registration fee and Nasdaq fee) are estimates. |
Item 28. |
Persons Controlled by or Under Common Control |
|
|
|
|
|
|
|
|
|
Entity |
|
Ownership |
|
|
Jurisdiction of Organization |
|
Great Elm Specialty Finance, LLC |
|
|
87.5 |
% |
|
|
Delaware |
|
CLO Formation JV, LLCGECC |
|
|
75.0 |
% |
|
|
Delaware |
|
Item 29. |
Number of Holders of Securities |
The following table sets forth the number of record holders of our securities at July 31, 2024.
|
|
|
|
|
Title of Class |
|
Number of Record Holders |
|
Common Stock, par value $0.01 per share |
|
|
10 |
|
6.75% Notes due 2025 |
|
|
1 |
|
5.875% Notes due 2026 |
|
|
1 |
|
8.75% Notes due 2028 |
|
|
1 |
|
8.50% Notes due 2029 |
|
|
1 |
|
C-3
Reference is made to Section 2-418 of the Maryland General Corporation Law, Article VII of the Registrants Charter and Article XI of the
Registrants Bylaws.
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors
and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a
final judgment and that is material to the cause of action. The Registrants Charter contains such a provision which eliminates directors and officers liability to the maximum extent permitted by Maryland law, subject to the
requirements of the Investment Company Act.
The Registrants Charter authorizes the Registrant, and the Registrants Bylaws obligate the
Registrant, to the maximum extent permitted by Maryland law and subject to the requirements of the Investment Company Act, to indemnify any present or former director or officer or any individual who, while serving as the Registrants director
or officer and at the Registrants request, serves or has served another corporation, partnership, limited liability company, real estate investment trust, joint venture, trust, employee benefit plan or other enterprise as a director, officer,
partner, member, manager or trustee and who is made, or threatened to be made, a party to, or witness in the proceeding by reason of his or her service in that capacity from and against any claim or liability to which that person may become subject
or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. The Charter and Bylaws also permit the Registrant to
indemnify and advance expenses to any person who served a predecessor of the Registrant in any of the capacities described above and any of the Registrants employees or agents or any employees or agents of the Registrants predecessor. In
accordance with the Investment Company Act, the Registrant will not indemnify any person for any liability to which such person would be subject by reason of such persons willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Maryland law requires a corporation (unless its charter provides otherwise, which the
Registrants Charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland
law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to or in which
they may be made, or threatened to be made, a party or witness by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the
proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. Under Maryland law, a Maryland corporation may not indemnify a director or officer in a suit by the corporation or in its right in which the
director or officer was adjudged liable to the corporation or in a suit in which the director or officer was adjudged liable on the basis that a personal benefit was improperly received. A court may order indemnification if it determines that the
director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However,
indemnification for an adverse judgment in a suit by the corporation or in its right, or for a judgment of liability on the basis that a personal benefit was improperly received, is limited to expenses. In addition, Maryland law permits a
corporation to advance reasonable expenses to a director or officer in advance of final disposition of a proceeding upon the corporations receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he
or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that
the standard of conduct was not met.
C-4
The Registrant has agreed to indemnify the underwriters and certain of their controlling persons in connection
with this offering against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The law also provides for comparable indemnification for corporate officers and agents. Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant has entered into indemnification agreements with its directors. The indemnification agreements are intended to
provide the Registrants directors the maximum indemnification permitted under Maryland law and the Investment Company Act. Each indemnification agreement provides that the Registrant shall indemnify the director who is a party to the agreement
(an Indemnitee), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding,
other than a proceeding by or in the right of the Registrant.
Investment Adviser, Administrator and Underwriters
The Investment Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of
the reckless disregard of its duties and obligations, GECM and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Registrant for any
damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of GECMs services under the Investment Management Agreement or otherwise as an investment
adviser of the Registrant.
The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of the reckless disregard of its duties and obligations, GECM and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from
the Registrant for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of GECMs services under the Administration Agreement or otherwise
as administrator for the Registrant.
The Underwriting Agreement provides that each underwriter severally agrees to indemnify and hold harmless the
Registrant, the Adviser, each of their respective directors, each of their respective officers who signed the registration statement and each person who controls the Registrant or the Adviser, within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any loss, liability, claim, damage or expense that any such person may incur, insofar as the loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration statement (or in the registration statement as amended by any post-effective amendment hereof by the Registrant) or in the prospectus contained in the registration statement, or
arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in the registration statement or such prospectus or necessary to make such information not misleading,
in each case made in reliance upon and in conformity with written information furnished to the Company by any underwriter expressly for use in the registration statement (or any amendment thereto) or the prospectus (or any amendment or supplement
thereto).
C-5
Item 31. |
Business and Other Connections of Investment Adviser |
For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and directors of GECM, reference is made
to GECMs Form ADV, filed with the SEC under the Investment Advisers Act of 1940, as amended, and incorporated herein by reference upon filing.
Item 32. |
Location of Accounts and Records |
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act and the rules thereunder are maintained
at the offices of:
|
1. |
the Registrant, 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410; |
|
2. |
the Transfer Agent, Equiniti Trust Company, LLC, 48 Wall Street, Floor 23, New York, New York 10005;
|
|
3. |
the Custodian, The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60603; and
|
|
4. |
GECM, 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410. |
Item 33. |
Management Services |
Not applicable.
The Registrant undertakes:
|
4. |
(a) For the purpose of determining any liability under the Securities Act, the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. |
|
(b) |
For the purpose of determining any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
6. |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final
adjudication of such issue. |
|
7. |
To send by first class mail or other means designed to ensure equally prompt delivery, within two business days
of receipt of a written or oral request, any prospectus or Statement of Additional Information. |
C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palm Beach Gardens, and the State of Florida, on the 1st day of August, 2024.
|
|
|
GREAT ELM CAPITAL CORP. |
|
|
By: |
|
/s/ Matt Kaplan |
Name: |
|
Matt Kaplan |
Title: |
|
President and Chief Executive Officer |
Each person whose signature appears below constitutes and appoints Matt Kaplan and Keri Davis (with full power to each
of them to act alone) his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution,
for him or her and in his or her name, place and stead, in any and all capacities, to sign on his or her behalf individually and in each capacity stated below any and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents and either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated
as of August 1, 2024.
|
|
|
Name |
|
Capacity |
/s/ Matt Kaplan |
|
President and Chief Executive Officer (Principal Executive Officer) |
Matt Kaplan |
|
|
/s/ Keri Davis |
|
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
Keri Davis |
|
|
/s/ Mark Kuperschmid |
|
Director |
Mark Kuperschmid |
|
|
|
|
/s/ Matthew Drapkin |
|
Director |
Matthew Drapkin |
|
|
|
|
/s/ Richard Cohen |
|
Director |
Richard Cohen |
|
|
|
|
/s/ Chad Perry |
|
Director |
Chad Perry |
|
|
|
|
/s/ Erik A. Falk |
|
Director |
Erik A. Falk |
|
|
C-7
Exhibit (s)
Calculation of Filing Fee Table
Form N-2
(Form Type)
Great Elm Capital
Corp.
(Exact Name of Registration as Specified in its Charter)
Table 1: Newly Registered Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Type |
|
Security Class
Title |
|
Fee
Calculation
or Carry
Forward Rule |
|
|
Amount
Registered |
|
|
Proposed
Maximum Offering
Price Per Security(1) |
|
|
Maximum
Aggregate Offering
Price(1)(2) |
|
|
Fee
Rate |
|
|
Amount of
Registration
Fee |
|
Fees to be Paid |
|
Debt |
|
% Notes due 2029 |
|
|
457 |
(a) |
|
|
|
|
|
|
|
|
|
$ |
30,000,000 |
|
|
|
0.00014760 |
|
|
$ |
4,428.00 |
|
Fee Previously Paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Offering Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,000,000 |
|
|
|
|
|
|
$ |
4,428.00 |
|
|
|
Total Fees to Be Paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,428.00 |
|
|
|
Total Fees Previously Paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Fees Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,428.00 |
|
(1) |
Estimated solely for the purposes of calculating the registration fee per Rule 457(a). |
(2) |
Includes Notes that may be issued pursuant to the underwriters over-allotment option.
|
Great Elm Capital (NASDAQ:GECC)
過去 株価チャート
から 8 2024 まで 9 2024
Great Elm Capital (NASDAQ:GECC)
過去 株価チャート
から 9 2023 まで 9 2024