UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-01211

Great Elm Capital Corp.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (617) 375-3006

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the 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 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ☒

As of October 24, 2024, the registrant had 10,449,888 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

PART I—FINANCIAL INFORMATION

Unless the context otherwise requires, all references to “GECC,” “we,” “us,” “our,” the “Company” and words of similar import are to Great Elm Capital Corp. and/or its subsidiaries. We reference materials on our website, www.greatelmcc.com, but nothing on our website shall be deemed incorporated by reference or otherwise contained in this report.

Cautionary Note Regarding Forward-Looking Information

Some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or our future performance or financial conditions. Important factors that could cause actual results to differ from those in the forward-looking statements contained in this report include, without limitation:

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 report 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 “Item 1A. Risk Factors,” herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

We have based the forward-looking statements included in this report on information available to us on the date of this report, 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 Securities and Exchange Commission (the “SEC”).

Item 1. Financial Statements.

The financial statements listed in the index to consolidated financial statements immediately following the signature page to this report are incorporated herein by reference.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

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.

在2016年9月27日，我們與Great Elm Capital Management, LLC（「GECM」），我們的外部投資管理人，簽訂了投資管理協議（「投資管理協議」）和管理協議（「管理協議」），並開始在這些協議下爲我們的外部投資管理人累積義務。2022年8月1日，在獲得我們股東的批准後，我們與GECM簽訂了投資管理協議的修訂，以重置資本收益激勵費，從2022年4月1日開始，這消除了2022年4月1日之前所產生的$16320万的已實現和未實現損失在計算未來激勵費時的影響。此外，基於收入的激勵費的修訂將用於計算遞延激勵費的強制遞延開始日期重置爲2022年4月1日。投資管理協議將根據我們的董事會（「董事會」）和/或股東的必要批准續簽年度。

我們選擇被視爲美國聯邦所得稅目的RIC。作爲RIC，我們不會對我們的收入徵稅，只要我們每年分配這些收入並滿足其他適用的所得稅要求。爲了符合RIC的資格，我們必須滿足收入來源和資產多樣化要求，並且每年按時向我們的股東分配一般至少90%的投資公司應稅收入。如果我們符合RIC的資格，我們通常不需要對分配給股東的任何收入支付企業級稅款。

投資

我們的投資活動水平會因許多因素而在不同時間段之間大幅波動，包括：中型市場公司從其他來源獲得的債務和股本資本的數量、併購活動的水平、高收益和槓桿貸款信用市場的定價、我們對未來投資機會的期望、一般經濟環境以及我們進行投資的類型的競爭環境。

作爲BDC，我們的投資和投資組合的組成必須符合監管要求。

營收

我們的營業收入主要來自於我們持有的債務投資的利息。我們還可能從我們持有的股權投資的分紅派息、投資處置的資本利得，以及租賃、費用和其他收入中獲得營業收入。我們的固收投資通常預期的到期時間爲三到五年，儘管我們沒有到期的下限或上限。我們的債務投資一般會按季度或半年度支付利息。我們的債務投資的本金支付可能在投資的規定期限內進行攤銷，延遲幾年或在到期時全部到期。在某些情況下，我們的債務投資和優先股投資可能會延遲現金利息或分紅派息的支付，或採用實物支付（「PIK」）。此外，我們也可能以預付款項費用、承諾費用、發起費用、盡職調查費用、期末或退出費用、提供重大管理協助的費用、諮詢費用及其他與投資相關的收入的形式獲得營業收入。

費用

我們的主要營業費用包括支付基本管理費、管理費用（包括根據管理協議可分配的間接費用部分），以及根據我們的經營結果，可能會支付的激勵費。基本管理費和激勵費是爲了補償GECm在識別、評估、談判、完成和監控我們的投資方面所做的工作。管理協議規定了針對辦公室租賃、辦公設備和公用事業的費用和支出的報銷，這些費用和支出根據管理協議分配給我們，以及GECm或其附屬公司向我們提供的與非投資顧問、行政或運營服務相關的某些費用和支出。我們還承擔我們運營和交易的所有其他成本和費用。此外，我們的費用還包括對未償債務的利息。

重要會計政策和估計

投資組合投資的估值

我們根據董事會通過的政策規定的原則和方法，以公平價值評估我們的投資組合。公平價值定義爲在計量日期市場參與者之間有序交易時出售資產所獲得的價格。市場參與者是資產的主要（或最有利的）市場上的買賣雙方，(1) 與我們是獨立的；(2) 具有合理理解該資產的知識，基於所有可用信息（包括通過通常和習慣的盡職調查努力可能獲得的信息）；(3) 能夠進行資產交易；(4) 願意進行資產交易（即，他們有動機，但不是被迫或以其他方式被迫這樣做）。

市場報價 readily 可獲得的投資按這些市場報價估值，除非這些報價被視爲不代表公允價值。對於市場報價不可 readily 獲得或被認爲不代表公允價值的債務和股權證券，則按照符合我們董事會批准政策的估值流程，以公允價值進行估值。

我們的董事會本着誠信原則批准了截至每個季度末的投資組合估值。由於確定沒有市場價值的投資的公允價值本質上存在不確定性和主觀性，因此我們的投資公允價值可能與如果這些投資有市場價值時所使用的價值有顯著差異，並且可能與我們最終實現的價值有實質性差異。此外，市場環境的變化和其他事件可能會影響用於評估部分投資的市場報價。

對於無法輕易獲得市場報價或市場報價被認爲不代表公允價值的投資，按市場方法、收益方法或兩者結合的方法進行估值，具體視情況而定。市場方法使用由涉及相同或可比資產或負債（包括業務）的市場交易生成的價格和其他相關信息。收益方法使用估值技術將未來金額（例如現金流或收益）轉換爲單一現值（折現）。該測量基於當前市場對這些未來金額的預期價值。在遵循這些方法時，我們可能會考慮在確定我們投資的公允價值時的相關因素，包括但不限於：可用的當前市場數據，包括相關和適用的市場交易和交易比較；適用的市場收益率和倍數、安防-半導體契約、回購保護條款、信息權利及任何抵押品的性質和可實現價值，投資組合公司的還款能力、收益和折現現金流、投資組合公司所在的市場、公開公司的同行公司財務比率比較，以及併購的可比案例；以及企業價值。

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 original issue discounts (“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.

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 year ended December 31, 2023 and the nine months ended September 30, 2024:

Portfolio Reconciliation

The following is a reconciliation of the investment portfolio for the nine months ended September 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.

Portfolio Classification

The following table shows the fair value of our portfolio of investments by industry as of September 30, 2024 and December 31, 2023 (in thousands):