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DATE
Tuesday, May 5, 2026 at 8:30 a.m. ET
CALL PARTICIPANTS
- Chairman and Chief Executive Officer — Jason Reese
- Portfolio Manager — Matt Kaplan
- Head of Research — Chris Croteau
- Chief Financial Officer — Keri Davis
- Chief Compliance Officer and General Counsel — Adam Kleinman
- President, Great Elm Specialty Finance — Mike Keller
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TAKEAWAYS
- Net Investment Income (NII) -- $5 million, or $0.36 per share, up approximately 13% sequentially from Q4 2025, driven by incentive fee waivers accounting for roughly $0.20 per share.
- Net Asset Value (NAV) -- $107.5 million, or $7.74 per share, down from $112.9 million, or $8.07 per share, at prior quarter-end, primarily due to unrealized losses in select investments including CLO JV and one private investment with an idiosyncratic event.
- Incentive Fee Waiver -- Great Elm Capital Management waived all accrued and unpaid incentive fees through June 30, 2026, delivering a direct shareholder benefit of approximately $2.8 million, or $0.20 per share, as of March 31, 2026.
- Debt Repurchase -- Called and repurchased all $57.5 million of GECCO notes due in 2026, and once these notes are fully retired in the coming weeks, Great Elm Capital Corp. (GECC +2.71%) will have no funded debt maturities until 2029, eliminating near-term refinancing risk.
- First Lien Exposure -- Nearly 75% of the corporate portfolio now comprised of first lien investments, representing the highest level in the company's recent history.
- Portfolio Activity -- Approximately $22 million deployed across 12 investments, with exits from higher-risk positions and three new proprietary transactions totaling about $15 million closed through institutional partnerships; one additional proprietary private investment closed in April.
- Nonaccruals -- Less than 1% of investments by fair value on nonaccrual at quarter-end.
- Stock Repurchase Program -- Approximately 1% of shares outstanding repurchased through May 1, 2026, at a 36% average discount to March 31 NAV; $9.5 million of remaining buyback capacity under the $10 million authorization.
- Liquidity -- $10 million in cash, $4 million in liquid exchange-traded assets, and full $50 million facility availability at quarter-end.
- Asset Coverage and Leverage -- Asset coverage ratio of 161.8% and debt-to-equity ratio improved to 1.62x from 1.72x sequentially, reflecting ongoing deleveraging.
- Dividend -- $0.25 per share declared for Q2 2026, equating to an 18% annualized yield based on the May 1, 2026, closing price of $5.56.
- CLO Cash Flow -- "we expect -- we've already received $2.5 million this quarter, which is kind of at the same rate as the first quarter. That's probably a reasonable number for you to look at going forward, but they will vary."
- GESF Vertical Profitability -- Each of the three core verticals under Great Elm Specialty Finance was profitable and generating cash distributions.
SUMMARY
The appointment of Jason Reese as CEO and a renewed strategic focus on protecting and rebuilding NAV marked a management transition and shift in priorities. Great Elm Capital Corp. continued active portfolio rotation, emphasizing senior secured investments and expanding proprietary deal sourcing through institutional partnerships and vertical businesses. The retirement of all near-term debt and full liquidity under existing credit facilities further position the company to navigate uncertain markets.
- The Board's dividend policy resulted in an 18% annualized yield, with incentive fee waivers leveraged to sustain shareholder distributions.
- "Once these notes are fully retired, Great Elm Capital Corp. will have no funded debt maturities until 2029," management stated, emphasizing a transformed risk profile.
- Jason Reese reaffirmed ongoing evaluation of capital deployment across credit investments, share repurchases, and further deleveraging, stating, "we're constantly looking at what the return is."
- The company confirmed no plans for new CLO equity investments in the near term, prioritizing portfolio stability.
INDUSTRY GLOSSARY
- CLO: Collateralized Loan Obligation, a structured credit vehicle pooling senior secured loans, primarily to non-investment grade borrowers, often used by BDCs for leveraging returns.
- First Lien Investment: A loan or debt instrument secured with priority over other claims on the borrower's assets in the event of default.
- GSF / GESF: Great Elm Specialty Finance, the subsidiary managing asset-based, healthcare, and invoice financing businesses within Great Elm Capital Corp.
- Nonaccrual: A status for loans or investments that have stopped accruing interest, often due to borrower payment delinquency or default.
Full Conference Call Transcript
Jason Reese, Great Elm Capital Corp.'s Chairman of the Board and newly appointed CEO. He'll be joined by Matt Kaplan, Portfolio Manager; Chris Croteau, Head of Research; Chief Financial Officer, Keri Davis; Chief Compliance Officer and General Counsel, Adam Kleinman; and Mike Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC's Chairman and CEO, Jason Reese.
Jason Reese: Thanks, Adam, and thank you, everyone, for joining us today. In March, I assumed the role of Executive Chairman of GECC at an important inflection point for the company. On May 4, I was appointed CEO. The company was established to create income and protect and grow NAV. In the near term, I am reprioritizing. We will protect and grow NAV first and secondarily create income. We will accomplish this by strengthening oversight, protecting shareholder value and reinforcing accountability across the platform. We are well underway, making progress on these fronts.
I noted last quarter that as Chairman and CEO of Great Elm Group, the parent company of GECC's investment manager, I bring deep familiarity with both the team and our investment process. That familiarity enables a seamless transition into my role as both GECC Chairman and CEO, and I'm working closely with management to reinforce disciplined underwriting and thoughtful capital allocation. Before turning to the quarter, I would like to thank Matt Kaplan for his leadership during his tenure as CEO. Matt will continue in his role as Portfolio Manager. Turning to results. Recent quarters have been challenging for the broader BDC sector, and GECC was not immune to the macro environment.
Our NAV declined this quarter, driven primarily by unrealized losses in select investments, most notably our CLO JV and one private investment with an idiosyncratic event. Our CLO investments can exhibit volatility given their inherent leverage. Additionally, in the first quarter, the broader CLO equity market declined. Despite the volatility of the quarterly mark, CLO exposure provides additional diversification to GECC's portfolio of secured investments. Our CLO investments continue to generate meaningful cash flow, diversify our income streams and support the sustainability of our net investment income. In light of these unrealized losses, Great Elm Capital Management, GECM, investment adviser, has waived all accrued and unpaid incentive fees through June 30, 2026, marking the third consecutive quarter of fee waivers.
As of March 31, 2026, that waiver amounted to approximately $2.8 million or $0.20 per share of direct benefit to our shareholders. This action is immediately accretive to NAV and underscores our alignment with shareholders. We have also taken decisive action to deleverage the balance sheet. Recently, we called and repurchased all $57.5 million of GECCO notes due later this year. Once these notes are fully retired, GECC will have no funded debt maturities until 2029. This eliminates near-term refinancing risk and enables our flexibility to deploy capital strategically. In addition, we continue to improve portfolio credit quality through active investment rotation.
During the quarter, we deployed approximately $22 million across 12 investments while exiting investments we viewed as higher risk. As a result, first lien investments now comprise nearly 75% of the corporate portfolio, the highest level in the company's recent history. This reflects a deliberate shift towards senior secured investments with stronger downside protection and is a direct outcome of the underwriting discipline we have instilled across the platform. At the same time, we're expanding our proprietary sourcing efforts. During the quarter, we closed 3 transactions sourced through institutional partnerships, committing approximately $15 million to new private investments.
We closed on one additional proprietary private investment in April, and we expect to close additional investments in the near future, building on this momentum as our sourcing network continues to deepen and differentiate our platform. At Great Elm Specialty Finance, or GESF, we continue to execute on the strategic transformation aimed at streamlining the platform for enhanced growth and profitability. Great Elm Commercial Finance is building a robust pipeline of asset-based lending opportunities, while Great Elm Healthcare Finance has successfully repositioned the business and recently closed on another transaction. Prestige, our invoice financing business generates durable returns, but can exhibit quarter-to-quarter variability due to the spot nature of its business.
I'm pleased to say all 3 of our core verticals under GESF are profitable and generate cash distributions. Collectively, GESF is poised for continued growth and represents an increasingly important source of diversification across both assets and income. Today, GECC's high-quality portfolio is strong, composed primarily of performing cash-generative investments. We closed the quarter with less than 1% of fair value of all investments on nonaccrual, stark contrast to our peers. In addition, in the last quarter, we opportunistically purchased shares at a discount to NAV under our stock repurchase program.
Through May 1, 2026, under our $10 million stock repurchase program authorized in October 2025, we have repurchased approximately 1% of all shares outstanding at an average 36% discount to our March 31 NAV, leaving approximately $9.5 million of remaining capacity under the program for future repurchases. Stepping back, GECC is well capitalized and supported by a strong balance sheet. At quarter end, we held approximately $10 million in cash, $4 million of liquid exchange-traded assets and had full availability under our $50 million revolving credit facility. With no near-term debt maturities, ample liquidity and a higher quality portfolio, we are well positioned to act decisively when compelling opportunities arise.
Now I'd like to turn the call over to Keri Davis to walk through the financial details.
Keri Davis: Thanks, Jason. I'll go over our financial highlights now, but we invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. NII for the first quarter of 2026 was $5 million or $0.36 per share compared to $4.4 million or $0.31 per share in the fourth quarter of 2025. The approximate 13% growth quarter-over-quarter in NII was driven primarily by the benefit of the incentive fee waiver, accounting for approximately $0.20 per share. Net assets were $107.5 million or $7.74 per share as of March 31, 2026, compared to $112.9 million or $8.07 per share as of December 31, 2025.
Details for the quarter-over-quarter change in NAV can be found on Slide 11 of the investor presentation. Our balance sheet remains strong and liquid. GECC's asset coverage ratio was 161.8% as of March 31, 2026, compared to 158.1% as of December 31, 2025. Our debt-to-equity ratio also improved to 1.62x from 1.72x in the prior quarter, reflecting the continued deleveraging Jason noted. As of March 31, 2026, total debt outstanding was $174 million, and we had no borrowings on our $50 million revolver. Cash and money market fund investments totaled approximately $10 million.
Importantly, our Board of Directors approved a quarterly dividend of $0.25 per share for the second quarter of 2026, equating to an 18% annualized yield on GECC's May 1, 2026, closing price of $5.56. I'll now hand it over to the operator for questions.
Operator: [Operator Instructions] The first question comes from the line of Erik Zwick with Lucid Capital Markets LLC.
Erik Zwick: Jason, if I could start with a question for you. You mentioned in your prepared comments, some efforts to deleverage the balance sheet. I know there's no additional maturities until 2029. I guess at this point, have you kind of completed those deleveraging opportunities or efforts? Or are there still more you could do through, I guess, maybe deleveraging?
Jason Reese: At the end of the -- I'm sorry, at the end of the quarter, there was still $18 million of our 2026 paper outstanding. Approximately, we called that paper. It hasn't been paid off yet, but it will be in the next few weeks. At that point, we've probably completed our deleveraging for the moment, although our 8.5s do become callable at the end of this month.
Erik Zwick: Okay. So that could potentially be something that you would look at. Okay. That's helpful. And maybe switching gears a little bit just in terms of the pipeline, and maybe this is kind of a two-part question. One is, as you look at what's in your pipeline today, the opportunities there that you're seeing as you look at through kind of a risk-adjusted lens, but then also looking at the opportunity to continue using the share repurchase authorization kind of given where the shares are trading today, how do you weigh those two opportunities and choose which to -- where to deploy capital at this point?
Jason Reese: So, we're obviously going to balance and look at all opportunities and look where we think the best risk-adjusted returns are. As far as our opportunities, we are much more focused on more traditional private credit deals than broadly syndicated loans right now. We think that there's better yields, actually, with less risk there right now, and we've closed a number of those transactions already this year, and we're working on a number more. As for looking at share repurchases or debt paydown versus investments, I mean, we're constantly looking at what the return is. Obviously, paying down debt is riskless for us, and so that's important. But we're very serious about rebuilding NAV, as I've tried to say.
And as you've seen with us waiving for 3 quarters our investment (sic) [incentive] fee, and by actually buying back shares, which a lot of BDCs don't do, we're looking to rebuild that NAV piece. Did that address your question?
Erik Zwick: Yes. No, it does. And maybe just a follow-up on that as I try and kind of look at the future run rate of earnings and think about that incentive fee waiver. And you mentioned that the priority #1 now is protecting and growing NAV. So, is it safe to assume that you would potentially continue considering waiving the incentive fee if the kind of run rate of earnings without the incentive fee waiver is less than the current level of the dividend, the new kind of $0.25 per share level?
Jason Reese: We will continue looking at what's in the best interest of the shareholders for sure. And yes, we definitely want to be covering our dividend. So, I'm just changing emphasis, right? We've done a pretty good job of generating income and covering our dividends. We haven't done as good a job as protecting our NAV. And so, we're going to really focus on that. I think there's times when you take more risks and there's times when you take less risk in your investments. And the last couple of quarters have shown to be a time to take less risk.
Erik Zwick: Got it. And then just in terms of trying to get kind of a better understanding of the CLO cash flow timing. I know that depending on when you made those and the scheduled payments that can be a little bit kind of bumpy quarter-to-quarter. To the extent that you have some visibility over the next few quarters, anything you can communicate there in terms of expected timing of cash flows?
Jason Reese: We will be getting cash flows every quarter now. I mean, in part, when you first make CLO investments, there's a lag, and that's created a lot of the variability, but it will also depend on how those CLOs continue to perform. I mean we're very comfortable about the cash flows we're going to receive over the life of those equities. But like in the first quarter, obviously, the broadly syndicated loan came down. But we expect -- we've already received $2.5 million this quarter, which is kind of at the same rate as the first quarter. That's probably a reasonable number for you to look at going forward, but they will vary.
Erik Zwick: Okay. And so if you -- correct me if I'm wrong, I don't think you made any new CLO investments in the last quarter or 2. So some of that kind of initial as it goes through the warehouse period and then makes its first distribution, most of that should be in the past, barring any new investments you might make?
Jason Reese: Correct. There should be less volatility going forward than there has been in the past unless we decide to make new investments, which we, at the current moment, are not looking at making any new CLO equity investments. We're pretty happy with where our position is.
Operator: [Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Jason Reese for closing comments.
Jason Reese: Thank you again for joining us today. Our priorities remain clear: Protect capital, methodically rebuild NAV and generate sustainable net investment income. During the quarter, we advanced each of these objectives. GECM again waived incentive fees to the direct benefit of GECC shareholders. We took action to retire all near-term funded debt, and we increased first lien exposure to its highest level in recent periods. We have instilled greater rigor, transparency and accountability across the platform, and I am encouraged by both the trajectory of the portfolio and the strength of the team executing on our strategy.
As we move through the second quarter, GECC's solid foundation and strong liquidity positions us to deliver more consistent and durable returns over time. We remain focused on disciplined execution and long-term value creation. We appreciate your continued support and look forward to updating you next quarter. Thank you.
Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
