GECC - Earnings call transcript Q1 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Great Elm Capital Corp.’s First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference maybe recorded. I would now like to turn the call over to Ms. Mahoney. Meaghan begin. may you Ma’am,

Meaghan Mahoney

you, Chelsea, for first Thank all morning, XXXX and us for good joining Corp.’s conference everyone. Great earnings you call. Thank Elm quarter Capital

this Thursday, reminder, As recorded is XXXX. on a May webcast XX, being

our A includes could securities. to call Corp.’s materially Peter. Elm Chief Capital Elm this visiting statements statements, with Corp. Great under to Elm Corp.’s that webcast Officer. by our Great Capital law. statement presentation you’d information. Also, can is conference Capital from to call President Capital www.greatelmcc.com website the Great its SEC required call list, as conference filings accompanying Hosting undertake To website projections. webcast sign Capital obtain turn for this in SEC will to Corp.’s and update to website. the e-mail call If factors call earnings now our Elm the ask forward-looking Executive refer Great Peter forward-looking I’d regarding morning also on and forward-looking can you alerts you morning’s results the sell today’s a distribution or unless visit our directly of purchase Information, copies website. added can to or release of we website. Financial harbor to Corp.’s on Information, to and Quarterly and of like projections, be Reed, Form a link Great to up can the I important please or SEC’s solicitation over nothing offers SEC like the Elm for constitutes Great safe Capital note be Corp. Financial Elm to found the investorrelations@greatelmcap.com, The is please Filings by an under your the cause that XX-Q. call you available actual slide Today’s that offer Results, and to on attention these the differ does customary not copy filings,

Peter Reed

package, at XXXX. with loan view which chose ultimately was In with a additional catalyst JV, quarter’s brief of enhancing Thank Islands, today. the announced in webcast. this remarks, a Virgin that subsequent throughout the as Upon collateral our Puerto guarantee. in morning catalyst. deck Sprint loan its on morning, that structure, Sell, its loan’s occurred, Where the Chief U.S. as our Please John our closing to Meaghan legacy capital of to near-term will you overview that thank referenced, PR Relations. as well like as website, Sprint company’s PR Wireless, high Yates potential par you, credit position component the add we PR portfolio. and joint to collateral supporting XXXX the seniority Financial Kleinman; Adam everyone, corresponding by prepared you, this to comprised Slide income at point traded a we our the Investment joined discount Meaghan me, contributed I our Michael the Mahoney, and this joining slide and the Committee, lien there number Head merger which us Meaghan. February realized our Inc.’s of to Inc. well and of closing, a was Wireless Full by well the that a our Wireless, is and term call thesis This as Rico as venture closed with Ehlinger, to start Officer; this of position. a for relevant Good QX for our would in and significant in Adam I’m first the to discuss investment Investor Circle time; current to available X turn and

$XXX,XXX, of in PR we gain approximately this time. of at With a that review a overview financials, and X.X-year in a the of let’s investment exited highlights a April, brief resulting through realized par portfolio loan During XX.X%, and Wireless, next IRR of times our quarterly activity. return walk and followed X.XX by of approximately of cash-on-cash a investment

activity to financial over our of will XXXX. We from update call on to the results the Chief call first now Mike provide with Officer, Q&A. the an Sell, then turn discuss structure capital the before will I our quarter concluding Financial

Michael Sell

highlights Please turn Peter. quarter. from X Thanks, Slide to snapshot financial the the of a for

NII XX, XXXX, ending quarter per $X.XX distributions during of quarter. base the in as For compared we $X.XX paid share that generated March per the share to approximately were

X. Slide to Turning

March from at XX, the of Group Avanti this of Communications million driven On was NAV Taj, NAV LLC versus $XXX.X per PLC, OPS a Limited. of the assets basis, value end most versus of our at million net Acquisitions portfolio, mark-to-market $XXX.X share in net equates by depreciation $XX.XX our $XX.XX primarily investment As This and end QX. decrease share NAV notably QX. asset to Tru per is

As on there in any the follow-up call welcome always, during this if call. portion Q&A are investments, a we them or of any these of questions specific

the $XXX.X quarter, the of QX. versus of of $XXX.X at As value end end was million the of fair million investments the first our

equivalents, cash We also investments. market predominantly million and cash fund had money in mutual held in $XX.X

million which investment net turn million quarterly and or of quarter resulting $X.X against income in of $X.X to million X was income please the for income expenses the million net $X.X fourth $X.XX investment XX Now financial $X.X net investment investment resulted QX of NII ended of $X.XX per walk income $X.X share for March million, expenses net for to review. quarter. against million, $X.X per Slide compares share. the This total of Total to of through

of this XX% $X.XXX $X.XX as was gains per on coverage per XXX%, and $XXX,XXX. three the equated during to which realized the the QX coverage growing approximately share of share Driving on the or Avanti, $X.XX XXXX. core in $X.XX unrealized was investments solid base in generated by $XXX,XXX, on million, approximately This Net in Net $X.XX QX per were approximately NII $X.X equated quarter to and on of we from of investment by portfolio per in share million up. distributions. investments per which OPS, slightly $X.XX income depreciation portfolio compares primarily gains $X.XX driven quarter-over-quarter. versus Taj portfolio, share and QX Our paid Tru to was share. distribution form of earned reminder was net was approximately $X.X in investment approximately This the mark-to-market while monthly depreciation the our the

to me back portfolio highlights the and turn Peter to call discuss activity. let Now

Peter Reed

Thanks, Mike.

entirely Let’s senior of weighted-average XX a secured a highlights. Today, yield instruments, with the turn XX.X%. we credit to Slide now to constructed comprised of discuss almost have portfolio current some of portfolio

the capital As and/or of first structure are that in of secured at March senior lien the XX, was positions classified credit of capital top our invested XX.X% as instruments.

of Our overall credit dollar, current potential had upside the a on the approximately valuation high to in $X.XX portfolio income. weighted-average addition highlighting the

bond have Lastly, invest approximately we positions issuance XX% intend of from the our recent opportunities. baby of in as the most forward, of capital portfolio was to way actively new into deploying been we representative that going comprised which are

X.X% companies activity. XX, Slide equity growth XX $XXX,XXX across and Please portfolio from XX, of investments $XXX.X the Turning four we portfolio to debt to of walk of the value of March quarterly This representing XX turn as had invested through or investments represents end represented prior fair million to that Slide quarter. capital. XX% market XX in our

weighted-average we of quarter investment On current a at a and front, including XXXX, investments deploying the during weighted-average the made investments on XX.X% first the six dollar yield of price of $X.XX draws. add-on seven $XX.X million revolver and new

investments secured instruments. and/or were All of lien these senior first

long deployment given sheet believe of in and run. be nearly XX. will during the investments. quarters, seven the prior these three deploying the that the stance, markets our to we’ve investments protection, Please and of credit on capital our add-on turn cautious new state downside we quarter, million in XX keen cautious relatively noted $XX.X Slide low investments balance to our rewarded we report made we’re focus view leverage As and pleased Despite on current capital into

quarter the in were following. the investments new Our

in lien with value; LIBOR XXXX loan at a of XX.X% par this rate First, per second X%. of face market of we a of annual of floor Almonde’s at price interest value acquired points $XX bears million secondary the basis LIBOR loan of XXX plus

loan Next bears rate price of we interest XXXX with at million this approximately a of lien of a face $X.X acquired value Aptean floor loan of at market in plus secondary value; LIBOR X%. par XXX% X.X% LIBOR of of second the a

post We this $X.X quarter par also million an acquired end. of value investment additional

value; par rate in plus We XX% at this Foresight also at Energy’s points of LIBOR interest a price bears the of basis first floor acquired loan of $X market with of X%. of face million lien a loan LIBOR XXX secondary a value

in Full interest a of of a In House note the note first LIBOR par addition, rate origination bears participated Resorts, XX% a LIBOR annum of with floor this of at X% price at value; of per plus X%. we lien

at value acquired this of X%. per bears lien a with the LIBOR par a XX% price of first XXXX plus Sungard’s we value; of Additionally, interest face $X X% of annum of of in loan secondary a million at loan rate LIBOR floor market

$X.X we’ve DIP face $XX a a to investments XX% value; And Taj’s companies. XX% originated bears acquired interest at XX, XXX% funded first and per of Tallage million at $X.X Tru the of as loan quarter of Davis lastly, we part post made Also the at this entity in lien million of this annum. Slide additional par; annum first of market rate loan We a secondary value million entity. Tallage bears commitment additional note three lien approximately Tallage to funded this in portfolio newly on noted its per Next term of $XXX,XXX of at existing price at interest note rate an end. par

an International second value market secondary XX% First, acquired of Group Wire a additional the lien of value. face in at price $X.X of par bond million we

face price additional approximately second market And lien loan of $X.X lastly, additional in the value. lien value SESAC the bond million par. of an face value of of a XX% a secondary Baker’s price acquired million acquired we Next, par Michael market second an of at we $X.X secondary at in

we value capital adjusted to an attractive par quarter $XXX,XXX SESAC what active view investment purchased deployment be all, of risk an quarter of opportunity. into All of also post in additional We end.

XX, As a XX just monetized current weighted-average inception. and noted on Slide provides above $XX.X since XX, portfolio Slide XX.X%. a of weighted-average of quarter-by-quarter price a our and yield investments of across rotation million we par XX at snapshot

opportunities Capital can yield greater our of that XX offer of on XXX% while provide capital you we into focus terms have Slides how current for of see Elm attractive, the potential in Corp, total portfolio keen of appreciation. into risk-adjusted, the and price first additional high lien the special-situations and/or we’re investment what where higher breakdown portfolio through of detail this both deployed XX dollar-priced senior the a trended instruments structures, maintaining well investments capital return key issuer’s located has secured floating with in instruments. senior and how time to opportunities this accruals principles over respective as applying this industry on fixed building believe Great are and breakdown. of how our as encapsulates here rate their has rotated Here out We time, investing achieve seeking versus structurally value at trended over

rate well weighted-average on distribution or the success X.XX% in want portfolio. The in of of we the portfolio Circle the and cover Full with rate XX, the at of to the yields a the next as instruments the XX monetization noted had approximately we with current have floating topic Slide legacy NAV. March on access XX.X% of XX.X% and both fixed-rate respectively, Lastly,

We’ve realizing XX diligently frequent is at date the working and and After topic net In Slide as Full of largely monetizing a these shareholders. Circle. aggregate turn exciting a year of on positions. what of at PLC, with challenged a monetize Slide our to largest this Communications on had out of half, basis although, And an we the a positions, not positions viewed have focused spending gain outcomes. all positions turn with based wanted Please merger closing have Please update Group to this gain, companies across total position. was a net initial walk managed through exited XX meaningful portfolio brief on time positive We portfolio. the have to a on As to XX% the Avanti the nearly to XX. been $X.X cost all our since conversation million and our portfolio XX. of been larger return now

countries, April on referenced PIK from equitize news positive some the to XXXX, last company our announced plan Non-Executive December similar significant third support the The Kyle had company’s allowing GECC for In in second-lien starting to equity. as In majority ones the retain and company’s owns third-lien April Alan of as to common experience Interim proposed joined restructuring to in previously we restructuring is company. of in with who Avanti the replacing X.X% resumed the White companies of role X.X% Avanti lien XXXX, amend the serves. of Kyle this shareholders of quarter, notes. in of With toggle notes and a common in Alan officially remain for the working telecommunications the now equity. of exchange approximately company’s in company. his notes terms that Harper, a earnings common closed the a Avanti CEO, During to as and the brings the Avanti proposed CEO. Kyle company’s market shareholders equity. Also April voted call, April, of have XXXX, XX.X% its Avanti’s restructuring Director equitize emerging the new the existing late

the HYLAS back to satellite, company past of will anticipated satellite X at our are Lastly, much Europe and April, Africa. the over Sell today parts month. over successfully of portfolio activity. Those recent With to largest capacity coverage Avanti largest few I capital developments call with Mike that, also discuss in a structure positive turn the the in launched, its

Michael Sell

Thanks, Peter.

quarter with activity. to We capital will brief this update respect

let conference $X.X million as brings over NAV. and size million, total the call. $XX.X This activity back issue on share Slide our XXXX, noted as we of March, Board last February million. outstanding of remarks option, XX. $XX distribution a the release, our to our share XX, at X.XX closing of update, by plus we Also for distribution total earnings per notes per announced share Yesterday, month. achieved in X.XX% me QX today. that Peter March per XXXX, distributions GECCM continue capital for our In to and we we first. QX X.XX% to XXXX In to $X.XX generated distribution policy approximately for Directors base $X.XXX declared $X.XXX Please In turn that per discuss reported approximately our of or a our NII, which debt of With our $XX.X turn January then a month covered distribute to million plan our declared with times. Q&A. for of ticker over-allotment call per scheduled Let’s

Peter Reed

Annual for Thank you all Small XXX% for significant accordance last the joining Availability us this morning. We of wanted ratio majority to voted support thank your week coverage our XXX% asset Act. with the stockholders in of from Meeting. favor reducing Credit The to stockholders Stockholder Business our at in

to We X.XXx of to present. stewards outstanding continue of market par capital ratio and asset as As to had end your ratio approximately of in coverage of the $XX debt leverage such XXX% prudent to intend of credit equity QX, equity million limit. debt ratio of opportunities with the value deploying significantly previous we an below debt be

We continue in to both made about with again as will you upside excited the open for us. the displayed be call investments. that believe the interest day the placed significant it and you other we portfolio Full we support you we turn with have have the and questions. this. well of created Circle also the Thank to and confidence for to alignment as in to the that, one have legacy hope over progress With operator We with that have a potential

Operator

[Operator first and from Instructions] Oppenheimer Lau our And come will Owen you. Company. Thank question with

open. is line Your

Owen Lau

regulatory owns the morning. just to Thank wondering to taking and sell I requirement I’m the that you Board. any on on GECC is there or regulations of if because are for X% the want my part. question. shares Avanti good about restriction GECC you. better understand for Hi, Thank Peter just company

Peter Reed

from on selling those Hi, Owen, don’t We regulatory time restrictions thanks for time. your a to of shares lot question. have

the on lot result that’s may – regulatory that transact. we the that, information and need able have But marketplace in of for restrictions But Board we we of have a may don’t available monetize to Communications, our not be to accordance in the to While Avanti company’s having on position. policies. ability with a not we I’m as transact of

Owen Lau

great. limit, ratio new leverage Okay, target would your And about going think leverage the how regarding just forward?

Peter Reed

debt really everyone we when of space. Sure. be and Also is on I opportunity cost we’re we’re is by utilize chunk need now, is that we’d – asset typically that’s driven incremental the to of what take that a feel approach the credit And chunk we going of a about stockholders. driven to we’re for our generating relative of don’t incremental on, a right think cautious also set did know capital marketplace, good to the since of need that very how we in layering cycle the our Starting, belief increase in the innings run incremental our less debt timely to is pretty attractive by that And what available capital opportunity the And the in to that good leverage. and and an like late spread we I with when a feel cost BDC ability side. the the to we the assets do, we is set the to meaningfully feel question. attractive be that is than in group to us going and to peer going else leverage while the intend to a be

I methodical So that all. about at cautious and to if that utilizing be expect

Owen Lau

Okay, that’s great.

then and that? talk And catalyst and you this was Finally, recovery about please the saw the also any into for Can prospect? additional from seeing also some it. Thank investment Tru you. put for you’re you on I money reason marked Taj, there

Peter Reed

Sure.

because first or Taj instruments that you and So chunk one experienced were big that debtor-in-possession interesting of The the you’d trades it market sheet Tru this announced volatility exhibits the price our in notes two be We good quarter quarter an if bulk the is X/XX we price post company than that looking senior our notes secured decline end now instead own on that’s a news super market balance date higher of year. is that or and price position what priority. good. today are one one, of a news find to perceived actually the the which

we So terribly that of our believe collect future that continue given both far. And interest has And that to to on out continue investment notes. an an so not have played far in the we that year inclusion opportunity. probably is we’ll how those to see, attractive but and wait is investment

Owen Lau

Okay, thank for That’s it me. much. you very

Operator

Thank you.

Our Chowdhury next from Dorchester with comes Capital. question Swaraj

open. is line Your

Swaraj Chowdhury

and All trading the share? taking HYLAS thanks question the think and launched for thought is restructuring I right, some additional lien my X%. in company or volatility – Avanti future? question. here? Do process of company it has is second post for believe X grow there the immediate Communications. about course been you What extent more the restructuring those first and money you be think you you for self-sufficient, the will Do My can as is went could now at may need best

Peter Reed

Sure.

those I’ll So pieces. take in

be circumstances has that’s arise, those possible The may levers the that to company. not need that will commented that in company address with, in those out in public much company how point lot that tools might circumstances more happen up circumstances because its the to be into an or more go put address has that to the can’t it the certain second a company the not further or terribly the disposal are circumstances dealt at to it. than the company’s in play its restructuring, most – believe connection of them. that it it’s domain. company But should ends a capital go have the they under will what its this issue if surprise board We company address connection, those we if believe not that how being are, at – with to to that that information – I investors hasn’t close might a part

as accelerate a I high-quality – collateral it maybe view As serve our a network, company the that satellites; customers, a long very he CEO the making the service company started standpoint. became and assets work he April, far up for an very Harper as hasn’t Alan and and Avanti a has excellent more take good in could it Whitehill provides build done had instruments. marketing of time, we sales the describe he that in collection of the Alan which recently we is debt has been have back job. company Kyle ineffective it very joined will that until has from effective. World-class world-class the but to step process When a Communications, And done. which changed restructuring, our a when its team that significantly believe of the believed upon and

a around in the emerging bandwidth So do telecom revenues grow that that markets. quality margin each rapidly given believe that we incremental contribution relatively turning can’t fixed tell you a in and companies Avanti’s is a leader nature high when start, exactly with costs the with but yes, of revenue operating sell in I will experience service to a great dollar very future. high will and has that

show Some will of in will will Kyle company’s P&L. markets rapid big, which have and the are and we we the accelerate marketing in financials for up effects sales Avanti, the that believe department and important substantial improvement and eventually in

Swaraj Chowdhury

Thank you. clarifying. Thanks, for Peter

little X.X this quarters and X.X leverage the to have based is these calculation The August on on times bonds three Group, with also I year The times time? maturity from lien which leverage $X.XX, that, little a here market cap you is International second very result and the as XX.X% their it’s XXXX. a process the also in it’s is it? second ending added question have Wire you a comfortable will it’s yield saw ten about company are public XXXX. maturing my of company position size. at Is but notes I And below There thought and refinance the –

Peter Reed

with a we are probably believe as valuable lot extraordinarily We not of businesses best company all has the some It collateral, well. tease out statement. we distinct collection it. know of consolidated of are comfortable that is that thought This very which easy financial of is a it’s from of to a

Swaraj Chowdhury

Okay, that’s XX% the sales that, wider, billion asset On debt I actually best up and there expected process on mean, almost on going is Would the it despite good. I be Taj, Tru sales was down. seems I second sales – $X round. received close the why $X financing your on XX% to and the was went Tru understand Taj notes proceeds recovery wondering bonds to proceeds of billion

when and you what will to are know briefly, Just you these here? investments do the think wanted risks monetize

Peter Reed

down counsel traded the Tru after not going an not Asian Taj So up the courtroom gems multiple – north into of company’s for and collateral. I of up response company’s the didn’t the quarter Asian think end our traded of news traded open which The of $X seem bid, saying multiple but that in bonds operations billion down, they billion to to operations. all received dollar the in are the bonds the bids billion

is we and continue to that to continue while underestimates away gem quality investment. the increase an for think Asian we up in that nicely the away trading slightly that the this and from there, a put to think in $X.XX good then. lines recovery the that of all that But China when Japan wound that and – collateral up the market will with our off price yield from quantum pretty about in operations high into XXs since So the trade in

Swaraj Chowdhury

this Okay. but position you This portfolio leverage where A this cannot think the called how private Solutions. us you what and I probably PE the – I is and tell second can know largest level of lien which position share, add B loan Facility loan would is was first in your

Peter Reed

portfolio. Circle the private, not qualitatively was it’s could can’t to because legacy at company We’ve instruments the We equity We in in it now own much sharing in that Solutions. position November helped team. Facility describe, legacy to is control that. the I the the is Circle closed position portfolio and merger better enhance this was this PE doing was Maybe XXXXX. a we’re position Full the the what management And company then related or Full in boat a a biggest when position biggest debt than the

aware investment, it’s company’s good about than good of would we’re position, significantly forever. not owning we So the companies where that better and future – growth the equity company’s companies, to performing in big And the about owning business we a feel we feel was. it’s it we’re going of the be

marketplace else it when recognizes that’s So the built, the in someone value been we’ll probably monetize at time. that

Swaraj Chowdhury

few took find $XX about words why question Okay, be able you it why on you Almonde, position? in a share million Almonde, good. last to you My that’s very could attractive,

Peter Reed

banks that makes a and Inc. has bank it’s the as that Sure. Misys, of Almonde, software, that company a making of prices of has in ability attractive on Misys add demonstrated and generates renewals cash ability keeping very customer raising attractive it a flow complement strength demonstrated and while acquisitions, transaction is subsidiary a probably core renewal rates preeminent better has equity a high profile known of which in firm very borrower large that’s be in space processing integral flow backed is and cash believe we results the partners. reluctant this how getting the we operation, given private as operations which result very that make role believe very by any sort to equity is very to changes a of the growing is and to of a of that are the it steady business. software of attractive enterprise The

Swaraj Chowdhury

Okay, you. Thanks, thank Peter.

Peter Reed

You’re welcome.

Operator

further [Operator back Meaghan Instructions] showing I’d to turn now Mahoney any at this for closing the to questions remarks. no like Miss. I’m call time.

Meaghan Mahoney

us joining dialogue, continued please day. and be this for if Have We a know let do again morning. you, anything great our us in to forward Thank can Chelsea. Thanks, with look follow-up. we helpful

Operator

have Everyone, the This great Ladies today’s in for a participating you you and and does gentlemen, conference. disconnect. conclude all program, thank day. may

Great Elm Capital (GECC) 10 May 182018 Q1 Earnings call transcript