GECC - Earnings call transcript Q2 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Great Elm Capital Corp's Second Quarter 2019 Financial Results. 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, this conference is being recorded.

I'd now like to turn the conference over to Adam Yates. Mr. begin. may you Yates,

Adam Yates

and Great everyone. quarter Elm conference Tiffany, joining XXXX you us call. for Capital good you, Thank morning, for earnings Thank Corp's second

XX, being reminder, on webcast a is As Tuesday, this August XXXX. recorded

If you'd our you on up email can our sign added Web or can alerts distribution you list, investorrelations@greatelmcap.com for to like be to directly site www.greatelmcc.com.

our Quarterly presentation and webcast found on call Results. this Information, can Financial conference Web morning's accompanying under The slide site be

also find Form can copy On of link release, the you Web earnings a XX-Q to our site, the the and webcast.

attention I'd purchase like in to the our securities. sell or Harbor call Also, to that offer your statement information. regarding nothing please a an note to forward-looking solicitation to Safe offers constitutes call today's customary of

projections actual with for the materially to Great ask statements call you that forward-looking cause to SEC from filings projections. Today's conference could Elm results includes Corp's that and we Capital differ these factors and important refer

not its Great SEC Corp. to To Great the please copies SEC SEC's of or site Financial filings forward-looking by required Web Information, Elm Elm law. visit under does statements filings Corp's the unless visit Web obtain Capital undertake Capital site. update

Great call Chief Capital this the Peter Reed, morning Officer. is President Hosting and Corp's Elm Executive

I Peter. to turn will now the call over

Peter Reed

well the Keri to thank CFO, corresponding Thank Portfolio our deck Managers, Kleinman; Adam Adam for available that Where website on is you, and relevant, joined joining remarks, Ehlinger; Good by the as in webcast. in slide morning and referenced, our number point through prepared COO, will you as the our we this which Adam Adam. and you our us morning today. I'm John Davis. Yates

income special primarily is and capital of appreciation specialty investments. its current X of to finance loans, turn externally seeks portfolio GECC from secured of generate to managed BDC. for slide Please both secured investments bonds GECC. situations-focused composed and overview GECC an an

$XXX.X $XX.XX equating GECC yield debt and million, of XXXX, weighted asset million, of current The had holdings a portfolio share. total net XX, value approximately approximately to $XXX.X million per assets our fair was $XXX.X XX.X%. a June of on average As of value

GECC an per share basis. per distribution approximately on share $X.XXX pays that base $X annual to equates an monthly

XX% are shareholders. held amongst of than interest GECC's very creating management our of clear greater a Importantly, insiders shares between GECC and alignment

Let's turn XXXX. distributions recent to declared over and report few income achievements. GECC's investment to X inception slide since net to go quarter I'm pleased highlights covered that in has a its every

consisting an XX Over and of the has a distribution GECC trailing $X.XX base $X.XXX $X.XX special monthly months, distributions total distribution. in paid

XX's June on respectively. Based NAV price yield and XX.X% XX.X%, of to that total annual distribution equates and market closing distribution an

of During the at a quarter, par. and we we of average investments price price par weighted of at weighted average deployed capital XX% a monetized

providing The for high in few The average approximately of on XX% a highlight capital of value our we current the XX.X%. of average X, approximately the slide approximately which the portfolio. par comprise secured of our significant yield is On of weighted XX% characteristics portfolio, price level appreciation. is the debt debt potential portfolio weighted investments fair holdings,

positions better to monetized portfolio the and approach. reflect as our circle Elm style Great legacy have we and existing investments, proceeds Moreover, and the new continues full investing into redeployed

intend XX, forward. roughly diversified the June As representative in portfolio that manner, of going of of to XX% are invest the was we comprised of investments which

fair are of $XXX.X roughly value. debt total XX% investments, portfolio approximately the and contains The additional and fixed our of XX investments account $XX floating seven rates. debt equity fair The Of account at XX are instruments million accrue for portfolio characteristics. million X secured are XX% investments holdings, and value XX debt describes for equity. Slide seven rate which of

part a quarter. XX We monetized average XX% $XX yield We of of average fourth or to X slide at in XX.X%. of million of full, par weighted and weighted during a price XX investments investments into review capital deployed to and yield average current at a of current turn almost Please XX.X%. weighted par in our the average dollar a price weighted activity

Slide million X our The term of $X.X Pacific Entertainment $XX.X loan loan. million second-lien lien secured $XX and Avanti's purchased We of quarter, deployment term term review term-loan new loan. five million loan, term X.X in greater secured million XX and investments of $X.X detail. the Tensar portfolio of Shearer's the Now, deploying and companies were Research approximately investments secured four secured Peninsula new Foods existing $X $XXX,XXX of capital million. in during new

to existing $X notes, $X.X of second-lien of and $X Kitchen's Pizza secured million of loan. included $X secured investments million million APTIM million loan, SESAC Boardriders loan Additions our California term secured of term

secured Please to portfolio Approximately of is quarter of of debt equity balance type. $XXX.X the rate interest the to XX% value roughly investments. turn asset and slide $XX breakdown in the portfolio the XX with end million debt That's million and by in equity. fair invested of

invested Of $XX.X debt million roughly XX.X%. holdings, in of yield is invested debt million the in with is million with yield of a Roughly rate $XXX.X of weighted a current XX.X%. floating $XXX.X average fixed debt weighted rate average current

opportunities. to time. no portfolio attractive we source over composition XX, unsecured continue slide the purchase debt how the has as we the highlight Today and secured changed has On portfolio of

In interest acquisition expanded of holdings. of Prestige in equity equity majority our Corporation's the addition, quarter the a first Capital

finance seek encouraging correlation specialty our little our to portfolio. increase Prestige's similar time, performance, over to broader secured credit Given exposure to businesses with we

percentage encompassed floating slide rate to has a to quarter-after-quarter. note Turning XX. I'd portfolio that growing of the like debt

in has secondary in and been found than loan bond are opportunity the loan Recently, transparent opportunities we may more greater this market we uncovering trend leverage continue. high-yield the in that that leverage on focusing market. the anticipate team our market Specifically,

to investments represented. by Nevertheless, XX a break On industry. our industry indicated portfolio continue maintain is different down telecommunication portfolio largest we comprised industries Wireless we of of Avanti investments slide by the the services XX, the diversified in still leading. as

slide look to a take historical rotation. portfolio XX turn to at GECC's Please

During lower contributing quarters dollar Most into second higher and monetized in past deployed a investments, deployed price we investments to of deployed average a since XX return. capital price at XX% par. invested of each par in Again, substantially GECC's inception, recently total realized priced lien the was quarter dollar the of capital investments secured we've XXXX, average of weighted approximately of at debt we of capital and/or and weighted all first debt. the priced

a we XX, at able more than higher investment capital yield been prices with get like quarter, current at picture of in past opportunities quarter's investment what yield, interesting to activity line invest our of XX.X% were Turning in average par We've granular This quarters. five to debt slide to below find quarter-over-quarter. looks past the last current GECC's trend. largely a we recent able and each

satellite was turn GECC, the its Please slide to for to capacity we When XX of Avanti struggling update formed monetize an on network. Avanti.

of Avanti the paved other its As improvements These worked new XXXX. April brings Kyle date satellite we members and encountered identifying deleveraging and hire difficulty, stability to Board company. way key financial balance new improve CEO sheet, recruiting to creditors insight launching as strategic with the through the Whitehill in into to biggest its company and who

and in core Kyle's large wins Since growing overhauled recurring rapidly marketing, has start, and revenue. resulting he contract bandwidth dramatically sales

delayed business significant participate to other the term lien given the Avanti unique in stakeholders Great opportunity new were in loan With heading and X.X facility. an the direction, draw Elm exciting

On As Avanti current accretes tables expect you the on visibility the debt its that to fee carries also can benefit. interest generating minimal only have bottom the not unlevered will trajectory capital cash into but see from GECC's rate, positive flow. free that slide, we of attractive the significant an with required and a expenditure,

XX. Turning to slide

of the Prestige our continues ahead year exceed February rate, low in Alan expectation President impressive of company Let's Prestige months in approximately an and our is maintaining investment been of review six budget Prestige Corporation. of our done loss continuing XXXX annualized while extremely CEO pretax It's expectations. the our of grow credit Capital versus Rosenthal, income with to fiscal frequency. Eliasof, since business approximately acquisition million and Stuart at job $X.X million. terrific have to $X.X

In earnings the from We're little to $XXX,XXX diversifying and GECC's greater expanding GECC's finance its annualizing a interested yield certainly portfolio. initial credit channel. on corporate second and GECC's specialty Prestige, distribution with investments in June, than XX% in correlation investment. meaningful generates GECC received totaling to Prestige

investment. past to a slide note, down and million. Full portion a $XX.XX would On This I our to assets repayment XX, substantial over sale our particular, loan and of term team, largest term hard we worked revolving rehabilitate represents In for paid this big few win Corp. detail loan since PE GECC's to troubled activities PEFS. of Circle Capital years contributed quarter to end. the the A of related Solutions Bergensons sale B the who loan entirety for Services Facility our the company GECC's Proceeds Kellermeyer from

As slide you we're at the August already work at can from see reinvesting the XX, sale. proceeds on activity from month-to-date hard

turn Net Let's review quarter. base our the covering per NII share margin. financial an was highlights per impressive from XX in quarter. $X.XX slide came first loss the distribution $X.XX to to $X.XX wide in share quarterly by at a

of approximately We or net was our experienced unrealized per end. Avanti value the at in value realized the $X.XX result gains period expect investments. and $X.XX, NAV of fair net fluctuations Net losses of $XX.XX asset – share we of primarily

unsecured of and healthy million. as Cash we $XXX.X of at senior the period equated portfolio. fair a period new increased ticker Please value end. $XX.XX investments total million $XXX.X NAV total note aggregate turn market to issued investments and were to million, $XXX.X $XXX.X a was under NASDAQ for were slide million an million, outstanding overview NAV At a GECCN. to $XX.X share per XX assets money our financial Total end, of debt

NII performance expenses financial $X.X or $X.X share. depreciation $X.X were per or million $X.XX $X.XX investment approximately share. Slide per XX share. $X.XX or Net or details $X.X were million, realized was $X.XX quarter. approximately approximately million per per approximately from was investments Net or unrealized was Net select the share. $X.XX gains Total per $X.X million, share. during income million

$X.X quarter share the investment quarter's quarterly than share. $X.XX million, marginally million share $X.X Turning discuss operating or of share. Net the per greater slide XX, million let's or first to $X.XX expenses $X.XX to $X.X were the income per first compares million, per results. or $X.XX per or operating Total $X.X of

quarter's first or quarter. our of share portfolio the as greater repurchased $X.X million per we was the during million $X.X of NII than size shares increased per Importantly, and $X.XX or share the $X.XX

to Let's XX. slide turn

to discuss per yield monthly The Let's dividend date. distributions XX, market a and on pay sums the total represent that the to distributions share total distribution of distribution to share continues XX months per share In announced XX XX% XXXX per $X year. declared $X.XXX we December, months' to per bringing an dividend special the policy distribution June approximately past $X.XX GECC NAV a GECC's and distributions on past end per quarter $X.XX XX.X% value. share. yield base

yield what annual with the north Slide distributions when yields GECC's history and in percentage have distribution price. the XX year of market each two driven shows combined the overlays XX% the base in full a of as since inception. was GECC's of substantial distribution each special distributions years monthly annual well past distribution full

that our XX historical the distribution it's emphasize in every covered NII has distribution illustrates base Again Slide coverage. since XXXX. inception important quarter to

Finally, please to summary. a XX slide GECC for turn

to-date, that count. set XX% alignment XX% Furthering Also outstanding importantly, insiders it of share greater fostering alignment shares has share insiders fourth initial $X.XXX of month. through at interest has Board quarter distributions its than own between of per Our other interest repurchased XXXX GECC's approximately per and shareholders. GECC of GECC

a average growing weighted our on our loans of diversified XX% pool of greater XX%. bonds portfolio current the is and substantial and on realized The than secured investments IRR yield is

us for this joining morning. you Thank

created We progress We continue upside as we in with about of our to that we be a shareholders. have alignment monetizing excited with as believe legacy you interest have the significant the portfolio made potential the well positions.

you we to With Thank placed questions. and support for to us. operator the that open again will over in you for the have turn that confidence call the

Operator

And with Thalmann. first proceed. Instructions] from comes our Thank [Operator Please Schleien Mickey question you. Ladenburg

Mickey Schleien

us of versus was trades walk the please at the morning, Board's of Avanti the Peter, second XX to XX everyone. Good sort XX which you the quarter lien's valuation assessment range? through could price in during some

Peter Reed

Mickey. Hi, Sure.

same the take of In market normal take liquidity trading significant to there's assesses through our our through go price. of prices believe valuation for independent they in case any been have goes if the row, a we what value. determined this to case liquidity International and outside policy there firm Lincoln this activity enough and valuation indicative they that determine has wasn't quarters So number a enough that as in market to

as that of a basis -- of that to Included positions. valuation information of did our they having of virtue debt different of our then their provided on in done full nonpublic So of have for all is a representation. -- valuation two bond that quarters, number information access Lincoln having the we of is by the Board full

methodology, through of in of their any Bloomberg valuation results. and trades output Lincoln see our went as financial that does which any into So you what take for reported the it. And is part example account

Mickey Schleien

Peter, sense distressed any to nature in that do positions? perhaps sellers led other words were have saw? and the to you we that of of pricing as the those some they the fashion In

Peter Reed

about it the things is that market pretty Mickey, of well, one tough opacity. -- significant

probably largest -- probably -- largely But position liquidation is So, rumor hearsay what and that tell can in was market the or and fund hearsay in that of a distressed mode. seller was rumor. is I the you

Mickey Schleien

for Okay. Taj TRU the the equity? Switching gears Peter outlook monetizing what's

Peter Reed

the having moment at follows. equity valuation. from for a portfolio, not for company or equity point. is upon largely debt-free is business That as to some depend so free significant Obviously, the The say our flow. and will looking optimal debt-free emerged at Taj cash has as bankruptcy monetizing I'd TRU monetize Outlook that generates the we non-yield-producing are that

able So, we But We any aren't dividend we of that think forever. in big monetize point so be will know at reasonable there would company, I moment, a I non-yield-producing it. the when time would at value. it to the on receiving own distributions be particularly equity a not will a percentage don't be

with separation being clean said of its sort of standalone. one troubled April from That being in went through messiest bankruptcies company's sort parent really memory of the completed which the just in

I So, and marketplace it's the the that there's that on of in days equity. can no still company's trading been think I its standing and think early feet

its things are parent. to participants be former itself figure evaluating And to we'll opportunities But so market monetize. out very I process shaking separate to trying after from think involved out how are an for that troubled

Mickey Schleien

ask Prestige of us see about much businesses, Yes, Capital. that particularly Can that's to types I a flow is many give lending want financing. sense provide I cash their how versus helpful. lending? of main you they ABL

Peter Reed

flow cash It's ABL business. no there's and either. there's really Mickey, Sure. lending factoring a primarily no spot lending

Mickey Schleien

borrower? Okay. their the And what's average of EBITDA sort typical

Peter Reed

who on highly receivables the are history not losses taking a factoring or little spot EBITDA credit to but as that credit their not they're would creditworthy is are are think low. very, largely of buying call know the realized debtors particularly I the -- that they evaluating from of would don't I over there's the no risk what very creditworthy a is think credit they're in business. which account they They borrower companies, risk I XX-year and why the

Mickey Schleien

Okay.

short-term probably a is distressed basis, could against I in Prestige package have profitable, that summarize fashion or might are of if a lends inventory So, in they that but right? receivables these borrowers be some decent not that

Peter Reed

will at business would a account very like a all close. lending, at that companies, I company nitpick because collect of describe it's because is discount purchase debtors receivables they're that on own. as be its on stage as if them. creditworthy from profile think that their lending, example. to those the fast-growing Stuart to me advances So, not decent Alan company not buys for creditworthy details They and receivables Costco, receivables Prestige that a the funds yell on factoring. it's and then the large pay it's But And earlier clear

that's so, how they money. And make

Mickey Schleien

your in going economic curious an an interesting business this business. is. BDCs sustainable we've downturn sort how XX-plus-percent about of sort think that you're to how you do perform of seen about return thoughts and could and that I'm business So that's other getting

Peter Reed

buying operating, So, we losses creditworthy you're Prestige very so a debtors large receivables come fraud from sustainable. your pay. predominantly And to our because you're through very of number believe, been The long economic from risk, a of it's fundamental of had little very downturns. not credit they've companies, multi-decade of history account usually inability since taking

things one -- capital them downturn to our and we would services we grow on be sheet like strength that, more the would their there in more demand for as-needed the as it about is, balance that of result we they an a basis, So can, of with expect of the business. a that provide

We have downturn. concern credit little perform to that very about and underwrite their ability will a how in

yield long-term prospects. deal. believe do received far And we that we've ownership so, so the underwrote that about we're our and of is and the we pretty sustainable the business representative enthusiastic how And

Mickey Schleien

this do the add be from that looking other to And to you more you looking or for it Would like sounds are companies, in investing acquisitions prepared you're Prestige? space. that portfolio tuck-in Okay. remarks can

Peter Reed

to Prestige which relative Prestige The And or independently at tuck-in that an dialogue we acquisitions. management factoring, have include ABL include about operations, other add-on looked frequency would lender. also, with but in answer is both both. also finance specialty is might with and team,

Mickey Schleien

of more the can All capital simple outlook right. you mass a us And for I'll unwinding of Any couple the rest questions and background just finish. on shares? for its give

Peter Reed

number they I the really on motivations reported that Form X. don't I and have just been the really of into sales. trades are probably don't since a as filings. of those the employee It's there, I the an through SEC the was things I'm operations so or know. are any same I'm observing years insight you XXD observing

Mickey Schleien

Okay.

you income supplemental give couple the Can spillover estimate where dividends Finally, taxable is? us of of last some an you've nice years. current reported your

Peter Reed

but that today. I follow our moment, we of estimate with offline I'm the best happy have to up at don't stand where

Mickey Schleien

at another $X.XX pay to supplemental some conceivable range this Do point? in you think it's $X.XX

Peter Reed

distribution. we it will conceivable pay that think another special is I

amount. income We're -- that early quarter with the far to say and generated in year-to-date. we've pleased as very too the think the on it's I

As have imagine, you of bit a activity. can redeployment fair we

either So Solutions deployment up is the that and of of to recently. the our in other Facility open or those minds question risk forecast all and down, we've in PE from had our direction, proceeds payoffs

Mickey Schleien

time Those my I really Understood. much your questions. today. That’s appreciate are helpful. very

Peter Reed

Mickey. you, Thank

Operator

[Operator Instructions] proceed. Our Please you. from Thank comes & Sheridan next David Scattergood. question Boenning with

David Sheridan

Hey, call. for my Pete. taking Thanks

One, in that are million plans funds? offering, your those just -- the you two preferred the raised for initial Just questions. $XX what

Peter Reed

thanks Hey on the call, and Sure. and David, for questions. your thanks participating for

a with deploying I we're loans, the secured We been how are consistent have which the of and would expect deploying proceeds of But current think in yield average deployed. is the more would quarters, last the that statistic. not performing that is largely we and those just fully weighted few of for rest XX%, under less touch that deployment I kind the approximate proceeds of or

David Sheridan

And to you of to continue use any buybacks? share would these proceeds

Peter Reed

of a month amount activity, moment, healthy We've but current, the And we the happens. recent market trading more at at have We update that plans, don't repurchased than pretty we -- don't was will aware ago we But any certainly sure. we're have for appealing plans. of that's it it the as shares. which makes price a

David Sheridan

and Thank right. quarter. great another All congratulations you, on

Peter Reed

you. Thank

Operator

queue. I'm in showing Adam concludes for further to the no back Thank currently This Yates you. turn I'd the questions over remarks. Q&A to session. closing like call

Adam Yates

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

Operator

Ladies program. in thank today's conference. you This the and your gentlemen, concludes for participation

disconnect. day. have a now great may You Everyone

Great Elm Capital (GECC) 13 Aug 192019 Q2 Earnings call transcript