Great Elm Capital Corporation Q4 2025 Earnings Call - NAV Falls to $8.07 as Management De-Risks and Preserves Liquidity

Operator: Greetings, welcome to the Great Elm Capital Corporation fourth quarter and full year 2025 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Adam Yates, Managing Director. Please go ahead.

Adam Yates, Managing Director, Great Elm Capital Corporation: Hello, and thank you everyone for joining us for Great Elm Capital Corp.’s fourth quarter and full year 2025 earnings conference call. If you would like to be added to our distribution list, you can email [email protected], or you can sign up for alerts directly on our website, www.greatelmcc.com. The slide presentation accompanying today’s conference call and webcast can be found on our website under Events and Presentations. On our website, you can also find our earnings release and SEC filings. I would like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today’s call constitutes an offer to sell or a solicitation of offers to purchase our securities.

Today’s conference call includes forward-looking statements. We ask that you refer to Great Elm Capital Corp.’s filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of our SEC filings, please visit Great Elm Capital Corp.’s website under Financials, SEC Filings, or visit the SEC’s website. Hosting the call today is Jason Reese, Great Elm Capital Corp.’s newly appointed Executive Chairman of the Board. He’ll be joined by Matt Kaplan, Chief Executive Officer, 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 Executive Chairman, Jason Reese.

Jason Reese, Executive Chairman of the Board, Great Elm Capital Corporation: Thanks, Adam. Thank you for joining us today. I am excited to assume the role of Executive Chairman at this important time for the company. This change reflects the board’s decision to enhance direct engagement with management and increase active oversight on our operations as we navigate a more demanding credit environment. I would like to begin by thanking Matthew Drapkin for his service and leadership during his tenure on the board. His commitment to GECC helped guide the company through a meaningful chapter, and we are grateful for his many contributions. It is important to note Matt will continue in his role as Vice Chairman of GEG, working closely with me to create value for both GEG and GECC shareholders. As the Chairman and CEO of Great Elm Group, the parent company to GECC’s investment manager, I’m well acquainted with both the management team and our investment process.

That familiarity supports a seamless transition into this role. My focus is clear: strengthen oversight, protect shareholder value, and reinforce accountability across the platform. We recognize that recent quarters were challenging for GECC, as they have been across much of the sector. We experienced losses that reduced NAV, and when performance falls short of expectations, it is our responsibility to respond decisively and transparently. That is precisely what we have done. First, Great Elm Capital Management waived all accrued and unpaid incentive fees through March 31, 2026. As of year-end, that represented a direct benefit to shareholders of approximately $2.3 million or $0.16 per share. This action is immediately accretive to NAV and reinforces our commitment to economic alignment. Second, we strengthened our investment platform with the addition of Chris Croteau as Head of Credit Research.

Chris brings over 25 years of credit experience and deep underwriting discipline to the team. Since joining, he’s worked alongside Matt and the team to enhance portfolio surveillance, fortify risk management, and source compelling new investments. We’re excited to have Chris speak with you today. Third, we have been deliberate in repositioning the portfolio. We ended the year with minimal investments on non-accrual, significantly expanded portfolio diversification, meaningfully reduced exposure to higher-risk investments, and materially enhanced our liquidity profile. We believe the portfolio today is more resilient and better aligned with current market conditions. Matt and Chris will provide additional details shortly. Finally, through my appointment as Executive Chairman, I will be actively engaged. With decades of credit investing experience, I look forward to working closely with management to reinforce disciplined underwriting, thoughtful capital allocation, and proactive portfolio management and sourcing.

During late 2025 and into first quarter of 2026, we have selectively closed what we believe are compelling cash-generative investments to support sustainable NII growth. We are operating from a position of balance sheet strength. We maintain substantial liquidity, including meaningful cash on hand, availability under our revolving credit facility, and a healthy base of liquid assets. We have no near-term balance sheet constraints and full flexibility to act. That flexibility matters. Periods of uncertainty often create the most attractive risk-adjusted opportunities for disciplined investors. With our strengthened underwriting framework, reduced exposure to higher volatility sectors, and ample liquidity, we are well-positioned to selectively deploy capital as markets reprice risk. We intend to be patient but decisive. When compelling cash generative opportunities emerge through our proprietary sourcing network, we have the capital, the experience, and the governance structure to move quickly.

We are committed to rigorous credit standards, transparency, accountability, and long-term shareholder value creation. We believe these principles position GECC to deliver durable performance for our shareholders. I’ll now turn it over to Matt to discuss operating results and portfolio positioning in greater detail.

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: Thanks, Jason. Thank you all for joining us today. Our fourth quarter reflected a challenging credit and broader market environment, also meaningful progress in improving the earnings profile of the company. Total investment income increased sequentially. Net investment income grew more than 50% quarter-over-quarter to $0.31 per share. That growth was primarily driven by higher cash income, including stronger distributions from our CLO joint venture. Net asset value per share declined from $10.01 on September 30, 2025 to $8.07 on December 31, 2025. To note, reflecting the incentive fee waiver that Jason highlighted, pro forma NAV was incrementally higher at $8.23 per share at the end of the fourth quarter.

Drivers of the quarter-over-quarter decrease in NAV include approximately $0.40 per share of unrealized losses resulting from volatility in CoreWeave’s stock price, and approximately $0.30 per share from lower quarter-over-quarter fair values on our CLO investments due to spread tightening of the CLO’s assets coupled with credit market dispersion. In addition, both realized and unrealized losses associated with investments that have undergone restructurings and liability management exercises, or LMEs, accounted for approximately $0.80 per share of the decline. Our First Brands’ investments further impacted NAV by $0.09 per share, and we took actions in the quarter to materially reduce exposure to First Brands, which was de minimis as of year-end.

In the fourth quarter, we sold our entire allocation of the senior secured DIP loan at an average price of 107% of par after funding the loan at approximately 95% of par. In addition, we fully exited our roll-up DIP loans at an average price of 45% of par. The de-risking of our First Brands’ DIP positions were collectively at much higher levels than where they trade today. As a result of our decisive actions taken in the quarter, which Chris will expand on, the portfolio is now cleaner and more streamlined, comprised primarily of performing more liquid cash generative investments, and we ended the quarter with non-accruals at less than 1% of our portfolio fair value. Turning to our CLO investments. 2025 was a challenging year for CLO equity investors.

Cash flows to the equity tranches of CLOs began to come under pressure as we moved through 2025 as spreads on broadly syndicated loans held by CLOs tightened meaningfully. Lower base interest rates contributed to reduced income. Credit market headwinds also intensified in the back half of the year, with dispersion increasing across the leveraged loan market. Certain sectors and several notable idiosyncratic credits experienced significant price declines, with weakness accelerating in the fourth quarter. Despite contributing to the NAV decline in the fourth quarter, our CLO investments generated a positive return throughout 2025 and outperformed the broader CLO equity market. Inclusive of our income from the CLO JV in the quarter, the gross return of the JV was roughly flat.

We saw CLO equity-focused closed-end funds report net asset plus cash distribution returns down -6% to -13% in the fourth quarter. Our CLO investments may see volatility to their marks, given their leverage and the current backdrop of the industry, it is important to remember these vehicles have long duration liabilities and are constructed to be resilient through periods of market volatility. These investments continue to produce meaningful cash flows, which diversify our income streams and support our ability to consistently deliver sustainable net investment income to our shareholders. As Jason Reese also noted, our portfolio today is positioned more defensively than in prior periods. We have historically maintained an underweight exposure to software-based businesses that may be more susceptible to artificial intelligence disintermediation, a stark contrast to many of our peers.

Over the last several months, we have taken proactive steps to further reduce that exposure and rotate capital into investments with stronger downside protection. As of the end of February, investments in our corporate credit portfolio that we believe fall in the category of software businesses comprise less than 4% of our portfolio. From a capital deployment perspective, we are investing at a measured approach in a credit market where spreads in investment grade and high yield ended 2025 in the 14th and 4th percentile, respectively. We saw some compression in private credit spreads over the course of the year as well. We are prudently deploying capital, prioritizing senior secured positions with durable cash flows while continuing to monetize select positions. More broadly, in the fourth quarter of 2025, we improved credit quality in the portfolio, strengthened our balance sheet, and exited the year with ample liquidity.

We have also enhanced our capital structure by opportunistically repurchasing approximately $18.7 million of our GECCO notes in the fourth quarter and through the end of last week at or below par plus accrued interest. As of the end of last week, we had $39 million of notes outstanding against $16 million of cash, $50 million of revolver capacity, and $14 million of liquid exchange tradable assets, providing more than sufficient liquidity to address the upcoming maturity of the balance of these notes in the coming months. To that end, we called approximately half of our remaining GECCO bonds on Friday, which brings our pro forma debt-to-equity ratio to approximately 1.5x, consistent with our historical average leverage level. As previously mentioned, we also strengthened our investment team with the addition of Chris Croteau as Head of Research.

Chris is a seasoned investor with experience across syndicated credit and direct lending. He has played a key role in our portfolio underwriting and capital deployment, and we are very pleased to have him on board. With that, I’ll turn it over to Chris to introduce himself and provide additional insight into the portfolio.

Chris Croteau, Head of Credit Research, Great Elm Capital Corporation: Thanks, Matt. A bit of background on me. I’ve spent over 25 years in leverage credit, including serving as head of credit for North America for a large public asset manager and acting as agent on private credit transactions. That experience shapes the underwriting rigor and discipline we are executing at GECC. Our investment framework is built on 3 core pillars: downside protection, portfolio granularity, and durable underwriting edge. We anchor every underwriting decision to downside outcome. In credit investing, protecting NAV and avoiding permanent capital impairment are paramount. Portfolio granularity serves as a key risk management tool. We utilize broadly syndicated credit intentionally to enhance liquidity and diversification while deliberately maintaining smaller position size. This allows us to be nimble and reduce exposure when our thesis plays out or when compensation for risk no longer justifies the capital at work.

Liquidity and granularity work hand in hand. Third, investments are underwritten collaboratively with management and sector analysts prior to investment committee review. We are concentrating capital in areas where our underwriting advantage is durable, supported by deep sector expertise and aligned strategic partners. We apply this underwriting intensity to our entire corporate credit portfolio. During the quarter, we sold or reduced 18 credit positions. We began the quarter with 61 corporate credits. That means nearly 30% of the portfolio by number was actively repositioned. Those actions included reductions in second lien exposure, which now represents approximately 7% of the corporate portfolio, reflecting stronger structural positioning and improved portfolio granularity. At the same time, we added 12 new broadly syndicated credit positions with an average size of approximately $2 million, reinforcing smaller and more diversified exposures in liquid markets.

In private credit in the 4th quarter, we closed 1 transaction with a mid-teen yield profile and warrant participation. Our private credit pipeline remains active with aligned strategic partners where incentives, information flow, and governance oversight are strongest. While we continue to expand that funnel, we remain highly selective in light of current spread levels. We continue to engage in active dialogue with our CLO investment partners to identify emerging credit trends early and to enhance idea generation across the platform. Our objective is consistent, attractive, risk-adjusted returns driven by disciplined capital allocation, senior positioning in the capital structure, and steadfast protection of NAV. We believe robust underwriting intensity, greater portfolio granularity, aligned partnerships, and active monitoring positions the portfolio for more durable performance across market cycles. I’ll turn the call over to Michael Keller to discuss specialty finance.

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: Thanks, Chris. Great Elm Specialty Finance delivered a solid fourth quarter, distributing approximately $287,000 to GECC. We continue to execute on GESF’s strategic transformation, successfully repositioning the platform for future growth and enhanced profitability. At Great Elm Commercial Finance, which now offers traditional asset-based lending solutions across a broad range of industries, we continue working with lenders to scale the platform. Asset-based lending, when underwritten conservatively and structured properly, can provide attractive risk-adjusted returns with meaningful downside protections. As we scale the platform, operating leverage has begun to take hold, driving meaningful improvement over the past several quarters.

Mike Keller, President of Great Elm Specialty Finance, Great Elm Capital Corporation: In addition, our pipeline of potential transactions remains robust. As part of the strategic initiatives implemented in 2025, Great Elm Healthcare Finance is now better positioned for sustained profitability and generated solid distributable income in the fourth quarter. The GEHF platform is supported by a strong pipeline of actionable opportunities, which we expect to drive continued profitability into 2026. Meanwhile, Prestige, our invoice financing business, continues to perform exceptionally well. As a reminder, Prestige provides spot invoice financing solutions and has consistently demonstrated the ability to generate attractive returns on equity over the course of the year. In summary, as we move through 2026, we believe we have built a significantly enhanced specialty finance platform aligned with our long-term growth objectives.

We are seeing the benefits of our strategic repositioning take hold across all platforms and remain confident in our ability to generate improved returns for shareholders going forward. I’d like to turn the call over to Keri Davis to go over our financial performance.

Keri Davis, Chief Financial Officer, Chief Compliance Officer and General Counsel, Great Elm Capital Corporation: Thanks, Mike. I’ll go over our financial highlights now. We invite all of you to review our press release, accompanying presentation, and SEC filings for greater detail. During the fourth quarter, GECC generated NII of $44.4 million or $0.31 per share, compared to $2.4 million or $0.20 per share in the third quarter of 2025. The increase in NII was driven primarily by higher CLO JV income and increased earnings from deployed capital. Our net assets as of December 31st, 2025 were $112.9 million or $8.07 per share, as compared to $140.1 million or $10.01 per share as of September 30th, 2025. Details for the quarter-over-quarter change in NAV can be found on slide 12 of the investor presentation.

Net assets pro forma for the incentive fee waiver previously noted were $8.23 per share as of December 31, 2025. Our balance sheet remains strong and liquid. GECC’s asset coverage ratio was 158.1% on December 31, 2025, as compared to 168.2% as of September 30, 2025. Pro forma for the incentive fee waiver and the call baby bonds, our asset coverage ratio was 166% as of December 31, 2025. As of December 31, 2025, total debt outstanding at par value was $194.4 million, and we had no borrowings on our $50 million revolver, providing meaningful liquidity and flexibility. Cash and money market fund investments totaled approximately $5 million.

Our board of directors approved a quarterly dividend of $0.30 per share for the 1st quarter of 2026, equating to a 19.2% annualized yield on GECC’s February 27, 2026 closing price of $6.26. I’ll now hand the call back to Matt.

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: Thanks, Keri. We continued to strengthen the portfolio during the quarter by rotating capital into senior secured investments and exiting credits with weaker downside protection. Our CLO joint venture is a meaningful contributor to earnings and provides added portfolio diversification. The portfolio today is well-positioned to generate sustainable income in the year to come. Our proprietary sourcing platform continues to be a key differentiator, which highlights our ability to generate attractive returns through unique opportunities. Non-accruals remain below 1% in the portfolio, reflecting the progress we’ve made improving overall credit quality. While the broader market remains uncertain, we remain disciplined in deploying capital and focused on protecting NAV while growing earnings. We believe our strong liquidity position, improving income profile, diversified portfolio, and disciplined investment approach position GECC well as we move through 2026. I’ll now hand it over to the operator for questions.

Operator: Thank you. We’ll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we poll for questions. As a reminder, if you’d like to ask a question, please press star one. Thank you. Our first question is from Eric Zwick with Lucid Capital Markets.

Mike Keller, President of Great Elm Specialty Finance, Great Elm Capital Corporation: Thanks. Good morning, everyone. Wanted to start with a question just in terms of the portfolio repositioning that Chris was describing. Is, you know, the actions that you have contemplated, are they completed this time or are there potentially more, you know, actions to reposition and maybe de-risk the portfolio? Is there potentially kind of more that you could undertake here in this quarter or in future quarters?

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: Good morning, Chris. Or sorry. Good morning, Eric, and thanks for the question here. I would say we took a lot of actions in the quarter, as Chris highlighted, to exit out of names that we have perceived more downside risk and rotate into higher quality credits, on a, on a liquid basis. Further, I highlighted, you know, over the last few months, we have looked to de-risk on the portfolio of our software side of the business. I’d say at the end of the year, when we looked at the software-ish component, it was about 7% of the portfolio, and we’re right now around 4%. Less than 4%, I would say.

I think right now we have a very clean portfolio on the corporate credit side of things, and we’ve taken a lot of actions, to clean it up.

Eric Zwick, Analyst, Lucid Capital Markets: Thanks, Matt. Then just, you know, the comments around volatility in the markets potentially creating opportunity. You certainly have ample liquidity today. Wondering if you could just, you know, frame for me how you view your pipeline today and where you’re seeing the best risk-adjusted opportunities for new investments?

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: On the pipeline, we continue to evaluate private credit opportunities, and we’re very selective and evaluate, you know, the deals where we have strong covenants alongside strategic partners where the incentives are aligned. You know, secondly, as I touched on for a minute in the, in the software space, we are underweight software in the space relative to other BDCs and the U.S. loan market in general. I think BDC’s exposure is well over 20%, according to Morgan Stanley Research, and the U.S. loan market is 16%. We are evaluating lots of opportunities in the private loan market, especially with the current volatility in the geopolitical events here. And we continue to be very focused and rigorously looking at downside protection across all industries in which we invest.

Not looking to catch any falling knives here, and weigh the opportunities as they come. This is obviously a dynamic market environment right now. We have ample liquidity to manage both our maturities and take advantage of any opportunities in names where we have, as Chris mentioned, durable edge in relationships with sponsors, management teams, et cetera.

Eric Zwick, Analyst, Lucid Capital Markets: Then is private credit where you’re seeing, where you’re seeing greater opportunities there relative to additional CLO investments or BSL investments?

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: We’ve evaluated many private credit opportunities over the course of the year. I would say that we are very selective in executing on them. You know, focused on the covenants, on both maintenance covenants from a financial perspective as well as, making sure the incentives are aligned. It changes over time for us as we look at the marketplace, and it shifts. Right now there’s a shift. I think we are very real time, you know, day by day, looking at where the public markets are as well as the private markets. You know, we have a very robust liquidity position in both cash, full access to our revolver and, kinda exchange traded assets.

Eric Zwick, Analyst, Lucid Capital Markets: Then just thinking about, you know, the stock repurchase authorization you have outstanding. You know, just how do you weigh the, you know, relative opportunities between in new investments for the portfolio versus buying back stock at this juncture?

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: It’s something that we constantly evaluate, and there’s lots of factors that go into that, based on both the portfolio opportunities in the market, you know, and discussions with the board. Lots of factors go into making that decision. We actively monitor the stock, our stock price as well as the opportunities set in the marketplace.

Jason Reese, Executive Chairman of the Board, Great Elm Capital Corporation: Matt, it’s Jason. Maybe I can jump in. Eric, as the board, we are looking at creating the best ways to create shareholder value. Right, we’re gonna constantly look at the stock price versus NAV and decide where we’re better off. Obviously, buying back stock is riskless as opposed to putting cash into a credit where there’s a level of risk. We’ll be looking at that daily and have the opportunity to create value.

Eric Zwick, Analyst, Lucid Capital Markets: Thanks. Just last one for me. I know in 2025, the contribution from the CLO investments was a little bit lumpy as that got ramped up. Are we at the point now where the contribution would be a little bit more even quarter to quarter, or is there still some variability expected as those cash flow payments come in?

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: I would say there is still some variability, as cash flow payments do come in, but I would expect it to be less lumpy than it was over the course of 2024 and 2025.

Eric Zwick, Analyst, Lucid Capital Markets: Thanks for taking my questions today.

Matt Kaplan, Chief Executive Officer, Great Elm Capital Corporation: Thank you.

Operator: As a reminder, if you’d like to ask a question, please press star one. Our next question is from Alan Demzer, private investor.

Alan Demzer, Private Investor: Yes. Hello. I just heard my question answered regarding stock buyback program that you announced, and I would just urge you to take a look at the economics of that you might find being more aggressive on this program behooves you. I urge you to, given the fact that you expect things to stabilize in the marketplace and NAV-wise to really go forward with a, you know, clear eye about the value that is inherent in buying back your stock. Thank you.

Jason Reese, Executive Chairman of the Board, Great Elm Capital Corporation: Alan, it’s Jason. I can promise you that the board is taking this very seriously and looking at this every day.

Alan Demzer, Private Investor: Thanks.

Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to Jason Reese, Executive Chairman, for closing remarks.

Jason Reese, Executive Chairman of the Board, Great Elm Capital Corporation: Thank you again for joining us today. We’re closing the period with a strong governance framework, enhanced oversight, and a portfolio that is meaningfully more resilient. Our priorities are clear: protect capital, generate sustainable NII, and methodically rebuild NAV over time through disciplined credit execution. The actions we’ve taken, waiving incentive fees, strengthening our credit leadership, enhancing board engagement, improving portfolio quality, and maintaining liquidity reflect a clear commitment to accountability and long-term value creation. We believe GECC is operating from a position of balance sheet strength with the flexibility and underwriting discipline required to navigate uncertainty and capitalize on attractive opportunities as they emerge. We appreciate your continued support and look forward to updating you on our progress next quarter. Thank you.

Operator: This concludes today’s conference. We thank you again for your participation. You may disconnect your lines at this time.