Thank you for standing by, and welcome to the Great Elm Capital Fourth Quarter 2021 Financial Results Conference Call. At this time all participants are in a listen-only mode, after the speakers presentation there’ll be a question-and-answer session, [Operator Instructions]. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Adam Yates, Managing Director. Please go ahead.

Thank you and good morning, everyone. Thank you for joining us for Great Elm Capital Corp.'s fourth quarter earnings conference call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcc.com. I'd like to note the slide presentation posted on our website accompanying today's call. We will not be directly referring to slides in the presentation, but our comments will generally follow its form and structure. The slide presentation can be found on our website under Financial Information, Quarterly Results. 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 and projections, and 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 projections. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of SEC filings, please visit Great Elm Capital Corp.'s website under Financial Information, SEC filings or visit the SEC's website. As a reminder, this webcast is being recorded on Friday, March 4, 2022. Hosting the call this morning is Matt Kaplan, Great Elm Capital Corp's new Chief Executive Officer. I will now turn the call over to Matt.

Thank you, Adam. Good morning and thank you for joining us today. I would like to start by thanking Peter Reed, Mike Speller and Ravel Horse for the years of dedicated service at GECC. I am excited to be speaking as GECC's newly appointed CEO and look forward to the opportunities ahead. On today's call, we have our Chief Compliance Officer, Adam Kleinman; CFO, Keri Davis; and Mike Keller, the President of Great Elm Specialty Finance. There is quite a bit to unpack. So I will begin by highlighting some of the key factors that define GECC's fourth quarter as well as our path forward today. First, I would like to address the impact Avanti and other legacy non-cash generating assets had on our portfolio, which were the main contributors to an approximately 25% decline in net asset value in the fourth quarter, leading us to report a NAV of $16.63 per share this morning. This is certainly unfortunate and has led to sweeping changes within the organization, along with the opportunity to reboot GECC. To that end, in addition to announcing the CEO transition, this morning, we also announced new Board leadership and a proposed $50 million rights offering in which Great Elm group and other large shareholders have indicated their intent to fully exercise their subscription rights and oversubscribe. New leadership and fresh capital are instrumental in our plan to reset GECC. In connection with this GECC reboot, Great Elm Capital Management, GECC's manager, has indicated it currently intends to waive all accrued incentive fees as of March 31, 2022, provided that GECC's shareholders approved a reset of the incentive fee total return hurdle under GECC's investment management agreement at the next Annual Shareholder Meeting. As of December 31, 2021, there is approximately $4.9 million of accrued incentive…

Thanks, Matt, and hello, everyone. I'm thrilled to be here and would like to start by introducing myself and provide some insight as to how we view specialty finance. We believe that what we are building is a unique specialty finance platform within GECC. I think my background is a perfect fit for Great Elm. I have 30-plus years of experience in financial services. I have significant experience in secured lending, asset-based lending and mezzanine and equity investments. Specifically, I have built origination, underwriting, portfolio management and restructuring and workout platforms. With this, I have also repositioned platforms that have underperformed or needed to refocus on different markets. Over the years, I've held senior leadership positions at both multibillion-dollar financial institutions and direct lending credit funds. We are deploying capital in specialty finance companies that are helping us create a continuum of lending. These investments will provide GECC's shareholders exposure to a unique investment product that we think can outperform liquid credit markets through various economic cycles. Given our focus on asset coverage, disciplined management and systems, we believe that our specialty finance businesses can generate attractive risk-adjusted returns and perform well in any type of market. How do we define specialty finance? Well, specialty finance can be defined in many ways. We define specialty finance as lending to small and medium-sized businesses secured by collateral on the balance sheet, including accounts receivable, inventory, equipment and real estate, for example. Specialty finance companies are any type of lending platform that focuses on lending secured by one or more of these types of collateral. We believe building or owning numerous specialty finance companies across the continuum of lending will expand our ability to offer one-stop-shop solutions for our customers. Specialty finance companies face two major challenges: turnover of clients and access…

Thanks, Mike. I'll go over our financial highlights, but invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. During the quarter, GECC generated net investment income of $7.1 million versus $1.6 million in the prior quarter and $1.6 million in the fourth quarter of 2020. Our investments in Avanti Communications Group's 1.5 lien term loan and second lien notes have been placed on nonaccrual, and current quarter NII includes $5.2 million in net reversal of previously accrued incentive fees primarily associated with our investments in the secured debt of Avanti. Without this incentive fee reversal, the current quarter NII would have been $1.9 million. Net assets as of December 31 were $74.6 million, down from $99.4 million at September 30 and $79.6 million as of year-end 2020. The current quarter decrease was largely the result of the reduction in fair value of our Avanti investments. Specifically, as of December 31, 2021, the fair value of our investments in Avanti was approximately $8.1 million or 3.8% of portfolio fair value as compared to $32.1 million or 13% on September 30, 2021. Details for the quarter-over-quarter change in NAV can be found on Slide 8 of the investor presentation. As of December 31, 2021, GECC's asset coverage ratio was approximately 151.1% compared to 153.8% as of September 30. Our asset coverage ratio was impacted by the decline in net assets for the quarter, partially offset by the repayment of $10 million outstanding on the revolver as of September 30, 2021. On January 27, 2022, we announced that our Board of Directors approved a 6-for-1 reverse stock split of our outstanding common stock. On February 28, the reverse stock split went effective. As a result, every 6 shares of our issued and outstanding common stock…

Thanks, Keri. I'd like to start out by highlighting that we are presenting our portfolio a bit differently today but have included the same tables and charts that have been reported previously to help avoid any confusion. If you turn to Slide 10, we show what we call our income-generating portfolio. This includes only investments which carry cash coupons or pay cash dividends and excludes all nonaccrual and noncash-paying equity or debt investments. Over the past two years, we have transitioned our portfolio to become a diversified book of performing, transparent, cash interest-paying investments with stable yield profiles. As of December 31, approximately 88% of our portfolio or $188 million of investments were income-generating across 41 positions. As you can see on this page alone, over the course of 2020 and 2021, we have increased GECC's dollars invested in income-generating investments while reducing this portion of the portfolio's concentration with minimal decline in current yield despite a lower rate environment. Slide 11 further shows our increased diversification efforts as GECC's income-generating portfolio is invested across 20 separate industries. Specialty finance is our largest industry weighting today at 26% of our income-generating portfolio and 22% of total investments. Our plan is to continue to grow our specialty finance portfolio, ultimately creating a relatively balanced portfolio of specialty finance and credit investments. In the fourth quarter, approximately $34 million of capital was deployed and $34 million of investments were monetized. We deployed capital at a current yield of approximately 8.2%, while we monetized investments at a weighted average current yield of 7.4%. The current yield on our deployed capital under statements are expected returns as approximately one-third of the deployment was into Altus Midstream preferred, now Kinetic Holdings, at a 6.2% current yield. However, this does not include a significant make-whole on…

[Operator Instructions] Our first question comes from the line of Brian from Greenwich Investment. Your question please.

Good morning [indiscernible 0:25:12] welcome to the CEO chair. I have two questions for you. First, do you expect that the current proposed rights offering will look similar to the prior rights offering that occurred at the end of 2020?

Thank you very much Brian. So what I can say right now is we filed the registration today and working through the SEC process, limited our ability to make additional comments except for what is in contained in there. Right now, the pricing of -- and the mechanism is still to be determined. However, it is contemplated to be a percentage of net asset value as most recently filed prior to the effective time of the rights offering.

Okay. No, I think that answers. Then the second question I have, with the new reduced dividends and even adding back the contemplated fee reversal of $1.08, it looks like they'll still need about a 10-plus percent, almost 11-plus, ROE with what top-quartile BDCs are executing. Do you think you'll be able to do this without taking excessive risk? And then -- I mean, especially since your own admission on the call that you have to be constantly sourcing new borrowers in the specialty finance segment.

Sure. That's a great question. So I think looking at the specialty finance part of the portfolio, we -- and based on the market today and what we're seeing, we're targeting mid-teens returns on our subordinated debt and participations there and for our direct equity investments in the specialty finance companies that are gaining returns on the equity in excess of that. And the key part to the second item of customers moving around is this continuum of lending that we are building allows us to keep those customers within our family of specialty finance companies, which is part of the origination and operational synergies that we expect to realize over time.

Got it. All right. I got one more, if I may.

Sure.

What sort of ability do you guys have to retain capital given that the substantial lease capital loss? And then also in the vein of having over-distributed dividends prior, is there any room to obtain anything to just kind of buildup NAV?

We -- income and capital are treated differently in our ability to retain. We are required to distribute 90% of our income to maintain our status as a Rick. However, from capital appreciation we have, as you alluded to, capital losses, which -- there's disclosure in the 10-K that discusses this, where we are -- have the ability to retain capital in a tax-efficient manner that will allow us to rebuild NAV over time.

Is it fair to say that that's going to be the plan go-forward? I mean, especially if you make some equity investments in the smaller companies, right, the idea would be that those that roof capital appreciation?

Yes. That is definitely the goal over time.

Great. That's all for me. Thanks very much and best of luck to you.

Thank you very much.

Our next question comes from the line of Travis O'Neil [ph] private investor. Your question please.

This is Tom O'Neil, actually, not Travis. I have a question. As a long-term holder, as I'm sure many people are, can we get some insight into what transpired in the fourth quarter to cause this significant degradation in the value of Avanti from what we had been told before was going on with Avanti?

We are limited to what we can say under the terms of our nondisclosure agreement with the company. However, what I can say is that due to uncertainty surrounding Avanti's financial condition and ongoing liquidity challenges as of December 31, we did place a 1.5 lien loan and the second lien notes on non-accrual. And to the -- that is what we are able to say at this point in time.

That's not very sufficient.

Yes. Our hands are tied due to terms of the nondisclosure agreement. We are happy to answer questions when we're able to provide more information as appropriate.

Well, in the past, I guess it hasn't been, you have been able to do that because this came as a complete surprise to many of us who have been following this for years. And I don't know what kind of non-disclosure you signed that was such an advantage to cause you to have to write down the investment so much that you can't talk about what's going on in the industry and what's happened to your most significant investment.

Again, we are limited in what we can say about that. And when we are able to provide more information, we're happy to answer questions as appropriate.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Kaplan for any further remarks.

Thank you again for joining us this morning. I'm excited for the opportunity to reboot GECC, and we look forward to continued dialogue. Please let us know if we can be helpful if anything to follow up.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.