Ladies and gentlemen, thank you for standing by and welcome to the Great Elm Capital Corporation Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your representative of the company. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for Great Elm BDC's third quarter earnings conference call. If you would like to be added to our distribution list you can e-mail investorrelations@greatelmcapital -- excuse me -- investorrelations@greatelmcap.com, or you can sign up for alerts directly on our website at greatelmcc.com. In addition to our comments for today's call, we will be utilizing investor presentation as an accompaniment. While we will not be referring directly to the slides, our comments today will generally follow the form and structure of the presentation. The slide presentation accompanying this morning's call can be found on our website under Financial Information Quarterly Results. On the website you can also find a copy of our earnings release, Form 10-Q and a link to the webcast. I would now 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 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. Hosting this call this morning is Peter Reed, Great Elm Capital Corp.'s President and Chief Executive Officer. As a reminder this webcast is being recorded on Monday November 9, 2020. With that, I'd now like to turn the call over to Peter. Please go ahead Peter.

Thank you, Adam. Good morning and thank you for joining us today. On today's call we have our COO, Adam Kleinman; and our CFO, Keri Davis. I'll begin with an overview of Great Elm Capital Corp.'s investment performance during the quarter discuss the results and improving financial status of our company, following the recently completed rights offering, Keri will discuss our capital position in greater detail, and then I'll return for closing remarks. We are very pleased to report a third quarter that exceeded our expectations in terms of profitability, the overall performance of our portfolio and our ability to recapitalize the company through a rights offering. This leaves us with the ability to take advantage of investment opportunities particularly in specialty finance. We grew NAV per share, continue to pay out regular dividend and believe that the company is well-positioned to continue returning capital to our shareholders in an effective manner. I'll begin today's call with a basic overview of Great Elm Capital Corp. and outline our strategy and milestones to date. GECC is an externally managed total return focused BDC. We seek to generate both current income and capital appreciation from our portfolio of investments comprised primarily of secured loans, secured bonds and specialty finance investments. Our quarter ended September 30, 2020 improved considerably quarter-over-quarter. In several instances, we will outline where the financial standing of the company is as of September 30 2020, but I'll also discuss certain metrics on a pro forma basis in relation to our completed rights offering, which closed on October 1, 2020. As of September 30, 2020, GECC had total assets of approximately $265 million, a portfolio fair value of approximately $170 million and a net asset value of $60.5 million equating to $5.53 per share. All of these totals represent a…

Thank you, Pete. I'll provide a basic overview of the Great Elm's BDC portfolio and investment activity during the period. Our September 30 portfolio contains 42 investments, 34 of which are debt and eight of which are equity. The 34 debt investments accounted for $136 million, or approximately 80% of fair value and the eight equity investments accounted for approximately $33 million of fair value. The weighted average current yield on our debt investments was 10.1%, while the weighted average current yield of our income-generating equity investments in Prestige and Houston-based Crestwood Equity Partners is approximately 17.3%. We certainly intend to grow the equity portion of our portfolio, as we target income-generating specialty finance investments and expand and diversify our holdings. Of the $136 million of debt holdings, roughly $81 million was invested in floating rate debt with a weighted average current yield of 7.7%. Roughly $55 million is invested in fixed rate debt, with a weighted average current yield of 13.8%. Our portfolio is currently heavily weighted in the wireless telecommunications services business due to our largest holding Avanti. However, as we grow our investments in the specialty finance space and further diversify our holdings, we expect the portfolio to generally be less concentrated, with some additional focus in the specialty finance sector. We began to see evidence of this shift throughout 2020 and into Q3, as Prestige grew due to performance. Our investment performance was solid during the third quarter. We have been able to successfully find compelling debt investment opportunities at prices below par in each of the last five quarters, with this past quarter's weighted average price of new debt investments at a recent low. This past quarter, we were able to deploy capital at a weighted average price of 91% of par and monetized investments…

Thanks Keri. Before I conclude, we wanted to discuss our dividend. For nearly four years Great Elm Capital Corp has paid a regular monthly dividend of $0.083 per share. In August 2020, our Board sent monthly distributions of $0.083 per share for the fourth quarter of 2020 through the month ending December 31 2020. The distributions have or will be paid in cash or shares of our common stock at the election of shareholders although the total amount of cash to be distributed to all shareholders will be limited to approximately 10% of total distributions to be paid to all shareholders. The remainder of the distributions will be paid in the form of shares of our common stock. Now today along with our earnings release we also issued updated dividend information for shareholders for the first quarter of 2021. Our Board declared a change to a quarterly dividend distribution all in cash of $0.10 per share. We made the decision based on both the capital needs of the company, but also to provide shareholders with a 4x increase in their cash dividend. On an annualized basis this currently represents a 9.6% yield on NAV, based on NAV of $90.8 million or $4.18 per share after giving effect to the rights offering and a 15.4% yield on Friday's closing price of $2.60 per share. We feel very comfortable with our current financial position. And as we evaluated our capital position and performance we also balance investment opportunities in the current market along with our ability to provide flexibility to grow the dividend in the future. To conclude our core business is and always has been to deliver consistent and attractive investment returns in the form of distributions and NAV increases. After the repositioning of our portfolio in the second quarter, we began a trajectory in the right direction delivering on both of those goals. We took great care in determining a strategy for enhancing capital and feel that the rights offering we concluded ultimately succeeded in positioning Great Elm Capital Corp. appropriately while doing so without unnecessary detriment to shareholders. Overall, we feel good about where our portfolio sits in the current market environment heading into 2021. More importantly we feel that we have the capacity to allow the company to grow and take advantage of opportunities presented to us. With that we will turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Josh Horowitz with Palm Global.

Hi, Peter.

Good morning Josh.

Good morning. I agree that the reconfiguration of the dividend is the right move. So maybe as a backdrop to that you could give us a better sense of what the company's investment capacity is for growth given the rights offering and the reconfiguration there of the dividend?

Sure. Good question. So a bit over 30 days after the receipt of proceeds from the rights offering, we have been deploying those but still have proceeds to deploy. I do think that the increase in equity capital creates leverage capacity to the extent that we're successful in deploying these proceeds down the road. So I think that, this rights offering both gave us liquidity to execute on a pipeline that we believe is attractive, and to the extent that we do that, and have incremental pipeline opportunities, there'd be incremental debt capacity beyond that. That would be a prudent way to fill out the right side of our balance sheet and continue to execute on attractive opportunities should those be present at that time.

Thank you.

[Operator Instructions] Our next question comes from the line of Mickey Schleien with Ladenburg.

Yes. Good morning, everyone. Peter, I want to ask about the receivable investments you've made at Prestige. What is the nature of those investments? In other words, are you investing in pools of receivables? Are those single receivables, or are you making some sort of balance sheet investment in Prestige?

Very good question or questions Mickey. So what we are doing in those are we are participating in particular transactions, factoring transactions with Prestige, those transactions are with distinct clients and those clients can have a whole host of underlying account debtors and that's really the credit risk that Prestige is taking. In these three transactions that we participated in those happened to be unusual and/or large transactions with single account debtors and those account debtors were very high-quality credit risk. So CDS on two of them, and a government agency on the third. So we were participating in the economics of those transactions and receiving 6% to 13% rate and believe that we are taking very low fundamental credit risk.

And Peter, what sort of duration do those assets typically have?

Excellent question. I would say, an expectation of up to a year given the nature of these we've already been paid off on those – it's possible that we refund under certain of those transactions depending upon the underlying client funding needs.

Okay. And just to make sure I understand your – you would be at the top of the capital stack at that creditor right given that you've financed AR?

Yeah. I think a better way to think about it is we purchased – we've participated in a transaction that buys the receivables from the underlying account debtor. So in two of those examples CDS and one of them a government agency. So that's the credit risk that we're taking, and then also would have – to the extent there's a deficiency, may have a claim back to the underlying client depending upon the deal. But we believe the credit risk that we're taking is very high quality, because of who those account debtors are.

Okay. And the dividend from Prestige climbed pretty meaningfully quarter-to-quarter and your ROE on that investment is now at levels that we would like to see more frequently, almost anywhere. My question is, was there some sort of timing issue in terms of the distribution? Was there a catch-up, or can we legitimately expect this sort of dividend on a consistent basis?

Very good question. So believe it or not, we left capital in the business. So Prestige only distributed out a portion of the income that it generated in the quarter. So there was no timing – there's no timing benefit. We didn't happen to get two dividends that fell into one quarter. That is a legitimate representation of a portion of the earnings that Prestige had in the quarter. So it's – the company has been hugely profitable this year. We're thrilled with it. I don't know – to be determined whether or not we can take this quarter and annualize it. We do think that prestige is likely to be performing meaningfully better than we thought when we underwrote the transaction and that's been pretty consistently true. I think that, it's the nature of just how good this quarter was. Again, they only distributed a portion of what they made to us about half. So while our dividend received was really good the underlying earnings were even better. I don't know that, we can plan on just annualizing that quarter of earnings at Prestige, but we're really thrilled with the trajectory and are looking to expand upon that.

And Peter to what extent is that performance being driven by the pandemic? In other words, I mean it's a factoring business. It almost feels like perhaps it's countercyclical and is benefiting from the headwinds in the economy and we don't know what next year is going to look like, but is that a fair statement?

I think in their particular case, there's been enough marketplace dislocation as a result of the pandemic that their ability to respond very quickly to clients who can't access bank capital in short order, but have creditworthy AR has been a huge asset of theirs and we and our shareholders have been the beneficiary of that. I don't know that you can say one-for-one, it's definitely countercyclical. But their ability to be nimble has been a huge asset in an uncertain time and we expect that part to continue.

Yes, that makes sense. And is there balance sheet to the extent you can tell us, is it highly levered? I mean, when you see ROEs of 25% and 50%, you start to wonder about how fragile the balance sheet is?

We don't consider it highly leveraged. They do employ leverage. We disclose Prestige's results I think or balance sheet annually in connection with our audit. One of the things to think about is Prestige's funding call it and most factors I think are spot factors of funding call it $0.75 to $0.85 upfront and the remainder is a -- is effectively a payable owed to the customer that's a non-interest-bearing payable. So that factors in that provides some natural, I'll call it non-financial leverage. But it is a really attractive model and we feel like it is appropriately leveraged and they have lots of availability and lots of room underneath their covenants.

I understand. Switching gears Peter. Information around Avanti is very scarce. You normally give us an update. I don't think -- I think in your prepared comments there was a brief discussion of Avanti. Can you give us some sort of financial update on how the company is doing?

I can provide it in generality. I understand that it's difficult to get to. But the company continues to grow revenue and EBITDA and unleveraged free cash flow. And we are pleased with that progress. We expect them to continue upon that trajectory and are hopeful that the continuation of that trajectory leads to a good result for our investment in the company and ultimately a successful exit for our investment in the company.

Okay. CPK California Pizza, I think is expected to emerge from bankruptcy. Can you give us a sense of what your investment in CPK will look like post bankruptcy?

Sure. So we participated in a debtor-in-possession facility that will flip to an exit term loan upon exit, which as you mentioned is scheduled to happen soon. On account of our first lien investment, we will get back a piece of debt as well as a piece of equity. Our class that first lien class will own a huge majority of the equity in the company. And then our second lien position will receive a small amount of cash and a small equity interest in the company.

Okay. And I noticed interesting, your best western position is now valued at twice your cost, but it's still a non-accrual, which is an unusual circumstance. Can you just explain how that can be? And what the prospect is for that company?

Sure. So that's a legacy investment from when we took over Luling Lodging, there was a hotel in Texas that was the collateral, that loan was performing poorly. When we merged with Full Circle we foreclosed upon the loan and sold that and that reduced the cost in the position. We are owed quite a bit more than the stated principal amount based upon accrued interest and fees, et cetera. We have a borrower who is -- we believe has substantial financial assets, but has declined to perform under his personal guarantee. We have sued him in court, we've won a judgment and we are continuing to try to pursue the personal guarantee from someone who we believe has a lot of assets, but has been sort of constitutionally opposed to paying and we're pursuing our remedies through the court.

All right. And sounds difficult. And just a couple more and I appreciate your patience. Are there any new themes you're adhering to in terms of portfolio management, now that we know there's going to be a new President, and he's going to have different policies than the previous administration. I'm thinking of things such as health care or maybe alternative energy. Is that impacting how you're selecting credit?

At the moment, it's not meaningfully impacting how we're selecting credit, but it's something that we'll be observing closely as it may create both challenges and opportunities. Generally speaking, we are trying to have a more diversified portfolio going forward, but for a bigger investment in the specialty finance space. We think that we've got opportunities to create more Prestige like transactions that have been financially very rewarding and where we think we're not taking a ton of underlying credit risk. And so we'd like to be -- we'd like to have more of those. So I think that that will be a bigger piece of our portfolio going forward. Generally speaking, we aim to have a more diversified portfolio.

Okay. My last question is just can you update us on the status of your taxable income?

We are still completing that analysis at the moment. So, I don't have a great answer for that, but I'm happy to follow up offline, when we have it.

Okay. All right. That's fine. That's it for me. Thank you for your time and your patience.

Thanks Mickey.

Thank you. With that, I'd like to send it back to management for closing remarks.

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

Thank you, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Presenters please remain online.