Ladies and gentlemen, thank you for standing by, and welcome to the Great Elm Capital Corp. Third Quarter 2019 Financial Results Conference Call. [Operator Instructions]. I will now like to hand the conference over to your speaker today, Adam Yates. Thank you. Please go ahead, sir.

Thank you, Lisa, and good morning, everyone. Thank you for joining us for Great Elm Capital Corp.'s Third Quarter 2019 Earnings Conference Call. As a reminder, this webcast is being recorded on Thursday, November 14, 2019. If you'd 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. The slide presentation accompanying this morning's conference call and webcast 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 link to the webcast. I'd 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 the SEC filings, please visit Great Elm Capital Corp.'s website under Financial Information, SEC filings or visit the SEC's website. Hosting the call this morning is Peter Reed, Great Elm Capital Corp.'s President and Chief Executive Officer. I will now turn the call over to Peter.

Thank you, Adam. Good morning, and thank you for joining us today. I'm joined this morning by our COO, Adam Kleinman; Portfolio Manager, Adam Yates; and our CFO, Keri Davis. Where relevant in our prepared remarks, we will point you to the corresponding slide number in the deck that Adam referenced, which is available on our website as well as through the webcast. Please turn to Slide 3 for an overview of GECC. GECC is an externally managed special situations-focused BDC. GECC seeks to generate both current income and capital appreciation from its portfolio of investments comprised primarily of secured loans, secured bonds and specialty finance investments. As of September 30, 2019, GECC had total assets of approximately $298.2 million; a portfolio fair value of $194.8 million; and a net asset value of $91.5 million, equating to $9.09 per share. The weighted average current yield on our debt holdings was approximately 11%. GECC paid an $0.083 per share monthly base distribution that equates to approximately $1 per share on an annual basis. Importantly, greater than 20% of GECC shares are held by employees and affiliates of Great Elm Capital Management Inc., GECC's investment manager, creating very clear alignment of interest between management and our shareholders. Let's turn to Slide 4 to go over a few highlights and recent achievements. I'm pleased to report that GECC's net investment income has covered its declared distributions every quarter since inception in 2016. Over the trailing 12 months, GECC has paid $1.24 in total distributions, consisting of a $0.083 monthly based distribution and a $0.24 special distribution. Based upon September 30 NAV and closing market price, that total distribution equates to an annual distribution yield of 13.6% and 15.1%, respectively. During the quarter, we deployed capital at a weighted average price of 97% of…

[Operator Instructions]. Your first question comes from the line of Mickey Schleien with Ladenburg. .

I wanted to follow-up on your comments about the unrealized depreciation this quarter being driven by volatility in the loan markets. And clearly, I agree, there's been a great deal of volatility, some of that being driven by outflows due to lower LIBOR, but also, deterioration in credit with the rating agencies lowering the ratings on many borrowers as a result of business models that may not be working. And also, there's a bifurcation in the market where folks are rewarding good businesses with good credit and not so much for others. So my question is, in this sort of environment, obviously, it's having an impact on your NAV, but I presume that's also providing you with some opportunities. And I'd like to understand where your focus is in terms of that opportunities? And also, how do you see this volatility playing out over the next few quarters? And how are you positioning yourself ahead of that?

Mickey, thanks for your questions. A lot of good insight in there per usual. I'll take that -- the last part first. The upside of the enhanced market volatility is that our deployment environment at the margin is definitely better than it has been. It's definitely slightly easier to put money out at slightly higher returns and where we think we're not taking a significant amount of -- or an increased amount of corporate credit risk. As far as parsing the different pieces of market volatility, it's a little bit hard to unpack. But when I look at our portfolio, I would say, generally, companies that performed well in the quarter still frequently were marked lower and companies whose performance was more mediocre are also marked lower, but at a higher magnitude. So that's what we're observing with respect to our portfolio. And then it's even in positions that don't have market prices, but where we, as an independent valuation firm, do full valuations. Those filter through as well with wider spreads in the marketplace, increasing discount rates applied to positions that are being fair valued, that don't have market prices, and that also has a depressing effect. So we've observed it on a broad basis across the portfolio, not every position had it, but a lot of them did and the ones -- and that seemed to be somewhat irrespective of underlying company performance.

Okay. I understand that. That's certainly consistent with what I'm hearing. And just if I could follow-up, sort of, every quarter, we're going to ask about Avanti, and now that it's not listed, I guess, there's going to be less flow of information. But going into the year, there was expectation that recapitalization of that company would provide a pathway toward improved financial performance to the extent that you can, can you give us an update on how that business is progressing?

Sure. And so a good point, the company did delist during the most recent calendar quarter; however, its bonds are listed on the Irish Stock Exchange and there are reporting obligations that go along with that. So the company's public disclosures are not going away entirely. There will still be availability out there of information describing its financial performance would be one. Two, despite the unrealized loss that we took on the two positions in the quarter, the company's performance is trending very much in the right direction and very much consistent with the public guidance that the company had put up before it delisted. And to summarize that, what I would say is, the company has guided to its key revenue category core bandwidth having very substantial growth year-over-year, we are observing that today. The company had embarked upon an ambitious cost-cutting plan at the beginning of the year, it's ahead of plan. The results of that are that the company expects to be EBITDA positive in the fourth quarter of this year, fourth calendar quarter, and that remains our belief from what we're observing out of the company on a regular basis. As the company has long duration recurring revenue contracts, presuming that we are -- and the company are correct about the trajectory of its financial performance, the next quarter on an annualized basis should be substantially better than this quarter because of -- its hit a meaningful inflection point in the fourth quarter as far as profitability goes.

Okay, that's helpful. Just one follow-up to that. To what extent does Avanti rely on customers who are transmitting television signals? The reason that I ask is that there's an argument that with 5G in cellular and other technologies developing, fate -- the outlook for satellite TV seems pretty meager. Is that a meaningful risk factor for Avanti?

Good observation, Avanti had zero business in the television side of the satellite business. It's all communications driven.

[Operator Instructions]. Your next question comes from the line of Tony Holcombe [ph] with Arlington Management.

Good morning. I also have a question regarding the investment in Avanti, the second lien bonds and the common equity. First, the second lien bonds traded right before quarter end in the 20s. Now shareholders are being charged a fee on this mark. Can you help me understand your valuation at 69% of par, approximately? And then also, would you be able to get that in the open market if you were to sell those bonds today?

Sure. Thanks, Tony. So the way that our valuation policy works is that it has -- it's sort of a waterfall. And all of our positions, the way that it goes through is, we have an independent valuation firm looking at the market activity. And in some cases, lack of activity. That firm determined that the market activity in the quarter was not sufficient to solely rely on the market price for determining the valuation. So consistent with what it's been doing for most of this year is it's been doing what's called a full valuation. In that full valuation, this independent valuation firm receives information from us that we get from Avanti as a result of being on the company's Board of Directors. I can tell you that, that market activity is incorporated into their full valuation, but it incorporates a variety of factors and that is one of those. And that activity did play a part in the unrealized loss that we incurred in this quarter.

Okay. And then how -- so if you were to sell those today, you're feeling like you would be able to get $0.69, despite the open market transactions that have taken place?

No. Sorry, that's -- I'm not saying that. I'm saying that the fair value of the investment, as determined by an independent firm was determined to be $0.69. I think it's also worth looking one of the other significant bondholders is also a BDC. I believe they also have the position valued by an independent valuation firm, and their mark is the same as ours this quarter or very close.

Right. Yes, it's close. BlackRock has it marked a little bit lower. But okay, I guess that's all right. Then second question on the common stock, we did note that it was delisted at the end of September. The last day it was trading on AIM, it was a fraction of a pence, which I suppose translates into a lesser fraction of $0.01, but your valuation appears to be slightly more than $0.01. So again, I mean, as investors are being charged on this mark, how did you arrive at the common stock valuation?

So same process as the bond we have, it's valued by an independent firm. The trading price of the equity prior to its delisting was a significant input in that valuation, but wasn't all of the input for that. So just like with the second lien bond, the valuation firm has access to information that we're providing it from the company that is not available in the public domain. And that -- they go through a variety of methodologies and come up with a weighted average of those methodologies to arrive at the valuation of that investment.

Okay. Well, just kind of a final note or final question. Shareholders before, let's say, I mean, I guess last 2 years have been getting ordinary income in the form of dividends and principal losses, so I mean if the Avanti does manage to pay off at our call, we would really be just getting money back that we've already paid out as dividend. The bond protections, looking at the documents, are pretty weak. It does not look like there's really any sort of mechanism for default, unless there is no payment, which does not -- which won't happen as long as they can pay PIK. So is there any visibility you can give us on a potential exit of this investment because it really seems to be the cloud over the stock that's holding it back. And frankly, I mean, what's holding back your otherwise decent trading and special situation results?

So understanding Avanti and the position and its sizing are -- is the topic we talk about with investors most often. With respect to the bond, that's the result of a heavily negotiated out of bankruptcy court restructuring that we participated in, along with a few other key investors. In connection with that, we and other significant creditors effectively took over control of the company. And so as a result of that some of the things that I think you're talking about were less important to us as bondholders than they would be if the bondholders didn't end up owning the company, if that makes sense. Now to be fair, it's a secured piece of credit with a pretty rich collateral package that we can -- have thought and continue to think is sort of underappreciated by the marketplace. But nevertheless, we feel comfortable with the creditor protections. In many ways, they are more robust than is what's available out there in the broadly syndicated markets. But the primary way that I think all of the former creditors, most of whom are significant shareholders now will engineer and exit is through effective control of the company's Board of Directors by virtue of being large shareholders. So I do think that there is likely to be strategic interest in this company. I think that the company continuing to perform well, makes it more likely that there's an exit that we would find appealing. So the company is continuing to trend in the right direction fundamentally. We think its assets are pretty valuable, in particular, to other satellite operators. And hopefully, those converge upon and exited valuation that we like.

I am showing no further questions at this time. I would now like to turn the conference back to Mr. Adam Yates.

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.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.