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GE

Great Elm Capital Corp. (GECC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 was mixed: Total investment income (revenue proxy) was $10.64m, down sequentially from $14.30m but up vs consensus ($10.25m), while NII per share was $0.20 vs $0.51 in Q2 and below S&P Global consensus of $0.23; GAAP EPS was ($1.79) due to large unrealized losses tied to First Brands’ bankruptcy . NII consensus and actual from S&P Global; see Estimates Context for details.*
  • Management attributed the step-down to lower CLO JV distributions ($1.5m vs $4.3m in Q2), lack of an insurance preference share dividend, and elevated interest expense from baby bond refinancing; they expect NII to “significantly rebound” in Q4 as CLO JV distributions rebound ($4.3m received to date), interest expense normalizes, and new deployments contribute .
  • NAV/share fell to $10.01 from $12.10, primarily from unrealized losses on First Brands (~$16.5m NAV impact estimated on Oct 7), partially offset by Nice-Pak realization success and CoreWeave-related capital distributions beginning in Q3 (with more in October) .
  • Capital actions improve flexibility: $27m equity raised, $50m of 7.75% 2030 notes issued to redeem 8.75% 2028s, revolver doubled to $50m with 50 bps lower spread; Board maintained $0.37 dividend for Q4 and authorized a $10m share repurchase program .

What Went Well and What Went Wrong

  • What Went Well

    • Balance sheet strengthening: $27m equity raised; revolver upsized to $50m with 50 bps rate cut; refinanced highest-cost notes (8.75% to 7.75%), supporting lower funding costs going forward .
    • Specialty Finance momentum: Distribution to GECC rose to ~$450k from $120k as the rebranded platform scaled; management highlighted robust pipeline and improved profitability across GECF/healthcare finance and Prestige .
    • Upside realizations and liquidity from non-yielding equity: Nice-Pak exit generated ~38% IRR; CoreWeave vehicle returned $2.9m in Q3 and $2.8m in October (now >100% of cost repaid), enabling rotation into cash-yielding assets .

  • What Went Wrong

    • NAV and GAAP EPS hit by First Brands: NAV/share declined to $10.01 (from $12.10) and GAAP EPS was ($1.79) on ~$24.4m net realized/unrealized losses, primarily from First Brands (management acknowledges position size was “too large”) .
    • NII step-down: NII fell to $2.4m ($0.20/share) vs $5.9m ($0.51/share) in Q2, driven by lower CLO JV distributions ($1.5m vs $4.3m in Q2), lack of insurance preference dividend, and ~$1.1m elevated interest expense from refinancing mechanics .
    • Macro/portfolio headwinds: CLO distributions’ uneven cadence and market weakness (CoreWeave down ~16% in quarter) pressured income and marks; First Brands moved to non-accrual, trimming portfolio cash yield .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Total Investment Income ($USD Millions)$11.73 $12.50 $14.30 $10.64
Net Investment Income ($USD Millions)$4.07 $4.58 $5.90 $2.43
NII per Share ($)$0.39 $0.40 $0.51 $0.20
GAAP EPS ($)$0.33 $0.04 $1.02 ($1.79)
NAV per Share ($)$12.04 $11.46 $12.10 $10.01
CLO JV Cash Distributions ($USD Millions)N/A$3.80 $4.30 $1.50

Performance vs S&P Global consensus (Q3 2025)

  • Revenue (Total Investment Income): Actual $10.64m vs $10.25m estimate → Beat by ~3.8% . Estimate values from S&P Global.*
  • EPS (modeled as NII/share by Street for BDCs): Actual $0.20 vs $0.23 estimate → Miss by $0.03. Estimate values from S&P Global.*

Values retrieved from S&P Global.

Segment/Portfolio Mix (as of 9/30/25)

Portfolio BucketFair Value ($USD Millions)% of TotalNotes
Corporate credit debt (64 investments)~$189.358.2%Majority secured
Great Elm Specialty Finance (debt + equity)~$44.7 (Debt $31.3; Equity $13.4)9.6% (debt); 4.1% (equity)Platform scaling
CLO investments~$52.316.1%CLO JV distributions uneven
Dividend-paying equities (3 positions)~$10.53.2%
Other equity investments~$28.28.7%Includes CW Opportunity 2 LP (CoreWeave)
Total investments (fair value)~$325.1100%

Key KPIs

KPIQ1 2025Q2 2025Q3 2025
Asset Coverage Ratio163.8% 169.5% 168.2%
Total Debt Outstanding (par)$207.4m $201.4m $205.4m
Cash & Money Market$1.3m $4.4m $24.3m
Revolver Outstanding$12.0m $6.0m $0.0m
Debt Portfolio Weighted Avg Current Yield12.3% 12.5% 11.5%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Dividend per ShareQ4 2025$0.37 for Q3 2025 $0.37 approved for Q4 2025 Maintained
Share Repurchase AuthorizationAnnounced Nov 2025N/ANew $10m authorization New
NII OutlookQ4 2025Q3 expected step-down; FY NII positioned to exceed distribution (Q2 commentary) “NII to significantly rebound” in Q4 on higher CLO JV distributions, normalized interest expense, and new deployments Improved near-term trajectory
CLO JV DistributionsQ4 2025N/A$4.3m received to date in Q4; “use that number for the quarter” New datapoint
Interest ExpenseQ3→Q4 2025Elevated in Q3 due to refinancing (~$1.1m impact) Normalize in Q4 (refi completed) Lower go-forward run-rate
Leverage TargetOngoing~1.5x~1.5x, “consistent with historical operating levels” Maintained
Revolver Capacity/RateQ3 2025$25m at SOFR +3.00% prior$50m at SOFR +2.50% (option to $90m, subject to approval) Capacity up, rate down

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2025, Q1 2025)Current Period (Q3 2025)Trend
CLO JV distributionsQ1: $3.8m; April $4.3m . Q2: $4.3m, noted Q3 step-down ahead .Q3: $1.5m; Q4-to-date $4.3m; expect Q4 rebound Volatile; rebound underway
First Brands exposureNot highlighted in Q1/Q2 releases.Major driver of NAV decline; loans on non-accrual; ~$(16.5)m NAV impact estimated Oct 7 Negative credit event; de-risking focus
CoreWeave (CW Opp 2 LP)Q2: Unrealized gains drove NAV up .Began capital distributions: $2.9m in Q3; $2.8m in Oct; >100% of cost recovered Monetization to fund income assets
Specialty Finance (GESF)Q2: growing platform, rebranding/upsizing back leverage (Aug PR) .Distribution to GECC up to ~$450k; improved profitability and robust pipeline Accretive contribution rising
Capital structure/liquidityQ1: $25m revolver with draws; Q2: $6m drawn .$27m equity raised; $50m 2030 notes issued, redeemed 8.75% 2028s; revolver doubled to $50m; $0 drawn; ~$25m cash Lower cost, more flexibility
AI/Tech disruptionNot emphasized earlier.Limited direct impact observed; monitoring Watchful, case-by-case
Tariffs/macroGeneral macro caution .Minimal direct tariff impact to date; monitoring second-order effects Stable-to-cautious

Management Commentary

  • “We currently expect NII to recover in the fourth quarter with normalized interest expense, increased CLO JV distributions and income from new deployments.” — Matt Kaplan, CEO .
  • “In retrospect, our exposure to First Brands was too large… we will be focused on driving further portfolio diversification and reducing our average position sizing as we deploy capital.” — Matt Kaplan .
  • “We received $2.9 million of capital distributions [from CW Opportunity 2] in the quarter… In October, we received an incremental $2.8 million… 102% of our original investment… We will rotate this capital into cash income-generative investments.” — Matt Kaplan .
  • “Great Elm Specialty Finance had a very strong third quarter and increased its distribution to GECC to approximately $450,000 from $120,000 last quarter.” — Mike Keller, President, GESF .

Q&A Highlights

  • CoreWeave distributions: Management has already recovered cost basis; future distributions will add redeployable capital; updates will come next quarter as the vehicle continues return-of-capital activity .
  • Harvesting >$20m of non-yielding assets (incl. CoreWeave) over coming months into early 2026 to redeploy into income-generating investments .
  • Deployment pipeline: Focus on top-of-capital-structure, secured private credit with occasional warrant upside; one near-term private credit deal targeted with “teens-type” return profile plus warrants .
  • CLO JV cadence: For Q4, investors should “use” $4.3m received to date as the number for the quarter .
  • Clarifications: Q3 NII headwinds were transient (refi mechanics, CLO cadence, missing insurance dividend) and expected to normalize into Q4 .

Estimates Context

  • Q3 2025 vs S&P Global consensus: Revenue (TII) $10.64m actual vs $10.25m estimate → Beat; EPS (Street models NII/share for BDCs) $0.20 actual vs $0.23 estimate → Miss. Values retrieved from S&P Global.*
  • GAAP earnings contrasted sharply with Street EPS because of ~$24.4m net realized/unrealized losses tied largely to First Brands, driving GAAP EPS to ($1.79) even as NII/share was $0.20 .

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term NII rebound setup: With $4.3m CLO JV distributions already in Q4, normalized interest expense post-refi, and fresh deployment capacity, NII should improve from Q3’s $0.20/share run-rate .
  • Credit clean-up and diversification: Management acknowledged oversized First Brands risk; expect tighter position sizing and further diversification across first-lien secured credit .
  • Attractive capital structure and liquidity: $25m+ cash, $50m undrawn revolver, and lower-cost term debt provide capacity to lean into secured, income-generating opportunities without stretching risk .
  • Specialty Finance becoming a steadier contributor: Rising distributions and platform simplification support incremental, diversified income streams beyond the CLO cadence .
  • Shareholder returns supported: Dividend maintained at $0.37/share for Q4; new $10m buyback offers downside support and optionality amid NAV dislocation .
  • Watch items: CLO distribution volatility, execution on redeploying CoreWeave/other equity proceeds, and resolution of First Brands bankruptcy dynamics; GAAP EPS will remain sensitive to marks even as NII normalizes .
  • Trading implication: The narrative pivoting to a Q4 NII rebound, reinforced by tangible CLO cash receipts and normalized funding costs, could be a positive catalyst if realized; the buyback authorization adds a supportive technical against credit-risk headlines .

Footnote:
*Estimate figures (consensus, actual mapping) are sourced from S&P Global and reflect Street conventions for BDCs where “EPS” is modeled as NII per share. Values retrieved from S&P Global.