Great Elm Capital Corp. 7.75% Notes Due 2030

What they do

GECC invests in secured and senior secured debt instruments of middle market companies with enterprise values between $100 million and $2 billion, plus subordinated debt, mezzanine debt, and equity or equity-linked securities. It also invests in CLO securities and related warehouse facilities through its 71.25%-owned joint venture, CLO Formation JV, LLC. It owns approximately 87.5% of Great Elm Specialty Finance, LLC (GESF), which provides factoring, asset-based and asset-backed lending, lender finance, and equipment financing. The company is externally managed by Great Elm Capital Management, LLC (GECM) under an investment management and administration agreement.

Revenue drivers

• Debt investment interest income — Primary revenue source: interest on secured and senior secured debt investments, which generally pay quarterly or semi-annually and may include prepayment, commitment, origination, and exit fees.
• CLO Formation JV — 71.25%-owned JV holding subordinated note securities in CLOs (CLO equity) and CLO warehouses; described in the 10-K as representing greater than 5% of portfolio fair market value at December 31, 2025.
• Great Elm Specialty Finance, LLC (GESF) — 87.5%-owned specialty finance company providing factoring, asset-based/asset-backed lending, lender finance, and equipment financing; described in the 10-K as representing greater than 5% of portfolio fair market value.
• Income-generating equity and preference shares — Equity and equity-linked investments, including insurance-related preference shares that produced a $2.0 million dividend in 2Q26.

Recent performance

For the quarter ended June 30, 2026, total investment income was $10.9 million versus $9.5 million for the quarter ended March 31, 2026. Net investment income was $4.5 million, or $0.32 per share, compared with $5.0 million, or $0.36 per share, in the prior quarter. NAV was $7.95 per share at June 30, 2026, up approximately 3% quarter-over-quarter, and the company reported approximately $1.9 million of net realized and unrealized investment gains in 2Q26. Full-year 2025 net income was negative $31.8 million with diluted EPS of negative $2.57, following 2024 net income of $3.6 million.

Strategy

Management said it completed several private credit investments during 2Q26, selectively expanded the broadly syndicated portfolio, and continued to actively manage portfolio risk, with less than 1% of investments on nonaccrual at quarter end. The company called all remaining $18.6 million of GECCO notes due June 2026 and extended its revolving credit facility maturity from 2027 to 2029, leaving no debt maturity until 2029. In July 2026 it called $6.5 million of GECCI notes due April 2029, which it described as its highest cost debt. The investment adviser waived all accrued incentive fees for the quarter ended June 30, 2026 ($0.9 million, or $0.06 per share) in addition to previously waiving all $2.8 million, or $0.20 per share, of accrued incentive fees through March 31, 2026. From January 1, 2026 through August 4, 2026, the company repurchased approximately 0.1 million shares for $0.5 million at an average price of $4.98, leaving approximately $9.5 million of capacity under its $10 million repurchase program.

Risks

• Portfolio credit losses — Volatile earnings history reflects the risk of realized and unrealized losses on middle-market debt and equity investments, including 2025 net loss of $31.8 million.
• Leverage and debt maturity — The company carries total liabilities of $169.6 million against $110.4 million of equity as of June 30, 2026, and relies on a revolving credit facility and note issuance to fund investments.
• External manager fee alignment — GECC is externally managed by GECM, and the adviser's repeated waiver of accrued incentive fees ($2.8 million through March 31, 2026 and $0.9 million for 2Q26) highlights the fee structure's impact on NII.
• Illiquid and concentrated holdings — The portfolio is non-diversified and includes CLO equity, CLO warehouses, and specialty finance equity stakes such as the 71.25%-owned CLO JV and 87.5%-owned GESF.

Outlook

Management stated that GECC ended the quarter with approximately $6 million of cash and equivalents, $39 million of available capacity under its revolving credit facility, and ample liquid assets. It described the market as remaining competitive but said the disciplined investment process, strong liquidity, and conservative balance sheet position the company to pursue attractive investment opportunities while maintaining financial flexibility. The Board declared a $0.25 per share distribution for the third quarter of 2026, an 18.9% annualized yield on the August 4, 2026 closing price of $5.29.