What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-09 · 119 added, 169 removed, 211 unchanged (58% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We are a BDC that seeks to generate both current income and capital appreciation through debt and equity investments.

Our investment focus is on debt obligations of middle-market companies which are traded in the institutional credit markets.

We invest primarily in the debt of middle-market companies as well as small businesses, generally in the form of senior secured and unsecured notes, as well as senior secured loans, junior loans and mezzanine debt.

We will from time to time make investments in preferred equity, control equity investments in specialty finance businesses and equity investments as part of restructuring credits.

We are a BDC that seeks to generate both current income and capital appreciation through debt and income generating equity investments.

We invest in the debt of middle-market companies in the form of senior secured and unsecured notes as well as senior secured loans, junior loans and mezzanine debt.

We also make investments in preferred equity, investments in debt and equity securities of specialty finance businesses and other equity investments.

On September 27, 2016, we and Great Elm Capital Management, Inc.

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If we qualify as a RIC, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders.

Our level of investment activity can and does vary substantially from period to period depending on many factors, including, among others, the amount of debt and equity capital available from other sources to middle-market companies, the level of merger and acquisition activity, pricing in the high yield and leveraged loan credit markets, our expectations of future investment opportunities, the general economic environment as well as the competitive environment for the types of investments we make.

Our level of investment activity can and does vary substantially from period to period depending on many factors, including, among others, the amount of debt and equity capital available from other sources to middle-market companies, the level of merger and acquisition activity, pricing in the high yield and leveraged loan credit markets, opportunities in the specialty finance sector, our expectations of future investment opportunities, the general economic environment as well as the competitive environment for the types of investments we make.

As a BDC, our investments and the composition of our portfolio are required to comply with regulatory requirements.

We generate revenue primarily from interest on the debt investments that we hold.

We may also generate revenue from dividends on the equity investments that we hold, capital gains on the disposition of investments, and lease, fee, and other income.

We generate revenue primarily from interest on the debt investments that we hold, dividends on the equity investments that we hold, capital gains on the disposition of investments, and lease, fee, and other income.

Our investments in fixed income instruments generally have an expected maturity of three to five years, although we have no lower or upper constraint on maturity.

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Discounts on the acquisition of corporate debt instruments are generally amortized using the effective-interest or constant-yield method unless there are material questions as to collectability.

We assess the outstanding accrued income receivables for collectability at least quarterly, or more frequently if there is an event that indicates the underlying portfolio company may not be able to make the expect payments.

If it is determined that amounts are not likely to be paid we may establish a reserve against or reverse the income and put the investment on non-accrual status.

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Portfolio and Investment Activity

The following is a summary of our investment activity for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2020:

The following is a summary of our investment activity for the year ended December 31, 2020 and the three months ended March 31, 2021:

(in thousands)

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Quarter ended March 31, 2021

Quarter ended June 30, 2019

Quarter ended September 30, 2019

Quarter ended December 31, 2019

For the year ended December 31, 2019

Quarter ended March 31, 2020

Quarter ended June 30, 2020

Quarter ended September 30, 2020

For the Nine Months Ended September 30, 2020

For the three months ended March 31, 2021

Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income.

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Portfolio Reconciliation

The following is a reconciliation of the investment portfolio for the nine months ended September 30, 2020 and the year ended December 31, 2019.

The following is a reconciliation of the investment portfolio for the three months ended March 31, 2021 and the year ended December 31, 2020.

Investments in short-term securities, including U.S.

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(in thousands)

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

For the Year Ended December 31, 2020

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Portfolio Classification

The following table shows the fair value of our portfolio of investments by industry as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020

The following table shows the fair value of our portfolio of investments by industry as of March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

December 31, 2020

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Wireless Telecommunications Services

Specialty Finance

Internet Media

Specialty Finance

Special Purpose Acquisition Company

Construction Materials Manufacturing

Metals & Mining

Food & Staples

Media & Entertainment

Transportation Equipment Manufacturing

Software Services

Casinos & Gaming

Radio Broadcasting

Apparel & Textile Products

Transportation Equipment Manufacturing

Motor Vehicle Parts and Accessories

Wholesale-Apparel, Piece Goods & Notions

Consumer Services

Hotel Operator

Metals & Mining

Communications Equipment

Real Estate Services

Consumer Finance

Building Cleaning and Maintenance Services

Maritime Security Services

Gaming, Lodging & Restaurants

Water Transport

Telecommunications Services

Apparel & Textile Products

Real Estate Services

Building Cleaning and Maintenance Services

Results of Operations

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Investment Income

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Per Share (1)

Per Share (2)

For the Three Months Ended March 31,

Per Share (1)

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Dividend income

The per share amounts are based on a weighted average of 10,660,894 and 10,307,771 outstanding common shares for the three and nine months ended September 30, 2020, respectively.

The per share amounts are based on a weighted average of 10,062,682 and 10,312,561 outstanding common shares for the three and nine months ended September 30, 2019, respectively.

Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fee s, commitment fees and funding fees on loans .

For the three and nine months ended September 30, 2020 , interest income includes non-cash PIK income of $1.3 million and $3.8 million , respectively.

For the three and nine months ended September 30, 2019 , interest income includes non-cash PIK income of $1.2 million and $3.6 million , respectively.

Interest income decreased for the three and nine months ended September 30, 2020 as compared to the corresponding periods in the prior year due to exits from certain high income-generating positions, such as PE Facility Solutions, LLC (“PEFS”), and SESAC Holdco II LLC (“SESAC”) in the third quarter of 2019 and Commercial Barge Line Company (“Commercial Barge”) in the first quarter of 2020, as well as general downward trends in the London Interbank Offered Rate (“LIBOR”), the primary base rate referenced in our floating rate debt investments.

In addition, during the nine months ended September 30, 2020, several investments, including Davidzon Radio, Inc., PFS Holdings Corp.

(“PFS”) and California Pizza Kitchen (“CPK”) 2nd lien loan, were put on nonaccrual status resulting in lower interest income for the current period than if interest payments had continued per the terms of each respective loan.

Investments are expected to remain on non-accrual status absent an indication that interest payments will resume in the future.

Dividend income has increased for the three and nine months ended September 30, 2020 as a result of increased dividend payments from our investment in Prestige Capital Finance, LLC.

The decrease in other income for the nine months ended September 30, 2020 as compared to the corresponding period in the prior year is primarily attributable to commitment and funding fees earned on our May 2019 investment in Avanti’s 1.5 lien senior secured notes.

The per share amounts are based on a weighted average of 23,401,837 outstanding common shares for the three months ended March 31, 2021.

The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

For the three months ended March 31, 2021 and 2020, interest income includes non-cash PIK income of $1.5 million and $1.2 million, respectively.

Interest income decreased for the three months ended March 31, 2021 as compared to the corresponding period in the prior year due to exits from certain high yielding positions, including Commercial Barge Line Company (“Commercial Barge”) 1 st lien secured loan and the restructuring of our investment in PFS Holdings Corp.

(“PFS”) 1 st lien secured loan due 2021, for which we recognized $0.4 million and $0.6 million, respectively, in accretion income during the three months ended March 31, 2020.

In addition, interest rates on our floating rate investments have decreased over the past year as the LIBOR base rates have experienced declines.

These decreases have been partially offset by increases in the total outstanding principal of our debt investments as of March 31, 2021 as compared to March 31, 2020.

Dividend income for the three months ended March 31, 2021 increased as compared to the corresponding period in the prior year due to investments made in dividend-yielding preferred equities during the 2020 fiscal year, resulting in an additional $0.5 million in dividend income for the three months ended March 31, 2021.

The increase in other income for the three months ended March 31, 2021 as compared to the corresponding period in the prior year is primarily attributable to PIK commitment and funding fees earned on our February 2021 investment in Avanti Communications Group, plc (“Avanti”) 1.125 lien senior secured notes.

As discussed under “—Recent Developments”, the full impact of COVID-19 on each of our portfolio companies is not known at this time.

Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies may experience financial distress and may be unable to make future interest payments or dividend distributions resulting in decreased income to the Company.

In addition, the three and nine months ended September 30, 2020 saw significant decreases in LIBOR, the primary base rate referenced in our floating rate debt investments.

If interest rates stay depressed or continue to decrease further and we are otherwise unable to offset these reductions by investing in other debt instruments with higher interest rates we will see further decreases in our investment income.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Per Share (1)

Per Share (2)

If interest rates stay depressed or continue to decrease further and we are otherwise unable to offset these reductions by investing in other debt instruments with higher interest rates, we will see further decrease in our investment income.

For the Three Months Ended March 31,

Per Share (1)

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Professional services

The per share amounts are based on a weighted average of 10,660,894 and 10,307,771 outstanding common shares for the three and nine months ended September 30, 2020, respectively.

The per share amounts are based on a weighted average of 10,062,682 and 10,312,561 outstanding common shares for the three and nine months ended September 30, 2019, respectively.

The per share amounts are based on a weighted average of 23,401,837 outstanding common shares for the three months ended March 31, 2021.

The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

Expenses are largely comprised of advisory fees and administration fees paid to GECM and interest expense on our outstanding notes payable.

See “—Liquidity and Capital Resources.

” Advisory fees include management fees and incentive fees calculated in accordance with the Investment Management Agreement, and administration fees include direct costs reimbursable to GECM under the Administration Agreement and fees paid for sub-admini stration services.

Overall expenses for the three months ended September 30, 2020 decreased as compared to the three months ended September 30, 2019 primarily due to decreases in incentive fees and management fees.

For the nine months ended September 30, 2020 overall expenses were consistent with the nine months ended September 30, 2019, with decreases in management and incentive fees offset by increases in interest expense.

The increase in interest expense for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 is due to the issuance of $45.0 million in aggregate principal amount of 6.50% notes due 2024 (the “GECCN Notes”) in June and July 2019 which resulted in a weighted average outstanding debt balance of $119.1 million and $121.8 million for the three and nine months ended September 30, 2020, respectively, as compared to $123.9 million and $96.2 million for the three and nine months ended September 30, 2019, respectively.

The decrease in incentive fees for the three and nine months ended September 30, 2020 as compared to the corresponding periods in the prior year is the result of decreases in pre-incentive fee net investment income as a result of the decreased investment income discussed under “—Investment Income” above and the increase in interest expense.

In addition, incentive fees for the nine months ended September 30, 2020 included a reversal of approximately $0.4 million in incentive fees accrued in prior periods.

This reversal was primarily attributable to the sale of Commercial Barge in February 2020, for which the resulting proceeds did not fully cover the accreted cost of the investment.

Excluding the impact of the reversal, incentive fees would have been approximately $0.6 million for the three months ended March 31, 2020.

See “—Liquidity and Capital Resources.” Advisory fees include management fees and incentive fees calculated in accordance with the Investment Management Agreement, and administration fees include direct costs reimbursable to GECM under the Administration Agreement and fees paid for sub-administration services.

Total expenses for the three months ended March 31, 2021 were generally consistent with total expenses the three months ended March 31, 2020.

Administration fees decreased in the current period as compared to the corresponding period in the prior year as a result of changes in certain service providers and ongoing efficiency efforts at the management company.

Fees for professional services increased in the current period as compared to the corresponding period in the prior year due to certain one-time costs, including approximately $0.2 million in legal fees for compliance matters and claims related to certain investments, that are not expected to recur in future periods.

The decrease in interest expense for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 is due to the bond repurchases during the 2020 fiscal year, which resulted in a weighted average outstanding debt balance of $118.7 million for the three months ended March 31, 2021, as compared to $124.0 million for the three months ended March 31, 2020.

Realized Gains (Losses)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Per Share (1)

Per Share (2)

For the Three Months Ended March 31,

Per Share (1)

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Gross realized loss

The per share amounts are based on a weighted average of 10,660,894 and 10,307,771 outstanding common shares for the three and nine months ended September 30, 2020, respectively.

The per share amounts are based on a weighted average of 10,062,682 and 10,312,561 outstanding common shares for the three and nine months ended September 30, 2019, respectively.

During the three months ended September 30, 2020, net realized losses were primarily driven by the realized losses of approximately $0.3 million on the APTIM Corp.

1 st lien bond (“APTIM”) during the quarter.

Realized gains for the three months ended September 30, 2020 includes approximately $0.1 million in realized gain on repurchases of debt below par.

During the nine months ended September 30, 2020, net realized losses on investments were primarily driven by the sales of Commercial Barge and Full House Resorts, Inc.

(“Full House”) during the period, for which we recognized realized losses of $9.8 million and $1.3 million, respectively.

Realized gains for the nine months ended September 30, 2020 includes approximately $1.2 million in realized gain on repurchases of debt below par.

During the three months ended September 30, 2019, net realized gains were primarily driven by realized gains of approximately $0.2 million on the partial repayment of our investment in PEFS first lien secured loan B and approximately $0.1 million on the sale of our investment in SESAC second lien secured loan.

During the nine months ended September 30, 2019, net realized gains were largely driven by the sales of our investments in International Wire Group, Inc.

(“International Wire”) and Michael Baker International, LLC secured bonds which resulted in realized gains of approximately $1.1 million and $0.4 million, respectively.

These realized gains were partially offset by gross realized losses for the nine months ended September 30, 2019 which were primarily comprised of the realized loss of approximately $0.8 million on the sale of our investment in Sungard Availability Services Capital, Inc.

secured loan.

The per share amounts are based on a weighted average of 23,401,837 outstanding common shares for the three months ended March 31, 2021.

The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

During the three months ended March 31, 2021, net realized losses were primarily driven by the sale of our investment in Boardriders, Inc.

(“Boardriders”) 1 st lien secured loan for which we recognized a realized loss of $3.0 million.

This realized loss was partially offset by realized gains of $0.3 million on proceeds received from our former investment in PR Wireless, Inc., $0.2 million on the early paydown of our investments in First Brands, Inc.

1st lien secured loan, $0.1 million in proceeds received from our investment in PE Facility Solutions, LLC common equity.

During the three months ended March 31, 2020, net realized losses on investments were primarily driven by the sales of Commercial Barge and Full House Resorts, Inc.

(“Full House”) during the quarter, for which we recognized realized losses of $9.8 million and $1.3 million, respectively.

Realized gains for the three months ended March 31, 2020 includes approximately $0.1 in realized gain on repurchases of debt below par.

Unrealized Appreciation (Depreciation) on Investments

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Per Share (1)

Per Share (2)

For the Three Months Ended March 31,

Per Share (1)

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Unrealized depreciation

The per share amounts are based on a weighted average of 10,660,894 and 10,307,771 outstanding common shares for the three and nine months ended September 30, 2020, respectively.

The per share amounts are based on a weighted average of 10,062,682 and 10,312,561 outstanding common shares for the three and nine months ended September 30, 2019, respectively.

During the three months ended September 30, 2020, we recognized unrealized appreciation of approximately $2.0 million on our investment in Prestige Capital Finance, LLC common equity and approximately $1.1 million on our investment in APTIM 1 st lien bond.

We recognized unrealized depreciation of approximately $1.2 million on our position in Boardriders, Inc.

During the nine months ended September 30, 2020, net unrealized depreciation was largely driven by decreases in portfolio company valuations as compared to the prior year end.

Most notably, we recognized unrealized depreciation of approximately $4.8 million on our investment in Avanti Communications Group, plc (“Avanti”) 2 nd lien secured bond, approximately $3.6 million on our investment in Boardriders, Inc.

1 st lien loan and approximately $5.2 million and $3.3 million on our investment in CPK 1 st lien loan and 2 nd lien loan, respectively.

Unrealized appreciation for the nine months ended September 30, 2020 was primarily due to the sale of Commercial Barge in February 2020, for which we realized approximately $6.3 million of previously unrealized losses.

For each of the three and nine months ended September 30, 2019, the net unrealized depreciation was largely driven by decreases in the valuation of portfolio investments, increases in our cost basis due to accretion of discount on loans and debt securities and the exit of investments which had unrealized appreciation in prior periods.

Net unrealized depreciation for the nine months ended September 30, 2019 included unrealized depreciation of $7.7 million, $3.7 million and $1.9 million on our investments in Avanti debt and equity, Commercial Barge and PFS, respectively.

For the three months ended September 30, 2019, net unrealized depreciation included unrealized depreciation of $4.1 million, $2.5 million and $2.3 million on our investments in Avanti debt and equity, Tru Taj, LLC (“Tru Taj”) common equity and Commercial Barge, respectively.

The unrealized depreciation on our investments in Commercial Barge and PFS includes decreases in the fair value of each investment and increases in our cost basis as a result of the accretion of OID.

For the nine months ended September 30, 2019, unrealized depreciation was partially offset by unrealized appreciation of $0.5 million and $0.3 million on our investments in Finastra Group Holdings, Ltd.

and Research Now Group, Inc.

revolver, respectively, as a result of increases in fair value and unrealized appreciation of $1.0 million and $0.4 million on our investments in International Wire and SESAC, respectively, as a result of realization events during the period.

The per share amounts are based on a weighted average of 23,401,837 outstanding common shares for the three months ended March 31, 2021.

The per share amounts are based on a weighted average of 10,062,682 outstanding common shares for the three months ended March 31, 2020.

During the three months ended March 31, 2021, net unrealized appreciation was largely driven by increases in the fair value of our investments in Avanti’s 2 nd lien secured bond and Tru Taj (UK) Asia Limited (“Tru Taj”) common equity and Crestwood Equity Partners LP preferred equity which had net unrealized appreciation of $4.3 million, $2.8 million and $2.4 million respectively.

In addition, the sale of our investment in Boardriders 1 st lien secured loan resulted in the reversal approximately $3.5 million of unrealized depreciation previously recognized in prior periods .

Unrealized depreciation for the three months ended March 31, 2021 was primarily due to a decrease in the fair value of our investment in PFS Holdings Corp.

common equity for which we recognized $2.2 million in unrealized depreciation.

During the three months ended March 31, 2020, net unrealized depreciation was largely driven by decreases in portfolio company valuations as compared to the prior year end.

Most notably, we recognized unrealized depreciation of approximately $4.0 million on our investment in Avanti’s 2 nd lien secured bond, approximately $3.6 million on our investment in Tru Taj common equity and approximately $3.4 million and $2.6 million on our investment in California Pizza Kitchen, Inc.

(“CPK”) 1 st lien loan and 2 nd lien loan, respectively.

The Avanti, Tru Taj and CPK investments are all level 3 investments for which the valuations include unobservable inputs such as discount rates and comparable company multiples which have experienced decreases as of March 31, 2020 as compared to December 31, 2019 due to general market volatility, including the impact of the COVID-19 pandemic during the three months ended March 31, 2020.

Additionally, we recognized unrealized losses of $2.3 million and $2.7 million on our investments in Finastra Group Holdings, Ltd.

and ASP Chromaflo Technologies Corp., both of which were valued at March 31, 2020 based on active market prices.

Unrealized appreciation for the three months ended March 31, 2020 was primarily due to the sale of Commercial Barge in February 2020, for which we realized approximately $6.3 million of previously unrealized losses.

In the table above, the presentation of gross unrealized appreciation and depreciation amounts for the three months ended March 31, 2020 has been updated consistent with the current year presentation which groups the funded and unfunded portion of revolvers together.

As discussed under “—Recent Developments”, we cannot predict the duration of the COVID-19 pandemic and the resulting impact to our individual portfolio companies or the broader market.

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This “—Liquidity and Capital Resources” discussion should be read in conjunction with the discussion of COVID-19 under “—Recent Developments—COVID 19”.

At September 30, 2020, we had approximately $12.6 million of cash and cash equivalents and $0.6 million of restricted cash.

At September 30, 2020, we had investments in 34 debt instruments across 25 companies, totaling approximately $136.1 million at fair value and eight equity investments in seven companies, totaling approximately $33.4 million at fair value.

At March 31, 2021, we had approximately $26.6 million of cash and cash equivalents.

At March 31, 2021, we had investments in 33 debt instruments across 29 companies, totaling approximately $135.5 million at fair value and 135 equity investments in 116 companies, totaling approximately $58.1 million at fair value.

In the normal course of business, we may enter into investment agreements under which we commit to make an investment in a portfolio company at some future date or over a specified period of time.

As of September 30, 2020, we had approximately $46.2 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies.

We had sufficient cash and other liquid assets on our September 30, 2020 balance sheet to satisfy the unfunded commitments.

For the nine months ended September 30, 2020, net cash provided by operating activities was approximately $17.2 million, reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to accretion of discount and PIK income and proceeds from sales of investments and principal payments received.

Net cash provided by purchases and proceeds from sales of investments was approximately $8.3 million, reflecting payments for additional investments of $75.1 million, offset by proceeds from principal repayments and sales of $83.4 million.

As of March 31, 2021, we had approximately $31.4 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies.

We had sufficient cash and other liquid assets on our March 31, 2021 balance sheet to satisfy the unfunded commitments.

For the three months ended March 31, 2021, net cash used for operating activities was approximately $24.1 million, reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to accretion of discount and PIK income and proceeds from sales of investments and principal payments received.

Net cash used by purchases and proceeds from sales of investments was approximately $23.2 million, reflecting payments for additional investments of $45.4 million, offset by proceeds from principal repayments and sales of $22.2 million.

Such amounts include draws and repayments on revolving credit facilities.

For the nine months ended September 30, 2020, net cash used for financing activities was $8.6 million, which consisted of $4.5 million in distributions to investors and $4.1 million in repurchases of our debt.

For the three months ended March 31, 2021, net cash used for financing activities was $2.5 million related to distributions to investors.

Contractual Obligations

A summary of our significant contractual payment obligations as of September 30, 2020 is as follows:

A summary of our significant contractual payment obligations as of March 31, 2021 is as follows:

(in thousands)

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Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices, as of and for the three months ended September 30, 2020.

There were no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices, as of and for the three months ended March 31, 2021.

Notes Payable

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On September 29, 2017, we sold an additional $4.3 million of the GECCL Notes upon full exercise of the underwriters’ over-allotment option.

The aggregate principal balance of the GECCL Notes outstanding as of September 30, 2020 is $30.3 million.

The aggregate principal balance of the GECCL Notes outstanding as of March 31, 2021 is $30.3 million.

The GECCL Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness.

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On January 19, 2018 and February 9, 2018, we sold an additional $1.9 million and $1.5 million, respectively, of the GECCM Notes upon partial exercise of the underwriters’ over-allotment option.

The aggregate principal balance of the GECCM Notes outstanding as of September 30, 2020 is $45.6 million.

The aggregate principal balance of the GECCM Notes outstanding as of March 31, 2021 is $45.6 million.

The GECCM Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness.

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On July 5, 2019, we sold an additional $2.5 million of the GECCN Notes upon another partial exercise of the underwriters’ over-allotment option.

The aggregate principal balance of the GECCN Notes outstanding as of September 30, 2020 is $42.8 million.

The aggregate principal balance of the GECCN Notes outstanding as of March 31, 2021 is $42.8 million.

The GECCN Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness.

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The GECCN Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder.

During the nine months ended September 30, 2020, we repurchased $2.3 million in principal amount of the GECCL Notes $0.8 million in principal amount of the GECCM Notes and $2.2 million in principal amount of the GECCN Notes.

As of September 30, 2020, our asset coverage ratio was approximately 150.9%.

We may repurchase the Notes in accordance with the Investment Company Act of 1940 and the rules promulgated thereunder.

As of March 31, 2021, our asset coverage ratio was approximately 177.1%.

We are subject to a minimum asset coverage ratio of 150%.

Recent Developments

On October 1, 2020, we announced the final results of our non-transferable rights offering, which entitled holders of rights to purchase one new share of common stock for each right held at a subscription price of $2.95 per share.

In total, we sold 10,761,950 shares of our common stock for aggregate gross proceeds of approximately $31.7 million.

Our Board set distributions for the quarter ending March 31, 2021 at a rate of $0.10 per quarter.

All of the distribution is from net investment income.

The schedule of distribution payment will be established by GECC pursuant to authority granted by our Board.

The distribution will be paid in cash.

In October 2020:

we purchased 43,993 preferred shares in Blueknight Energy Partners L.P.

(“Blueknight”) for approximately $0.3 million.

we purchased $1.0 million in par value of Peninsula Pacific Entertainment, LLC (“Pacific Peninsula”) secured bonds at 100% of par value.

we sold $1.0 million in par value of Peninsula Pacific secured bonds at approximately 103% of par value.

we purchased $2.0 million in par value of Natural Resource Partners, L.P.

unsecured bonds at approximately 90% of par value.

$2.0 million of par value of Viasat, Inc.

receivable was redeemed at 100% of par value.

Our Board authorized the distribution for the quarter ending September 30, 2021 at $0.10 per share, with the record and payment dates to be set by the officers of GECC pursuant to authority granted by our Board.

On May 5, 2021, the Company entered into a Loan, Guarantee and Security Agreement (the “Loan Agreement”) with City National Bank (“CNB”).

The Loan Agreement provides for a senior secured revolving line of credit of up to $25 million (subject to a borrowing base as defined in the Loan Agreement).

The Company may request to increase the revolving line in an aggregate amount not to exceed $25 million, which increase is subject to the sole discretion of CNB.

The maturity date of the revolving line is the earlier of (i) May 5, 2024 and (ii) May 15, 2022 if the Company’s 6.50% notes due 2022 are not refinanced on or prior to such date.

Borrowings under the revolving line bear interest at a rate equal to (i) the London Inter-bank Offered Rate plus 3.50%, (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by the Company.

Borrowings under the revolving line are secured by a first priority security interest in substantially all of the Company’s assets, subject to certain specified exceptions.

The Company has made customary representations and warranties and is required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar loan agreements.

In addition, the Loan Agreement contains financial covenants requiring (i) net assets of not less than $65 million, (ii) asset coverage equal to or greater than 160% and (iii) bank asset coverage equal to or greater than 300%, in each case tested as of the last day of each fiscal quarter of the Company.

Borrowings are also subject to the leverage restrictions contained in the Investment Company Act of 1940, as amended.

In April 2021:

we purchased $3.0 million in par value of Viasat, Inc.

receivable at 90% of par value.

we purchased $1.0 million in par value of Cars.com, Inc.

secured bonds at 100% of par value.

we sold $1.0 million in par value of Cars.com, Inc.

unsecured bonds at 100% of par value.

we purchased $0.2 million in par value of CPK second lien term loan at approximately 1% of par value.

we purchased $2.0 million in par value of Par Petroleum, LLC secured bonds at approximately 81% of par value.

In November 2020:

we purchased 30,000 preferred shares in Blueknight for approximately $0.2 million.

The global outbreak of the COVID-19 has disrupted economic markets and the economic impact, duration and spread of the COVID-19 virus is uncertain at this time.

we sold $3.0 million in par value of PetroChoice Holdings, Inc.

first lien secured loan at approximately 97% of par value.

we sold 99,506 shares of Crestwood Equity Partners, LP class A preferred equity units for approximately $0.9 million.

we sold 100,000 shares of TRU (UK) Asia Limited common equity for approximately $1.0 million.

we sold 25,716 share of California Pizza Kitchen, Inc.

common equity for approximately $0.8 million.

our $10.0 million Subcom, LLC 1 st lien secured revolver commitment was retired.

we sold approximately $0.3 million of SPAC positions across 20 companies.

we purchased $3.0 million in par value of W&T Offshore, Inc.

second lien secured bond at approximately 89% of par value.

we purchased $1.0 million in par value of Cleaver-Brooks, Inc.

secured bond at 100% of par value.

we sold approximately $0.04 million of SPAC positions across five companies.

The global outbreak of the COVID-19 pandemic has disrupted economic markets and the economic impact, duration and spread of the COVID-19 virus is uncertain at this time.

The operational and financial performance of some of the portfolio companies in which we make investments has been and may further be significantly impacted by COVID-19, which may in turn impact the valuation of our investments, results of our operations and cash flows.

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In addition, we have continued to make, and expect to continue to make, new investments.

We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other q uarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S.

We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S.

governmental authorities.

As such, we are unable to predict the duration of any business and supply-ch ain disruptions, the extent to which the COVID-19 pandemic will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition.

Our portfolio is diversified ac ross multiple industries and the direct and indirect impacts of the COVID-19 pandemic will be dependent on the specific circumstances for each portfolio company.

For example, companies that derive revenues through in-person interactions with customers, su ch as restaurants and retail stores, have been and may be subject to reduced capacity or shutdowns based on local government advisories and regulations.

As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which the COVID-19 pandemic will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition.

Our portfolio is diversified across multiple industries and the direct and indirect impacts of the COVID-19 pandemic will be dependent on the specific circumstances for each portfolio company.

For example, companies that derive revenues through in-person interactions with customers, such as restaurants and retail stores, have been and may be subject to reduced capacity or shutdowns based on local government advisories and regulations.

For example, CPK filed for bankruptcy in July 2020.

Other companies may be better able to adapt to th e changing environment by moving their workforce to a remote-working model and leveraging technology solutions to interact with customers.

Other companies may be better able to adapt to the changing environment by moving their workforce to a remote-working model and leveraging technology solutions to interact with customers.

Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies may experience financial distress and possibly default on their financial obligations to us and their other capital providers.

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In connection with the adverse effects of the COVID-19 pandemic, we may need to restructure our investments in some of our portfolio companies, which could result in reduced interest payments, an increase in the amount of PIK interest we receive, or result in permanent write-downs on our investments.

We have had a significant reduction in our net asset value as of September 30, 2020 as compared to our net asset value as of December 31, 2019.

The decrease in net asset value as of September 30, 2020 was largely the result of decreases in the fair value of some of our portfolio company investments primarily due to the immediate adverse economic effects of the COVID-19 pandemic and the continuing uncertainty surrounding its long-term impact, as well as the re-pricing of credit risk in the broadly syndicated credit market.

We will continue to monitor the rapidly evolving situation relating to the COVID-19 pandemic and guidance from U.S.

and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

To the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments, their financial condition and the results of operations and financial condition of our portfolio companies.

We are also subject to financial risks, including changes in market interest rates.

As of September 30, 2020, approximately $142.4 million in principal amount of our debt investments bore interest at variable rates, which are generally based on LIBOR, and many of which are subject to certain floors.

As of March 31, 2021, approximately $107.8 million in principal amount of our debt investments bore interest at variable rates, which are generally based on LIBOR, and many of which are subject to certain floors.

In connection with the COVID-19 pandemic, the U.S.

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Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.

We will continue to monitor the rapidly evolving situation relating to the COVID-19 pandemic and guidance from U.S.

and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

To the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments, its financial condition and the results of operations and financial condition of our portfolio companies.

Quantitative and Qualitati ve Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates.

As of September 30, 2020, ten debt investments in our portfolio bore interest at a fixed rate, and the remaining 24 debt investments were at variable rates, representing approximately $95.5 million and $142.4 million in principal debt, respectively.

As of December 31, 2019, five debt investments in our portfolio bore interest at a fixed rate, and the remaining 23 debt investments were at variable rates, representing approximately $71.9 million and $174.3 million in principal debt, respectively.

The variable rates are based upon the LIBOR.

To illustrate the potential impact of a change in the underlying interest rate on our net investment income, we have assumed a 1%, 2%, and 3% increase and 1%, 2%, and 3% decrease in the underlying LIBOR, and no other change in our portfolio as of September 30, 2020.

We have also assumed that there are no outstanding floating rate borrowings by the Company.

See the following table for the effect the rate changes would have on net investment income.

LIBOR Increase (Decrease)

Increase (decrease) of Net

Investment Income

(in thousands) (1)

Several of our debt investments with variable rates contain a LIBOR floor.

The actual increase (decrease) of net investment income reflected in the table above takes into account such LIBOR floors to the extent applicable.

Although we believe that this analysis is indicative of our existing interest rate sensitivity at September 30, 2020, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the net increase (decrease) in net assets resulting from operations.

Accordingly, no assurances can be given that actual results would not differ materially from the results under this hypothetical analysis.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts.

While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis