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Edited Transcript of GECC.OQ earnings conference call or presentation 30-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Great Elm Capital Corp Earnings Call

BOSTON Apr 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Great Elm Capital Corp earnings conference call or presentation Thursday, March 30, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Meaghan Mahoney

Great Elm Capital Corp. - SVP

* Michael J. Sell

Great Elm Capital Corp. - CFO, Secretary and Treasurer

* Peter Reed

Great Elm Capital Corp. - President and CEO

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Conference Call Participants

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* Barry Bergman

ALBA Investments - Analyst

* Christoph M. Kotowski

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Kyle Mowery

GrizzlyRock Capital LLC - Managing Partner and Portfolio Manager

* Mickey Max Schleien

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst

* Phillip Franklin Goldstein

Bulldog Investors, LLC - Co-Founder and Principal

* Ted Wagenknecht

Applied Fundamental Research - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to Great Elm Capital Corp.'s Fourth Quarter 2016 Financial Results Conference Call. (Operator Instructions) I would now like to introduce your first speaker for today, Meaghan Mahoney. You have the floor, ma'am.

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Meaghan Mahoney, Great Elm Capital Corp. - SVP [2]

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Thank you, Andrew, and good morning, everyone. Thank you for joining us for Great Elm Capital Corp.'s Fourth Quarter and Fiscal Year Ended at December 31, 2016 Earnings Conference Call. As a reminder, this webcast is being recorded on Thursday, March 30, 2017. If you'd like to be added to our distribution list, please send an e-mail to Investor Relations@greatelmcap.com. The slide presentation accompanying this morning's conference call and webcast can be found on Great Elm Capital Corp.'s website under the Investor Relations link at www.greatelmcc.com as well as a copy of our earnings release and Form 10-K. A link to the webcast is also available on the Great Elm Capital Corp. website.

Before I turn the call over to Peter Reed, I'd like to call your attention to the customary safe harbor statement regarding forward-looking information. Today's conference call includes forward-looking statements and projections, and we ask that you refer to Great Elm Capital Corp.'s most recent 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 latest SEC filings, please visit Great Elm Capital Corp.'s website under the Investor Relations tab or 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.

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Peter Reed, Great Elm Capital Corp. - President and CEO [3]

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Thank you, Meaghan. Good morning, and thank you, everyone, for joining us today. I'm joined this morning by our entire investment committee comprised of myself, John Ehlinger, Adam Yates and Adam Kleinman, as well as our Chief Financial Officer, Michael Sell, and Meaghan Mahoney from our Investor Relations team. I'd like to start by introducing our team and investment approach properly, recognizing that we are still a new manager to many of you. Following that background information, we will go through a review of the quarter and a discussion of one of the more prominent investments in the portfolio. We would then like to update you on proposed capital structure activity before we open up the line to Q&A. Where relevant in our prepared remarks, we will point you to the corresponding slide number in the deck that Meaghan referenced that is on our website.

As you may recall, November 3 marks the conclusion of a year-long process for Full Circle Capital Corporation culminating with the merger with and into GECC. We wholeheartedly appreciate the significant support from the Full Circle stockholder base in voting in favor of the merger and look forward to the opportunity to be thoughtful stewards of your capital going forward. The funds managed by MAST and our parent company currently own approximately 62% of the shares of the combined BDC post-merger, which we believe results in a significant alignment of interests between us, as a manager, and our stockholders.

Further, we implemented a number of stockholder friendly elements to our investment management agreement that we would be more than happy to discuss during our Q&A or in follow-up from this call if it's of interest. Let's start briefly on Slide 5 with who GECC is.

We are a special-situations-focused business development company with the investment objective of generating attractive risk-adjusted returns by focusing predominantly on catalyst-driven secondary market investment opportunities. We will take a deeper dive on what that means in just a minute.

Turning to Slide 6 to introduce our external manager, Great Elm Capital Management, or GECM. The GECM team is comprised of 14 people with over 100 years of aggregate investment experience. During our team's tenure with MAST Capital Management, we've deployed in excess of $17 billion in credit investments across more than 550 issuers in 20-plus countries, complementing the experienced investment team of 9 with a robust legal, operations, finance and investor relations team.

There is an organizational chart on slide 7 for your reference. As this is our first formal call, we thought it was an opportune time to describe our differentiated investment approach and philosophy in more detail. Please refer to slides 8 to 10.

In contrast to most publicly traded BDCs, our approach is not to focus on originating loans to small and middle market companies at par value, but instead to lend to middle market businesses, predominantly domestic, through purchases of debt instruments in the secondary market with origination done solely on an opportunistic basis. We believe that this approach, as executed by the Great Elm Capital Management team over the past 15 years under MAST, will result in the potential for both growth in NAV per share as well as in the distribution from today's 7% level, which we intend to supplement with special distributions over time. Our approach in both investing in both leveraged loans and high-yield bonds sometimes at significant discounts to par seeking a total return opportunity and not just interest income. Our investment team is comprised of sector-focused research analysts with significant experience investing in leveraged middle market credit as well as experience with restructurings and work-outs. We believe the depth of this experience is incredibly important as we have invested across multiple credit cycles and market downturns, executing the same investment philosophy.

Turning to slide 10, let's discuss our philosophy on investing. First and foremost, we are keenly focused on downside protection and the preservation of capital. For each investment we make, we conduct thorough, bottom-up investment and legal due diligence, including a comprehensive review of credit documents. Our in-house legal experts are integrated in the research process with Adam Kleinman, our Chief Operating Officer and General Counsel, serving as a member of our investment committee. This in-depth research process allows us to identify and assess the margin of safety in each investment that we make.

Second, we believe that concentrating in one's best ideas lead to investment outperformance over time. While we don't expect to have position sizes as large as our current position in Avanti Communications Group going forward, you should potentially expect to see a more concentrated portfolio from our team as compared to other publicly traded BDCs.

Lastly, we seek to invest with a differentiated view from the market. We believe that taking a contrarian stance has the potential to generate outsized returns. For instance, in Avanti, we clearly have a different view than the market. We are confident for a number of reasons. The collateral package, the size of the addressable market it is serving and its pricing advantage versus its competitors, to name a few. While for many, it can seem risky to invest in special situations, our extensive experience with credit investing, in-house legal expertise and experience with work-outs and restructurings should give us a significant advantage in these types of hands-on opportunities.

Now that we have covered some of our background and approach to investing, let's discuss Q4, our first quarter managing the combined Great Elm and Full Circle portfolio. I will turn it over to Mike Sell, our Chief Financial Officer, to discuss the financial results from Q4.

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [4]

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Thanks, Peter. Please turn to slide 12 for a snapshot of the financial and portfolio highlights from the quarter. As of year-end, our net asset value was $173 million, which equates to $13.52 per share. The fair value of our investments was $154.7 million. We had $66.8 million in cash and cash equivalents, which we view as a significant amount of liquidity to deploy into new and follow-on investment opportunities.

Let's turn to slide 13 to walk through the quarterly financials. Total investment income for the period ended December 31 was $5.8 million against expenses of approximately the same amount, resulting in net investment income of $5,000. It's important to note that at the outset of the partial quarter, there were approximately $3.5 million of merger and formation-related professional fees that should be considered onetime in nature. Absent onetime fees, net investment income for the period would've been approximately $0.28 per share, which was well in excess of the $0.166 per share distribution for the same period.

Lastly, net realized gains in the portfolio were approximately $270,000, which equated to approximately $0.02 per share, with unrealized depreciation on investments during the period of $13.5 million.

Now let me turn the call back to Peter to discuss portfolio highlights, activity and Avanti.

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Peter Reed, Great Elm Capital Corp. - President and CEO [5]

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Thanks, Mike. Let's now turn to slide 15 to talk about some of the portfolio highlights and what we view as reflective of our investment approach. Today, despite the state of the credit markets, we have constructed a portfolio with a weighted average current yield of 12.76% that is comprised almost entirely of senior secured credit instruments, much of which is first lien in nature.

As of 12/31, 92% of our invested capital was in senior-secured credit investments. Despite this focus on top of the capital structure opportunities, our overall credit portfolio had a weighted average dollar price of approximately $0.78, highlighting the potential for significant price appreciation in addition to the high current yield. Furthermore, echoing back to our comments on our focus on concentration in terms of our investment philosophy, the top 5 positions in the portfolio represented just over half of our invested capital at 51% of the portfolio's fair value at year-end. Lastly, a little more than two-thirds of the book, 68%, was in investment ideas that are reflective of the way in which GECM intends to invest going forward. After having successfully exited nearly $20 million of legacy Full Circle positions in Q4, again, a much quicker transformation of the portfolio than we had anticipated.

Turning to slide 16. As of year-end, we had 21 debt investments that represent $154 million in fair value and 5 equity investments representing $0.5 million as of the same time period.

Turning to slide 17 to walk through our quarterly portfolio activity. On the investment front, between the close of the transaction and year-end, we made 3 new investments and 5 add-on investments, deploying $43 million at a weighted average price of $92.55 and a weighted average current yield of 12.18%. On the monetization front, between the close of the transaction and year-end, we monetized, in part or in full, 16 investments at a weighted average price of $98.52 and a weighted average current yield of 10.54%, including the complete exit as a net gain of 6 legacy Full Circle (technical difficulty). What does this mean? We believe this indicates that we are rotating the portfolio into greater total return opportunities with higher current yields, while maintaining our keen focus on downside protection through investing in senior secured instruments.

Slides 18 and 19 provide additional detail on the breakdown of the portfolio in terms of where we are in the capital structure, floating versus fixed rate and industry breakdown. One important thing to note as we consider the direction of interest rates and our current exposure to fixed-rate instruments is the relatively short duration nature of our credit portfolio with a weighted average maturity of approximately 2 years. We believe this helps to mitigate the interest rate risk of our portfolio as we can redeploy into higher-yielding opportunities as our current fixed-rate investments are realized. Additionally, the weighted average yield on the fixed-rate instrument in the portfolio is 10.85%, a significant margin above the current distribution rates.

Let's turn to slides 20 and 21 to discuss an update on Avanti Communications Group. Let's start with a brief overview of Avanti. Who it is, what it does, and what the current opportunity and situation is. Avanti is a U.K.-based, satellite services company that provides data communication services in rural parts of Europe, the Middle East and Africa. Today, Avanti has 3 satellites in orbit, 2 additional satellites under construction and an international fiber network connecting data centers in several countries as well as valuable spectrum and orbital slots.

As you may recall from prior filings, in July, Avanti announced the commencement of a strategic review process and the potential for a liquidity shortfall. In September, it launched a consent solicitation process to PIK, or pay in time, its next interest payment in lieu of paying in cash. Nearly 90% of note holders supported this consent solicitation process, reducing the cash interest burden payable to bondholders in October by nearly $30 million. Post the completion of the strategic review process this January, the company announced another consent solicitation process, this time to incur up to $132.5 million in super senior indebtedness and for the approval of the payment of PIK interest on the existing notes.

In late January, Avanti announced the successful completion of the second consent solicitation process. We view this as a significant positive for Avanti for several reasons. First, this incremental liquidity, both from the additional capital raised and from the company's PIK election, allows the company to complete the build and launch of HYLAS 4, the company's largest satellite to date. We believe this satellite will launch in the second half of calendar year 2017 and will add 28 gigahertz in capacity to its existing fleet as well as additional coverage of Europe, the Middle East and Africa.

Second, we believe that Avanti will be more valuable from a strategic perspective with the completion and launch of HYLAS 4. Third, a key consideration to the large bondholders in the consent solicitation was the ability to have a seat at the table and that was accomplished with newly appointed independent directors and another 3 Board seats filled by representatives of significant note holders. Lastly, GECC is now a debt holder and an equity owner of Avanti Communications. We believe there is significant upside potential in this position from the company continuing to operate on a stand-alone basis or from strategic interest.

Now I will turn the call back over to Mike Sell to discuss a number of capital structure updates.

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [6]

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Thanks, Peter. We have a number of items that we would like to discuss with respect to capital activity and capital structure. First, with respect to our distribution policy, let's turn to slide 23.

In late December, we declared our Q4 distribution of $0.166 per share as well as the declaration of our Q1 distributions of $0.083 per share per month. Based on the NII generated by the portfolio in Q4, excluding onetime, deal-related fees, we believe this distribution is well supported by the portfolio's current earnings power. We will seek to augment this baseline distribution level with special distributions to the degree that our investment company taxable income and related distribution requirements feed our distributions going forward. Additionally, our Board of Directors declared our distributions for Q2 of $0.083 per share per month with a record date and payable date schedule available in the press release and the earnings presentation. We finished 2016 with approximately $1.8 million or $0.14 per share of undistributed investment company taxable income that we will have to distribute in 2017 in addition to our 2017 taxable earnings.

Next, with respect to our stock buyback program, let's turn to slide 24. During the period ended December 31, 2016, we purchased approximately 98,000 shares of our stock through our stock buyback program at an average discount to our December 31 NAV of 21%, utilizing $1.1 million of our $15 million 10b5-1 program. Rolling that forward to Q1, through March 24, 2017, we have purchased approximately 338,000 shares cumulatively at a weighted average discount to our December 31 NAV of 17%. In aggregate, we have used $3.8 million of cash to date under our 10b5-1 program where we have systematically bought shares in the open market as they traded below 90% of NAV. The discounted purchases to date represent expected accretion to NAV per share of approximately $0.10 since the inception of the program. In addition to the authorized $15 million 10b5-1 program, our Board of Directors authorized a further $35 million in share repurchase capacity, which we view as potentially accretive to our stockholders as well as further evidence of our intense focus on alignment of interests with our stockholders.

Turning to slide 25 to discuss our announced common stock self-tender. Last night, we announced we will conduct a modified Dutch auction to tender for up to $10 million of our common stock at a price between 85% and 90% of our last published NAV of $13.52 per share or a range of $11.50 to $12.17 per share. Further details on the mechanics of the offer will be forthcoming upon the launch of the self-tender offer.

And lastly, turning to slide 26. We will be filing a resale registration statement via Form N-2 in the coming days to register the currently unregistered shares that the MAST Funds and Great Elm Capital Group Inc. received in consideration for their premerger contributions, as we are contractually obligated to register these shares before the end of Q1 2017. Great Elm Capital Group shares are subject to a lock-up for 1 year post the closing of the merger.

Let me turn the call back over to Peter for closing remarks and then Q&A.

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Peter Reed, Great Elm Capital Corp. - President and CEO [7]

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Thank you all for joining us today. We had quite a bit to cover as our first earnings call as a publicly traded company and given the amount of capital structure activity we have underway. In closing, we are excited about the current portfolio, the investments we have made to date and the rate at which we have been able to rotate out of the legacy Full Circle portfolio and into our go-forward class of total return opportunities. We believe we have a significant alignment of interest with you, our stockholders, and look forward to growing our NAV per share and distribution together going forward. Thank you, again, for the support and confidence that you've placed in us and for your significant support with the Full Circle merger.

With that, we will turn it over to Andrew to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of the Mickey Schleien from Ladenburg.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [2]

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Peter, I wanted to start with a high-level question. I appreciate that you're pursuing a differentiated strategy, but as you and I have discussed, there is a general reluctance by investors to pay BDC managers to pick credits as opposed to originating them. So in that regard -- in regarding that hesitancy, could you give us at least some background on your team's historical results employing the same sort of investment strategy that GECC is using, so that we can get a sense of the risk-and-return balance?

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Peter Reed, Great Elm Capital Corp. - President and CEO [3]

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Hi, Mickey, and good morning. Thanks for joining the call, and thanks again for your question. I understand and appreciate the question that you're asking. However, the Securities and Exchange Commission doesn't want us talking about the returns from the MAST private funds or any of that. So there is really nothing I can give to you on the matter. I can tell you in the course of the merger that was a diligence item that came up from the financial advisers to Full Circle and they did their own work and they came to their conclusion. But that's really all I can say about it.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [4]

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Okay. I appreciate that. Couple -- few more questions. I see that at the December -- at December 2016, more than half the portfolio was level 3. How often will you send those positions to third parties for valuation? And are those third parties going to give you a positive or a negative assertion?

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [5]

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Thanks, Mickey. I appreciate the question. This is Mike Sell. Our level 3 investments, other than ones that are significantly de minimus, are all sent to third party valuation agents for review, and we receive positive confirmation on a valuation range from those third party agents.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [6]

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Okay. In terms of the portfolio, I see that in December there weren't any second lien investments. I was curious what the reasoning was for that. At least at that point, what was the -- the reasoning was for that decision?

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Peter Reed, Great Elm Capital Corp. - President and CEO [7]

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So I understand the question, and I think that's a hot topic in the industry right now. We're more of a bottoms-up organization. So we didn't make a conscious decision that said no second liens in the portfolio, but rather the review of the opportunities that were available, what came into the portfolio, what we deployed into, none of those happened to be second lien investments.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [8]

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So it was idiosyncratic. It's not that you wouldn't consider a second lien?

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Peter Reed, Great Elm Capital Corp. - President and CEO [9]

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Correct.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [10]

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Okay. And going back to the risk-return equation, can you give us a sense of the average portfolio company EBITDA and the leverage at your attachment points in the portfolio?

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Peter Reed, Great Elm Capital Corp. - President and CEO [11]

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I don't have that at our fingertips. It's somewhat complicated by the fact that some of those numbers are subject to nondisclosure agreements that we have with the company. So broadcasting even the aggregate statistics publicly, we need to go look into that, and we'll follow-up with you.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [12]

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Okay. I mean, that's an important data point, whether we're talking a strategy of pursuing $50 million to $75 million EBITDA companies or $5 million to $10 million EBITDA companies, so look forward to that. And just a couple of questions on the right side of the balance sheet. The 8.25% notes are redeemable, and there's certainly a lot of demand for these types of investments. So I'd like to understand whether you're considering refinancing them in order to at least mitigate some of the spread compression that we've seen persist even into this calendar quarter?

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Peter Reed, Great Elm Capital Corp. - President and CEO [13]

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I'd say that we're intensely focused on both the competition at the right side of our balance sheet and the cost at the right side of our balance sheet.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [14]

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Okay. Well, in relation to that, are you looking at a line of credit? I realize you have a -- plenty of liquidity at the moment, but it would seem that a line of credit would make sense as an insurance policy. And are you looking at that? And could you -- do you have any idea of what kind of terms that bank would give you given your portfolio and the strategy you're pursuing?

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Peter Reed, Great Elm Capital Corp. - President and CEO [15]

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So, I think that we are constantly pursuing the best way to optimize the right side of our balance sheet. At this point, I can't go any further in saying what the terms might be under a credit facility or what alternatives we are -- we're weighing and what those cost. When we have something that is definitive, we'll be sure to let you know.

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Operator [16]

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Our next question today comes from the line of Barry Bergman from Alba Investments.

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Barry Bergman, ALBA Investments - Analyst [17]

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I just have a quick question. MAST Capital itself owns quite a bit of GECC, and I'm wondering -- I know they're registering it, however, just by sort of things that the company was going to do anyway. Are they thinking of selling or participating in the Dutch auction at all? Or they'll -- they're longer term investors and letting this sort of go? The other thing -- and my other question is, when you saw the Full Circle portfolio, and congratulations for that, where did that -- those executions take place versus book value?

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Peter Reed, Great Elm Capital Corp. - President and CEO [18]

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Sure. Well, thanks, Barry, and nice to hear from you this morning. I think it's part of the N-2, MAST will clarify -- sorry, part of the tender offer, not the N-2. MAST will clarify its intentions with respect to the upcoming tender. And I think that's really all I can say at the moment. And that will become more clear soon. I think an overarching comment is, MAST, Great Elm Capital Group and Full Circle all came together on this with a long-term view of driving stockholder value and that remains to be true today. On your second question, which, I believe, is a reference to the Full Circle positions that we exited in Q4. If that's the right question, the answer is there was a small gain relative to book value.

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [19]

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We monetized approximately $20 million of fair value of Full Circle's legacy positions. And I believe the aggregate gain on that was about $160,000.

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Barry Bergman, ALBA Investments - Analyst [20]

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Just because I don't remember, what was the full amount that they contributed at the time of the merger? I'm just trying to understand how much of the portfolio you kind of jettisoned, but...

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [21]

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We revalued the portfolio at 11/03 for purchase accounting purposes. I believe the aggregate contributed value of the Full Circle portfolio was give or take $75 million.

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Barry Bergman, ALBA Investments - Analyst [22]

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Okay. So about 20%, was that the -- was it $30 million or $20 million, I forgot?

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [23]

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$20 million. So it's a little bit up and north of 20%.

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Barry Bergman, ALBA Investments - Analyst [24]

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Okay. Got it. Is that a continued path you're kind of headed down to monetize that piece of it?

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Peter Reed, Great Elm Capital Corp. - President and CEO [25]

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So in the subsequent events, we talk about some positions which have since been monetized, which were legacy Full Circle positions. And consistent with our expectation, this transition from the Full Circle portfolio to the things that Great Elm intends to be doing going forward has been, candidly, faster than we expected. We continue to make progress on that front. We expect that momentum to carry us through the calendar year.

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Operator [26]

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Our next question comes from the line of Chris Kotowski from Oppenheimer.

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Christoph M. Kotowski, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [27]

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I wonder if you can -- you've discussed that the Avanti position is bigger than you'd want. Just on a steady-state, going-forward basis, how large will this -- should the typical bite size be or position size be? And what kind of returns should we expect? Again, we understand it's opportunistic, and there's probably likely to be a bigger dispersion than you might see elsewhere, but do you have a hurdle rate in mind in the current environment as to what kind of assets you'd want to put on the balance sheet?

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Peter Reed, Great Elm Capital Corp. - President and CEO [28]

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Thanks, Chris, and good question. So you're right on Avanti. The positions contributed from the MAST Funds were a negotiated point in the transaction. And we've said before, and I imagine we'll continue to be saying this, the size of the current Avanti position, as you've identified, is larger than we intend for any position to be going forward. That being said, I would expect (technical difficulty) of position sizes or bite sizes (technical difficulty) some of the mid-single digits percentages of assets with -- to the occasional position that is approximately 10% of assets or maybe slightly higher than that. That's my expectation.

With respect to returns, we don't have a particular hurdle in mind. We're very cognizant of both the cost of our debt capital as well as the distribution that we pay to our investors, which does influence our -- the rate at which we need to get to make an investment. The best thing that I think I can point you to is the commentary where the new investments that we made during the quarter was a little bit in excess of 12%. And I think that's -- while you correctly identified a broad (technical difficulty) of returns, I think that's reasonably representative of what we're looking at today.

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Operator [29]

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Our next question comes from the line of Kyle Mowery from GrizzlyRock Capital.

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Kyle Mowery, GrizzlyRock Capital LLC - Managing Partner and Portfolio Manager [30]

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Two questions from me and then one comment, if I may. With respect to following up on the previous caller's question about Avanti, 20-odd percent is significantly higher than mid-single digits to 10%, as you just kind of laid out, Peter. I mean, could you just talk about -- you just referenced a negotiated transaction, but could you just unpack that a little bit for us?

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Peter Reed, Great Elm Capital Corp. - President and CEO [31]

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Sure. Thanks, Kyle, and thanks for the question. So yes, we have a significant position size. We are -- as we've said before and I think we'll continue to say, we don't intend for that to be representative of a position size for a single investment going forward. As you might imagine with trying to remedy that over time, we're keenly focused on the trade-off between getting that position size more in line and making sure that we get appropriate value for our stockholders for that position, so that does in fact create some tension that we wrestle with. There is a relatively complex consent solicitation that's a subsequent event that we've laid out in the press release, and we sort of hit the high points there.

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Kyle Mowery, GrizzlyRock Capital LLC - Managing Partner and Portfolio Manager [32]

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Okay. But in terms of how we ended up in this position, is this something that was desirable from the MAST point of view to slide this over? Or how did this really occur?

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Peter Reed, Great Elm Capital Corp. - President and CEO [33]

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Okay. Good question. And that, I think, clarifies from your earlier question that it's disclosed or in the public domain the rough quantum of debt owned by the MAST Funds, and it's a lot more than what was contributed in this transaction. This transaction means the Full Circle merger. The entire portfolio that we contributed from the MAST Funds to this merger was a keen subject of negotiation between ourselves and the financial advisers for Full Circle. I believe that a key component in winning the deal for the MAST Funds and for Great Elm Capital Group was the relative scale that we could bring on a combined basis to the transaction. There were only so many ways in which Great Elm Capital Group and MAST could deliver the necessary scale to the transaction and the result is the portfolio that we started with. So both the MAST Funds and Great Elm Capital Corporation believe that there is significant upside in the Avanti position and continue to drive forward to making sure that we realize that upside to deliver returns for our stockholders.

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Kyle Mowery, GrizzlyRock Capital LLC - Managing Partner and Portfolio Manager [34]

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Okay. Thank you very much for the clarification and that actually feeds into my second question, which is you referenced growing NAV per share. Would the main driver of growing NAV per share be the purchase of debt that your team believes is worth par. Par for what's accrued for less than par value? Is that the core driver of growing NAV per share going forward?

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Peter Reed, Great Elm Capital Corp. - President and CEO [35]

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I think you've correctly identified one of a few different avenues in which we can achieve that objective, and certainly gains on a portfolio like this could contribute to that growth in NAV per share. Last night's press release was what we believe is a significant issuer self-tender at a substantial discount to the NAV per share illustrates our commitment to driving that return in any way that we can think of that we believe makes sense holistically for our stockholders. So I think there are a couple of different avenues. You've identified one. We announced another one last night in our continued 10b5-1 program, are examples of the ways in which we're focused on driving that NAV per share.

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Kyle Mowery, GrizzlyRock Capital LLC - Managing Partner and Portfolio Manager [36]

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Excellent. Thank you for taking my questions. Just a comment on that tender. I commend the team for making that decision. Far too many BDCs fail to do that for reasons of their own management fees, et cetera. So I just want to commend the team for being willing to shrink the flow in the short term to execute the long-term vision. So with that, I'll cede the line.

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Peter Reed, Great Elm Capital Corp. - President and CEO [37]

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Thank you, Kyle.

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Operator [38]

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Our next question comes from the line of Phillip Goldstein from Bulldog Investors.

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Phillip Franklin Goldstein, Bulldog Investors, LLC - Co-Founder and Principal [39]

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Excellent presentation, guys. Most of my questions actually have been answered already, but I just had 2 points I wanted to make. One is on the legacy notes. How about changing the symbol, so we get rid of the old Full symbol?

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Peter Reed, Great Elm Capital Corp. - President and CEO [40]

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Phil, I think that's a perfectly good comment, and hopefully, we will be addressing -- one way or the other, we're going to be addressing that.

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Phillip Franklin Goldstein, Bulldog Investors, LLC - Co-Founder and Principal [41]

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Okay. And the second is, just -- yes, again, to reiterate that it's nice to see the tender offer. Did I get it right? Is the range 10% to 15% of the last reported NAV? Is that correct?

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [42]

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Yes. The range is targeted to be approximately 10% to 15% below NAV.

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Phillip Franklin Goldstein, Bulldog Investors, LLC - Co-Founder and Principal [43]

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Okay. As a suggestion, it would be -- I mean, I could do the work, but you guys -- maybe you've done it already, but assuming a full subscription at different levels, it would be interesting to see what kind of accretion to the NAV would occur at those different points. I don't know, have you done that?

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Peter Reed, Great Elm Capital Corp. - President and CEO [44]

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I think we would expect to see some more in the 1% to 1.5% of accretion if it's fully taken up. And I think that will be specified in the tender offer documents.

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Phillip Franklin Goldstein, Bulldog Investors, LLC - Co-Founder and Principal [45]

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Yes. I mean, look, we can all do the math, but you've probably done it already. Okay, that was it.

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Operator [46]

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(Operator Instructions) Our next question comes from the line of Ted Wagenknecht from AFR.

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Ted Wagenknecht, Applied Fundamental Research - Analyst [47]

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Thought I could ask the question maybe a different way than other folks have approached it so far. Was Avanti contributed in the same percentage relative to the other assets contributed as what's held in the existing MAST portfolios?

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Peter Reed, Great Elm Capital Corp. - President and CEO [48]

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I -- without necessarily totally following you, I think...

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Ted Wagenknecht, Applied Fundamental Research - Analyst [49]

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Was it contributed in strip, I guess?

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Peter Reed, Great Elm Capital Corp. - President and CEO [50]

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In the strip? Multiple...

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Ted Wagenknecht, Applied Fundamental Research - Analyst [51]

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Is MAST holding Avanti in the same weight compared to its other assets as it contributed Avanti to GECC?

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Peter Reed, Great Elm Capital Corp. - President and CEO [52]

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So I appreciate your question. I unfortunately can't go into the position sizes at MAST. But -- and perhaps we could -- I don't have the number at my fingertips, but in the public domain is a reference to how much debt the MAST Funds own, and it's a significant amount, and it's more than it's held by GECC. I can't talk about the position size within the MAST side of funds.

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Ted Wagenknecht, Applied Fundamental Research - Analyst [53]

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Can you talk about current AUM of the MAST private funds?

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Peter Reed, Great Elm Capital Corp. - President and CEO [54]

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I cannot.

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Ted Wagenknecht, Applied Fundamental Research - Analyst [55]

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Does that have to do with -- does current AUM have to do anything with how costs are split between -- or, I guess, probably not at GECC level. Does the representative, I guess, does MAST total AUM have anything to do with how costs are allocated at GECC?

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Peter Reed, Great Elm Capital Corp. - President and CEO [56]

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No. Mike will take that.

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Michael J. Sell, Great Elm Capital Corp. - CFO, Secretary and Treasurer [57]

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Yes. Costs are allocated between relative platforms based on multitudes of drivers and some of which go as granular as hours spent on what project. And I think it -- doing anything as simplistic as just basing on AUM's going to be -- it would be misleading.

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Ted Wagenknecht, Applied Fundamental Research - Analyst [58]

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A challenge.

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Operator [59]

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(Operator Instructions) Looks like we have no other questioners in the queue at this time. So I'd like to turn the call back over to the management team for closing comments.

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Peter Reed, Great Elm Capital Corp. - President and CEO [60]

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

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Operator [61]

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Ladies and gentlemen, thank you again for your participation in today's conference call. This now concludes the program, and you may now disconnect at this time. Everyone, have a great day.