8-K: Great Elm Capital Corp. Raises $13.2 Million in Equity at Net Asset Value

Great Elm Capital Corp. has successfully raised $13.2 million through the issuance of approximately 1.1 million shares of common stock at net asset value to Summit Grove Partners, LLC.

Summary

• Great Elm Capital Corp. (GECC) has entered into a Share Purchase Agreement with Summit Grove Partners, LLC (SGP).
• GECC issued 1,094,527 shares of its common stock to SGP at a price of $12.06 per share.
• The total gross purchase price for the shares was $13,199,995.62, or approximately $13.2 million.
• Summit Grove Partners, LLC is 25% owned by Great Elm Group, Inc. (GEG).
• Great Elm Capital Management, LLC (GECM), the investment manager of GECC, is a wholly-owned subsidiary of GEG.
• The common stock was issued in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933.
• GEG made a $3.3 million investment in SGP, further aligning the investment manager with shareholders.
• GECC has raised nearly $50 million of equity at net asset value year-to-date.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the successful equity raise at net asset value, the alignment of interests with the investment manager, and the company's growth since the management refresh. The risks are standard for a BDC and are disclosed transparently.

Positives

• The equity raise of $13.2 million strengthens GECC's platform for future growth.
• The capital raise expands GECC's scale.
• The investment by GEG in SGP aligns the investment manager with shareholders.
• The company has nearly doubled its gross net asset value since March 2022.
• The company has raised nearly $50 million of equity at net asset value year-to-date.

Risks

• The document mentions that forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially.
• These risks include conditions in the credit markets, rising interest rates, inflationary pressure, the price of GECC common stock, and the performance of GECC's portfolio and investment manager.

Future Outlook

The company aims to continue expanding its portfolio and leveraging its infrastructure for future growth. The company intends to direct the investment of the net proceeds received by it from the sale of the Shares in such a manner as to continue to comply with the requirements of Subchapter M of the Code.

Management Comments

• Matt Kaplan, GECC's Chief Executive Officer, stated that the equity raise strengthens the platform for future growth and expands the company's scale.
• Jason Reese, GEG's Chief Executive Officer, said that GEG remains committed to building and enhancing its credit platform, anchored by GECC.

Industry Context

This equity raise is a common strategy for business development companies (BDCs) to increase their capital base, allowing them to pursue more investment opportunities and grow their portfolio. The alignment of the investment manager with shareholders through GEG's investment in SGP is a positive signal for investors.

Comparison to Industry Standards

• Raising equity at net asset value is generally considered a positive move for BDCs, as it avoids dilution for existing shareholders.
• Many BDCs use similar strategies to raise capital for growth and expansion.
• The investment by the parent company, GEG, is a strong signal of confidence in GECC's future prospects, similar to other BDCs where the parent company is a major shareholder.

Related Party Transactions

• The Purchaser, Summit Grove Partners, LLC, is 25% owned by Great Elm Group, Inc. (GEG).
• Great Elm Capital Management, LLC (GECM), the investment manager of the Company, is a wholly-owned subsidiary of GEG.
• GEG made a $3.3 million investment in SGP.

Stakeholder Impact

• Shareholders benefit from the increased capital base and potential for future growth.
• The alignment of the investment manager with shareholders through GEG's investment in SGP is a positive signal.
• The company's ability to expand its portfolio and leverage its infrastructure could lead to increased returns for shareholders.

Next Steps

• The company will file a registration statement on Form N-2 covering the resale of the shares issued.
• The company will continue to manage the investment of the net proceeds to comply with the requirements of Subchapter M of the Code.

Key Dates

Keywords

equity, capital raise, net asset value, common stock, private placement, business development company, investment manager, share purchase agreement