SCHEDULE 13D/A: Northern Right Capital Group Increases Stake in Great Elm Group to 20.1% Amidst PIK Note Forbearance Agreement

Northern Right Capital Management and its affiliates, including Matthew A. Drapkin, have increased their beneficial ownership in Great Elm Group, Inc. to 20.1% while agreeing to defer the conversion of significant convertible notes until January 2026.

Summary

• The filing is Amendment No. 11 to Schedule 13D, updating beneficial ownership information for Great Elm Group, Inc. (Issuer).
• The Reporting Persons, led by Northern Right Capital Management, L.P. and including Matthew A. Drapkin, collectively beneficially own 5,918,677 shares of Common Stock, representing approximately 20.1% of the outstanding shares.
• This percentage is based on 29,439,166 shares of Common Stock outstanding, which includes 28,341,552 shares reported as of February 3, 2025, plus 1,097,614 shares potentially issuable from PIK Notes held by Managed Accounts.
• In February 2020, the Reporting Persons purchased $6,000,000 in 5.0% Convertible Senior PIK Notes due 2030, receiving additional PIK Notes as interest payments semi-annually.
• The PIK Notes are convertible at a rate of 288.0018 shares of Common Stock per $1,000 principal amount.
• As of the filing date, Northern Right QP holds $2,881,132.32, NRC LO holds $612,413.00, and Mr. Drapkin holds $317,600.45 in PIK Notes.
• On January 13, 2025, Northern Right QP, NRC LO, and Mr. Drapkin entered into a Forbearance Agreement with the Issuer, agreeing not to convert their respective PIK Notes into Common Stock until January 13, 2026.
• Due to the Forbearance Agreement, the shares issuable upon conversion of PIK Notes held by Northern Right QP, NRC LO, and Mr. Drapkin (totaling 1,006,147 shares if converted) are not currently deemed beneficially owned by them or related entities for reporting purposes.
• Matthew A. Drapkin also holds 577,895 shares of Common Stock directly, along with various restricted shares awarded under the Issuer's 2016 Long-Term Incentive Compensation Plan, some of which are deferred or unvested.
• Mr. Drapkin was awarded 153,846 restricted shares on January 3, 2025, with varying vesting schedules, including 115,386 shares remaining unvested within 60 days and 35,485 shares vesting within 60 days.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While it's a routine ownership update, the forbearance agreement indicates a strategic, long-term commitment from a significant shareholder group, avoiding immediate dilution from PIK note conversion. The increased beneficial ownership percentage also signals confidence.

Risks

• The Forbearance Agreement prevents Northern Right QP, NRC LO, and Mr. Drapkin from converting their PIK Notes into Common Stock until January 13, 2026, potentially limiting their liquidity or ability to influence the company through increased equity ownership in the short term.
• The value of the PIK Notes and the shares issuable upon conversion are subject to market fluctuations and the Issuer's performance.

Future Outlook

The Forbearance Agreement prevents the conversion of certain PIK Notes until January 13, 2026, which may be extended with the Issuer's consent. This indicates a continued holding strategy for these specific convertible instruments by the Reporting Persons for at least the next year.

Industry Context

This filing is a routine Schedule 13D amendment, reflecting changes in significant ownership stakes and related agreements. It does not provide broader industry context or trends, but rather details a specific investor group's position and strategic decisions regarding their investment in Great Elm Group, Inc.

Related Party Transactions

• Matthew A. Drapkin, a Reporting Person, is a member of the board of directors of the Issuer and Great Elm Capital Corp., and has received restricted shares as compensation for his service under the Issuer's 2016 Long-Term Incentive Compensation Plan.
• The Forbearance Agreement was entered into between the Issuer and certain Reporting Persons (Northern Right QP, NRC LO, and Mr. Drapkin), indicating a direct arrangement between the company and its significant shareholders/management.

Stakeholder Impact

• Shareholders: The forbearance agreement means that the conversion of a significant block of PIK Notes into common stock is delayed, potentially reducing immediate dilution pressure on existing shareholders. The increased beneficial ownership by a key investor group could signal stability or confidence.
• Management: The agreement with key investors/board members like Mr. Drapkin indicates alignment on a strategic path, at least regarding the timing of PIK Note conversions.

Next Steps

• The Forbearance Agreement is set to expire on January 13, 2026, at which point Northern Right QP, NRC LO, and Mr. Drapkin will regain the right to convert their PIK Notes into Common Stock, unless the agreement is extended.
• Mr. Drapkin's restricted shares will continue to vest according to their monthly and quarterly schedules through December 31, 2025.

Key Dates

Recommendation

Keywords

Great Elm Group, Northern Right Capital, Schedule 13D, Beneficial Ownership, Convertible Notes, PIK Notes, Forbearance Agreement, Equity Stake, Investment Management, Corporate Governance