GREAT ELM CAPITAL CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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Overview


We are a Maryland corporation that was formed in April 2016. We operate as a
closed­end, externally managed, non-diversified management investment company
that has elected to be regulated as a BDC under the Investment Company Act of
1940, as amended (the "Investment Company Act"). In addition, for tax purposes,
we elected to be treated as a RIC under the Code, beginning with our tax year
starting October 1, 2016.

We seek to generate current income and capital appreciation through debt and
income-generating equity investments, including investments in specialty finance
businesses. To achieve our investment objective, we invest in secured and senior
secured debt instruments of middle market companies, as well as
income-generating equity investments in specialty finance companies, that we
believe offer sufficient downside protection and have the potential to generate
attractive returns. We generally define middle market companies as companies
with enterprise values between $100 million and $2 billion. We also make
investments throughout other portions of a company's capital structure,
including subordinated debt, mezzanine debt, and equity or equity­linked
securities. We source these transactions directly with issuers and in the
secondary markets through relationships with industry professionals.

On September 27, 2016, we and Great Elm Capital Management, Inc. ("GECM"), our
external investment manager, entered into an investment management agreement
(the "Investment Management Agreement") and an administration agreement (the
"Administration Agreement"), and we began to accrue obligations to GECM under
those agreements. The Investment Management Agreement renews for successive
annual periods, subject to requisite Board and/or stockholder approvals.

We have elected to be treated as a RIC for U.S. federal income tax purposes. As
a RIC, we will not be taxed on our income to the extent that we distribute such
income each year and satisfy other applicable income tax requirements. To
qualify as a RIC, we must, among other things, meet source-of-income and asset
diversification requirements and annually distribute to our stockholders
generally at least 90% of our investment company taxable income on a timely
basis. 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.

Investments


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.

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Revenues


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. Our debt
investments generally pay interest quarterly or semi-annually. Payments of
principal of our debt investments may be amortized over the stated term of the
investment, deferred for several years or due entirely at maturity. In some
cases, our debt investments and preferred stock investments may defer payments
of cash interest or dividends or payment-in-kind ("PIK"). In addition, we may
generate revenue in the form of prepayment fees, commitment, origination, due
diligence fees, end-of-term or exit fees, fees for providing significant
managerial assistance, consulting fees and other investment-related income.

Expenses


Our primary operating expenses include the payment of a base management fee,
administration fees (including the allocable portion of overhead under the
Administration Agreement), and, depending on our operating results, an incentive
fee. The base management fee and incentive fee remunerates GECM for work in
identifying, evaluating, negotiating, closing and monitoring our investments.
The Administration Agreement provides for reimbursement of costs and expenses
incurred for office space rental, office equipment and utilities allocable to us
under the Administration Agreement, as well as certain costs and expenses
incurred relating to non-investment advisory, administrative or operating
services provided by GECM or its affiliates to us. We also bear all other costs
and expenses of our operations and transactions. In addition, our expenses
include interest on our outstanding indebtedness.

Critical Accounting Policies

Valuation of Portfolio Investments


We value our portfolio investments at fair value based upon the principles and
methods of valuation set forth in policies adopted by our board of directors
(our "Board"). Fair value is defined as the price that would be received to sell
an asset in an orderly transaction between market participants at the
measurement date. Market participants are buyers and sellers in the principal
(or most advantageous) market for the asset that (1) are independent of us; (2)
are knowledgeable, having a reasonable understanding about the asset based on
all available information (including information that might be obtained through
due diligence efforts that are usual and customary); (3) are able to transact
for the asset; and (4) are willing to transact for the asset (that is, they are
motivated but not forced or otherwise compelled to do so).

Investments for which market quotations are readily available are valued at such
market quotations unless the quotations are deemed not to represent fair value.
Debt and equity securities for which market quotations are not readily available
or for which market quotations are deemed not to represent fair value, are
valued at fair value using a valuation process consistent with our
Board-approved policy.

Our Board approves in good faith the valuation of our portfolio as of the end of
each quarter. Due to the inherent uncertainty and subjectivity of determining
the fair value of investments that do not have a readily available market value,
the fair value of our investments may differ significantly from the values that
would have been used had a readily available market value existed for such
investments and may differ materially from the values that we may ultimately
realize. In addition, changes in the market environment and other events may
impact the market quotations used to value some of our investments.

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Those investments for which market quotations are not readily available or for
which market quotations are deemed not to represent fair value are valued
utilizing a market approach, an income approach, or both approaches, as
appropriate. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets or
liabilities (including a business). The income approach uses valuation
techniques to convert future amounts (for example, cash flows or earnings) to a
single present amount (discounted). The measurement is based on the value
indicated by current market expectations about those future amounts. In
following these approaches, the types of factors that we may take into account
in determining the fair value of our investments include, as relevant and among
other factors: available current market data, including relevant and applicable
market trading and transaction comparables; applicable market yields and
multiples, security covenants, call protection provisions, information rights
and the nature and realizable value of any collateral, the portfolio company's
ability to make payments, its earnings and discounted cash flows, the markets in
which the portfolio company does business, comparisons of financial ratios of
peer companies that are public, and merger and acquisition comparables; and
enterprise values.

We prefer the use of observable inputs and minimize the use of unobservable
inputs in our valuation process. Inputs refer broadly to the assumptions that
market participants would use in pricing an asset. Observable inputs are inputs
that reflect the assumptions market participants would use in pricing an asset
developed based on market data obtained from sources independent of us.
Unobservable inputs are inputs that reflect our assumptions about the
assumptions market participants would use in pricing an asset developed based on
the best information available in the circumstances.

Both observable and unobservable inputs are subject to some level of uncertainty
and assumptions used bear the risk of change in the future. We utilize the best
information available to us, including the factors listed above, in preparing
the fair valuations. In determining the fair value of any individual investment,
we may use multiple inputs or utilize more than one approach to calculate the
fair value to assess the sensitivity to change and determine a reasonable range
of fair value. In addition, our valuation procedures include an assessment of
the current valuation as compared to the previous valuation for each investment
and where differences are material understanding the primary drivers of those
changes, incorporating updates to our current valuation inputs and approaches as
appropriate.

Revenue Recognition

Interest and dividend income, including PIK income, is recorded on an accrual
basis. Origination, structuring, closing, commitment and other upfront fees,
including original issue discounts ("OID"), earned with respect to capital
commitments are generally amortized or accreted into interest income over the
life of the respective debt investment, as are end-of-term or exit fees
receivable upon repayment of a debt investment if such fees are fixed in nature.
Other fees, including certain amendment fees, prepayment fees and commitment
fees on broken deals, and end-of-term or exit fees that have a contingency
feature or are variable in nature are recognized as earned. Prepayment fees and
similar income due upon the early repayment of a loan or debt security are
recognized when earned and are included in interest income.

We may purchase debt investments at a discount to their face value. 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 expected 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.

Net Realized Gains (Losses) and Net Change in Unrealized Appreciation
(Depreciation)


We measure realized gains or losses by the difference between the net proceeds
from the repayment or sale of an investment and the amortized cost basis of the
investment, without regard to unrealized appreciation or depreciation previously
recognized. Realized gains and losses are computed using the specific
identification method.

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Net change in unrealized appreciation or depreciation reflects the net change in
portfolio investment fair values and portfolio investment cost bases during the
reporting period, including the reversal of previously recorded unrealized
appreciation or depreciation when gains or losses are realized.

Portfolio and Investment Activity

The following is a summary of our investment activity for the year ended
December 31, 2021 and the three months ended March 31, 2022:

                                                                                   Weighted Average
                                                                                        Yield
(in thousands)                         Acquisitions(1)      

Dispositions(2) End of Period(3)
Quarter ended March 31, 2021 $ 58,429 $ (28,268 )

                10.91 %
Quarter ended June 30, 2021                      49,904               (35,583 )                11.10 %
Quarter ended September 30, 2021                 72,340               (31,640 )                11.27 %
Quarter ended December 31, 2021                  34,184               (40,270 )                10.81 %
For the Year Ended December 31,
2021                                            214,857              

(135,761 )


Quarter ended March 31, 2022                     27,578               (29,723 )                10.38 %
For the Three Months Ended March
31, 2022                              $          27,578     $         (29,723 )


(1)
Includes new investments, additional fundings (inclusive of those on revolving
credit facilities), refinancings and capitalized PIK income. Investments in
short-term securities, including U.S. Treasury Bills and money market mutual
funds, were excluded.

(2)

Includes scheduled principal payments, prepayments, sales, and repayments
(inclusive of those on revolving credit facilities). Investments in short-term
securities, including U.S. Treasury Bills and money market mutual funds, were
excluded.

(3)

Weighted average yield is based upon the stated coupon rate and fair value of
outstanding debt securities at the measurement date. Debt securities on
non-accrual status are included in the calculation and are treated as having 0%
as their applicable interest rate for purposes of this calculation, unless such
debt securities are valued at zero.

Portfolio Reconciliation


The following is a reconciliation of the investment portfolio for the three
months ended March 31, 2022 and the year ended December 31, 2021. Investments in
short-term securities, including U.S. Treasury Bills and money market mutual
funds, are excluded from the table below.
                                                    For the Three          For the Year
                                                 Months Ended March       Ended December
(in thousands)                                        31, 2022               31, 2021
Beginning Investment Portfolio, at fair value    $           212,149     $  

151,648

Portfolio Investments acquired(1)                             27,578        

214,857

Amortization of premium and accretion of
discount, net                                                    396        

3,958

Portfolio Investments repaid or sold(2)                      (29,723 )            (135,761 )
Net change in unrealized appreciation
(depreciation) on investments                                  8,869               (12,922 )
Net realized gain (loss) on investments                      (19,931 )              (9,631 )
Ending Investment Portfolio, at fair value       $           199,338     $  

212,149

(1)

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

(2)

Includes scheduled principal payments, prepayments, sales, and repayments
(inclusive of those on revolving credit facilities).

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Portfolio Classification

The following table shows the fair value of our portfolio of investments by
industry as of March 31, 2022 and December 31, 2021 (in thousands):


                                          March 31, 2022

December 31, 2021

                                Investments at       Percentage of        Investments at       Percentage of
Industry                          Fair Value          Fair Value            Fair Value          Fair Value
Specialty Finance              $         66,513               33.37 %    $         47,952               22.60 %
Energy Midstream                         29,185               14.64 %              31,815               15.00 %
Chemicals                                14,912                7.48 %              15,058                7.10 %
Metals & Mining                          13,708                6.88 %              13,711                6.46 %
Internet Media                           11,862                5.95 %              11,870                5.60 %
Construction Materials                                         5.17 %                                    4.93 %
Manufacturing                            10,299                                    10,461
Oil & Gas Exploration &                                        5.03 %                                    4.64 %
Production                               10,023                                     9,849
Industrial                                7,149                3.59 %               7,551                3.56 %
Transportation Equipment                                       3.02 %                                    2.84 %
Manufacturing                             6,013                                     6,030
Casinos & Gaming                          5,215                2.62 %               5,291                2.49 %
Hospitality                               4,070                2.04 %               4,085                1.93 %
Restaurants                               3,956                1.98 %               8,310                3.92 %
Oil & Gas Refining                        2,970                1.49 %               3,030                1.43 %
Apparel                                   2,890                1.45 %               2,929                1.38 %
Food & Staples                            2,732                1.37 %               2,724                1.28 %
Aircraft                                  2,550                1.28 %                   -                   - %
Home Security                             2,397                1.20 %               5,590                2.63 %
Commercial Printing                       1,999                1.00 %               2,025                0.95 %
Wireless Telecommunications                                    0.31 %                                    3.84 %
Services                                    621                                     8,137
Communications Equipment                    303                0.15 %               1,057                0.50 %
Special Purpose Acquisition                                    0.05 %                                    1.43 %
Company                                      94                                     3,044
Consumer Finance                             15                0.01 %                   -                   - %
IT Services                                   7                   - %                   7                0.01 %
Biotechnology                                 4                   - %                  11                0.01 %
Retail                                        2                   - %               4,267                2.01 %
Technology                                 (151 )             (0.08 )%               (158 )             (0.07 )%
Healthcare Supplies                           -                   - %               2,869                1.35 %
Consumer Services                             -                   - %               2,640                1.24 %
Software Services                             -                   - %               1,994                0.94 %
Total                          $        199,338              100.00 %    $        212,149              100.00 %


Results of Operations

This “-Results of Operations” discussion should be read in conjunction with the
discussion of (“COVID-19”) under “-Recent Developments-COVID 19”.

Investment Income

                                                  For the Three Months Ended March 31,
                                                2022                                  2021
                                  In Thousands        Per Share(1)      In Thousands       Per Share(2)
Total Investment Income          $        5,558$        1.22$       5,295     $         1.36
Interest income                           4,041                0.89             4,179               1.07
Dividend income                           1,267                0.28               801               0.21
Other income                                250                0.05               315               0.08




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(1)

The per share amounts are based on a weighted average of 4,558,451 outstanding
common shares for the three months ended March 31, 2022. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,900,306 outstanding
common shares for the three months ended March 31, 2021. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

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 fees, commitment fees
and funding fees on loans. For the three months ended March 31, 2022, interest
income includes non-cash PIK income of $0.3 million. For the three months ended
March 31, 2021, interest income includes non-cash PIK income of $1.5 million.

Interest income was generally consistent quarter over quarter for the three
months ended March 31, 2022 as compared to the three months ended March 31,
2021. Our debt investments in Avanti Communications Group, plc ("Avanti") are
each on non-accrual status as of March 31, 2022, with the investments in the
Avanti 2nd Lien Bond and Avanti 1.5 Lien Loan having been on non-accrual since
December 31, 2021. The Avanti 1.25 Lien Loan and 1.125 Lien Loan were placed on
non-accrual as of March 31, 2022 with any accrued but uncapitalized interest
income reversed as of the accrual date. The decrease in interest income from
these positions has been offset by interest earned on new positions.


Dividend income for the three months ended March 31, 2022 increased as compared
to the corresponding period in the prior year due to a higher current quarter
distribution from our investment in Prestige Capital Finance, LLC ("Prestige")
and a distribution from Lenders Funding, LLC which was acquired in the third
quarter of 2021.


Expenses

                                                       For the Three Months Ended March 31,
                                                    2022                                   2021
                                      In Thousands         Per Share(1)      In Thousands       Per Share(2)
Total Expenses                       $         (497 )     $        (0.11 )   $         139     $         0.04
Management fees                                 780                 0.17               660               0.17
Incentive fees                                    -                    -               108               0.03
Incentive fee waiver                         (4,854 )              (1.06 )               -                  -

Total advisory and management fees $ (4,074 )$ (0.89 )

 $         768     $         0.20
Administration fees                             221                 0.05               156               0.04
Directors' fees                                  63                 0.01                55               0.01
Interest expense                              2,670                 0.59             2,198               0.56
Professional services                           418                 0.09               425               0.11
Custody fees                                     14                    -                13                  -
Other                                           191                 0.04               176               0.05
Income Tax Expense
Excise tax                                      101                 0.02                 -                  -


(1)
The per share amounts are based on a weighted average of 4,558,451 outstanding
common shares for the three months ended March 31, 2022. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,900,306 outstanding
common shares for the three months ended March 31, 2021. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

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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-administration services.

Excluding incentive fees, total expenses for the three months ended March 31,
2022 increased as compared to total expenses for the three months ended March
31, 2021 primarily due to increases in management fees, administration fees and
interest expense. The increases in management fees are primarily driven by
increases in the fair value of the portfolio during through the three months
ended March 31, 2022 as compared to the corresponding period in 2021 when fair
values were still negatively impacted by the effects of COVID-19. Administration
fees increased in the three months ended March 31, 2022 as compared to the
corresponding period in the prior year due to increases in allocable personnel
time as a result of changes in staffing.

For the three months ended March 31, 2022, interest expense increased as
compared to the corresponding period in the prior year as a result of the
issuance of $57.5 million in aggregate principal amount of the 5.875% notes due
2026 (the "GECCO Notes") in June and July 2021 which was partially offset by the
redemption of $30.3 million in aggregate principal amount of the 6.50% Notes due
2022 (the "GECCL Notes") in July 2021.

Realized Gains (Losses)

                                                  For the Three Months Ended March 31,
                                               2022                                  2021
                                  In Thousands       Per Share(1)       In Thousands      Per Share(2)
Net Realized Gain (Loss)         $      (19,933 )$       (4.37 )$       (3,275 )$       (0.84 )
Gross realized gain                         791               0.17                919              0.24
Gross realized loss                     (20,724 )            (4.54 )           (4,194 )           (1.08 )


(1)
The per share amounts are based on a weighted average of 4,558,451 outstanding
common shares for the three months ended March 31, 2022. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,900,306 outstanding
common shares for the three months ended March 31, 2021. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

During the three months ended March 31, 2022, net realized losses were primarily
driven by the sales of our investment in Tru (UK) Asia Limited ("Tru Taj")
common stock and California Pizza Kitchen, Inc. ("CPK") common stock for which
we recognized realized losses of $15.9 million and $4.2 million, respectively.
These realized losses were offset by the corresponding reversals of previously
recognized unrealized losses on these positions.

During the three months ended March 31, 2021, net realized losses were primarily
driven by the sale of our investment in Boardriders, Inc. ("Boardriders") 1st
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.

Change in Unrealized Appreciation (Depreciation) on Investments

                                                   For the Three Months Ended March 31,
                                                2022                                  2021
                                   In Thousands       Per Share(1)       In Thousands      Per Share(2)
Net change in unrealized
appreciation/ (depreciation)      $        8,870$        1.94$       14,317$        3.67
Unrealized appreciation                   20,762               4.55             18,032              4.62
Unrealized depreciation                  (11,892 )            (2.61 )           (3,715 )           (0.95 )




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(1)

The per share amounts are based on a weighted average of 4,558,451 outstanding
common shares for the three months ended March 31, 2022. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

(2)

The per share amounts are based on a weighted average of 3,900,306 outstanding
common shares for the three months ended March 31, 2021. These weighted average
share amounts have been retroactively adjusted for the reverse stock split
effected on February 28, 2022.

During the three months ended March 31, 2022, gross unrealized appreciation
primarily consisted of the reversal of previously recognized unrealized losses
on our investments in Tru Taj common stock and CPK common stock, which were
offset by corresponding realized losses as discussed above. Gross unrealized
depreciation was driven by the write downs on our investments in the Avanti
1.125 lien secured loan, Avanti 1.25 lien secured loan and 1.5 lien secured
loan, on which we collectively recognized $7.7 million in unrealized
depreciation. In April 2022, Avanti announced a series of restructuring
transactions pursuant to which certain creditors of Avanti (excluding GECC)
contributed additional senior debt financing to Avanti, and the 2nd lien secured
bond and 1.5 lien secured loan were converted to equity.

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.

Liquidity and Capital Resources

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


At March 31, 2022, we had approximately $8.5 million of cash and cash
equivalents. At March 31, 2022, we had investments in 45 debt instruments across
37 companies, totaling approximately $145.2 million at fair value and 116 equity
investments in 116 companies, totaling approximately $54.1 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 March 31, 2022, we had approximately
$25.3 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, 2022 balance sheet
to satisfy the unfunded commitments.

For the three months ended March 31, 2022, net cash provided by operating
activities was approximately $2.1 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 provided by purchases
and proceeds from sales of investments was approximately $0.9 million,
reflecting payments for additional investments of $25.3 million, offset by
proceeds from principal repayments and sales of $26.2 million. Such amounts
include draws and repayments on revolving credit facilities.

For the three months ended March 31, 2022, net cash used by financing activities
was $2.8 million, primarily for distributions to stockholders.

Contractual Obligations

A summary of our significant contractual payment obligations as of March 31,
2022
is as follows:

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                                             Less than                                             More than
(in thousands)               Total            1 year           1-3 years        3-5 years           5 years
Contractual Obligations
GECCM Notes                    45,610                   -           45,610                -                   -
GECCN Notes                    42,823                   -           42,823                -                   -
GECCO Notes                    57,500                   -                -           57,500                   -
Total                     $   145,933     $             -     $     88,433$     57,500     $             -


We have certain contracts under which we have material future commitments. Under
the Investment Management Agreement, GECM provides investment advisory services
to us. For providing these services, we pay GECM a fee, consisting of two
components: (1) a base management fee based on the average value of our total
assets and (2) an incentive fee based on our performance.

We are also party to the Administration Agreement with GECM. Under the
Administration Agreement, GECM furnishes us with, or otherwise arranges for the
provision of, office facilities, equipment, clerical, bookkeeping, finance,
accounting, compliance and record keeping services at such office facilities and
other such services as our administrator.

If any of the contractual obligations discussed above are terminated, our costs
under any new agreements that we enter into may increase. In addition, we would
likely incur significant time and expense in locating alternative parties to
provide the services we expect to receive under our Investment Management
Agreement and our Administration Agreement. Any new investment management
agreement would also be subject to approval by our stockholders.

Both the Investment Management Agreement and the Administration Agreement may be
terminated by either party without penalty upon no fewer than 60 days' written
notice to the other.

Revolver

On May 5, 2021, we 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). We 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 May 5, 2024. Borrowings under the revolving line bear interest at a rate
equal to (i) the LIBOR plus 3.50%, (ii) a base rate plus 2.00% or (iii) a
combination thereof, as determined by us. As of March 31, 2022, there were no
borrowings outstanding under the revolving line.

Borrowings under the revolving line are secured by a first priority security
interest in substantially all of our assets, subject to certain specified
exceptions. We have made customary representations and warranties and are
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 150% 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. In May 2022, the Loan Agreement was amended to require an asset
coverage equal to or greater than 150% as of the last day of each fiscal quarter
except for the fiscal quarters ending March 31, 2022 and June 30, 2022. In
addition, the interest rate was amended to replace LIBOR with the secured
overnight financing rate ("SOFR").

Notes Payable


On January 11, 2018, we issued $43.0 million in aggregate principal amount of
6.75% notes due 2025 (the "GECCM Notes"). On January 19, 2018 and February 9,
2018, we issued 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
March 31, 2022 is $45.6 million.

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On June 18, 2019, we issued $42.5 million in aggregate principal amount of 6.50%
Notes due 2024 (the "GECCN Notes"), which included $2.5 million of GECCN Notes
issued in connection with the partial exercise of the underwriters'
over-allotment option. On July 5, 2019, we issued 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 March 31, 2022 is $42.8 million.

On June 23, 2021, we issued $50.0 million in aggregate principal amount of
5.875% notes due 2026 (the "GECCO Notes" and, together with the GECCM Notes and
GECCN Notes, the "Notes"). On July 9, 2021, we issued an additional $7.5 million
of the GECCO Notes upon full exercise of the underwriters' over-allotment
option.

The Notes are our unsecured obligations and rank equal with all of our
outstanding and future unsecured unsubordinated indebtedness. The unsecured
notes are effectively subordinated, or junior in right of payment, to
indebtedness under our Loan Agreement and any other future secured indebtedness
that we may incur and structurally subordinated to all future indebtedness and
other obligations of our subsidiaries. We pay interest on the Notes on March 31,
June 30, September 30 and December 31 of each year. The GECCM Notes, GECCM Notes
and GECCO Notes will mature on January 31, 2025, June 30, 2024 and June 30,
2026, respectively. The GECCM Notes and GECCN Notes are currently callable at
the Company's option and the GECCO Notes can be called on, or after, June 30,
2023. Holders of the Notes do not have the option to have the Notes repaid prior
to the stated maturity date. The 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.


As of March 31, 2022, our asset coverage ratio was approximately 147.5%. Under
the Investment Company Act, we are subject to a minimum asset coverage ratio of
150%. As a result of falling below the Minimum ACR, we will be subject to
certain limitations on our ability to incur additional debt, make cash
distributions on junior securities or repurchase junior securities, in each
case, in accordance with the Investment Company Act of 1940, as amended and the
indentures governing our outstanding notes, until such time we are above the
Minimum ACR.

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Recent Developments


Our Board authorized the distribution for the quarter ending September 30, 2022
at $0.45 per share, with the record and payment dates to be set by the officers
of GECC pursuant to authority granted by our Board.

On April 19, 2022, GECC filed an amendment to its registration statement with
the SEC in connection with a non-transferable rights offering to purchase shares
of its common stock (the "Rights Offering"). The Company's stockholders who
fully exercise all rights issued to them in the Rights Offering are entitled to
subscribe for additional shares that were not subscribed for by other
stockholders of the Company. The registration statement has not been declared
effective by the SEC and the Rights Offering is subject to market and other
conditions. There can be no assurance as to whether or when the Rights Offering
may be completed, if at all, or as to the actual size or terms of the Rights
Offering.

COVID-19

The COVID-19 pandemic continues to disrupt economic markets. The economic
impact, duration and spread of the COVID-19 virus, including new variants, 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.

Our investment manager prioritizes the health and safety of employees and in
early March 2020, GECM moved to a remote-working model for all employees. In
addition, the officers of GECC have maintained regular communications with key
service providers, including the fund administration, legal and accounting
professionals, noting that those firms have similarly moved to remote-working
models to the extent possible. Our employees and key service providers have been
able to effectively transition to working remotely while maintaining a
consistent level of capabilities and service, however, we will continue to
monitor and make adjustments as necessary.

While we have been carefully monitoring the COVID-19 pandemic and its impact on
our business and the business of our portfolio companies, we have continued to
fund our existing debt commitments. 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 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-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.
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. It is possible that some of our portfolio
companies may significantly curtail business operations, furlough or lay off
employees and terminate service providers, and defer capital expenditures if
subjected to prolonged and severe financial distress, which would likely impair
their business on a permanent basis. These developments would likely result in a
decrease in the value of our investment in any such portfolio company.


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The COVID-19 pandemic and the related disruption and financial distress
experienced by our portfolio companies may have material adverse effects on our
investment income, particularly our interest income, received from our
investments. 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 will continue to monitor the 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 March 31, 2022, approximately $60.6 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.Federal Reserve and other central banks have
reduced certain interest rates and LIBOR has decreased. A prolonged reduction in
interest rates will reduce our gross investment income and could result in a
decrease in our net investment income if such decreases in LIBOR are not offset
by a corresponding increase in the spread over LIBOR that we earn on any
portfolio investments or a decrease in our operating expenses. See "Item 3.
Quantitative and Qualitative Disclosures About Market Risk" for an analysis of
the impact of hypothetical base rate changes in interest rates.

© Edgar Online, source Glimpses



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