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What changed in Great Elm Capital Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Great Elm Capital Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+253 added−286 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-02)

Top changes in Great Elm Capital Corp.'s 2023 10-K

253 paragraphs added · 286 removed · 207 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

60 edited+14 added−24 removed121 unchanged
Biggest changeThe principal categories of qualifying assets relevant to our business are: ▪ securities purchased in transactions not involving any public offering, the issuer of which is an eligible portfolio company; ▪ securities received in exchange for or distributed with respect to securities described in the bullet above or pursuant to the exercise of options, warrants or rights relating to such securities; and ▪ cash, cash items, government securities or high quality debt securities (within the meaning of the Investment Company Act), maturing in one year or less from the time of investment. 14 An eligible portfolio company is generally a domestic company that is not an investment company (other than a small business investment company wholly owned by a BDC) and that: ▪ does not have a class of securities with respect to which a broker may extend margin credit at the time the acquisition is made; ▪ is controlled by the BDC and has an affiliate of the BDC on its board of directors; ▪ does not have any class of securities listed on a national securities exchange; ▪ is a public company that lists its securities on a national securities exchange with a market capitalization of less than $250.0 million; or ▪ meets such other criteria as may be established by the SEC.
Biggest changeAn “eligible portfolio company” is generally a U.S. domestic company that is not an investment company (other than a small business investment company wholly-owned by a BDC) and that: ▪ does not have a class of securities with respect to which a broker may extend margin credit at the time the acquisition is made; ▪ is controlled by the BDC and has an affiliate of the BDC on its board of directors; ▪ does not have any class of securities listed on a national securities exchange; ▪ is a public company that lists its securities on a national securities exchange with a market capitalization of less than $250.0 million; or ▪ meets such other criteria as may be established by the SEC.
If such amount is positive at the end of such year, then the Capital Gains Incentive Fee for such year is equal to 20% of such amount, less the aggregate amount of Capital Gains Incentive Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Incentive Fee for such year.
If such amount is negative, then there is no Capital Gains Incentive Fee for such year. If such amount is positive at the end of such year, then the Capital Gains Incentive Fee for such year is equal to 20% of such amount, less the aggregate amount of Capital Gains Incentive Fees paid in all prior years.
Government securities and the securities of other regulated investment companies) (A) of any issuer, (B) of any two or more issuers that we control and that are determined to be engaged in the same business or similar or related trades or businesses, or (C) of one or more QPTPs.
Government securities and the securities of other regulated investment companies) (A) of any one issuer, (B) of any two or more issuers that we control and that are determined to be engaged in the same business or similar or related trades or businesses, or (C) of one or more QPTPs.
We bear all other costs and expenses of our operations and transactions, including (without limitation): ▪ our organizational expenses; ▪ fees and expenses, including reasonable travel expenses, actually incurred by GECM or payable to third parties related to our investments, including, among others, professional fees (including the fees and expenses of counsel, consultants and experts) and fees and expenses relating to, or associated with, evaluating, monitoring, researching and performing due diligence on investments and prospective investments (including payments to third party vendors for financial information services); ▪ out‑of‑pocket fees and expenses, including reasonable travel expenses, actually incurred by GECM or payable to third parties related to the provision of managerial assistance to our portfolio companies that we agree to provide such services to under the Investment Company Act (exclusive of the compensation of any investment professionals of GECM); ▪ interest or other costs associated with debt, if any, incurred to finance our business; ▪ fees and expenses incurred in connection with our membership in investment company organizations; ▪ brokers’ commissions; ▪ investment advisory and management fees; ▪ fees and expenses associated with calculating our NAV (including the costs and expenses of any independent valuation firm); ▪ fees and expenses relating to offerings of our common stock and other securities; ▪ legal, auditing or accounting expenses; ▪ federal, state and local taxes and other governmental fees; ▪ the fees and expenses of GECM, in its role as the administrator, and any sub‑administrator, our transfer agent or sub‑transfer agent, and any other amounts payable under the Administration Agreement, or any similar administration agreement or sub‑administration agreement to which we may become a party; ▪ the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of our securities; ▪ the expenses of and fees for registering or qualifying our common stock for sale and of maintaining our registration and registering us as a broker or a dealer; ▪ the fees and expenses of our directors who are not interested persons (as defined in the Investment Company Act); ▪ the cost of preparing and distributing reports, proxy statements and notices to stockholders, the SEC and other governmental or regulatory authorities; ▪ costs of holding stockholders’ meetings; ▪ listing fees; 11 ▪ the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our bylaws or amended and restated articles of incorporation insofar as they govern agreements with any such custodian; ▪ our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; ▪ our allocable portion of the costs associated with maintaining any computer software, hardware or information technology services (including information systems, Bloomberg or similar terminals, cyber security and related consultants and email retention) that are used by us or by GECM or its respective affiliates on our behalf (which allocable portion shall exclude any such costs related to investment professionals of GECM providing services to us); ▪ direct costs and expenses incurred by us or GECM in connection with the performance of administrative services on our behalf, including printing, mailing, long distance telephone, cellular phone and data service, copying, secretarial and other staff, independent auditors and outside legal costs; ▪ all other expenses incurred by us or GECM in connection with administering our business (including payments under the Administration Agreement) based upon our allocable portion of GECM’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs (including reasonable travel expenses); and ▪ costs incurred by us in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business.
We bear all other costs and expenses of our operations and transactions, including (without limitation): 10 ▪ our organizational expenses; ▪ fees and expenses, including reasonable travel expenses, actually incurred by GECM or payable to third parties related to our investments, including, among others, professional fees (including the fees and expenses of counsel, consultants and experts) and fees and expenses relating to, or associated with, evaluating, monitoring, researching and performing due diligence on investments and prospective investments (including payments to third party vendors for financial information services); ▪ out‑of‑pocket fees and expenses, including reasonable travel expenses, actually incurred by GECM or payable to third parties related to the provision of managerial assistance to our portfolio companies that we agree to provide such services to under the Investment Company Act (exclusive of the compensation of any investment professionals of GECM); ▪ interest or other costs associated with debt, if any, incurred to finance our business; ▪ fees and expenses incurred in connection with our membership in investment company organizations; ▪ brokers’ commissions; ▪ investment advisory and management fees; ▪ fees and expenses associated with calculating our NAV (including the costs and expenses of any independent valuation firm); ▪ fees and expenses relating to offerings of our common stock and other securities; ▪ legal, auditing or accounting expenses; ▪ federal, state and local taxes and other governmental fees; ▪ the fees and expenses of GECM, in its role as the administrator, and any sub‑administrator, our transfer agent or sub‑transfer agent, and any other amounts payable under the Administration Agreement, or any similar administration agreement or sub‑administration agreement to which we may become a party; ▪ the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of our securities; ▪ the expenses of and fees for registering or qualifying our common stock for sale and of maintaining our registration and registering us as a broker or a dealer; ▪ the fees and expenses of our directors who are not interested persons (as defined in the Investment Company Act); ▪ the cost of preparing and distributing reports, proxy statements and notices to stockholders, the SEC and other governmental or regulatory authorities; ▪ costs of holding stockholders’ meetings; ▪ listing fees; ▪ the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our bylaws or amended and restated articles of incorporation insofar as they govern agreements with any such custodian; ▪ our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; ▪ our allocable portion of the costs associated with maintaining any computer software, hardware or information technology services (including information systems, Bloomberg or similar terminals, cyber security and related consultants and email retention) that are used by us or by GECM or its respective affiliates on our behalf (which allocable portion shall exclude any such costs related to investment professionals of GECM providing services to us); ▪ direct costs and expenses incurred by us or GECM in connection with the performance of administrative services on our behalf, including printing, mailing, long distance telephone, cellular phone and data service, copying, secretarial and other staff, independent auditors and outside legal costs; 11 ▪ all other expenses incurred by us or GECM in connection with administering our business (including payments under the Administration Agreement) based upon our allocable portion of GECM’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs (including reasonable travel expenses); and ▪ costs incurred by us in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business.
Our Investments Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things: ▪ disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, net capital losses, business interest expenses and certain underwriting and similar fees; ▪ convert lower taxed long‑term capital gain and qualified dividend income into higher taxed, short‑term capital gain or ordinary income; ▪ convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited); ▪ cause us to recognize income or gain without a corresponding receipt of cash; ▪ adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur; ▪ adversely alter the characterization of certain complex financial transactions; and ▪ produce income that will not qualify as “good income” for purposes of the 90% annual gross income requirement described above.
Our Investments Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things: ▪ disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, net capital losses, business interest expenses and certain underwriting and similar fees; 16 ▪ convert lower taxed long‑term capital gain and qualified dividend income into higher taxed, short‑term capital gain or ordinary income; ▪ convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited); ▪ cause us to recognize income or gain without a corresponding receipt of cash; ▪ adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur; ▪ adversely alter the characterization of certain complex financial transactions; and ▪ produce income that will not qualify as “good income” for purposes of the 90% annual gross income requirement described above.
In its consideration of the Investment Management Agreement, our Board focused on information it had received relating to, among other things: ▪ the nature, quality and extent of the advisory and other services to be provided to us by GECM; ▪ the investment performance of us and GECM; ▪ the extent to which economies of scale would be realized as we grow, and whether the fees payable under the Investment Management Agreement reflect these economies of scale for the benefit of our stockholders; ▪ comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; ▪ our projected operating expenses and expense ratio compared to BDCs with similar investment objectives; ▪ existing and potential sources of indirect income to GECM from its relationship with us and the profitability of those income sources; ▪ information about the services to be performed and the personnel performing such services under the Investment Management Agreement; ▪ the organizational capability and financial condition of GECM and its affiliates; and ▪ the possibility of obtaining similar services from other third party service providers or through an internally managed structure.
In its consideration of the Investment Management Agreement, our Board focused on information it had received relating to, among other things: ▪ the nature, quality and extent of the advisory and other services to be provided to us by GECM; ▪ the investment performance of us and GECM; ▪ the extent to which economies of scale would be realized as we grow, and whether the fees payable under the Investment Management Agreement reflect these economies of scale for the benefit of our stockholders; ▪ comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; ▪ our projected operating expenses and expense ratio compared to BDCs with similar investment objectives; 12 ▪ existing and potential sources of indirect income to GECM from its relationship with us and the profitability of those income sources; ▪ information about the services to be performed and the personnel performing such services under the Investment Management Agreement; ▪ the organizational capability and financial condition of GECM and its affiliates; and ▪ the possibility of obtaining similar services from other third party service providers or through an internally managed structure.
To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of: ▪ at least 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year; 16 ▪ at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one‑year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year); and ▪ certain undistributed amounts from previous years on which we paid no U.S. federal income tax (the “Excise Tax Avoidance Requirement”).
To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of: ▪ at least 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year; ▪ at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one‑year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year); and ▪ certain undistributed amounts from previous years on which we paid no U.S. federal income tax (the “Excise Tax Avoidance Requirement”).
Each code of ethics is included as an exhibit to this report and available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You may also obtain copies of the respective codes of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov. 15 Certain U.S.
Each code of ethics is included as an exhibit to this report and available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You may also obtain copies of the respective codes of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov. Certain U.S.
The Department of the Treasury, however, has issued regulations that treat such income as being “good income” for purposes of the 90% gross income requirement, provided the income is derived with respect to a corporation’s business of investing in stock, securities or currencies. Our functional currency is the U.S. dollar ("USD") for U.S. federal income tax purposes.
The Department of the Treasury, however, has issued regulations that treat such income as being “good income” for purposes of the 90% gross income requirement, provided the income is derived with respect to a corporation’s business of investing in stock, securities or currencies. Our functional currency is the U.S. dollar for U.S. federal income tax purposes.
In general, a foreign corporation will be classified as a CFC if more than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution) by U.S. stockholders.
In general, a foreign corporation will be classified as a CFC if more than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution) by U.S. Stockholders. A “U.S.
Other than with respect to this limited license, we have no legal right to the “Great Elm Capital Corp.” name. The license agreement may be terminated by either party without penalty upon 60 days’ written notice to the other.
Other than 19 with respect to this limited license, we have no legal right to the “Great Elm Capital Corp.” name. The license agreement may be terminated by either party without penalty upon 60 days’ written notice to the other.
Brokerage commissions paid to Imperial Capital, LLC represent 100% of our aggregate brokerage commissions during the most recent fiscal year and the dollar amount of transactions on which such brokerage commissions were paid represents 100% of the aggregate dollar amount of transactions involving the payment of commissions during such fiscal year.
Brokerage commissions paid to Imperial Capital, LLC represent nearly 100% of our aggregate brokerage commissions during the most recent fiscal year and the dollar amount of transactions on which such brokerage commissions were paid represents nearly 100% of the aggregate dollar amount of transactions involving the payment of commissions during such fiscal year.
One component of the inventive fee is based on income (the “Income Incentive Fee”) and the other component is based on capital gains (the “Capital Gains Incentive Fee”). Income Incentive Fee The Income Incentive Fee is calculated and payable quarterly in arrears based on our pre‑incentive fee net investment income for the quarter.
One component of the incentive fee is based on income (the “Income Incentive Fee”) and the other component is based on capital gains (the “Capital Gains Incentive Fee”). Income Incentive Fee The Income Incentive Fee is calculated and payable quarterly in arrears based on our pre‑incentive fee net investment income for the quarter.
Our Portfolio at December 31, 2022 A list of the industries in which we have invested as of December 31, 2022 may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Set forth below is a brief description of each company representing greater than 5% of the fair market value of our portfolio, excluding short-term investments, at December 31, 2022.
Our Portfolio as of December 31, 2023 A list of the industries in which we have invested as of December 31, 2023 may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Set forth below is a brief description of each company representing greater than 5% of the fair market value of our portfolio, excluding short-term investments, at December 31, 2023.
Capital Gains Incentive Fee The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement, as of the termination date), commencing with the partial calendar year ended December 31, 2022, and is calculated at the end of each applicable year by subtracting (a) the sum of our and our consolidated subsidiaries’ cumulative aggregate realized capital losses (excluding, for the avoidance of doubt, any realized capital losses arising from unrealized capital depreciation occurring prior to April 1, 2022) and aggregate unrealized capital depreciation from (b) our and our consolidated subsidiaries’ cumulative aggregate realized capital gains, in each case calculated from and after April 1, 2022 (the "Capital Gains Commencement Date").
Capital Gains Incentive Fee The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement, as of the termination date), commencing with the partial calendar year from April 1, 2022 to December 31, 2022, and is calculated at the end of each applicable year by subtracting (a) the sum of our and our consolidated subsidiaries’ cumulative aggregate realized capital losses (excluding, for the avoidance of doubt, any realized capital losses arising from unrealized capital depreciation occurring prior to April 1, 2022) and aggregate unrealized capital depreciation from (b) our and our consolidated subsidiaries’ cumulative aggregate realized capital gains, in each case calculated from and after April 1, 2022 (the “Capital Gains Commencement Date”).
The base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of the Company’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the then current calendar quarter.
The base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the then current calendar quarter.
Management and Incentive Fees Under the Investment Management Agreement, GECM receives a fee from us, consisting of two components: (1) a base management fee and (2) an incentive fee. 6 The base management fee is calculated at an annual rate of 1.50% of the Company’s average adjusted gross assets, including assets purchased with borrowed funds.
Management and Incentive Fees Under the Investment Management Agreement, GECM receives a fee from us, consisting of two components: (1) a base management fee and (2) an incentive fee. 6 The base management fee is calculated at an annual rate of 1.50% of our average adjusted gross assets, including assets purchased with borrowed funds.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Policies and Estimates” for an extended discussion of our methodology. 5 Staffing We do not currently have any employees. Mr. Kaplan is our Chief Executive Officer and President and Portfolio Manager for GECM, as well as a Managing Director of Imperial Capital Asset Management, LLC ("ICAM").
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Policies and Estimates” for an extended discussion of our methodology. Staffing We do not currently have any employees. Mr. Kaplan is our President and Chief Executive Officer and Portfolio Manager for GECM, as well as a Managing Director of Imperial Capital Asset Management, LLC (“ICAM”).
A majority of the outstanding voting securities of a company is defined under the Investment Company Act as the lesser of: ▪ 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or ▪ more than 50% of the outstanding voting securities of such company.
A “vote of a majority of the outstanding voting securities of a company” is defined under the Investment Company Act as the lesser of: ▪ 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or ▪ more than 50% of the outstanding voting securities of such company.
A U.S. stockholder, for purposes of this paragraph, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting power of all classes of shares or 10% or more of the value of a corporation.
Stockholder”, for purposes of this paragraph, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting power of all classes of shares or 10% or more of the value of a corporation.
There are no aggregate realized capital losses or aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as $30.0 million × 20%. (3) Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses and there is $5.0 million in aggregate unrealized capital depreciation.
(2) Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses or aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as $30.0 million × 20%. 9 (3) Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses and there is $5.0 million in aggregate unrealized capital depreciation.
A majority of our directors must be persons who are not interested persons, as that term is defined in the Investment Company Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC.
A majority of our directors must be persons who are not “interested persons”, as that term is defined in the Investment Company Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC.
Control, as defined by the Investment Company Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company.
“Control”, as defined by the Investment Company Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company.
In millions Assumption 1 Assumption 2 Year 1 Investment in Company A $ 20.0 $ 20.0 Investment in Company B 30.0 30.0 Investment in Company C - 25.0 Year 2 Proceeds from sale of investment in Company A 50.0 50.0 Fair market value ("FMV") of investment in Company B 32.0 25.0 FMV of investment in Company C - 25.0 Year 3 Proceeds from sale of investment in Company C - 30.0 FMV of investment in Company B 25.0 24.0 Year 4 Proceeds from sale of investment in Company B 31.0 - FMV of investment in Company B - 35.0 Year 5 Proceeds from sale of investment in Company B - 20.0 Capital Gains Incentive Fee: Year 1 $ - (1) $ - (1) Year 2 6.0 (2) 5.0 (6) Year 3 - (3) 0.8 (7) Year 4 0.2 (4) 1.2 (8) Year 5 - (5) - (9) (1) There is no Capital Gains Incentive Fee in Year 1 as there have been no realized capital gains. 9 (2) Aggregate realized capital gains are $30.0 million.
In millions Assumption 1 Assumption 2 Year 1 Investment in Company A $ 20.0 $ 20.0 Investment in Company B 30.0 30.0 Investment in Company C - 25.0 Year 2 Proceeds from sale of investment in Company A 50.0 50.0 Fair market value (“FMV”) of investment in Company B 32.0 25.0 FMV of investment in Company C - 25.0 Year 3 Proceeds from sale of investment in Company C - 30.0 FMV of investment in Company B 25.0 24.0 Year 4 Proceeds from sale of investment in Company B 31.0 - FMV of investment in Company B - 35.0 Year 5 Proceeds from sale of investment in Company B - 20.0 Capital Gains Incentive Fee: Year 1 $ - (1) $ - (1) Year 2 6.0 (2) 5.0 (6) Year 3 - (3) 0.8 (7) Year 4 0.2 (4) 1.2 (8) Year 5 - (5) - (9) (1) There is no Capital Gains Incentive Fee in Year 1 as there have been no realized capital gains.
To include certain securities described above as qualifying assets for the purpose of the 70% test, a BDC must offer to the issuer of those securities managerial assistance such as providing guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We offer to provide managerial assistance to our portfolio companies.
To include certain securities described above as “qualifying assets” for the purpose of the 70% test, a BDC must offer to the issuer of those securities managerial assistance such as providing guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We offer to provide managerial assistance to our portfolio companies.
Pending investment in other types of "qualifying assets," as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which are referred to, collectively, as temporary investments, so that 70% of our assets, as applicable, are qualifying assets.
Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which are referred to, collectively, as “temporary investments”, so that 70% of our assets, as applicable, are qualifying assets.
GECM’s criteria provide general guidelines for GECM’s investment committee’s decisions; however, not all of these criteria will be met by each prospective portfolio company in which they choose to invest. Asset Based Investments. Investments in businesses based on the value of the collateral or the issuer’s assets. This type of investment focuses on expected realizable value of the issuer’s assets.
GECM’s criteria provide general guidelines for GECM’s investment committee’s decisions; however, not all of these criteria will be met by each prospective portfolio company in which they choose to invest. Asset Based Investments. Investments in businesses based on the value of the collateral or the issuer’s assets.
Regulation as a Business Development Company We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of the outstanding voting securities, as required by the Investment Company Act.
Regulation as a Business Development Company We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by the “vote of a majority of the outstanding voting securities”, as required by the Investment Company Act.
First Brands, Inc. First Brands, Inc. ("First Brands") is a global automotive parts company that develops, markets and sells premium products through a portfolio of market-leading brands, offering best-in-class technology, industry-leading engineering capabilities and superior customer service.
(“First Brands”) is a global automotive parts company that develops, markets and sells premium products through a portfolio of market-leading brands, offering best-in-class technology, industry-leading engineering capabilities and superior customer service.
(2) Pre-incentive fee net investment income is net of management fees and other expenses and excludes organizational and offering expenses. In these examples, management fees are 0.38% (1.50% annualized) of net assets and other expenses are assumed to be 3.57% of net assets.
(2) Pre-incentive fee net investment income is net of management fees and other expenses and excludes organizational and offering expenses. In these examples, management fees are 0.38% (1.50% annualized) of net assets and other expenses are assumed to be 5.02% of net assets.
If we were to fail to meet the RIC requirements for more than two consecutive years and then to seek to requalify as a RIC, we would be required to recognize gain to the extent of any unrealized appreciation in our assets unless we made a special election to pay corporate level tax on any such unrealized appreciation recognized during the succeeding five‑year period. 19 Administration Agreement Our Board approved the Administration Agreement on August 8, 2016.
If we were to fail to meet the RIC requirements for more than two consecutive years and then to seek to requalify as a RIC, we would be required to recognize gain to the extent of any unrealized appreciation in our assets unless we made a special election to pay corporate level tax on any such unrealized appreciation recognized during the succeeding five‑year period.
A RIC cannot carry back or carry forward any net operating losses to offset investment coupon taxable income.
A RIC cannot carry back or carry forward any net operating losses to offset its investment company taxable income.
For the year ended December 31, 2022, we incurred $3.2 million in base management fees and $0.6 million in income-based fees accrued during the period, exclusive of the waiver granted by the investment manager of $4.9 million in incentive fees earned in previous periods. The incentive fees are currently expected to be deferred in accordance with the Investment Management Agreement.
For the year ended December 31, 2022, we incurred $3.2 million in base management fees and $0.6 million in income-based fees accrued during the period, exclusive of the waiver granted by GECM of $4.9 million in incentive fees earned in previous periods. The incentive fees were deferred in accordance with the Investment Management Agreement.
Investments in businesses which have the ability to pay interest and principal on outstanding debt out of expected free cash flow from their business.
Investments in businesses which have the ability to pay interest and principal on outstanding debt out of expected free cash flow from their business. These investments focus on the sustainability and defensibility of cash flows from the business.
As a RIC, in any taxable year with respect to which we timely distribute at least 90% of the sum of: ▪ our investment company taxable income (which includes, among other items, dividends, interest and the excess of any net short‑term capital gain over net long‑term capital loss and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid; and ▪ net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) (the “Annual Distribution Requirement”).
As a RIC, in any taxable year with respect to which we timely distribute at least 90% of the sum of: ▪ our investment company taxable income (which includes, among other items, dividends, interest and the excess of any net short‑term capital gain over net long‑term capital loss and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid; and ▪ net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) (the “Annual Distribution Requirement”). 15 We (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gain (generally, net long‑term capital gain in excess of short‑term capital loss) that we distribute to our stockholders.
In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.
In that event, we will be liable for the tax only on the amount by which we do not meet the Excise Tax Avoidance Requirement.
Pursuant to 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 the administrator.
Administration Agreement Our Board approved the Administration Agreement on August 8, 2016. Pursuant to 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 the administrator.
Duration and Termination Our Board initially approved the Investment Management Agreement on August 8, 2016, and most recently approved the Investment Management Agreement on July 26, 2022.
Duration and Termination Our Board initially approved the Investment Management Agreement on August 8, 2016, and most recently approved the Investment Management Agreement on July 25, 2023.
Assumption 1 Assumption 2 Assumption 3 Investment income (1) 4.94 % 6.09 % 6.94 % Hurdle rate (7% annualized) 1.75 % 1.75 % 1.75 % "Catch up" provision (8.75% annualized) 2.19 % 2.19 % 2.19 % Pre-incentive fee net investment income (2) 1.00 % 2.15 % 3.00 % Incentive fee - % (3) 0.40 % (4) 0.60 % (5) (1) Investment income includes interest income, dividends and other fee income.
Assumption 1 Assumption 2 Assumption 3 Investment income (1) 6.39 % 7.54 % 8.39 % Hurdle rate (7% annualized) 1.75 % 1.75 % 1.75 % “Catch up” provision (8.75% annualized) 2.19 % 2.19 % 2.19 % Pre-incentive fee net investment income (2) 1.00 % 2.15 % 3.00 % Incentive fee - % (3) 0.40 % (4) 0.60 % (5) (1) Investment income includes interest income, dividends and other fee income.
GECM’s investment team monitors our portfolio companies on an ongoing basis. They monitor the financial trends of each portfolio company and its respective industry to assess the appropriate course of action for each investment. GECM’s ongoing monitoring of a portfolio company will include both a qualitative and quantitative analysis of the company and its industry.
GECM’s investment team monitors our portfolio companies on an ongoing basis. They monitor the financial trends of each portfolio company and its respective industry to assess the appropriate course of action for each investment.
Enterprise Value Investments. Investments in businesses whose enterprise value represents the opportunity for principal to be repaid by refinancing or in connection with a merger or acquisition transaction. These investments focus on the going concern value of the enterprise. Other Debt Investments.
This type of investment focuses on expected realizable value of the issuer’s assets. 4 Enterprise Value Investments. Investments in businesses whose enterprise value represents the opportunity for principal to be repaid by refinancing or in connection with a merger or acquisition transaction. These investments focus on the going concern value of the enterprise. Other Debt Investments.
GECM does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for us under the circumstances, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities. 20 The aggregate amount of brokerage commissions paid by us during the three most recent fiscal years is approximately $220.
GECM does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for us under the circumstances, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities.
If we are treated as receiving a deemed distribution from a CFC, we will be required to include such distribution in our investment company taxable income regardless of whether we receive any actual distributions from such CFC, and we must distribute such income to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement. 18 Although the Code generally provides that income inclusions from QEFs and deemed distributions of subpart F income and global intangible low-taxed income from CFCs will be “good income” for purposes of the 90% gross income requirement to the extent such income is distributed to a RIC in the year it is included in the RIC’s income, the Code does not specifically provide whether income inclusions from a QEF or deemed distributions from a CFC during the RIC’s taxable year with respect to which no distribution is received would be “good income” for the 90% gross income requirement.
Although the Code generally provides that income inclusions from QEFs and deemed distributions of subpart F income and global intangible low-taxed income from CFCs will be “good income” for purposes of the 90% gross income requirement to the extent such income is distributed to a RIC in the year it is included in the RIC’s income, the Code does not specifically provide whether income inclusions from a QEF or deemed distributions from a CFC during the RIC’s taxable year with respect to which no distribution is received would be “good income” for the 90% gross income requirement.
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock, if our asset coverage, as defined in the Investment Company Act, is at least equal to 150% immediately after each such issuance.
Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. 14 We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock, if our asset coverage, as defined in the Investment Company Act, is at least equal to 150% immediately after each such issuance.
Valuation Procedures We value our assets, an essential input in the determination of our net asset value (“NAV”) consistent with generally accepted accounting principles in the United States (“GAAP”) and as required by the Investment Company Act.
GECM’s ongoing monitoring of a portfolio company will include both a qualitative and quantitative analysis of the company and its industry. 5 Valuation Procedures We value our assets, an essential input in the determination of our net asset value (“NAV”) consistent with generally accepted accounting principles in the United States (“GAAP”) and as required by the Investment Company Act.
If we hold more than 10% of the shares (by vote or value) in a foreign corporation that is treated as a controlled foreign corporation (“CFC”), we may be required to include in our gross income our pro rata share of such CFC’s “subpart F income” and “global intangible low-taxed income,” whether or not the corporation makes an actual distribution during such year.
Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% excise tax. 17 If we hold more than 10% of the shares (by vote or value) in a foreign corporation that is treated as a controlled foreign corporation (“CFC”), we may be required to include in our gross income our pro rata share of such CFC’s “subpart F income” and “global intangible low-taxed income,” whether or not the corporation makes an actual distribution during such year.
These investments focus on the sustainability and defensibility of cash flows from the business. 4 Due Diligence GECM’s due diligence typically includes: ▪ analysis of the credit documents by GECM’s investment team (including the members of the team with legal training and years of professional experience).
Due Diligence GECM’s due diligence typically includes: ▪ analysis of the credit documents by GECM’s investment team (including the members of the team with legal training and years of professional experience).
Such commissions include approximately $134 in brokerage commissions paid to Imperial Capital, LLC, an affiliated person of ICAM, beginning when ICAM became an affiliated person of the Company during the quarter ended December 31, 2020 through the end of the most recent fiscal year.
The aggregate amount of brokerage commissions paid by us during the three most recent fiscal years is approximately $142. Such commissions include approximately $141 in brokerage commissions paid to Imperial Capital, LLC, an affiliated person of ICAM, beginning when ICAM became an affiliated person of the Company during the quarter ended December 31, 2021 through December 31, 2023.
We may, however, sell shares of our common stock at a price below NAV per share: ▪ in connection with a rights offering to our existing stockholders, ▪ with the consent of the majority of our common stockholders, or ▪ under such other circumstances as the SEC may permit.
We may, however, sell shares of our common stock at a price below NAV per share: ▪ in connection with a rights offering to our existing stockholders, ▪ with the consent of the majority of our common stockholders, or ▪ under such other circumstances as the SEC may permit. 13 We may not acquire any assets other than “qualifying assets” unless, at the time we make such acquisition, the value of our qualifying assets represents at least 70% of the value of our total assets.
However, no assurance can be given as to our eligibility for any such tax elections or that any such tax elections that are made will fully mitigate the effects of these rules. 17 Investments we make in securities issued at a discount or providing for deferred interest or PIK interest are subject to special tax rules that will affect the amount, timing and character of distributions to stockholders.
Investments we make in securities issued at a discount or providing for deferred interest or PIK interest are subject to special tax rules that will affect the amount, timing and character of distributions to stockholders.
We have recently expanded our investment allocation in specialty finance companies as well as in participation opportunities generated by both unrelated and related specialty finance companies. GECM believes investments in specialty finance companies along the “continuum of lending” provide attractive risk adjusted returns that are expected to be largely uncorrelated to the liquid credit markets.
GECM believes investments in specialty finance companies along the “continuum of lending” provide attractive risk adjusted returns that are expected to be largely uncorrelated to the liquid credit markets.
Failure to Qualify as a RIC If we were unable to qualify for treatment as a RIC, and relief is not available as discussed above, we would be subject to tax on all of our taxable income at regular corporate rates.
Such corporations will be required to pay U.S. corporate income tax (and possible state or local tax) on their earnings, which ultimately will reduce the yield to our stockholders on such income and fees. 18 Failure to Qualify as a RIC If we were unable to qualify for treatment as a RIC, and relief is not available as discussed above, we would be subject to tax on all of our taxable income at regular corporate rates.
Under an Administration Agreement, dated as of September 27, 2016 (the “Administration Agreement”), by and between us and GECM, GECM provides the services of our Chief Financial Officer and Chief Compliance Officer. GECM has entered into a shared services agreement with ICAM, pursuant to which ICAM will make available to GECM certain employees of ICAM, including Mr.
Under an Administration Agreement, dated as of September 27, 2016 (the “Administration Agreement”), by and between us and GECM, GECM provides the services of our Chief Financial Officer and Chief Compliance Officer.
For the year ended December 31, 2020, we incurred $2.5 million in base management fees and $1.0 million in income-based fees accrued during the period. The incentive fees were deferred in accordance with the Investment Management Agreement.
For the year ended December 31, 2023, we incurred $3.5 million in base management fees and $3.1 million in income-based fees accrued during the period. There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2023.
Through in-depth industry coverage, GECM’s investment team seeks to develop a thorough understanding of the fundamental market, sector drivers, mergers and acquisition activity, security pricing and trading and new issue trends. GECM’s investment team believes that understanding industry trends is an important element of investment success.
Investment Selection GECM employs a team of investment professionals with experience in leveraged and specialty finance. The research team performs fundamental research at both the industry and company level. Through in-depth industry coverage, GECM’s investment team seeks to develop a thorough understanding of the fundamental market, sector drivers, mergers and acquisition activity, security pricing and trading and new issue trends.
First Brands manufactures automotive and industrial components for the automotive aftermarket, original equipment and industrial markets and has built long standing relationships with key aftermarket customers including multiple national retail chains and automotive and industrial equipment makers. Lenders Funding, LLC Lenders Funding, LLC (“Lenders Funding”) is a private funding and risk sharing source for factors and asset-based lenders.
First Brands manufactures automotive and industrial components for the automotive aftermarket, original equipment and industrial markets and has built long standing relationships with key aftermarket customers including multiple national retail chains and automotive and industrial equipment makers. First Brands stands as a market leader in the expansive and stable automotive aftermarket industry.
Kaplan, to provide services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees’ time.
GECM has entered into a shared services agreement with ICAM, pursuant to which ICAM will make available to GECM certain employees of ICAM, to provide services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees’ time.
Organization of the Investment Adviser GECM is a Delaware corporation and is registered as an investment adviser under the Advisers Act.
Organization of the Investment Adviser GECM is a Delaware corporation and is registered as an investment adviser under the Advisers Act. GECM’s principal executive offices are located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, FL 33410.
GECM’s principal executive offices are located at 800 South Street, Suite 230, Waltham, MA 02453. 12 Board Approval of the Investment Management Agreement On July 26, 2022, our Board approved the renewal of the Investment Management Agreement through September 26, 2023.
Board Approval of the Investment Management Agreement On July 25, 2023, our Board approved the renewal of the Investment Management Agreement through September 26, 2024.
Sterling is an industry leading transparent commercial lending partner for growth-minded entrepreneurs, private equity firms and M&A professionals. 3 Investment Manager and Administrator Great Elm Capital Management, Inc.’s (“GECM”) investment team has more than 100 years of experience in the aggregate financing and investing in leveraged middle-market companies. GECM’s investment committee includes Matt Kaplan, Adam M. Kleinman, Jason W.
Research Now offers end-to-end solutions for research from survey preparation and delivery to data processing and analytics. Research Now conducts over 90 million surveys annually from its 29 million active panelists. Investment Manager and Administrator Great Elm Capital Management, Inc.’s (“GECM”) investment team has more than 100 years of experience in the aggregate financing and investing in leveraged middle-market companies.
Removed
It purchases participations in their transactions on a non-recourse basis or provides working capital to them under a variety of flexible programs. Since its formation, Lenders Funding has worked with over 150 lenders and factors and has supplied several hundred million dollars in funding.
Added
American Coastal Insurance Corporation (f/k/a United Insurance Holdings Corp.) American Coastal Insurance Corporation (“ACIC”) is the holding company for American Coastal Insurance Company, Interboro Insurance Company and affiliated companies. ACIC is primarily engaged in sourcing, writing and servicing personal and commercial residential property and casualty insurance policies in the United States, primarily in Florida and New York.
Removed
Prestige Capital Finance, LLC Prestige Capital Finance, LLC ("Prestige") is a commercial finance company specializing in providing spot factoring services, providing clients with an opportunity to sell individual accounts receivable for an upfront payment. Prestige serves clients across a wide range of industries with between $100 thousand and $10 million of accounts receivable.
Added
ACIC’s most significant line of business is in providing commercial multi-peril property insurance for residential condominium associations and apartments in Florida. American Coastal Insurance Company has a leading market share of commercial residential property insurance for condominium associations in Florida (commercial lines).
Removed
Prestige has been in business for over 30 years and factored over $6 billion in transactions during that time. Sterling Commercial Credit, LLC Sterling Commercial Credit, LLC ("Sterling") is a specialty finance company providing asset based loans between $2 and $30 million.
Added
All of the commercial lines business is administered through an exclusive agreement with an outside managing general underwriter, AmRisc, LLC, a Truist Financial Corporation (NYSE: TFC) subsidiary.
Removed
Reese and Michael Keller. Great Elm Group, Inc. (“GEG”) is the parent company of GECM. The address for GECM is 800 South Street, Suite 230, Waltham, MA 02453. Investment Selection GECM employs a team of investment professionals with experience in leveraged and specialty finance. The research team performs fundamental research at both the industry and company level.
Added
Given ACIC’s concentration to the Florida property and casualty market, it is subject to various risks including fluctuations in inflation impacting loss estimates, judicial decisions, legislative changes, regulatory oversight, and changes in claims handling procedures. First Brands, Inc. First Brands, Inc.
Removed
In December 2021, GECC’s wholly-owned subsidiary, Great Elm Specialty Finance, LLC (“GESF"), was formed to oversee specialty finance related investments, and Michael Keller, a seasoned professional with significant experience in specialty finance, was appointed President of GESF.
Added
First Brands' Brake Component segment leads the market with its Centric, Raybestos, Specialty and private label offerings, capturing around 26% of the aftermarket brake components market. First Brands' Filter Products segment also holds a leading market position, thanks to its FRAM and Champion Laboratory and private label brands, which together hold a 30% market share.
Removed
Formation Transactions and Merger On June 23, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Full Circle Capital Corporation, a Maryland corporation (“Full Circle”), that provided for a stock-for-stock merger (the “Merger”) of Full Circle with and into GECC. The Merger was completed, and we commenced operations on November 3, 2016.
Added
First Brands' Wiper Segment is the top supplier of aftermarket wiper blades, boasting a commanding 37% market share through its Trico, ANCO, Michelin and private label products. 3 Great Elm Specialty Finance, LLC Great Elm Specialty Finance, LLC (“GESF”) is a specialty finance company and through its subsidiaries, provides a variety of financing options along a “continuum of lending” to middle-market borrowers, including receivables factoring, asset-based and asset-backed lending, lender finance and equipment financing.
Removed
For the year ending December 31, 2022, the Capital Gains Incentive Fee shall be calculated for the period beginning on the Capital Gains Commencement Date and ending on December 31, 2022.
Added
GESF expects to generate both revenue and cost synergies across its specialty finance company subsidiaries. Research Now Research Now Group, Inc. (“Research Now”) is the largest first-party data and insight platform, serving nearly 6,000 market research, media and advertising agencies, publishers, consulting and investment firms and corporate customers.
Removed
There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2020.
Added
GECM’s team is led by Matt Kaplan, GECM’s Portfolio Manager and our President and Chief Executive Officer. GECM’s investment committee includes Matt Kaplan, Adam M. Kleinman, Jason W. Reese, Nichole Milz and Dan Cubell. Great Elm Group, Inc. (“GEG”) is the parent company of GECM. The address for GECM is 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida, 33410.
Removed
On August 1, 2022, our stockholders approved an amendment to the Investment Management Agreement (the "Amendment") to reset the Capital Gains Incentive Fee to begin on April 1, 2022, which eliminated $163.2 million of historical realized and unrealized losses incurred prior to April 1, 2022 in calculating future incentive fees. 10 Without the Amendment, as a result of past losses relating to our legacy portfolio under prior executive and board leadership, GECM was unlikely to earn any Capital Gains Incentive Fees under the Investment Management Agreement unless we achieved at least $163.2 million in realized gains (assuming no reversal of unrealized capital losses).
Added
GECM’s investment team believes that understanding industry trends is an important element of investment success. We have recently expanded our investment allocation in specialty finance companies as well as in participation opportunities generated by both unrelated and related specialty finance companies.
Removed
Under the Amendment GECM is able to earn an incentive fee on realized gains, dependent on future performance, and previous losses (prior to April 1, 2022) are disregarded.
Added
The principal categories of qualifying assets relevant to our business are: ▪ securities purchased in transactions not involving any public offering, the issuer of which is an eligible portfolio company; ▪ securities received in exchange for or distributed with respect to securities described in the bullet above or pursuant to the exercise of options, warrants or rights relating to such securities; and ▪ cash, cash items, government securities or high quality debt securities (within the meaning of the Investment Company Act), maturing in one year or less from the time of investment.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSee “Selected Risks Associated with Our Business—We may incur additional debt.” The calculations in the tables below are hypothetical and actual returns may be higher or lower than those appearing below. 44 Table 1 Assumed Return on Our Portfolio (1) (2) (net of expenses) (10.0)% (5.0)% 0.0% 5.0% 10.0% Corresponding net return to common stockholder ( 14.46 )% ( 9.46 )% ( 4.46 )% 0.54 % 5.54 % (1) Assumes $225.0 million in total portfolio assets, excluding short term investments, $155.9 million in senior securities outstanding, $84.8 million in net assets, and an average cost of funds of 6.43%.
Biggest change(2) In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2023 total portfolio assets of at least 4.32%. 41 Table 2 Assumed Return on Our Portfolio (1) (2) (net of expenses) (10.0)% (5.0)% 0.0% 5.0% 10.0% Corresponding net return to common stockholder (14.82)% (9.82)% (4.82)% 0.18% 5.18% (1) Assumes $285.0 million in total portfolio assets, excluding short term investments, $197.5 million in senior securities outstanding, $98.7 million in net assets, and an average cost of funds of 6.96%.
Our results of operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long‑term funding alternatives in the financial markets and economic conditions. We may hold assets in cash or short-term treasury securities in situations where we or GECM expects downward pricing in the high yield market.
Our results of operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long‑term funding alternatives in the financial markets and economic conditions. 35 We may hold assets in cash or short-term treasury securities in situations where we or GECM expects downward pricing in the high yield market.
For example, Matt Kaplan, our Chief Executive Officer and President, is a portfolio manager at GECM and a member of its investment committee. Although funds managed by GECM may have different primary investment objectives than we do, they may from time to time invest in asset classes similar to those targeted by us.
For example, Matt Kaplan, our President and Chief Executive Officer, is a portfolio manager at GECM and a member of its investment committee. 36 Although funds managed by GECM may have different primary investment objectives than we do, they may from time to time invest in asset classes similar to those targeted by us.
Tax laws could change materially, and any changes in tax laws could have an unpredictable effect on us, our investments and our investors. 31 Our debt investments may be risky, and we could lose all or part of our investments. Our debt portfolios, including those held by our specialty finance companies, are subject to credit and interest rate risk.
Tax laws could change materially, and any changes in tax laws could have an unpredictable effect on us, our investments and our investors. Our debt investments may be risky, and we could lose all or part of our investments. Our debt portfolios, including those held by our specialty finance companies, are subject to credit and interest rate risk.
In addition, investing in middle‑market companies involves a number of significant risks, including: ▪ these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; ▪ they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns, including the COVID-19 pandemic; ▪ they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on our stockholders; ▪ they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position.
In addition, investing in middle‑market companies involves a number of significant risks, including: ▪ these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; ▪ they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; ▪ they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on our stockholders; ▪ they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position.
We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us. Incurring additional leverage may magnify our exposure to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect our profitability.
We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us. 42 Incurring additional leverage may magnify our exposure to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect our profitability.
In a changing interest rate environment, we may not be able to manage this risk effectively, which in turn could adversely affect our performance. We may acquire other funds, portfolios of assets or pools of debt and those acquisitions may not be successful. We may acquire other funds, portfolios of assets or pools of debt investments.
In a changing interest rate environment, we may not be able to manage this risk effectively, which in turn could adversely affect our performance. 29 We may acquire other funds, portfolios of assets or pools of debt and those acquisitions may not be successful. We may acquire other funds, portfolios of assets or pools of debt investments.
Our ability to effectively conduct our business could be severely compromised. The financial markets we operate in are dependent upon third party data systems to link buyers and sellers and provide pricing information. 38 We depend heavily upon computer systems to perform necessary business functions.
Our ability to effectively conduct our business could be severely compromised. The financial markets we operate in are dependent upon third party data systems to link buyers and sellers and provide pricing information. We depend heavily upon computer systems to perform necessary business functions.
The risk of purchasing shares of a BDC that might trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares in a relatively short period of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in premium or discount levels than upon increases or decreases in NAV per share. 43 Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may harm the value of our common stock.
The risk of purchasing shares of a BDC that might trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares in a relatively short period of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in premium or discount levels than upon increases or decreases in NAV per share. 40 Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may harm the value of our common stock.
The source of income requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources. 35 The asset diversification requirement will be satisfied if we meet asset diversification requirements at the end of each quarter of our taxable year.
The source of income requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources. The asset diversification requirement will be satisfied if we meet asset diversification requirements at the end of each quarter of our taxable year.
In addition, our executive officers, directors and GECM may be named as defendants in litigation arising from our investments in the portfolio companies; ▪ they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity; and 24 ▪ a portion of our income may be non‑cash income, such as contractual PIK interest, which represents interest added to the debt balance and due at the end of the instrument’s term, in the case of loans, or issued as additional notes in the case of bonds.
In addition, our executive officers, directors and GECM may be named as defendants in litigation arising from our investments in the portfolio companies; ▪ they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity; and 23 ▪ a portion of our income may be non‑cash income, such as contractual PIK interest, which represents interest added to the debt balance and due at the end of the instrument’s term, in the case of loans, or issued as additional notes in the case of bonds.
An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition and results of operations. We may experience fluctuations in our quarterly results.
An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition and results of operations. 27 We may experience fluctuations in our quarterly results.
Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans and notes. The reference rates for our loans may be manipulated or changed.
Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans and notes. 25 The reference rates for our loans may be manipulated or changed.
In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. 42 Our current intention is to make any distributions in additional shares of our common stock under our dividend reinvestment plan out of assets legally available therefor, unless you elect to receive your distributions and/or long-term capital gains distributions in cash.
In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. 39 Our current intention is to make any distributions in additional shares of our common stock under our dividend reinvestment plan out of assets legally available therefor, unless you elect to receive your distributions and/or long-term capital gains distributions in cash.
In any reorganization or liquidation proceeding relating to a portfolio company, we may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the investment advanced by us to the borrower. 23 Certain of the companies in which we invest may have difficulty accessing the capital markets to meet their future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.
In any reorganization or liquidation proceeding relating to a portfolio company, we may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the investment advanced by us to the borrower. 22 Certain of the companies in which we invest may have difficulty accessing the capital markets to meet their future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.
Typically the intercreditor agreements expressly subordinate our debt instruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement.
Typically the intercreditor agreements expressly subordinate our second lien debt instruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement.
The Maryland Control Share Acquisition Act also may make it more difficult for a third party to obtain control of GECC and increase the difficulty of consummating such a transaction. 41 Our Board is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.
The Maryland Control Share Acquisition Act also may make it more difficult for a third party to obtain control of GECC and increase the difficulty of consummating such a transaction. 38 Our Board is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.
We have existing indebtedness and may in the future borrow additional money, including borrowings under a Loan Guarantee and Security Agreement (the “Loan Agreement”) with City National Bank (“CNB”), each of which magnifies the potential for loss on amounts invested and may increase the risk of investing with us.
We have existing indebtedness and may in the future borrow additional money, including borrowings under a Loan Guarantee and Security Agreement, as amended (the “Loan Agreement”) with City National Bank (“CNB”), each of which magnifies the potential for loss on amounts invested and may increase the risk of investing with us.
This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods. 22 Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our returns on equity.
This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods. 21 Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our returns on equity.
Additionally, a public health epidemic or pandemic, including, for example, COVID-19, poses the risk that we, GECM, our portfolio companies or other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.
Additionally, a public health epidemic or pandemic, poses the risk that we, GECM, our portfolio companies or other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or in some cases senior to, the debt in which we invest.
Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or in some cases senior to, the debt in which we invest.
Any such acquisition program has a number of risks, including among others: ▪ management’s attention will be diverted from running our existing business by efforts to source, negotiate, close and integrate acquisitions; ▪ our due diligence investigation of potential acquisitions may not reveal risks inherent in the acquired business or assets; ▪ we may over‑value potential acquisitions resulting in dilution to you, incurrence of excessive indebtedness, asset write downs and negative perception of our common stock; ▪ the interests of our existing stockholders may be diluted by the issuance of additional shares of our common stock or preferred stock; ▪ we may borrow to finance acquisitions and there are risks associated with borrowing as described in this Annual Report on Form 10-K; ▪ GECM has an incentive to increase our assets under management in order to increase its fee stream, which may not be aligned with the interests of our stockholders; ▪ we and GECM may not successfully integrate any acquired business or assets; and ▪ GECM may compensate the existing managers of any acquired business or assets in a manner that results in the combined company taking on excessive risk. 32 Our failure to maintain our status as a BDC would reduce our operating flexibility.
Any such acquisition program has a number of risks, including among others: ▪ management’s attention will be diverted from running our existing business by efforts to source, negotiate, close and integrate acquisitions; ▪ our due diligence investigation of potential acquisitions may not reveal risks inherent in the acquired business or assets; ▪ we may over‑value potential acquisitions resulting in dilution to you, incurrence of excessive indebtedness, asset write downs and negative perception of our common stock; ▪ the interests of our existing stockholders may be diluted by the issuance of additional shares of our common stock or preferred stock; ▪ we may borrow to finance acquisitions, and there are risks associated with borrowing as described in this Annual Report on Form 10-K; ▪ GECM has an incentive to increase our assets under management in order to increase its fee stream, which may not be aligned with the interests of our stockholders; ▪ we and GECM may not successfully integrate any acquired business or assets; and ▪ GECM may compensate the existing managers of any acquired business or assets in a manner that results in the combined company taking on excessive risk.
Actual interest payments may be different. (2) In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2022 total portfolio assets of at least 4.57% . Incurring additional indebtedness could increase the risk in investing in our Company.
Actual interest payments may be different. (2) In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2023 total portfolio assets of at least 4.82% . Incurring additional indebtedness could increase the risk in investing in our Company.
We have registered all of the shares of our common stock held by GEG, which represent approximately 21% percent of our outstanding shares of common stock at December 31, 2022. Our common stock price may be volatile and may decrease substantially, and an investor may lose money in connection with an investment in our shares.
We have registered all of the shares of our common stock held by GEG, which represent approximately 20% percent of our outstanding shares of common stock at December 31, 2023. Our common stock price may be volatile and may decrease substantially, and an investor may lose money in connection with an investment in our shares.
On May 5, 2021, we entered into the Loan Agreement, which provides for a senior secured revolving line of credit of up to $25 million (subject to a borrowing base). As of December 31, 2022, there were $10.0 million in borrowings outstanding under the revolving line.
On May 5, 2021, we entered into the Loan Agreement, which provides for a senior secured revolving line of credit of up to $25 million (subject to a borrowing base). As of December 31, 2023, there were no borrowings outstanding under the revolving line.
Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments made to us, or we may receive equity securities, which may require significantly more of our management’s time and attention or carry restrictions on their disposition.
Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments made to us, or we may receive equity securities, which may require significantly more of our management’s time and attention or carry restrictions on their disposition. 20 We face increasing competition for investment opportunities.
If we are unable to meet the financial obligations under any of the Loan Agreement or any series of our outstanding unsecured notes, the holders of such indebtedness would have a superior claim to our assets over our common stockholders in the event of a default by us.
If we are unable to meet the financial obligations under any of the Loan Agreement or any series of our outstanding unsecured notes, the holders of such indebtedness would have a superior claim to our assets over our common stockholders, and the lenders or noteholders may seek to recover against our assets in the event of a default by us.
During periods when we maintain exposure to cash, money market mutual funds, or other short-term securities, we may not participate in market movements to the same extent that it would if we were fully invested, which may have a negative impact on our business and operations and, accordingly, our returns may be reduced. 29 Risks Relating to Our Business and Structure Capital markets experience periods of disruption and instability.
During periods when we maintain exposure to cash, money market mutual funds, or other short-term securities, we may not participate in market movements to the same extent that it would if we were fully invested, which may have a negative impact on our business and operations and, accordingly, our returns may be reduced.
A portfolio company’s failure to satisfy financial or operating covenants in its agreements with us or other lenders could lead to defaults and, potentially, acceleration of the time when the debt obligations are due and foreclosure on its secured assets, which could trigger cross‑defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold.
These events could prevent us from increasing investments and harm our operating results. 28 A portfolio company’s failure to satisfy financial or operating covenants in its agreements with us or other lenders could lead to defaults and, potentially, acceleration of the time when the debt obligations are due and foreclosure on its secured assets, which could trigger cross‑defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold.
We generally do not hold controlling equity positions in our portfolio companies. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests.
As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests.
It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering managerial assistance or actions to compel and collect payments from the borrower outside the ordinary course of business.
It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering managerial assistance or actions to compel and collect payments from the borrower outside the ordinary course of business. To the extent GECC provides significant managerial assistance to the portfolio companies, this risk is exacerbated.
Despite actions of the U.S. federal government and foreign governments, these events have contributed to worsening general economic conditions that have historically materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.
Despite actions of the U.S. federal government and foreign governments, such events have historically materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.
We cannot assure you that actions by market participants or by government agencies will not materially adversely affect trading markets or our portfolio companies or us or our and our portfolio companies’ respective business, prospects, financial condition or results of operations.
We cannot assure you that actions by market participants or by government agencies will not materially adversely affect trading markets or our portfolio companies or us or our and our portfolio companies’ respective business, prospects, financial condition or results of operations. We may mismatch the interest rate and maturity exposure of our assets and liabilities.
The global capital markets are subject to disruption as evidenced by, among other things, a lack of liquidity in the debt capital markets, significant write‑offs in the financial services sector, the re‑pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions.
The global capital markets are subject to disruption which may result from, among other things, a lack of liquidity in the debt capital markets, significant write‑offs in the financial services sector, the re‑pricing of credit risk in the broadly syndicated credit market or the failure of major financial institutions.
New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and you, potentially with retroactive effect.
We and our portfolio companies are subject to applicable local, state and federal laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and you, potentially with retroactive effect.
If a portfolio company defaults on a loan or note that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible.
If a portfolio company defaults on a loan or note that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible, which would result in the reversal of any previously accrued and unpaid incentive fees.
These market conditions have historically materially and adversely affected debt and equity capital markets in the United States and abroad, which had, and may in the future have, a negative impact on our business and operations.
Risks Relating to Our Business and Structure Capital markets experience periods of disruption and instability. These market conditions have historically materially and adversely affected debt and equity capital markets in the United States and abroad, which had, and may in the future have, a negative impact on our business and operations.
The required recognition of non-cash income, including PIK and OID interest, for U.S. federal income tax purposes may have a negative impact on liquidity because it represents a non-cash component of our taxable income that must, nevertheless, be distributed to investors to avoid us being subject to corporate level taxation. 34 We may choose to pay distributions in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive.
The required recognition of non-cash income, including PIK and OID interest, for U.S. federal income tax purposes may have a negative impact on liquidity because it represents a non-cash component of our taxable income that must, nevertheless, be distributed to investors to avoid us being subject to corporate level taxation.
As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, the Dodd‑Frank Act of 2010 and other rules implemented by our government.
As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, the Dodd‑Frank Act of 2010 and other rules implemented by our government. 34 Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
We elected to be regulated as a BDC under the Investment Company Act. The Investment Company Act imposes numerous constraints on the operations of BDCs and their external advisers.
Our failure to maintain our status as a BDC would reduce our operating flexibility. We elected to be regulated as a BDC under the Investment Company Act. The Investment Company Act imposes numerous constraints on the operations of BDCs and their external advisers.
Table 2 Assumed Return on Our Portfolio (1) (2) (net of expenses) (10.0)% (5.0)% 0.0% 5.0% 10.0% Corresponding net return to common stockholder (14.57)% (9.57)% (4.57)% 0.43% 5.43% (1) Assumes $238.6 million in total portfolio assets, excluding short term investments, $169.6 million in senior securities outstanding, $84.8 million in net assets, and an average cost of funds of 6.43%.
Table 1 Assumed Return on Our Portfolio (1) (2) (net of expenses) (10.0)% (5.0)% 0.0% 5.0% 10.0% Corresponding net return to common stockholder ( 14.32 )% ( 9.32 )% ( 4.32 )% 0.68 % 5.68 % (1) Assumes $230.6 million in total portfolio assets, excluding short term investments, $143.1 million in senior securities outstanding, $98.7 million in net assets, and an average cost of funds of 6.96%.
We will be subject to corporate‑level U.S. federal income tax if we are unable to qualify as a RIC under the Code. No assurance can be given that we will be able to qualify for and maintain RIC status. To maintain RIC tax treatment under the Code, we must meet certain annual distribution, source of income and asset diversification requirements.
We will be subject to corporate‑level U.S. federal income tax if we are unable to qualify as a RIC under the Code. No assurance can be given that we will be able to qualify for and maintain RIC status.
The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short‑term capital gains in excess of realized net long‑term capital losses, if any.
To maintain RIC tax treatment under the Code, we must meet certain annual distribution, source of income and asset diversification requirements. 32 The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short‑term capital gains in excess of realized net long‑term capital losses, if any.
We cannot provide any assurance that these conditions will not significantly worsen. Equity capital may be difficult to raise because, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV.
Equity capital may be difficult to raise because, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV.
Ordinarily, OID would also create the risk of non-refundable cash payments to GECM based on non-cash accruals that may never be realized; however, this risk is mitigated since the Investment Management Agreement requires GECM to defer any incentive fees on Accrued Unpaid Income, the effect of which is that Income Incentive Fees otherwise payable with respect to Accrued Unpaid Income become payable only if, as, when and to the extent cash is received by us or our consolidated subsidiaries in respect thereof.
Ordinarily, OID would also create the risk of non-refundable cash payments to GECM based on non-cash accruals that may never be realized; however, this risk is mitigated since the Investment Management Agreement requires GECM to defer any incentive fees on Accrued Unpaid Income, the effect of which is that Income Incentive Fees otherwise payable with respect to Accrued Unpaid Income become payable only if, as, when and to the extent cash is received by us or our consolidated subsidiaries in respect thereof. 31 Additionally, we may be required to make distributions of non-cash income to stockholders without receiving any cash so as to satisfy certain requirements necessary to maintain our RIC status for U.S. federal income tax purposes.
GECM's management fee is based on a percentage of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) and GECM may have conflicts of interest in connection with decisions that could affect our total assets, such as decisions as to whether to incur indebtedness. 39 The part of the incentive fee payable by us that relates to our pre-incentive fee net investment income is computed and paid on income that may include interest that is accrued but not yet received in cash.
GECM’s management fee is based on a percentage of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) and GECM may have conflicts of interest in connection with decisions that could affect our total assets, such as decisions as to whether to incur indebtedness.
These developments, along with domestic and international debt and credit concerns, could cause interest rates to be volatile, which may negatively impact our ability to access the debt markets on favorable terms.
The Federal Reserve Board has since raised the federal funds rate and may raise, maintain or lower the federal funds rate in the future. These developments, along with domestic and international debt and credit concerns, could cause interest rates to be volatile, which may negatively impact our ability to access the debt markets on favorable terms.
In addition, if we purchase our debt instruments and such purchase results in our recording a net gain on the extinguishment of debt for financial reporting and tax purposes, such net gain will be included in our pre‑incentive fee net investment income for purposes of determining the Income Incentive Fee payable to GECM under the Investment Management Agreement.
With respect to each of these investments, each of our stockholders will bear its share of the management and incentive fee payable to GECM, as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest. 33 In addition, if we purchase our debt instruments and such purchase results in our recording a net gain on the extinguishment of debt for financial reporting and tax purposes, such net gain will be included in our pre‑incentive fee net investment income for purposes of determining the Income Incentive Fee payable to GECM under the Investment Management Agreement.
If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
Second priority liens on collateral securing loans and notes that we invest in may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
We may hold a significant portion of our portfolio assets in cash, cash equivalents, money market mutual funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less, which may have a negative impact on our business and operations.
We may employ hedging techniques to minimize these risks, but we offer no assurance that we will, in fact, hedge currency risk, or that if it does, such strategies will be effective. 26 We may hold a significant portion of our portfolio assets in cash, cash equivalents, money market mutual funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less, which may have a negative impact on our business and operations.
These factors could adversely affect our investment returns as compared to companies investing primarily in the securities of public companies. 25 We are exposed to risks relating to our specialty finance products . We rely on the structural features embedded in our specialty financing and asset-based products to mitigate the credit risk associated with such products.
These factors could adversely affect our investment returns as compared to companies investing primarily in the securities of public companies. 24 We are exposed to risks relating to our specialty finance products .
As of December 31, 2022, we had approximately $155.9 million of total outstanding indebtedness under a senior secured revolving line of credit and three series of senior securities (unsecured notes)—the GECCM Notes, the GECCN Notes and the GECCO Notes (each as defined herein)—and our asset coverage ratio was 154.4%.
As of December 31, 2023, we had approximately $143.1 million of total outstanding indebtedness in the aggregate under three series of senior securities (unsecured notes)—the GECCM Notes, the GECCO Notes and the GECCZ Notes (each as defined herein)—and our asset coverage ratio was 169.0%.
This could have a material adverse effect on our operations, and we may not be able to make distributions to stockholders. The actual amount of leverage that we employ will depend on GECM’s and our Board’s assessment of market and other factors at the time of any proposed borrowing.
The actual amount of leverage that we employ will depend on GECM’s and our Board’s assessment of market and other factors at the time of any proposed borrowing.
As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend, or 10% with respect to distributions declared on or before June 30, 2022) and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes.
As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. We may expose ourselves to risks associated with the inclusion of non-cash income prior to receipt of cash.
If we are not able to obtain cash from other sources, we may fail to qualify as a RIC and thus be subject to additional corporate‑level income taxes. 33 However, in order to satisfy the Annual Distribution Requirement for a RIC, we may, but have no current intention to, declare a large portion of a dividend in shares of our common stock instead of in cash.
However, in order to satisfy the Annual Distribution Requirement for a RIC, we may, but have no current intention to, declare a large portion of a dividend in shares of our common stock instead of in cash.
We may distribute a portion of our taxable distributions in the form of shares of our stock. In accordance with certain applicable U.S.
We may choose to pay distributions in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive. We may distribute a portion of our taxable distributions in the form of shares of our stock. In accordance with certain applicable U.S.
If a portfolio company defaults on a loan, it is possible that accrued interest previously used in the calculation of whether GECM met the hurdle rate to earn the incentive fee will become uncollectible. 36 A general increase in interest rates will likely have the effect of making it easier for GECM to receive incentive fees, without necessarily resulting in an increase in our net earnings.
A general increase in interest rates will likely have the effect of making it easier for GECM to receive incentive fees, without necessarily resulting in an increase in our net earnings.
Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies.
Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. Our investment strategy contemplates investments in debt securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies.
The first table assumes the actual amount of senior securities outstanding as of December 31, 2022. The second table assumes the maximum amount of senior securities outstanding as permitted under our asset coverage ratio of 150%.
The first table assumes the actual amount of senior securities outstanding as of December 31, 2023. The second table assumes the maximum amount of senior securities outstanding as permitted under our asset coverage ratio of 150%. The calculations in the tables below are hypothetical and actual returns may be higher or lower than those appearing below.
In addition, our common stockholders bear the burden of any increase in our fees or expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to GECM. 45 If our asset coverage ratio falls below the required limit, we will not be able to incur additional debt until we are able to comply with the asset coverage ratio applicable to us.
In addition, our common stockholders bear the burden of any increase in our fees or expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to GECM.
Terrorist acts, acts of war, natural disasters or an epidemic or pandemic may disrupt our operations, as well as the operations of the businesses in which we invest. Such acts, including, for example, Russia’s February 2022 invasion of Ukraine, have created, and continue to create, economic and political uncertainties and have contributed to global economic instability.
Such acts, including, for example, Russia’s February 2022 invasion of Ukraine and conflicts in the Middle East, have created, and continue to create, economic and political uncertainties and have contributed to global economic instability.
Our Board may change our investment objectives, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse. Our Board has the authority to modify or waive our investment objectives, current operating policies, investment criteria and strategies without prior notice and without stockholder approval.
Our Board has the authority to modify or waive our investment objectives, current operating policies, investment criteria and strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, NAV and operating results.
We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, NAV and operating results. We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash representing such income.
We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash representing such income.
An inability to successfully access the capital or credit markets for either equity or debt could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any. 30 If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratios imposed upon us by the Investment Company Act or our lenders.
If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratios imposed upon us by the Investment Company Act or our lenders.
We may be unable to exercise these put rights if the issuer is in financial distress or otherwise lacks sufficient liquidity to purchase the underlying equity investment. 28 Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. Our investment strategy contemplates investments in debt securities of foreign companies.
We may seek puts or similar rights to give it the right to sell our equity securities back to the portfolio company. We may be unable to exercise these put rights if the issuer is in financial distress or otherwise lacks sufficient liquidity to purchase the underlying equity investment.
Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties under the terms of our debt agreements. 40 Risks Relating to Our Common Stock A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
In selecting and structuring investments appropriate for us, GECM will consider the investment and tax objectives of us and our stockholders, as a whole, not the investment, tax or other objectives of any stockholder individually. 37 Risks Relating to Our Common Stock A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
Additionally, we may be required to make distributions of non-cash income to stockholders without receiving any cash so as to satisfy certain requirements necessary to maintain our RIC status for U.S. federal income tax purposes. Such required cash distributions may have to be paid from the sale of our assets without investors being given any notice of this fact.
Such required cash distributions may have to be paid from the sale of our assets without investors being given any notice of this fact.
If we do not meet the 70% threshold, we will be limited to purchasing qualifying assets until such threshold is met. See “Regulation as a Business Development Company.” Any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies.
Such investments will generally not represent “qualifying assets” under Section 55(a) of the Investment Company Act. Any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies.
Also, any amounts that we use to service our indebtedness would not be available for distributions to our stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
Also, any amounts that we use to service our indebtedness would not be available for distributions to our stockholders.
Thus, any such changes, if they occur, could have a material adverse effect on our results of operations. In October 2020, the SEC adopted a revised version of Rule 18f-4, which is designed to modernize the regulation of the use of derivatives by registered investment companies and BDCs.
Thus, any such changes, if they occur, could have a material adverse effect on our results of operations. There is, and will be, uncertainty as to the value of our portfolio investments.
In such event we could be exposed to material additional losses with respect to such loans or factoring products. Although we believe we have controls in place to monitor and detect fraud with respect to our asset-based lending and factoring products, there is no guarantee such controls will be effective.
There is no guarantee that our controls to monitor and detect fraud with respect to our specialty finance business will be effective and, as a result, we could face exposure to the credit risk associated with such products.
There has been and will continue to be uncertainty in the financial markets in general.
There has been and will continue to be uncertainty in the financial markets in general. An inability to successfully access the capital or credit markets for either equity or debt could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any.
Removed
As an example, during the year ended December 31, 2022, we wrote down the value of our investments in Avanti Communications Group plc ("Avanti Communications") and our net realized losses on investments were primarily driven by the April 2022 restructuring of Avanti Communications on which we realized approximately $111 million of previously recognized unrealized losses.
Added
Although we may be deemed, under the Investment Company Act, to control certain of our portfolio companies because we own more than 25% of the common equity of those portfolio companies, we generally do not hold controlling equity positions in our portfolio companies.
Removed
We cannot assure you that we will not have to restructure any of our other investments, or that any particular restructuring strategy will recover value equal to our original investment cost. 21 We face increasing competition for investment opportunities.
Added
In such event we could be exposed to material additional losses with respect to such loans or factoring products. Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
Removed
To the extent GECC provides significant managerial assistance to the portfolio companies, this risk is exacerbated. 26 Second priority liens on collateral securing loans and notes that we invest in may be subject to control by senior creditors with first priority liens.
Added
Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. 30 Our Board may change our investment objectives, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.
Removed
The discontinuation of LIBOR may adversely affect the value of the LIBOR-indexed, floating rate debt securities in our portfolio or the cost of our borrowings.
Added
If we are not able to obtain cash from other sources, we may fail to qualify as a RIC and thus be subject to additional corporate‑level income taxes.

… 44 more changes not shown on this page.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

22 edited+1 added−0 removed24 unchanged
Biggest changeThe stock price performance included in the above graph is not necessarily indicative of future stock price performance, and the graph does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares. 49 Financial Highlights Below is the schedule of financial highlights of the Company: November 3, 2016 (Commencement of Operations) to For the Year Ended December 31, December 31, 2022 2021 2020 2019 2018 2017 2016 (6)(7) Per Share Data: (1) Net asset value, beginning of period $ 16.63 $ 20.74 $ 51.81 $ 62.02 $ 74.51 $ 81.14 $ 86.46 Net investment income 1.67 3.02 3.22 6.40 8.64 9.05 1.61 Net realized gains (loss) (20.16 ) (2.37 ) (4.39 ) 0.76 1.36 1.87 (2.07 ) Net change in unrealized appreciation (depreciation) 16.00 (3.17 ) (13.24 ) (11.58 ) (15.07 ) (12.34 ) (7.88 ) Net increase (decrease) in net assets resulting from operations (2.49 ) (2.52 ) (14.41 ) (4.42 ) (5.07 ) (1.42 ) (8.34 ) Issuance of common stock (1.03 ) 0.81 (10.66 ) - - - - Accretion from share buybacks - - - 0.51 - 1.99 4.04 Distributions declared from net investment income (2) (1.95 ) (2.40 ) (6.00 ) (6.30 ) (7.42 ) (7.20 ) (1.02 ) Net decrease resulting from distributions to common stockholders (1.95 ) (2.40 ) (6.00 ) (6.30 ) (7.42 ) (7.20 ) (1.02 ) Net asset value, end of period $ 11.16 $ 16.63 $ 20.74 $ 51.81 $ 62.02 $ 74.51 $ 81.14 Per share market value, end of period $ 8.29 $ 18.48 $ 21.60 $ 46.68 $ 47.10 $ 59.04 $ 70.02 Shares outstanding, end of period 7,601,958 4,484,278 3,838,242 1,677,114 1,775,400 1,775,400 2,131,813 Total return based on net asset value (3) (22.17 )% (8.03 )% (49.51 )% (4.64 )% (7.31 )% 0.69 % (5.30 )% Total return based on market value (3) (46.53 )% (1.27 )% (39.98 )% 15.17 % (8.35 )% (5.56 )% (2.03 )% Ratio/Supplemental Data: Net assets, end of period 84,809 74,556 $ 79,615 $ 86,889 $ 110,116 $ 132,287 $ 172,984 Ratio of total expenses to average net assets before waiver (4) 22.14 % 14.69 % 25.84 % 16.46 % 9.96 % 7.87 % 10.27 % (5)(7) Ratio of total expenses to average net assets after waiver (4),(5) 16.43 % 14.69 % 25.84 % 16.46 % 9.96 % 8.00 % 9.99 % (5)(7) Ratio of incentive fees to average net assets (4) 0.66 % (4.91 )% 1.68 % 2.80 % 0.13 % 2.89 % 3.04 % (5) Ratio of net investment income to average net assets (4),(5) 12.30 % 14.02 % 11.77 % 11.18 % 12.30 % 11.56 % 10.52 % (5)(7) Portfolio turnover 53 % 66 % 64 % 81 % 67 % 116 % 27 % (1) The per share data was derived by using the weighted average shares outstanding during the period, except where such calculations deviate from those specified under the instructions to Form N-2.
Biggest changePurchases of Equity Securities None. 47 Financial Highlights Below is the schedule of financial highlights of the Company: November 3, 2016 (Commencement of Operations) to For the Year Ended December 31, December 31, 2023 2022 2021 2020 2019 2018 2017 2016 (6)(7) Per Share Data: (1) Net asset value, beginning of period $ 11.16 $ 16.63 $ 20.74 $ 51.81 $ 62.02 $ 74.51 $ 81.14 $ 86.46 Net investment income 1.65 1.67 3.02 3.22 6.40 8.64 9.05 1.61 Net realized gains (loss) (0.62 ) (20.16 ) (2.37 ) (4.39 ) 0.76 1.36 1.87 (2.07 ) Net change in unrealized appreciation (depreciation) 2.30 16.00 (3.17 ) (13.24 ) (11.58 ) (15.07 ) (12.34 ) (7.88 ) Net increase (decrease) in net assets resulting from operations 3.33 (2.49 ) (2.52 ) (14.41 ) (4.42 ) (5.07 ) (1.42 ) (8.34 ) Issuance of common stock - (1.03 ) 0.81 (10.66 ) - - - - Accretion from share buybacks - - - - 0.51 - 1.99 4.04 Distributions declared from net investment income (2) (1.50 ) (1.95 ) (2.40 ) (6.00 ) (6.30 ) (7.42 ) (7.20 ) (1.02 ) Net decrease resulting from distributions to common stockholders (1.50 ) (1.95 ) (2.40 ) (6.00 ) (6.30 ) (7.42 ) (7.20 ) (1.02 ) Net asset value, end of period $ 12.99 $ 11.16 $ 16.63 $ 20.74 $ 51.81 $ 62.02 $ 74.51 $ 81.14 Per share market value, end of period $ 10.65 $ 8.29 $ 18.48 $ 21.60 $ 46.68 $ 47.10 $ 59.04 $ 70.02 Shares outstanding, end of period 7,601,958 7,601,958 4,484,278 3,838,242 1,677,114 1,775,400 1,775,400 2,131,813 Total return based on net asset value (3) 30.98 % (22.17 )% (8.03 )% (49.51 )% (4.64 )% (7.31 )% 0.69 % (5.30 )% Total return based on market value (3) 50.53 % (46.53 )% (1.27 )% (39.98 )% 15.17 % (8.35 )% (5.56 )% (2.03 )% Ratio/Supplemental Data: Net assets, end of period $ 98,739 $ 84,809 $ 74,556 $ 79,615 $ 86,889 $ 110,116 $ 132,287 $ 172,984 Ratio of total expenses to average net assets before waiver (4) 24.92 % 22.14 % 14.69 % 25.84 % 16.46 % 9.96 % 7.87 % 10.27 % (5)(7) Ratio of total expenses to average net assets after waiver (4),(5) 24.92 % 16.43 % 14.69 % 25.84 % 16.46 % 9.96 % 8.00 % 9.99 % (5)(7) Ratio of incentive fees to average net assets (4) 3.35 % 0.66 % (4.91 )% 1.68 % 2.80 % 0.13 % 2.89 % 3.04 % (5) Ratio of net investment income to average net assets (4),(5) 13.42 % 12.30 % 14.02 % 11.77 % 11.18 % 12.30 % 11.56 % 10.52 % (5)(7) Portfolio turnover 98 % 53 % 66 % 64 % 81 % 67 % 116 % 27 % (1) The per share data was derived by using the weighted average shares outstanding during the period, except where such calculations deviate from those specified under the instructions to Form N-2.
The NAVs shown are based on outstanding shares at the end of each period as adjusted retroactively for the reverse stock split effected on February 28, 2022. (2) Calculated as of the respective high or low closing sales price divided by the quarter-end NAV.
The NAVs shown are based on outstanding shares at the end of each period as adjusted retroactively for the reverse stock split effected on February 28, 2022. 45 (2) Calculated as of the respective high or low closing sales price divided by the quarter-end NAV.
(2) The per share data for distributions declared reflects the actual amount of distributions of record per share for the period. (3) Total return based on net asset value is calculated as the change in net asset value per share, assuming the Company’s distributions were reinvested through its dividend reinvestment plan.
(2) The per share data for distributions declared reflects the actual amount of distributions of record per share for the period. 48 (3) Total return based on net asset value is calculated as the change in net asset value per share, assuming the Company’s distributions were reinvested through its dividend reinvestment plan.
The ratio of expenses (without management fees, incentive fees and interest and credit facility expenses) to average net assets was corrected to 4.37% (an increase of 1.92 percentage points); the ratio of total expenses to average net assets before waiver was corrected to 10.27% (an increase of 1.92 percentage points), the ratio of total expenses to average net assets after waiver was corrected to 9.99% (an increase of 1.92 percentage points); and the ratio of net investment income to average net assets was corrected to 10.52% (a reduction of 1.92 percentage points). 51 Fees and Expenses The following table is intended to assist you in understanding the fees and expenses that an investor in our common stock will bear, directly or indirectly.
The ratio of expenses (without management fees, incentive fees and interest and credit facility expenses) to average net assets was corrected to 4.37% (an increase of 1.92 percentage points); the ratio of total expenses to average net assets before waiver was corrected to 10.27% (an increase of 1.92 percentage points), the ratio of total expenses to average net assets after waiver was corrected to 9.99% (an increase of 1.92 percentage points); and the ratio of net investment income to average net assets was corrected to 10.52% (a reduction of 1.92 percentage points). 49 Fees and Expenses The following table is intended to assist you in understanding the fees and expenses that an investor in our common stock will bear, directly or indirectly.
The amount of leverage that we may employ at any particular time will depend on, among other things, our Board’s and GECM’s assessment of market and other factors at the time of any proposed borrowing. 52 Example The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock.
The amount of leverage that we may employ at any particular time will depend on, among other things, our Board’s and GECM’s assessment of market and other factors at the time of any proposed borrowing. 50 Example The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock.
During the year ended December 31, 2022, our distributions were made from distributable earnings. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions in the future.
During the year ended December 31, 2023, our distributions were made from distributable earnings. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions in the future.
Under certain circumstances, reinvestment of dividends and other distributions under our dividend reinvestment plan may occur at a price per share that differs from NAV. 53 Item 6. [Reserved]
Under certain circumstances, reinvestment of dividends and other distributions under our dividend reinvestment plan may occur at a price per share that differs from NAV. 51 Item 6. [Reserved]
During the last two fiscal years, our common stock has generally traded below NAV. During the last two fiscal years, using the high and low sales prices within each fiscal quarter compared to the NAV at such quarter end, our common stock has traded as high as 27.0 % premium and as low as a 36.0 % discount to NAV.
During the last two fiscal years, our common stock has generally traded below NAV. During the last two fiscal years, using the high and low sales prices within each fiscal quarter compared to the NAV at such quarter end, our common stock has traded as high as 26.0 % premium and as low as a 40.0 % discount to NAV.
As a result, if our Board authorizes, and we declare, a cash distribution, our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions (net of any applicable withholding tax)automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.
As a result, if our Board authorizes, and we declare, a cash distribution, our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions (net of any applicable withholding tax) automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions. See “Dividend Reinvestment Plan” in this prospectus.
Market Information Our common stock is traded on the NASDAQ Global Market (“Nasdaq”) under the symbol “GECC.” As of February 23, 2023, there were approximately 10 holders of record of the common stock, one of which represents all of our stockholders for whom shares are held in “nominee” or “street name.” 46 The following are our outstanding classes of securities as of December 31, 2022: Title of Class Amount Authorized Amount Held by GECC or for GECC's Account Amount Outstanding Exclusive of Amounts Shown in the Adjacent Column Common Stock 1,000,000,000 - 7,601,958 GECCM Notes - - $45.6 million GECCN Notes - - $42.8 million GECCO Notes - - $57.5 million Share Price Data The following table sets forth: (i) NAV per share of our common stock as of the applicable period end, (ii) the range of high and low closing sales prices of our common stock as reported on the Nasdaq Global Market during the applicable period, (iii) the closing high and low sales prices as a premium (discount) to NAV during the relevant period, and (iv) the distributions per share of our common stock declared during the applicable period.
Market Information Our common stock is traded on the NASDAQ Global Market (“Nasdaq”) under the symbol “GECC.” As of February 22, 2024, there were approximately 9 holders of record of the common stock, one of which represents all of our stockholders for whom shares are held in “nominee” or “street name.” The following are our outstanding classes of securities as of December 31, 2023: Title of Class Amount Authorized Amount Held by GECC or for GECC's Account Amount Outstanding Exclusive of Amounts Shown in the Adjacent Column Common Stock 1,000,000,000 - 7,601,958 GECCM Notes - - $45.6 million GECCO Notes - - $57.5 million GECCZ Notes - - $40.0 million Share Price Data The following table sets forth: (i) NAV per share of our common stock as of the applicable period end, (ii) the range of high and low closing sales prices of our common stock as reported on the Nasdaq Global Market during the applicable period, (iii) the closing high and low sales prices as a premium (discount) to NAV during the relevant period, and (iv) the distributions per share of our common stock declared during the applicable period.
Consequently, if we have borrowings outstanding, the base management fee as a percentage of net assets attributable to common shares would be higher than if we did not utilize leverage. (5) See ‘‘Item 1. Business — Management and Incentive Fees.” (6) Assumes borrowings representing approximately 183% of our average net assets at an average annual interest rate of 6.43%.
Consequently, if we have borrowings outstanding, the base management fee as a percentage of net assets attributable to common shares would be higher than if we did not utilize leverage. (5) See “Item 1. Business — Management and Incentive Fees.” (6) Assumes borrowings representing approximately 165% of our average net assets at an average annual interest rate of 6.96% .
Transaction expenses are not included in the following example. 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return (assumes no return from net realized capital gains) (none of which is subject to the capital gains incentive fee) $ 188 $ 481 $ 692 $ 993 You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the capital gains incentive fee) $ 196 $ 497 $ 708 $ 998 This example should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.
Transaction expenses are not included in the following example. 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return (assumes no return from net realized capital gains) (none of which is subject to the capital gains incentive fee) $ 188 $ 482 $ 693 $ 993 You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the capital gains incentive fee) $ 197 $ 498 $ 709 $ 998 This example should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.
Stockholder transaction expenses (as a percentage of offering price): Sales load — (1) Offering expenses — (2) Dividend reinvestment plan expenses Up to $ 15 (3) Total stockholder transaction expenses Annual expenses (as a percentage of net assets attributable to common stock): Base management fee 4.03 % (4) Incentive fee 3.54 % (5) Interest payments on borrowed funds 11.98 % (6) Other expenses 4.34 % Total annual expenses 23.88 % (1) In the event that shares of our common stock are sold to or through underwriters, the applicable prospectus or prospectus supplement will disclose the applicable sales load (underwriting discount or commission).
Stockholder transaction expenses (as a percentage of offering price): Sales load — (1) Offering expenses — (2) Dividend reinvestment plan expenses Up to $ 15 (3) Total stockholder transaction expenses Annual expenses (as a percentage of net assets attributable to common stock): Base management fee 3.58 % (4) Incentive fee 3.17 % (5) Interest payments on borrowed funds 11.89 % (6) Other expenses 4.93 % Total annual expenses 23.58 % (1) In the event that shares of our common stock are sold to or through underwriters, the applicable prospectus or prospectus supplement will disclose the applicable sales load (underwriting discount or commission).
(2) The applicable prospectus or prospectus supplement will disclose the estimated amount of offering expenses, the offering price and the offering expenses borne by us as a percentage of the offering price. (3) The expenses of the dividend reinvestment plan are included in ‘‘other expenses’’ in the table above.
(2) The applicable prospectus or prospectus supplement will disclose the estimated amount of offering expenses, the offering price and the offering expenses borne by us as a percentage of the offering price. (3) The expenses of the dividend reinvestment plan are included in “ other expenses” in the table above.
The amounts included in the table above for ‘‘Other expenses’’ represent our estimates for the fiscal year ending December 31, 2022. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%.
The amounts included in the table above for “Other expenses” represent our estimates for the fiscal year ending December 31, 2023. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%.
See “Dividend Reinvestment Plan” in this prospectus. 47 Distributions We offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of our borrowings.
Distributions We offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of our borrowings.
(6) Net asset value at the beginning of the period is the net asset value per share as of the consummation of the Merger, as adjusted for the reverse stock split noted in footnote (1). Management corrected this heading to correspond to the timing of the Merger.
(5) Annualized for periods of less than one year. (6) Net asset value at the beginning of the period is the net asset value per share as of the consummation of the Merger, as adjusted for the reverse stock split noted in footnote (1). Management corrected this heading to correspond to the timing of the Merger.
Closing Sales Price Premium (Discount) of High Sales Price Premium (Discount) of Low Sales Price Distributions NAV (1) High Low to NAV (2) to NAV (2) Declared (3) Fiscal year ending December 31, 2023 First Quarter (through February 23, 2023) N/A $ 9.73 $ 8.50 -- -- -- Fiscal year ending December 31, 2022 Fourth Quarter $ 11.16 $ 10.29 $ 8.17 ( 7.8 )% ( 26.8 )% $ 0.45 Third Quarter 12.56 12.70 8.04 1.1 % ( 36.0 )% 0.45 Second Quarter 12.84 15.00 12.30 16.9 % ( 4.2 )% 0.45 First Quarter 15.06 18.99 13.80 26.1 % ( 8.4 )% 0.60 Fiscal year ending December 31, 2021 Fourth Quarter $ 16.63 $ 21.12 $ 18.24 27.0 % 9.7 % $ 0.60 Third Quarter 22.17 21.84 19.50 ( 1.5 )% ( 12.0 )% 0.60 Second Quarter 23.40 23.04 19.26 ( 1.5 )% ( 17.7 )% 0.60 First Quarter 23.36 24.18 18.24 3.5 % ( 21.9 )% 0.60 (1) NAV per share is determined as of the last day in the relevant quarter and therefore does not necessarily reflect the NAV per share on the date of the high and low closing sales prices.
Closing Sales Price Premium (Discount) of High Sales Price Premium (Discount) of Low Sales Price Distributions NAV (1) High Low to NAV (2) to NAV (2) Declared (3) Fiscal year ending December 31, 2024 First Quarter (through February 22, 2024) N/A $ 11.10 $ 10.26 -- -- -- Fiscal year ending December 31, 2023 Fourth Quarter $ 12.99 $ 10.98 $ 8.51 ( 15.5 )% ( 34.5 )% $ 0.45 Third Quarter 12.88 10.25 7.68 ( 20.4 )% ( 40.4 )% 0.35 Second Quarter 12.21 9.10 7.58 ( 25.5 )% ( 37.9 )% 0.35 First Quarter 11.88 9.75 8.50 ( 17.9 )% ( 28.5 )% 0.35 Fiscal year ending December 31, 2022 Fourth Quarter $ 11.16 $ 10.29 $ 8.17 ( 7.8 )% ( 26.8 )% $ 0.45 Third Quarter 12.56 12.70 8.04 1.1 % ( 36.0 )% 0.45 Second Quarter 12.84 15.00 12.30 16.9 % ( 4.2 )% 0.45 First Quarter 15.06 18.99 13.80 26.1 % ( 8.4 )% 0.60 (1) NAV per share is determined as of the last day in the relevant quarter and therefore does not necessarily reflect the NAV per share on the date of the high and low closing sales prices.
The graph assumes that, on November 3, 2016, a person invested $10,000 in each of the S&P 500 Index and the Nasdaq Financial 100 Index, and our common stock at the equivalent closing price of Full Circle’s last day of trading. The graph measures total stockholder return, which takes into account both changes in stock price and dividends.
The graph assumes that, on December 31, 2018, a person invested $10,000 in each of the S&P 500 Index and the Nasdaq Financial 100 Index, and our common stock at the last day of trading. The graph measures total stockholder return, which takes into account both changes in stock price and dividends.
The following table summarizes our distributions declared for record dates since January 1, 2021: Record Date Payment Date Distribution Per Share Declared (1) March 15, 2021 ​ March 31, 2021 ​ $ 0.60 June 15, 2021 ​ June 30, 2021 ​ $ 0.60 September 15, 2021 ​ September 30, 2021 ​ $ 0.60 December 15, 2021 ​ December 31, 2021 ​ $ 0.60 March 15, 2022 ​ March 30, 2022 ​ $ 0.60 June 23, 2022 ​ June 30, 2022 ​ $ 0.45 September 15, 2022 September 30, 2022 $ 0.45 December 15, 2022 December 30, 2022 $ 0.45 (1) Per share amounts have been adjusted for the periods shown to reflect the six-for-one reverse stock split effected on February 28, 2022 on a retroactive basis as described in Note 2. 48 Performance Graph This graph compares the return on our common stock with that of the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the Nasdaq Financial 100 Index, for the period from November 3, 2016, the date of our Merger, after which our common stock began trading on Nasdaq, through December 31, 2022.
The following table summarizes our distributions declared for record dates since January 1, 2022: Record Date Payment Date Distribution Per Share Declared (1) March 15, 2022 ​ March 30, 2022 ​ $ 0.60 June 23, 2022 ​ June 30, 2022 ​ $ 0.45 September 15, 2022 September 30, 2022 $ 0.45 December 15, 2022 December 30, 2022 $ 0.45 March 15, 2023 March 31, 2023 $ 0.35 June 15, 2023 June 30, 2023 $ 0.35 September 15, 2023 September 29, 2023 $ 0.35 December 15, 2023 December 29, 2023 $ 0.35 December 29, 2023 January 12, 2024 $ 0.10 (1) Per share amounts have been adjusted for the periods shown to reflect the six-for-one reverse stock split effected on February 28, 2022 on a retroactive basis as described in Note 2. 46 Performance Graph This graph compares the return on our common stock with that of the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the Nasdaq Financial 100 Index, for the period from December 31, 2018, the last trading day before the fifth preceding fiscal year, through December 31, 2023.
Total return based on market value is calculated as the change in market value per share from November 4, 2016 through December 31, 2016, assuming the Company’s distributions were reinvested through its dividend reinvestment plan, and is assumed to be $12.03 on November 4, 2016. $12.03 represents the closing price of Full Circle’s common stock on its last day of trading prior to the Merger, as adjusted by the exchange ratio in the Merger Agreement. 50 (4) Average net assets used in ratio calculations are calculated using monthly ending net assets for the period presented.
Total return based on market value is calculated as the change in market value per share from November 4, 2016 through December 31, 2016, assuming the Company’s distributions were reinvested through its dividend reinvestment plan, and is assumed to be $12.03 on November 4, 2016. $12.03 represents the closing price of the common stock of Full Circle Capital Corporation, a Maryland corporation ("Full Circle"), on its last day of trading prior to the stock-for-stock merger of Full Circle with and into GECC, as adjusted by the exchange ratio in the Agreement and Plan of Merger, dated June 23, 2016 between Full Circle and GECC.
For the years ending December 31, 2022, 2021, 2020, 2019, 2018 and 2017 and the period ended December 31, 2016 average net assets were $85,029, $87,975, $60,884, $97,791, $124,668, $151,986 and $179,366, respectively. (5) Annualized for periods of less than one year.
(4) Average net assets used in ratio calculations are calculated using monthly ending net assets for the period presented. For the years ending December 31, 2023, 2022, 2021, 2020, 2019, 2018 and 2017 and the period ended December 31, 2016 average net assets were $93,441, $85,029, $87,975, $60,884, $97,791, $124,668, $151,986 and $179,366, respectively.
Added
The stock price performance included in the above graph is not necessarily indicative of future stock price performance, and the graph does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

48 edited+18 added−16 removed46 unchanged
Biggest change(2) Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving credit facilities). 57 Portfolio Classification The following table shows the fair value of portfolio investments by industry as of December 31, 2022 and 2021 December 31, 2022 December 31, 2021 Industry Investments at Fair Value Percentage of Fair Value Investments at Fair Value Percentage of Fair Value Specialty Finance $ 58,250 25.89 % $ 47,952 22.60 % Chemicals 31,702 14.09 % 15,058 7.10 % Energy Midstream 22,559 10.03 % 31,815 15.00 % Oil & Gas Exploration & Production 15,136 6.74 % 9,849 4.64 % Internet Media 12,247 5.44 % 11,870 5.60 % Transportation Equipment Manufacturing 11,803 5.25 % 6,030 2.84 % Casinos & Gaming 9,301 4.13 % 5,291 2.49 % Consumer Products 8,413 3.74 % - - % Shipping 7,206 3.20 % - - % Metals & Mining 6,046 2.69 % 13,711 6.46 % Closed-End Fund 5,825 2.59 % - - % Industrial 5,498 2.44 % 7,551 3.56 % Oil & Gas Refining 5,388 2.40 % 3,030 1.43 % Hospitality 4,988 2.22 % 4,085 1.93 % Food & Staples 3,660 1.63 % 2,724 1.28 % Aircraft 3,577 1.59 % - - % Restaurants 3,110 1.38 % 8,310 3.92 % Wireless Telecommunications Services 2,997 1.33 % 8,137 3.84 % Energy Services 2,877 1.28 % - - % Apparel 2,371 1.05 % 2,929 1.38 % Insurance 2,340 1.04 % Special Purpose Acquisition Company 19 0.01 % 3,044 1.43 % Retail 5 - % 4,267 2.01 % Auto Manufacturer 2 - % - - % Biotechnology 1 - % 11 0.01 % Household & Personal Products 1 - % - - % Technology (365 ) (0.16 )% (158 ) (0.07 )% Construction Materials Manufacturing - - % 10,461 4.93 % Home Security - - % 5,590 2.63 % Healthcare Supplies - - % 2,869 1.35 % Consumer Services - - % 2,640 1.24 % Commercial Printing - - % 2,025 0.95 % Software Services - - % 1,994 0.94 % Communications Equipment - - % 1,057 0.50 % IT Services - - % 7 0.01 % Total $ 224,957 100.00 % $ 212,149 100.00 % 58 Results of Operations Investment Income For the Year Ended December 31, 2022 2021 In Thousands Per Share (1) In Thousands Per Share (1) Total Investment Income $ 24,429 $ 3.91 $ 25,254 $ 6.20 Interest income 18,684 2.99 19,917 4.89 Dividend income 4,354 0.70 4,347 1.07 Other income 1,391 0.22 990 0.24 (1) The per share amounts are based on a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022 and a weighted average of 4,073,454 outstanding common shares for the year ended December 31, 2021.
Biggest change(2) Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving credit facilities). 55 Portfolio Classification The following table shows the fair value of our portfolio of investments by industry as of December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Industry Investments at Fair Value Percentage of Fair Value Investments at Fair Value Percentage of Fair Value Specialty Finance $ 52,322 22.69 % $ 58,250 25.89 % Chemicals 27,023 11.72 % 31,702 14.09 % Consumer Products 20,211 8.76 % 8,413 3.74 % Transportation Equipment Manufacturing 17,261 7.49 % 11,803 5.25 % Insurance 16,026 6.95 % 2,340 1.04 % Internet Media 13,732 5.95 % 12,247 5.44 % Shipping 11,724 5.08 % 7,206 3.20 % Oil & Gas Exploration & Production 11,420 4.95 % 15,136 6.74 % Metals & Mining 9,538 4.14 % 6,046 2.69 % Technology 7,342 3.18 % (365 ) (0.16 )% Food & Staples 7,199 3.12 % 3,660 1.63 % Energy Services 6,930 3.01 % 2,877 1.28 % Closed-End Fund 6,770 2.94 % 5,825 2.59 % Casinos & Gaming 4,252 1.84 % 9,301 4.13 % Aircraft 3,958 1.72 % 3,577 1.59 % Industrial 3,719 1.61 % 5,498 2.44 % Restaurants 3,441 1.49 % 3,110 1.38 % Apparel 2,007 0.87 % 2,371 1.05 % Energy Midstream 1,996 0.87 % 22,559 10.03 % Defense 1,945 0.84 % - - % Consumer Services 1,742 0.76 % - - % Retail 54 0.02 % 5 0.00 % Oil & Gas Refining - - % 5,388 2.40 % Hospitality - - % 4,988 2.22 % Wireless Telecommunications Services - - % 2,997 1.33 % Special Purpose Acquisition Company - - % 19 0.01 % Auto Manufacturer - - % 2 0.00 % Biotechnology - - % 1 0.00 % Household & Personal Products - - % 1 0.00 % Total $ 230,612 100.00 % $ 224,957 100.00 % 56 Results of Operations Investment Income For the Year Ended December 31, 2023 2022 In Thousands Per Share (1) In Thousands Per Share (1) Total Investment Income $ 35,825 $ 4.71 $ 24,429 $ 3.91 Interest income 28,901 3.80 18,684 2.99 Dividend income 3,478 0.46 4,354 0.70 Other commitment fees 3,075 0.40 1,155 0.18 Other income 371 0.05 236 0.04 (1) The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022.
During the year ended December 31, 2022, gross realized gains included approximately $2.2 million on sales of our investment in Crestwood Equity Partners, LP ("Crestwood") preferred stock, $1.0 million on the sale of our investment in GAC HoldCo Inc. warrants and $0.9 million on the refinancing of our investment in Tensar Corporation 2nd Lien secured loan.
During the year ended December 31, 2022, gross realized gains included approximately $2.2 million on sales of our investment in Crestwood Equity Partners, LP preferred stock, $1.0 million on the sale of our investment in GAC HoldCo Inc. warrants and $0.9 million on the refinancing of our investment in Tensar Corporation 2nd Lien secured loan.
For the year ended December 31, 2022, net cash used in operating activities was approximately $41.8 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.
For the year ended December 31, 2022, net cash used in operating activities was approximately $41.8 million, reflecting the purchases and proceeds from sales of investments and principal 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.
On August 1, 2022, upon receiving our stockholders' approval, we and GECM entered into the Amendment to reset the Capital Gains Incentive Fee to begin on April 1, 2022, which eliminated $163.2 million of historical realized and unrealized losses incurred prior to April 1, 2022 in calculating future incentive fees.
On August 1, 2022, upon receiving our stockholders’ approval, we and GECM entered into the Amendment to reset the Capital Gains Incentive Fee to begin on April 1, 2022, which eliminated $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 in calculating future incentive fees.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of fiscal year 2020. Liquidity and Capital Resources We generate liquidity through our operations with cash received from investment income and sales and paydowns on investments.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a discussion of fiscal year 2021. Liquidity and Capital Resources We generate liquidity through our operations with cash received from investment income and sales and paydowns on investments.
If any of the contractual or other 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.
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.
In addition, changes in the market environment and other events may impact the market quotations used to value some of our investments. 55 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.
In addition, changes in the market environment and other events may impact the market quotations used to value some of our investments. 53 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.
Realized gains and losses are computed using the specific identification method. 56 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.
Realized gains and losses are computed using the specific identification method. 54 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 Reconciliation The following is a reconciliation of the investment portfolio for the years ended December 31, 2022 and 2021. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.
Portfolio Reconciliation The following is a reconciliation of the investment portfolio for the years ended December 31, 2023 and 2022. Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.
In addition, the Income Incentive Fee was amended to reset the mandatory deferral commencement date used in calculating deferred incentive fees to April 1, 2022. 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.
In addition, the Income Incentive Fee was amended to reset the mandatory deferral commencement date used in calculating deferred incentive fees to April 1, 2022. The Investment Management Agreement renews for successive annual periods, subject to requisite approvals from our Board and/or stockholders. We have elected to be treated as a RIC for U.S. federal income tax purposes.
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 December 31, 2022, we had approximately $19.9 million in unfunded loan commitments to provide debt financing to certain of our portfolio companies.
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 December 31, 2023, we had approximately $8.9 million in unfunded loan commitments to provide debt financing to certain of our portfolio companies.
Such realized losses are offset by the relief of those previously recognized unrealized losses as discussed under Unrealized Appreciation (Depreciation) on Investments below.
Such realized losses are offset by the relief of those previously recognized unrealized losses as discussed under Change in Unrealized Appreciation (Depreciation) on Investments below.
We had sufficient cash and other liquid assets on our December 31, 2022 balance sheet to satisfy the unfunded commitments.
We had sufficient cash and other liquid assets on our December 31, 2023 balance sheet to satisfy the unfunded commitments.
Such proceeds are generally reinvested in new investment opportunities, distributed to shareholders in the form of dividends, or used to pay operating expenses. The Company also receives proceeds from our issuances of notes payable and our revolving credit facility and from time to time may raise additional equity capital.
Such proceeds are generally reinvested in new investment opportunities, distributed to shareholders in the form of dividends, or used to pay operating expenses. We also receive proceeds from our issuances of notes payable and our revolving credit facility and from time to time may raise additional equity capital.
In addition, we realized approximately $15.9 million and $4.2 million of previously recognized unrealized losses as a result of the sales of our positions in Tru (UK) Asia Limited ("Tru Taj") common stock and California Pizza Kitchen, Inc. ("CPK") common stock, respectively.
In addition, we realized approximately $15.9 million and $4.2 million of previously recognized unrealized losses as a result of the sales of our positions in Tru (UK) Asia Limited (“Tru Taj”) common stock and California Pizza Kitchen, Inc. (“CPK”) common stock, respectively.
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.
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.
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.
On June 23, 2021, we issued $ 50.0 million in aggregate principal amount of 5.875% notes due 2026 (the “ GECCO 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.
As of December 31, 2022, approximately $100.8 million in principal amount of our debt investments bore interest at variable rates, which are generally based on LIBOR, SOFR or US Prime Rate, and many of which are subject to certain floors.
As of December 31, 2023, approximately $148.9 million in principal amount of our debt investments bore interest at variable rates, which are generally based on SOFR or US prime rate, and many of which are subject to certain floors.
The GECCM Notes, GECCN 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.
The GECCM Notes, GECCO Notes, and GECCZ Notes will mature on January 31, 2025, June 30, 2026, and September 30, 2028, respectively. The GECCM Notes and GECCO Notes are currently callable at the Company’s option and the GECCZ Notes can be called on, or after, September 30, 2025.
See “—Revolver” and “—Notes Payable” below for more information regarding our outstanding credit facility and notes. At December 31, 2022, we had approximately $0.6 million of cash and cash equivalents and approximately $6.3 million of money market fund investments at fair value.
See “—Revolver” and “—Notes Payable” below for more information regarding our outstanding credit facility and notes. As of December 31, 2023, we had approximately $1.0 million of cash and cash equivalents and approximately $10.8 million of money market fund investments at fair value.
For the year ended December 31, 2021, net cash used in operating activities was approximately $58.5 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.
For the year ended December 31, 2023, net cash provided by operating activities was approximately $25.7 million, reflecting the purchases and proceeds from sales of investments and principal 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.
As a BDC, our investments and the composition of our portfolio are required to comply with regulatory requirements. See “Regulation as a Business Development Company” and “Certain Federal Income Tax Matters.” 54 Revenues We generate revenue primarily from interest on the debt investments that we hold.
As a BDC, our investments and the composition of our portfolio are required to comply with regulatory requirements. See “The Company—Regulation as a Business Development Company” and “The Company—Certain U.S. Federal Income Tax Matters.” 52 Revenues We generate revenue primarily from interest on the debt investments that we hold.
On September 27, 2016, we and GECM entered into the Investment Management Agreement and the Administration Agreement, and, upon closing the Merger, we began to accrue obligations to our external investment manager under those agreements.
On September 27, 2016, we and GECM, our external investment manager, entered into the Investment Management Agreement and the Administration Agreement, and we began to accrue obligations to our external investment manager.
For the year ended December 31, 2021, GECC recognized $1.2 million in incentive fees which were offset by the reversal of $5.3 million in previously recognized incentive fees as a result of income reversals, realized losses where proceeds did not cover the amortized cost basis, and the determination that previously recognized incentive fees earned on certain non-accrual positions with significant write-downs should not be recognized as a liability. 60 Realized Gains (Losses) For the Year Ended December 31, 2022 2021 In Thousands Per Share (1) In Thousands Per Share (1) Net Realized Gain (Loss) $ (126,046 ) $ (20.16 ) $ (9,639 ) $ (2.37 ) Gross realized gain 6,207 0.99 8,128 2.00 Gross realized loss (132,253 ) (21.15 ) (17,767 ) (4.37 ) (1) The per share amounts are based on a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022 and a weighted average of 4,073,454 outstanding common shares for the year ended December 31, 2021.
For the year ended December 31, 2022, GECC recognized $0.6 million in incentive fees which was offset by $4.9 million in previously recognized incentive fees which were waived by GECM as of March 31, 2022 resulting in a net reversal of $4.3 million for incentive fees as a result of income reversals, realized losses where proceeds did not cover the amortized cost basis, and the determination that previously recognized incentive fees earned on certain non-accrual positions with significant write-downs should not be recognized as a liability. 58 Realized Gains (Losses) For the Year Ended December 31, 2023 2022 In Thousands Per Share (1) In Thousands Per Share (1) Net Realized Gain (Loss) $ (4,707 ) $ (0.62 ) $ (126,046 ) $ (20.16 ) Gross realized gain 11,702 1.54 6,207 0.99 Gross realized loss (16,409 ) (2.16 ) (132,253 ) (21.15 ) (1) The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022.
The aggregate principal balance of the GECCO Notes outstanding as of December 31, 2022 is $ 57.5 million . The Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness.
The aggregate principal balance of the GECCZ Notes outstanding as of December 31, 2023 is $ 40.0 million . The Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness.
We redeemed all of the issued and outstanding GECCL Notes on July 23, 2021 at 100% of the principal amount plus accrued and unpaid interest thereon from April 30, 2021 through, but excluding, the redemption date, July 23, 2021.
We redeemed all of the issued and outstanding GECCN Notes on September 7, 2023 at 100% of the principal amount plus accrued and unpaid interest thereon from June 30, 2023 through, but excluding, the redemption date, September 7, 2023.
(in thousands) For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 Beginning Investment Portfolio, at fair value $ 212,149 $ 151,648 Portfolio Investments acquired (1) 150,128 214,857 Amortization of premium and accretion of discount, net 1,328 3,958 Portfolio Investments repaid or sold (2) (112,628 ) (135,761 ) Net change in unrealized appreciation (depreciation) on investments 100,016 (12,922 ) Net realized gain (loss) on investments (126,036 ) (9,631 ) Ending Investment Portfolio, at fair value $ 224,957 $ 212,149 (1) Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings, and capitalized PIK income.
(in thousands) For the Year Ended December 31, 2023 For the Year Ended December 31, 2022 Beginning Investment Portfolio, at fair value $ 224,957 $ 212,149 Portfolio Investments acquired (1) 226,063 150,128 Amortization of premium and accretion of discount, net 2,375 1,328 Portfolio Investments repaid or sold (2) (235,570 ) (112,628 ) Net change in unrealized appreciation (depreciation) on investments 17,485 100,016 Net realized gain (loss) on investments (4,698 ) (126,036 ) Ending Investment Portfolio, at fair value $ 230,612 $ 224,957 (1) Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings, and capitalized PIK income.
The $0.3 million increase in administration fees for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is attributable to increased allocation of personnel costs from GECM as a result of additional resource time spent on GECC matters. Other expenses include costs for insurance, transfer agent fees, shareholder materials and other compliance related expenses.
The $0.6 million increase in administration fees for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is attributable to increased allocation of personnel costs from GECM as a result of additional resource time spent on GECC matters.
These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on February 28, 2022. During the year ended December 31, 2022, net realized losses on investments were primarily driven by the restructuring of Avanti Communications on which we realized approximately $111 million of previously recognized unrealized losses as a result of the April 2022 restructuring.
During the year ended December 31, 2022, net realized losses on investments were primarily driven by the restructuring of Avanti Communications on which we realized approximately $111 million of previously recognized unrealized losses as a result of the April 2022 restructuring.
Net cash used in purchases and proceeds from sales of investments was approximately $56.9 million, reflecting payments for additional investments of $191.9 million, offset by proceeds from principal repayments and sales of $135.0 million. Such amounts include draws and repayments on revolving credit facilities.
Net cash provided by purchases and proceeds from sales of investments was approximately $14.6 million, reflecting payments for additional investments of $220.5 million, offset by proceeds from principal repayments and sales of $235.1 million. Such amounts include draws and repayments on revolving credit facilities.
Unrealized depreciation for the year ended December 31, 2022 includes approximately $7.0 million in decrease in fair value of our investment in Avanti Space Limited junior priority notes received in the April 2022 restructuring of Avanti Communications and $5.1 million in decrease in fair value of our equity investment in Lenders Funding, LLC. 61 For the year ended December 31, 2021, net unrealized depreciation was largely driven by decreases in portfolio company valuations as compared to the prior year end.
Unrealized depreciation for the year ended December 31, 2022 includes approximately $7.0 million in decrease in fair value of our investment in Avanti Space Limited junior priority notes received in the April 2022 restructuring of Avanti Communications and $5.1 million in decrease in fair value of our equity investment in Lenders Funding. Please see “Item 7.
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.
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.
Unrealized Appreciation (Depreciation) on Investments For the Year Ended December 31, 2022 2021 In Thousands Per Share (1) In Thousands Per Share (1) Net change in unrealized appreciation/ (depreciation) $ 100,002 $ 16.00 $ (12,921 ) $ (3.17 ) Unrealized appreciation 130,699 20.91 54,377 13.35 Unrealized depreciation (30,697 ) (4.91 ) (67,298 ) (16.52 ) (1) The per share amounts are based on a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022 and a weighted average of 4,073,454 outstanding common shares for the year ended December 31, 2021.
For the Year Ended December 31, 2023 2022 In Thousands Per Share (1) In Thousands Per Share (1) Net change in unrealized appreciation/ (depreciation) $ 17,498 $ 2.30 $ 100,002 $ 16.00 Unrealized appreciation 28,101 3.69 130,699 20.91 Unrealized depreciation (10,603 ) (1.39 ) (30,697 ) (4.91 ) (1) The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022.
Portfolio and Investment Activity The following is a summary of our investment activity for the years ended December 31, 2022 and 2021: (in thousands) Acquisitions (1) Dispositions (2) Weighted Average Yield 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 % Quarter ended June 30, 2022 44,750 (34,014 ) 10.27 % Quarter ended September 30, 2022 40,212 (28,430 ) 11.59 % Quarter ended December 31, 2022 37,588 (20,461 ) 12.43 % For the Year Ended December 31, 2022 $ 150,128 $ (112,628 ) (1) Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income.
Portfolio and Investment Activity The following is a summary of our investment activity for the years ended December 31, 2023 and 2022: (in thousands) Acquisitions (1) Dispositions (2) Weighted Average Yield End of Period (3) Quarter ended March 31, 2022 27,578 (29,723 ) 10.38 % Quarter ended June 30, 2022 44,750 (34,014 ) 10.27 % Quarter ended September 30, 2022 40,212 (28,430 ) 11.59 % Quarter ended December 31, 2022 37,588 (20,461 ) 12.43 % For the Year Ended December 31, 2022 $ 150,128 $ (112,628 ) Quarter ended March 31, 2023 53,293 (57,175 ) 13.06 % Quarter ended June 30, 2023 23,042 (15,975 ) 13.47 % Quarter ended September 30, 2023 80,915 (87,268 ) 13.36 % Quarter ended December 31, 2023 68,813 (75,152 ) 13.77 % For the Year Ended December 31, 2023 $ 226,063 $ (235,570 ) (1) Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income.
For the year ended December 31, 2022, net unrealized appreciation was attributable to the relief of previously recognized unrealized depreciation as a result of sales of our investments in Tru Taj and CPK and the restructuring of our investments in Avanti Communications, as discussed under Realized Gains (Losses) above.
Unrealized depreciation for the year ended December 31, 2023 was primarily driven by the reversal of approximately $3.9 million in previously recognized unrealized appreciation on our investment in Prestige common equity which was reclassified to realized gain upon the in-kind contribution to GESF. 59 For the year ended December 31, 2022, net unrealized appreciation was attributable to the relief of previously recognized unrealized depreciation as a result of sales of our investments in Tru Taj and CPK and the restructuring of our investments in Avanti Communications, as discussed under Realized Gains (Losses) above.
On January 11, 2018, we sold $ 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 sold an additional $ 1.9 million and $ 1.5 million, respectively, of the GECCM Notes upon partial exercise of the underwriters’ over-allotment option.
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 December 31, 2023 is $ 45.6 million .
This increase was partially offset by a decrease of $0.8 million in other funding and consent fees earned in the year ended December 31, 2022 as compared to the year ended December 31, 2021. 59 Expenses For the Year Ended December 31, 2022 2021 In Thousands Per Share (1) In Thousands Per Share (1) Total Expenses $ 13,716 $ 2.19 $ 12,921 $ 3.17 Management fees 3,205 0.51 3,182 0.78 Incentive fees 565 0.10 (4,323 ) (1.06 ) Incentive fee waiver (4,854 ) (0.78 ) - - Total advisory and management fees (1,084 ) (0.17 ) (1,141 ) (0.28 ) Administration fees 938 0.15 673 0.17 Directors’ fees 215 0.03 233 0.06 Interest expense 10,690 1.71 10,428 2.56 Professional services 1,967 0.31 1,937 0.48 Custody fees 53 0.01 54 0.01 Other 937 0.15 737 0.17 Income Tax Expense Excise tax 252 0.04 48 0.01 (1) The per share amounts are based on a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022 and a weighted average of 4,073,454 outstanding common shares for the year ended December 31, 2021.
Other commitment fees increased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is attributable to fees in connection with the extensions of certain revolver commitments. 57 Expenses For the Year Ended December 31, 2023 2022 In Thousands Per Share (1) In Thousands Per Share (1) Total Expenses $ 22,996 $ 3.03 $ 13,716 $ 2.19 Management fees 3,539 0.47 3,205 0.51 Incentive fees 3,132 0.41 565 0.10 Incentive fee waiver - - (4,854 ) (0.78 ) Total advisory and management fees 6,671 0.88 (1,084 ) (0.17 ) Administration fees 1,522 0.20 938 0.15 Directors’ fees 205 0.03 215 0.03 Interest expense 11,742 1.54 10,690 1.71 Professional services 1,772 0.23 1,967 0.31 Custody fees 81 0.01 53 0.01 Other 1,003 0.13 937 0.15 Income Tax Expense Excise tax 287 0.04 252 0.04 (1) The per share amounts are based on a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023 and a weighted average of 6,251,391 outstanding common shares for the year ended December 31, 2022.
The schedule of distribution payments will be established by GECC pursuant to authority granted by our Board. The distribution will be paid in cash. Interest Rate Risk We are also subject to financial risks, including changes in market interest rates.
The schedule of the distribution payment will be established by GECC pursuant to authority granted by our Board. The distribution will be paid in cash.
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 SOFR plus 3.50%, (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by us. As of December 31, 2022, there were $10.0 million borrowings outstanding under the revolving line.
Borrowings under the revolving line currently bear interest at a rate equal to (i) the Secured Overnight Financing Rate ("SOFR") plus 3.00% (reduced from SOFR plus 3.50% prior to the November 2023 amendment), (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by us.
For the years ended December 31, 2022 and 2021, income includes non-cash PIK income of $1.3 million and $5.5 million, respectively.
For the years ended December 31, 2023 and 2022, income includes non-cash PIK income of $2.6 million and $1.3 million, respectively. Interest income increased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to growth of the portfolio and rising interest rates.
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.
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.
Overall expenses for the year ended December 31, 2022 increased as compared to the year ended December 31, 2021 primarily driven by increases in administration fees and other expenses.
Overall expenses for the year ended December 31, 2023 increased as compared to the year ended December 31, 2022 primarily driven by an increase in incentive fees compared to the year ended December 31, 2022 during which $4.9 million of incentive fees were waived by GECM.
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 December 31, 2022 is $ 42.8 million .
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. On August 8, 2023, we caused redemption notices to be issued to the holders of the GECCN Notes regarding the Company's exercise of its option to redeem, in whole, the issued and outstanding GECCN Notes.
Borrowings are also subject to the leverage restrictions contained in the Investment Company Act. In May 2022, the interest rate in the Loan Agreement was amended to replace LIBOR with SOFR. 63 Notes Payable On September 13, 2017, we issued $ 28.4 million in aggregate principal amount of 6.50% Notes due 2022 (the “ GECCL Notes ”).
Borrowings are also subject to the leverage restrictions contained in the Investment Company Act. Notes Payable On January 11, 2018, we issued $ 43.0 million in aggregate principal amount of 6.75% notes due 2025 (the “ GECCM Notes ”).
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates. 64
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates. Recent Developments Distribution Our Board set a distribution for the quarter ending March 31, 2024 at a rate of $0.35 per share. The full amount of the distribution will be from distributable earnings.
At December 31, 2022, we had investments in 52 debt instruments across 42 companies, totaling approximately $185.0 million at fair value and 89 equity investments in 88 companies, totaling approximately $40.0 million at fair value.
As of December 31, 2023, we had investments in 38 debt instruments across 32 companies, totaling approximately $200.7 million at fair value and 10 equity investments in 10 companies, with an aggregate fair value of approximately $29.9 million.
For the year ended December 31, 2021, cash provided by financing activities was $14.5 million, which consisted of $55.2 million in proceeds from the issuance of the GECCO Notes offset by $30.3 million in repayment on the GECCL Notes and payment of $9.9 million in distributions. 62 Contractual Obligations and Other Cash Requirements A summary of our significant contractual payment obligations and other cash requirements as of December 31, 2022 is as follows: (in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years Contractual and Other Cash Obligations GECCM Notes 45,610 - 45,610 - - GECCN Notes 42,823 - 42,823 - - GECCO Notes 57,500 - - 57,500 - Revolving Credit Facility 10,000 - 10,000 - - Total $ 155,933 $ - $ 98,433 $ 57,500 $ - See “—Revolver” and “—Notes Payable” below for more information regarding our outstanding credit facility and notes.
We believe we have sufficient liquidity available to meet our short-term and long-term obligations for at least the next 12 months and for the foreseeable future thereafter. 60 Contractual Obligations and Cash Requirements A summary of our material contractual payment obligations and other cash obligations as of December 31, 2023 is as follows: (in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years Contractual and Other Cash Obligations GECCM Notes 45,610 - 45,610 - - GECCO Notes 57,500 - 57,500 - - GECCZ Notes 40,000 - - 40,000 - Revolving Credit Facility - - - - - Total $ 143,110 $ - $ 103,110 $ 40,000 $ - See “—Revolver” and “—Notes Payable” below for more information regarding our outstanding credit facility and notes.
The $0.2 million increase in other expenses for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily driven by increased costs associated with systems, travel and diligence expenses and a settlement payment related to a former investment.
Professional services costs decreased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to decreased legal expenses associated with specific transaction matters. The $0.2 million decrease in professional services were partially offset by general rate increases for professional services including legal and accounting costs.
Removed
In December 2021, GESF, a wholly-owned subsidiary of GECC, was formed to oversee specialty finance related investments, and Michael Keller, a seasoned professional with significant experience in specialty finance, was appointed President of GESF.
Added
On September 1, 2023, we contributed investments in certain of our operating company subsidiaries and other specialty finance assets to our formerly wholly owned subsidiary, GESF in exchange for equity and subordinated indebtedness in GESF. In connection with this contribution, a strategic investor purchased approximately 12.5% of the equity interests and subordinated indebtedness in GESF.
Removed
We believe investments in specialty finance companies along the “continuum of lending” provide durable risk adjusted returns that are expected to be largely uncorrelated to the liquid credit markets.
Added
Through its subsidiaries, GESF provides a variety of financing options along a “continuum of lending” to middle-market borrowers including, receivables factoring, asset-based and asset-backed lending, lender finance, and equipment financing. GESF expects to generate both revenue and cost synergies across its specialty finance company subsidiaries.
Removed
The “continuum of lending” as seen by GECM is the various stages of capital that are provided to under-banked small and medium sized businesses and includes, but is not limited to inventory and purchase order financing, receivables factoring, asset-based and asset-backed lending, and equipment financing.
Added
Dividend income decreased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 due to lower distributions from our investments in specialty finance portfolio companies.
Removed
GECM believes that ownership interests in multiple specialty finance companies will create a natural competitive advantage for each business and generate both revenue and cost synergies across companies.
Added
For the year ended December 31, 2023, GECC recognized $3.1 million in incentive fees due to increased pre-incentive net investment income.
Removed
The decrease in interest income for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is primarily attributable to our investments in Avanti Communications Group, plc ("Avanti Communications") which were put on non-accrual status at the end of fiscal year 2021 and in early fiscal year 2022 and subsequently restructured in April 2022.
Added
Realized gain for the year ended December 31, 2023 includes $5.7 million in gains on the realization of our investment in Prestige Capital Finance, LLC (“Prestige”) common equity in connection with the in-kind contribution to GESF and $0.9 million in gains from the partial sale of our investment in ACIC.
Removed
As a result, we recognized only $0.1 in interest income on our investments in Avanti Communications for the year ended December 31, 2022 as compared to $6.2 million for the year ended December 31, 2021. This decrease was partially offset by interest income earned on new positions in the portfolio.
Added
Realized losses for the year ended December 31, 2023 includes $7.0 million in loss on the sale of Lenders Funding, LLC (“Lenders Funding”) common equity and $4.6 million in loss related to the write off of investments in Avanti Communications Group plc (“Avanti Communications”).
Removed
Other income increased for the year ended December 31, 2022 as compared to the year ended December 31, 2021 as a result of earning approximately $1.2 million in fees in connection with the extensions of certain revolver commitments.
Added
Change in Unrealized Appreciation (Depreciation) on Investments The following table summarizes the significant unrealized appreciation (depreciation) of our investment portfolio.
Removed
For the year ended December 31, 2022, GECC recognized $0.6 million in incentive fees which was offset by $4.9 million in previously recognized incentive fees which were waived by GECM as of March 31, 2022 resulting in a net reversal of $4.3 million for incentive fees for the year.
Added
These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on February 28, 2022.
Removed
During the year ended December 31. 2021, net realized losses on investments were primarily driven by exits from our investments in Davidzon Radio, Inc. (“Davidzon”), OPS Acquisitions Limited and Ocean Protection Services Limited (“OPS”), Boardriders, Inc. and Best Western Luling, on which we recognized $5.7 million, $4.2 million, $2.9 million and $1.3 million, respectively, in realized losses.
Added
For the year ended December 31, 2023, unrealized appreciation was primarily driven by reversal of approximately $7.0 million in previously recognized unrealized depreciation on our investment in Lenders Funding common equity which was reclassified to realized loss upon the sale of our position and $4.6 million in previously recognized unrealized depreciation on our investment in Avanti Communications which was reclassified to realized loss upon the write off of the position.
Removed
We recognized realized gains of $4.0 million on sales of our investment in Crestwood Equity Partners LP (“Crestwood”) and $1.2 million and $0.4 million, respectively, on paydowns of our investments in Subcom, LLC revolver and CPK 1st Lien secured loan.
Added
For the year ended December 31, 2023, cash used for financing activities was $25.3 million, which consisted of $38.4 million in net proceeds from the issuance of the GECCZ Notes which was offset by $42.8 million in payments to retire the GECCN Notes, $10.0 million in net repayments on the revolving credit facility and $10.6 million in distributions to stockholders.
Removed
Most notably, we recognized unrealized depreciation of $32.0 million on our investments in Avanti Communications and approximately $5.9 million on our investments in PFS Holdings Corp.
Added
On August 1, 2022, our stockholders approved an amendment to the Investment Management Agreement to eliminate $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 from the calculation of future capital gains incentive fees and reset the capital gain incentive fee and mandatory deferral periods in Sections 4.4 and 4.5, respectively, of the Investment Management Agreement to begin on April 1, 2022.
Removed
These were offset by unrealized appreciation of $6.0 million, $5.2 million, and $4.2 million on the investments in CPK common equity, Davidzon and OPS 1st lien secured loan, respectively, due to exits from these positions resulting in reversing previously recognized unrealized depreciation. Please see “Item 7.
Added
In November 2023, the Company entered into an amendment to the Loan Agreement extending the maturity date of the revolving line to May 5, 2027.
Removed
We have certain contracts under which we have material future commitments. We believe our current level of liquidity and capital resources is sufficient to meet our short-term and long-term obligations for the next 12 months and for the foreseeable future thereafter. Under the Investment Management Agreement, GECM provides investment advisory services to us.
Added
Additionally, we are required to pay a commitment fee of 0.50% per annum on any unused portion of the revolving line of credit.
Removed
On September 29, 2017, we issued an additional $ 4.3 million of the GECCL Notes upon full exercise of the underwriters’ over-allotment option.
Added
As of December 31, 2023, there were no borrowings outstanding under the revolving line. 61 Borrowings under the revolving line are secured by a first priority security interest in substantially all of our assets, subject to certain specified exceptions.
Removed
The aggregate principal balance of the GECCM Notes outstanding as of December 31, 2022 is $ 45.6 million .
Added
The aggregate principal balance of the GECCO Notes outstanding as of December 31, 2023 is $ 57.5 million . On August 16, 2023, we issued $ 40.0 million in aggregate principal amount of 8.75% notes due 2028 (the “ GECCZ Notes ” and, together with the GECCM Notes and GECCO Notes, the “Notes”).
Removed
As of December 31, 2022, our asset coverage ratio was approximately 154.4% . We are subject to a minimum asset coverage ratio of 150%. Recent Developments Our Board set distributions for the quarter ending March 31, 2023 at a rate of $0.35 per share. The full amount of each distribution will be from distributable earnings.
Added
As of December 31, 2023, our asset coverage ratio was approximately 169.0% . Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%. 62 Interest Rate Risk We are also subject to financial risks, including changes in market interest rates.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeReference Rate Increase (Decrease) Increase (decrease) of Net Investment Income (in thousands) (1) 3.00% $ 3,023 2.00% 2,015 1.00% 1,008 -1.00% (973 ) -2.00% (1,947 ) -3.00% (2,784 ) (1) Several of our debt investments with variable rates contain a reference rate floor.
Biggest changeReference Rate Increase (Decrease) Increase (decrease) of Net Investment Income (in thousands) (1) 3.00% $ 4,467 2.00% 2,978 1.00% 1,489 (1.00)% (1,489 ) (2.00)% (2,978 ) (3.00)% (4,465 ) (1) Several of our debt investments with variable rates contain a reference rate floor.
To illustrate the potential impact of a change in the underlying interest rate on our net investment income, we have assumed a 1%, 2%, and 3% increase and 1%, 2%, and 3% decrease in the underlying reference rate, and no other change in our portfolio as of December 31, 2022.
To illustrate the potential impact of a change in the underlying interest rate on our net investment income, we have assumed a 1%, 2%, and 3% increase and 1%, 2%, and 3% decrease in the underlying reference rate, and no other change in our portfolio as of December 31, 2023.
Although we believe that this analysis is indicative of our existing interest rate sensitivity at December 31, 2022, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the net increase (decrease) in net assets resulting from operations.
Although we believe that this analysis is indicative of our existing interest rate sensitivity as of December 31, 2023, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the net increase (decrease) in net assets resulting from operations.
Item 7A. Quantitative and Qualita tive Disclosures About Market Risk. We are subject to financial market risks, including changes in interest rates. As of December 31, 2022, 31 debt investments in our portfolio bore interest at a fixed rate, and the remaining 23 debt investments were at variable rates, representing approximately $129.3 million and $100.8 million in principal debt, respectively.
Item 7A. Quantitative and Qualita tive Disclosures About Market Risk. We are subject to financial market risks, including changes in interest rates. As of December 31, 2023, 8 debt investments in our portfolio bore interest at a fixed rate, and the remaining 29 debt investments were at variable rates, representing approximately $68.2 million and $148.9 million in principal debt, respectively.
As of December 31, 2021, 26 debt investments in our portfolio bore interest at a fixed rate, and the remaining 18 debt investments were at variable rates, representing approximately $148.0 million and $86.0 million in principal debt, respectively. The variable rates are generally based upon the LIBOR, SOFR or US prime rate.
As of December 31, 2022, 31 debt investments in our portfolio bore interest at a fixed rate, and the remaining 23 debt investments were at variable rates, representing approximately $129.3 million and $100.8 million in principal debt, respectively. The variable rates are generally based upon the SOFR or US prime rate.

Other GECCG 10-K year-over-year comparisons