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What changed in Great Elm Capital Corp.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Great Elm Capital Corp.'s 2023 and 2024 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 2024 report.

+456 added−343 removedSource: 10-K (2025-03-10) vs 10-K (2024-02-29)

Top changes in Great Elm Capital Corp.'s 2024 10-K

456 paragraphs added · 343 removed · 301 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

94 edited+22 added−15 removed86 unchanged
Biggest changeUnder 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.
Biggest changeIf we directly or indirectly hold 10% or more 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.
Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) $35.0 million × 20% less $5.8 million (aggregate Capital Gains Incentive Fee paid in prior years). (9) Aggregate realized capital gains are $35.0 million. Aggregate realized capital losses are $10.0 million. There is no aggregate unrealized capital depreciation.
Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) $35.0 million × 20% less $5.8 million (aggregate Capital Gains Incentive Fee paid in prior years). 10 (9) Aggregate realized capital gains are $35.0 million. Aggregate realized capital losses are $10.0 million. There is no aggregate unrealized capital depreciation.
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.
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; 11 ▪ 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; ▪ 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.
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.
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.
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.
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 14 ▪ 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.
Under the terms of the Amended and Restated Investment Management Agreement, dated as of August 1, 2022 (the “Investment Management Agreement”), by and between us and GECM, GECM: ▪ determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; ▪ identifies, evaluates and negotiates the structure of our investments (including performing due diligence on our prospective portfolio companies); ▪ closes and monitors our investments; and ▪ determines the securities and other assets that we purchase, retain or sell.
Under the terms of the Amended and Restated Investment Management Agreement, dated as of August 1, 2022 (the “Investment Management Agreement”), by and between us and GECM, GECM: 6 ▪ determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; ▪ identifies, evaluates and negotiates the structure of our investments (including performing due diligence on our prospective portfolio companies); ▪ closes and monitors our investments; and ▪ determines the securities and other assets that we purchase, retain or sell.
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.
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.
We pay the incentive fee with respect to our pre‑incentive fee net investment income in each calendar quarter as follows: ▪ no incentive fee in any calendar quarter in which the pre‑incentive fee net investment income does not exceed the hurdle rate; ▪ 100% of our pre‑incentive fee net investment income with respect to that portion of such pre‑incentive fee net investment income, if any, that exceeds the hurdle rate, but is less than 2.1875% in any calendar quarter (8.75% annualized).
We pay the incentive fee with respect to our pre‑incentive fee net investment income in each calendar quarter as follows: 7 ▪ no incentive fee in any calendar quarter in which the pre‑incentive fee net investment income does not exceed the hurdle rate; ▪ 100% of our pre‑incentive fee net investment income with respect to that portion of such pre‑incentive fee net investment income, if any, that exceeds the hurdle rate, but is less than 2.1875% in any calendar quarter (8.75% annualized).
This may also jeopardize our qualification for taxation as a RIC or subject us to the 4% excise tax. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and (2) other requirements relating to our status as a RIC, including the asset diversification requirements.
This may also jeopardize our qualification for taxation as a RIC or subject us to the 4% excise tax. 19 Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and (2) other requirements relating to our status as a RIC, including the asset diversification requirements.
However, no assurance can be given that we will be able to meet the complex and varied tests required to qualify as a RIC or to avoid corporate level tax. In addition, because the relevant laws may change, compliance with one or more of the RIC requirements may become impossible or impracticable.
No assurance can be given that we will be able to meet the complex and varied tests required to qualify as a RIC or to avoid corporate level tax. In addition, because the relevant laws may change, compliance with one or more of the RIC requirements may become impossible or impracticable.
Even if we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements, under the Investment Company Act, we are not permitted to make cash distributions to our stockholders while our debt obligations and senior securities are outstanding unless certain “asset coverage” tests are met.
Even if we are authorized to borrow funds and/or to sell assets in order to satisfy distribution requirements, under the Investment Company Act, we are not permitted to make cash distributions to our stockholders while our debt obligations and senior securities are outstanding unless certain “asset coverage” tests are met.
The Investment Management Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other. The Investment Management Agreement is currently in effect. Conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms for compensation.
The Investment Management Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other. The Investment Management Agreement is currently in effect. 12 Conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms for compensation.
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.
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.
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax.
While we generally intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax.
If, in any particular taxable year, we do not satisfy the Annual Distribution Requirement or otherwise were to fail to qualify as a RIC (for example, because we fail the 90% annual gross income requirement described above), and relief is not available as discussed above, all of our taxable income (including our net capital gains) will be subject to tax at regular corporate rates without any deduction for distributions to stockholders, and distributions generally will be taxable to the stockholders as ordinary dividends to the extent of our current and accumulated earnings and profits.
If, in any particular taxable year, we do not satisfy the Annual Distribution Requirement or fail to qualify as a RIC (for example, because we fail the 90% annual gross income requirement described above), and relief is not available as discussed above, all of our taxable income (including our net capital gains) will be subject to tax at regular corporate rates without any deduction for distributions to stockholders, and distributions generally will be taxable to the stockholders as ordinary dividends to the extent of our current and accumulated earnings and profits.
(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.
(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%. (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.
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”).
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 (collectively, the “Excise Tax Exemption Requirement”).
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.
Our Portfolio as of December 31, 2024 A list of the industries in which we have invested as of December 31, 2024 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, 2024.
If we invest in a PFIC and elect to treat the PFIC as a “qualified electing fund” under the Code (a “QEF”), in lieu of the foregoing requirements, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us.
If we invest in a PFIC and elect to treat the PFIC as a “qualified electing fund” under the Code (a “QEF”), in lieu of the foregoing treatment, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us.
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.
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 constructively) by U.S. Stockholders. A “U.S.
(“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, 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.
If we dispose of assets to meet the Annual Distribution Requirement, the asset diversification requirements, or the 4% excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
If we dispose of assets to meet the Annual Distribution Requirement, the asset diversification requirements, or to reduce or eliminate the 4% excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
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.
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 back-office services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees’ time.
We may generate certain income that might not qualify as good income for purposes of the 90% annual gross income requirement described above. We will monitor our transactions to endeavor to prevent our disqualification as a RIC.
We may generate certain income that might not qualify as qualifying income for purposes of the 90% annual gross income requirement described above. We will monitor our transactions to endeavor to prevent our disqualification as a RIC.
Our qualification and taxation as a RIC depends upon our ability to satisfy on a continuing basis, through actual, annual operating results, distribution, income and asset, and other requirements imposed under the Code.
Our qualification and taxation as a RIC depends upon our ability to satisfy on a continuing basis, through actual, annual operating results, various distribution, income and asset-related requirements, and other requirements imposed under the Code.
Alternatively, we can elect to mark‑to‑market at the end of each taxable year our shares in a PFIC; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income.
Alternatively, subject to certain limitations, we can elect to mark‑to‑market at the end of each taxable year our shares in a PFIC; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income.
The incentive fees were deferred in accordance with the Investment Management Agreement. There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2021.
The incentive fees were deferred in accordance with the Investment Management Agreement. There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2022.
To manage the risk that such income might disqualify us as a RIC for a failure to satisfy the 90% gross income requirement, one or more of our subsidiaries treated as U.S. corporations for U.S. federal income tax purposes may be employed to earn such income.
To manage the risk that such income might disqualify us as a RIC as a result of us failing to satisfy the 90% gross income requirement, one or more of our subsidiaries treated as U.S. corporations for U.S. federal income tax purposes may be employed to earn such income.
We may also borrow amounts up to 5% of the value of our gross assets for temporary or emergency purposes without regard to asset coverage.
We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage.
If we borrow money, we may be prevented by loan covenants from declaring and paying dividends in certain circumstances. Limits on our payment of dividends may prevent us from meeting the Annual Distribution Requirement, and may, therefore, jeopardize our qualification for taxation as a RIC, or subject us to the 4% excise tax.
If we borrow money, we may be prevented by loan covenants from declaring and paying dividends in certain circumstances. Limits on our ability to pay dividends may prevent us from meeting the Annual Distribution Requirement, and may, therefore, jeopardize our qualification for taxation as a RIC, or subject us to the 4% excise tax.
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 may be subject to special tax rules that will affect the amount, timing and character of distributions to stockholders.
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.
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 16 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) (collectively, the "Annual Distribution Requirement"), 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.
Government securities, the securities of other regulated investment companies and other securities, with other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of our total assets and not more than 10% of the outstanding voting securities of such issuer (subject to the exception described below), and (ii) not more than 25% of the market value of our total assets is invested in the securities (other than U.S.
Government securities, the securities of other RICs and other securities, with other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of our total assets and not more than 10% of the outstanding voting securities of such issuer (subject to the exception described below), and (ii) not more than 25% of the market value of our total assets is invested in securities (other than U.S.
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.
In that event, we will be liable for the tax only on the amount by which we do not meet the Excise Tax Exemption Requirement.
Some of the income that we might otherwise earn, such as lease income, management fees, or income recognized in a work‑out or restructuring of a portfolio investment, may not satisfy the 90% gross income requirement.
Some of the income that we might otherwise earn, such as lease income, management fees, or income recognized in a work‑out or restructuring of a portfolio investment, may cause us not to satisfy the 90% gross income requirement.
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 (directly, indirectly, 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.
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 inclusions of subpart F income and global intangible low-taxed income from CFCs will be qualifying 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 inclusions of subpart F income and global intangible low-taxed income during the RIC’s taxable year with respect to which no distribution is received would be qualifying income for the 90% gross income requirement.
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.
The U.S. Treasury, however, has issued regulations that treat such income as qualifying 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.
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.
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.
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.
The aggregate amount of brokerage commissions paid by us during the three most recent fiscal years is approximately $129. Such commissions include approximately $129 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, 2024.
(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.
(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 4.62% of net assets.
There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2022. For the year ended December 31, 2021, we incurred $3.2 million in base management fees and $(4.3) 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. 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.
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.
A RIC cannot carry back or carry forward any net operating losses to offset its investment company taxable income. 17 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 for purposes of the 90% annual gross income requirement described above.
We may decide to be taxed as a regular corporation even if we would otherwise qualify as a RIC if we determine that treatment as a corporation for a particular year would be in our best interests.
We may decide to be taxed as a regular corporation even if we qualify as a RIC if we determine that being so taxed for a particular year would be in our best interests.
Since in certain circumstances we may recognize income before or without receiving cash representing such income or incur expenses that are not fully deductible for tax purposes, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for maintaining RIC status and for avoiding U.S. federal income and excise taxes.
Because in these and certain other circumstances we may recognize income before or without receiving cash representing such income or incur expenses that are not fully deductible for tax purposes, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for avoiding U.S. federal income and excise taxes.
Exemptive Relief We have received exemptive relief from the SEC that will allow us to co-invest, together with other investment vehicles managed by GECM, in specific investment opportunities in accordance with the terms and conditions of the SEC order granting such exemptive relief.
Exemptive Relief We have received exemptive relief from the SEC that will allow us to co-invest, together with other investment vehicles managed by GECM (as well as with proprietary accounts of an affiliate of GECM), in specific investment opportunities in accordance with the terms and conditions of the SEC order granting such exemptive relief.
Any such restructuring may also result in our recognition of a substantial amount of non‑qualifying income for purposes of the 90% gross income requirement or our receiving assets that would not count toward the asset diversification requirements.
Any such restructuring may result in unusable capital losses and future non‑cash income. Any such restructuring may also result in our recognition of a substantial amount of non‑qualifying income for purposes of the 90% gross income requirement or our receiving assets that would not count toward the asset diversification requirements.
The Administration Agreement provides that, to the fullest extent permitted by law, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GECM, its stockholders and their respective officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from or otherwise based upon the rendering of GECM’s services under the Administration Agreement or otherwise as our administrator.
We bear all costs and expenses, including rental expenses, that are incurred in our operation and transactions and not specifically assumed by GECM pursuant to the Investment Management Agreement. 20 The Administration Agreement provides that, to the fullest extent permitted by law, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GECM, its stockholders and their respective officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from or otherwise based upon the rendering of GECM’s services under the Administration Agreement or otherwise as our administrator.
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.
Organization of the Investment Adviser GECM is a Delaware limited liability company 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, Florida 33410.
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.
Assumption 1 Assumption 2 Assumption 3 Investment income (1) 6.00 % 7.15 % 8.00 % 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.
We also make investments throughout other portions of a company’s capital structure, including subordinated debt, mezzanine debt, and equity or equity‑linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals.
We also invest directly (including via participation) in the investments made by such businesses. We also make investments throughout other portions of a company’s capital structure, including subordinated debt, mezzanine debt, and equity or equity‑linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals.
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.
For the year ended December 31, 2024, we incurred $4.5 million in base management fees and $2.6 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, 2024.
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.
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. Base management fees for any partial quarter are prorated.
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.
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 23, 2024.
If we realize a net capital loss, the excess of our net short‑term capital loss over our net long‑term capital gain is treated as a short‑term capital loss arising on the first day of our next taxable year and the excess of our net long‑term capital loss over our net short‑term capital gain is treated as a long‑term capital loss arising on the first day of our next taxable year.
If we realize a net capital loss during any year in which we are a RIC, the excess of our net short‑term capital loss over our net long‑term capital gain is treated as a short‑term capital loss arising on the first day of our next taxable year and the excess of our net long‑term capital loss over our net short‑term capital gain is treated as a long‑term capital loss arising on the first day of our next taxable year.
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.
Board Approval of the Investment Management Agreement On July 23, 2024, our Board approved the renewal of the Investment Management Agreement through September 26, 2025.
To the extent that we retain our net capital gains for investment or any investment company taxable income, we will be subject to U.S. federal income tax at the regular corporate income tax rates.
To the extent that we meet the Annual Distribution Requirement but retain our net capital gains for investment or any investment company taxable income, we will be subject to U.S. federal income tax on such income at the regular corporate income tax rates.
We will monitor our transactions and may make certain tax elections and may be required to borrow money or dispose of securities (even if it is not advantageous to dispose of such securities) to mitigate the effect of these rules and prevent disqualification of us as a RIC.
We will monitor our transactions and may make certain tax elections, borrow money or dispose of securities (even if it is not advantageous to dispose of such securities) to mitigate the effect of these rules, prevent disqualification of us as a RIC and prevent or mitigate imposition of corporate-level U.S. federal income tax.
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 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.
(5) The pre-incentive fee net investment income ratio of 3.00% is greater than both the hurdle rate and the “catch up” provision thus the corresponding incentive fee is calculated as (i) 100% × (2.1875% – 1.75%) or 0.4375% (the “catch up”); plus (ii) 20% × (3.00% - 2.1875%).
(5) The pre-incentive fee net investment income ratio of 3.00% is greater than both the hurdle rate and the “catch up” provision thus the corresponding incentive fee is calculated as (i) 100% × (2.1875% – 1.75%) or 0.4375% (the “catch up”); plus (ii) 20% × (3.00% - 2.1875%). 9 The following hypothetical calculations illustrate the calculation of the Capital Gains Incentive Fee under the Investment Management Agreement.
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.
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.
The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the fair value of each investment in our portfolio as of the applicable Capital Gains Incentive Fee calculation date and (b) the accreted or amortized cost basis of such investment. 8 Examples of Quarterly Incentive Fee Calculations The following hypothetical calculations illustrate the calculation of the Income Incentive Fee under the Investment Management Agreement.
The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the fair value of each investment in our portfolio as of the applicable Capital Gains Incentive Fee calculation date and (b) the accreted or amortized cost basis of such investment.
GECM’s investment analysts and portfolio manager will jointly decide when to sell a position in consultation with members of the GECM investment committee. The sale decision will then be given to GECM’s trader, who will execute the trade.
GECM’s investment analysts provide regular updates of the positions for which they are responsible to members of GECM’s investment committee. 5 GECM’s investment analysts and portfolio manager will jointly decide when to sell a position in consultation with members of the GECM investment committee. The sale decision will then be given to GECM’s trader, who will execute the trade.
However, due to limits on the deductibility of certain expenses, we may, in certain years, have aggregate taxable income subject to the Annual Distribution Requirement that is in excess of the aggregate net income actually earned by us in those years. We intend to distribute annually all or substantially all of such income on a timely basis.
However, due to limits on the deductibility of certain expenses, we may, in certain years, have aggregate taxable income subject to the Annual Distribution Requirement that is in excess of the aggregate net income actually earned by us in those years.
If we fail to satisfy the 90% annual gross income requirement or the asset diversification requirements discussed above in any taxable year, we may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements and the failures are otherwise cured.
If we fail to satisfy the 90% annual gross income requirement or the asset diversification requirements discussed above in any taxable year, we may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and certain additional conditions are met, in which case an additional penalty tax would be payable with respect to each failure to satisfy the applicable requirements.
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.
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.
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”).
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”).
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.
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.
“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. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the Investment Company Act.
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.
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.
Subject to certain limitations under the Code, corporate U.S. stockholders would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain.
Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain.
GECM’s investment committee then will hold a formal review meeting, and following approval of a specific investment, authorization is given to GECM’s trader, including execution guidelines. GECM’s investment analysts provide regular updates of the positions for which they are responsible to members of GECM’s investment committee.
GECM’s investment committee then will hold a formal review meeting, and following approval of a specific investment, authorization is given to GECM’s trader, including execution guidelines.
The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment.
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. 8 The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment.
If we acquire shares in a “passive foreign investment company” (a “PFIC”), we may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders.
Stockholders will generally not be entitled to claim a U.S. foreign tax credit or deduction with respect to foreign taxes paid by us. 18 If we acquire shares in a “passive foreign investment company” (a “PFIC”), we may be subject to U.S. federal income tax (plus an interest charge) on a portion of any “excess distribution” or gain from the disposition of such shares even if such amounts are distributed by us to our stockholders.
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.
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.
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.
If we are required to include our pro rata share of "subpart F income" or "global intangible low-taxed income" in our gross income for a taxable year, we will be required to include such income in our investment company taxable income regardless of whether we receive any actual distributions from such CFC, and we must distribute an amount equal to such income to satisfy the Annual Distribution Requirement and the Excise Tax Exemption Requirement.
The “catch up” is meant to provide GECM with 20% of the pre‑incentive fee net investment income as if a hurdle rate did not apply if our net investment income exceeds 2.1875% in any calendar quarter; and ▪ 20% of the amount of our pre‑incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized). 7 The following is a graphical representation of the calculation of the income related portion of the incentive fee: These calculations are adjusted for any share issuances or repurchases during the quarter and will be appropriately prorated for any period of less than three months.
The “catch up” is meant to provide GECM with 20% of the pre‑incentive fee net investment income as if a hurdle rate did not apply if our net investment income exceeds 2.1875% in any calendar quarter; and ▪ 20% of the amount of our pre‑incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
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.
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. The incentive fees were deferred in accordance with the Investment Management Agreement.
We may choose to retain our net capital gains for investment or any investment company taxable income, and pay the associated federal corporate income tax, including the federal excise tax described below. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us.
We may choose to retain our net capital gains for investment or any investment company taxable income, and pay the associated federal corporate income tax, including the federal excise tax described below. A 4% U.S. federal excise tax is imposed on a RIC if the RIC does not meet certain additional distribution requirements for each calendar year.
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.
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, and we would not be able to deduct distributions to stockholders.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn 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.
Biggest changeFurthermore, investing in middle‑market companies involves a number of additional significant risks, including: 26 ▪ 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, our executive officers, directors, GECM, its affiliates and/or any of their respective principals and employees, may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies and may, as a result, incur significant costs and expenses in connection with such litigation; ▪ changes in laws and regulations (including the tax laws), as well as their interpretations, may adversely affect their business, financial structure or prospectus; ▪ 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 ▪ 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.
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.
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.
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.
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. We face increasing competition for investment opportunities.
Investing in middle‑market companies involves a high degree of risk and our financial results may be affected adversely if one or more of our portfolio investments defaults on its loans or notes or fails to perform as we expect. A portion of our portfolio consists of debt and equity investments in privately owned middle‑market companies.
Investing in middle-market companies involves a high degree of risk and our financial results may be affected adversely if one or more of our portfolio investments defaults on its loans or notes or fails to perform as we expect. A significant portion of our portfolio consists of debt and equity investments in privately owned middle-market companies.
We have made, and may make additional, investments in companies and operating platforms that originate and/or service commercial specialty finance businesses, including factoring, equipment finance, inventory leasing, merchant cash advance and hard money real estate lending and may also invest directly (including via participation) in the investments made by such businesses.
We have made, and may make additional, investments in companies and operating platforms that originate and/or service commercial specialty finance businesses, including factoring, equipment finance, inventory leasing, merchant cash advance and hard money real 25 estate lending and may also invest directly (including via participation) in the investments made by such businesses.
Factors that may affect market interest rates include, without limitation, inflation, slow or stagnant economic growth or recession, unemployment, money supply and the monetary policies of the Federal Reserve Board and central banks throughout the world, international disorders and instability in domestic and foreign financial markets.
Factors that may affect market interest rates include, without limitation, inflation, 23 slow or stagnant economic growth or recession, unemployment, money supply and the monetary policies of the Federal Reserve Board and central banks throughout the world, international disorders and instability in domestic and foreign financial markets.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Valuation of Portfolio Investments.” The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are subjective and dependent on a valuation process approved and overseen by our Board.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Valuation of Portfolio Investments.” 39 The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are subjective and dependent on a valuation process approved and overseen by our Board.
We currently intend to distribute realized net capital gains (i.e., net long term capital gains in excess of short term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment and elect to treat such gains as deemed distributions to our stockholders.
We currently intend to distribute realized net capital gains (i.e., net long term capital gains in excess of short term capital losses), if any, at least annually, though we may in the future decide to retain such capital gains for investment and elect to treat such gains as deemed distributions to our stockholders.
We intend to periodically access the capital markets to raise cash to fund new investments. We expect to continue to elect to be treated as a RIC and operate in a manner so as to qualify for the U.S. federal income tax treatment applicable to RICs.
We intend to periodically access the capital markets to raise cash to fund new investments. We expect to continue to be treated as a RIC and operate in a manner so as to qualify for the U.S. federal income tax treatment applicable to RICs.
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.
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.
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.
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. 29 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.
Also, we may be required to include in income other amounts that we will not receive in cash, including, for example, non‑cash income from PIK securities, deferred payment securities and hedging and foreign currency transactions.
Also, we may be required to include in income other amounts that we will not receive in cash, including, for example, non‑cash income from deferred payment securities and hedging and foreign currency transactions.
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.
Typically the intercreditor agreements expressly subordinate our junior 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.
It is possible that we may not be given the opportunity to participate in certain investments made by investment funds managed by investment managers affiliated with GECM.
It is possible that we may not be given the opportunity to participate in investments made by investment funds managed by investment managers affiliated with GECM.
In the event multiple borrowers of such revolving credit loans were to draw these commitments at the same time, including during a market downturn, it could have an adverse impact on our cash reserves and liquidity position at a time when it may be more difficult for us to sell other assets. Equity Investments.
In the event multiple borrowers of such revolving credit loans were to draw these commitments at the same time, including during a market downturn, it could have an adverse impact on our cash reserves and liquidity position at a time when it may be more difficult for us to sell other assets.
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.
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 other forms of leverage) 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.
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.
The first table assumes the actual amount of senior securities outstanding as of December 31, 2024. 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.
Consequently, the fact that a loan or note is secured does not guarantee that we will receive principal and interest payments according to the loan’s or note’s terms, or at all, or that we will be able to collect on the loan or note should we be forced to enforce our remedies. Mezzanine Loans.
Consequently, the fact that a loan or note is secured does not guarantee that we will receive principal and interest payments according to the loan's or note's terms, or at all, or that we will be able to collect on the loan or note should we be forced to enforce our remedies.
Instruments bearing PIK interest typically carry higher interest rates as a result of their payment deferral and increased credit risk. When we recognize income in connection with PIK interest, there is a risk that such income may become uncollectable if the borrower defaults.
Instruments bearing PIK interest typically carry higher interest rates as a result of their payment deferral and increased credit risk. When we recognize income in connection with PIK interest, there is a risk that such income may become uncollectible if the borrower defaults.
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.
Junior 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 senior priority creditors and us.
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.
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, 2024, there were no borrowings outstanding under the Loan Agreement.
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.
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. 36 The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year.
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.
If a portfolio company defaults on a loan 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.
However, both we and GECM have the right to terminate the agreement without penalty upon 60 days’ written notice to the other party. Moreover, conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms for compensation.
However, we and GECM each have the right to terminate the agreement without penalty upon 60 days’ written notice to the other party. Moreover, conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms for compensation.
There is a risk that the collateral securing our loans and notes may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors.
There is a risk that the collateral securing our loans and notes may decrease in value over time, may be difficult to sell in a timely manner or at all, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors.
On April 6, 2022, our Board and the independent directors approved the amendment to the Investment Management Agreement (the "Amendment") to eliminate $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 from the calculation of the Capital Gains Incentive Fee and reset the Capital Gains Commencement Date and the mandatory deferral commencement date, effectively resetting the incentive fee total return hurdle, which was subsequently approved by our stockholders on August 1, 2022.
On April 6, 2022, our Board and the independent directors approved the amendment to the Investment Management Agreement (the "Amendment") to eliminate $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 from the calculation of the Capital Gains Incentive Fee and reset the Capital Gains Commencement Date (as defined below) and the mandatory deferral commencement date, effectively resetting the incentive fee total return hurdle, which was subsequently approved by our stockholders on August 1, 2022.
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 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 investments.
We may purchase loans or notes that are secured by a second priority security interest in the same collateral pledged by a portfolio company to secure senior debt owed by the portfolio company to commercial banks or other traditional lenders.
We may purchase loans or notes that are secured by a second priority or more junior security interest in the same collateral pledged by a portfolio company to secure senior debt owed by the portfolio company to commercial banks or other traditional lenders.
Treasury regulations and other related administrative pronouncements issued by the Internal Revenue Service, a RIC may be eligible to treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder is permitted to elect to receive his or her entire distribution in either cash or stock of the RIC, subject to the satisfaction of certain guidelines.
Treasury regulations and other related administrative pronouncements issued by the Internal Revenue Service (the "IRS"), a RIC may be eligible to treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder is permitted to elect to receive its entire distribution in either cash or stock of the RIC, subject to the satisfaction of certain guidelines.
These factors include, but are not limited to, the following: ▪ price and volume fluctuations in the overall stock market from time to time; ▪ investor demand for our shares; ▪ significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies; ▪ exclusion of our common stock from certain indices, such as the Russell 2000 Financial Services Index, which could reduce the ability of certain investment funds to own our common stock and put short‑term selling pressure on our common stock; ▪ changes in regulatory policies or tax guidelines with respect to RICs or BDCs; ▪ failure to qualify as a RIC, or the loss of RIC status; ▪ any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; ▪ changes, or perceived changes, in the value of our portfolio investments; ▪ departures of GECM’s key personnel; ▪ operating performance of companies comparable to GECC; or ▪ general economic conditions and trends and other external factors.
These factors include, but are not limited to, the following: ▪ price and volume fluctuations in the overall stock market from time to time; ▪ investor demand for our shares; ▪ significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies; ▪ exclusion of our common stock from certain indices, such as the Russell 2000 Financial Services Index, which could reduce the ability of certain investment funds to own our common stock and put short‑term selling pressure on our common stock; ▪ changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs or BDCs; ▪ failure to qualify as a RIC, or the loss of RIC status; ▪ changes in market interest rates and decline in the prices of debt; ▪ any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; ▪ changes, or perceived changes, in the value of our portfolio investments; ▪ departures of GECM’s key personnel; ▪ operating performance of companies comparable to GECC; or ▪ general economic conditions and trends and other external factors.
Investors are urged to consult with their tax adviser regarding tax legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our securities.
Investors are urged to consult with their tax advisors regarding tax legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our securities.
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.
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. 33 Our failure to maintain our status as a BDC would reduce our operating flexibility.
If we engage in hedging transactions, we may expose our self to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates.
If we engage in hedging transactions, we may be exposed to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates.
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.
We have existing indebtedness and may in the future borrow additional money, including borrowings under the Loan, Guarantee and Security Agreement, as amended (the “Loan Agreement”) , dated as of May 5, 2021, 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.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. We cannot predict with certainty how any changes in the tax laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. We cannot predict with certainty how any changes in the tax laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S.
Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable.
Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition.
As a consequence, conflicts of interest may arise in connection with decisions made by GECM, including with respect to the nature or structuring of our investments, that may be more beneficial for one stockholder than for another stockholder, especially with respect to stockholders' individual tax situations.
As a consequence, conflicts of interest may arise in connection with decisions we make, including with respect to the nature or structuring of our investments, that may be more beneficial for one stockholder than for another stockholder, especially with respect to stockholders' individual tax situations.
If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.
If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations. We are exposed to risks relating to our specialty finance investments.
If the price of shares of our common stock decreases, an investor may lose money if he were to sell his shares of our common stock. In addition, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company.
If the price of shares of our common stock decreases for any of these or other reasons, an investor may lose money if he were to sell his shares of our common stock. In addition, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company.
If we incur additional leverage, general interest rate fluctuations may have a more significant negative impact on our financial condition and results of operations than they would have absent such additional incurrence, and, accordingly, may have a material adverse effect on our investment objectives and rate of return on investment capital.
If we incur additional leverage, including through the offering of Notes hereby, general interest rate fluctuations may have a more significant negative impact on our financial condition and results of operations than they would have absent such additional incurrence, and, accordingly, may have a material adverse effect on our investment objectives and rate of return on investment capital.
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.
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, 2024 total portfolio assets of at least 5.23% . 48 Incurring additional indebtedness could increase the risk in investing in our Company.
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.
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. 28 The reference rates for our loans may change.
Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective and current investment portfolio may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations.
Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective and current investment portfolio may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations. 38 We incur significant costs as a result of being a publicly traded company.
Interest payments deferred on a PIK loan are subject to the risk that the borrower may default when the deferred payments are due in cash at the maturity of the loan.
The deferred nature of payments on PIK loans creates specific risks. Interest payments deferred on a PIK loan are subject to the risk that the borrower may default when the deferred payments are due in cash at the maturity of the loan.
Any such failure, or a tightening or general disruption of the credit markets, would affect our ability to issue senior securities, including borrowings, and pay dividends or other distributions, which could materially impair our business.
Any such failure, or a tightening or general disruption of the credit markets, would affect our ability to issue senior securities, including borrowings, and pay dividends or other distributions, which could materially impair our business or our ability to qualify for RIC tax treatment under the Code.
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.
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.
If a U.S. stockholder sells the stock it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale.
If a U.S. stockholder sells the stock it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale, which would result in a capital loss, the deductibility of which is subject to limitations.
In addition, we intend to seek debt investments in the secondary market that represent attractive risk-adjusted returns, taking into account both stated interest rates and current market discounts to par value. Such market discount may be included in income before we receive any corresponding cash payments. Certain of our debt investments earn PIK interest.
In addition, we intend to seek debt investments in the secondary market that represent attractive risk-adjusted returns, taking into account both stated interest rates and current market discounts to par value. Such market discount may be included in income before we receive any corresponding cash payments (depending on whether certain elections are made).
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
In addition, sales of a substantial number of shares of our common stock in the public market, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
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.
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.
Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the U.S. federal income tax requirement to distribute generally an amount equal to at least 90% of our investment company taxable income to maintain our status as a RIC.
Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the U.S. federal income tax requirement to distribute generally an amount equal to at least 90% of our investment company taxable income to maintain our ability to generally avoid being subject to U.S. federal income tax at the corporate level.
Any unrealized losses in our portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected investments.
Decreases in the fair values of our investments are recorded as unrealized depreciation. Any unrealized losses in our portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected investments.
Actions by market participants or by government agencies, including central banks, may affect prevailing interest rates and the reference rates for loans to our portfolio companies.
Actions by market participants or by government agencies, including central banks, may affect prevailing interest rates and the reference rates for loans to our portfolio companies, which may make the financial terms of our loans less attractive.
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.
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.
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.
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.
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.
We will be subject to corporate level U.S. federal income tax if we are unable to meet certain RIC qualification and distribution requirements under the Code. No assurance can be given that we will be able to qualify for and maintain RIC status and generally avoid corporate-level U.S. federal income taxation.
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%.
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 ( 14.64 )% ( 9.64 )% ( 4.64 )% 0.36 % 5.36 % (1) Assumes $324.3 million in total portfolio assets, excluding short term investments, $195.4 million in senior securities outstanding, $136.1 million in net assets, and an average cost of funds of 7.70%.
We will pay management and incentive fees to GECM, and will reimburse GECM for certain expenses it incurs. In addition, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments.
In addition, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount from their NAV. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share of common stock may decline.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount from their NAV. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share of common stock may decline. It is not possible to accurately predict whether any shares of our common stock will trade at, above, or below NAV.
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.
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.
In addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided significant managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors.
In addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided significant managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors. 32 Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.
To the extent we invest in OID instruments, including PIK loans, zero coupon bonds, and debt securities with attached warrants, investors will be exposed to the risks associated with the inclusion of such non-cash income in taxable and accounting income prior to receipt of cash. The deferred nature of payments on PIK loans creates specific risks.
To the extent we invest in debt instruments that result in OID for U.S. federal income tax purposes, including PIK loans, zero coupon bonds, and debt securities with attached warrants, investors will be exposed to the risks associated with the inclusion of such non-cash income in taxable and accounting income prior to receipt of cash.
The conflicting interests of individual stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of our investments, and the timing of disposition of our investments.
Our stockholders may have conflicting investment, tax and other objectives with respect to their investments in us. The conflicting interests of individual stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of our investments, and the timing of disposition of our investments.
If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss, respectively.
If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss, respectively. 40 As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by third-party service providers.
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.
The required recognition of non-cash income, including OID, 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. 35 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.
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%.
As of December 31, 2024, we had approximately $195.4 million of total outstanding indebtedness in the aggregate under four series of senior securities (unsecured notes)—the GECCO Notes, the GECCZ Notes, the GECCI Notes and the GECCH Notes (each as defined herein)—and our asset coverage ratio was 169.7%.
Economic recessions or downturns could impair our portfolio companies and harm our operating results. The economy is subject to periodic downturns that, from time to time, result in recessions or more serious adverse macroeconomic events. Our portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay loans or notes during these periods.
Economic recessions or downturns could impair our portfolio companies and harm our operating results. The economy is subject to periodic downturns that, from time to time, result in recessions or more serious adverse macroeconomic events.
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.
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.
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.
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 (as defined below), 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.
The part of the incentive fee payable by us that relates to our pre-incentive fee net investment income is computed on income that may include interest that is accrued but not yet received in cash, but payment is made on such accrual only once corresponding income is received in cash.
The use of leverage increases the likelihood of default on our debt or other leverage, which would disfavor investors in our common stock. 42 The part of the incentive fee payable by us that relates to our pre-incentive fee net investment income is computed on income that may include interest that is accrued but not yet received in cash, but payment is made on such accrual only once corresponding income is received in cash.
Many of the entities, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, which compete for experienced personnel with GECM, have greater resources than GECM. Our ability to grow depends on our ability to raise equity capital and/or access debt financing.
Many of the entities, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, which compete for experienced personnel with GECM, have greater resources than GECM.
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.
The Annual Distribution Requirement (as defined below) 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.
A downturn in any particular industry in which we are invested could significantly impact our aggregate realized returns. In addition, we may from time to time invest a relatively significant percentage of our portfolio in industries in which GECM does not necessarily have extensive historical research coverage.
In addition, we may from time to time invest a relatively significant percentage of our portfolio in industries in which GECM does not necessarily have extensive historical research coverage.
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 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.
Beyond the asset diversification requirements associated with qualifying as a RIC, we do not have fixed guidelines for diversification, and our investments are likely to be concentrated in relatively few companies. As our portfolio is less diversified than the portfolios of some funds, we are more susceptible to failure if a single investment fails.
Our portfolio is likely to hold a limited number of portfolio companies. Beyond the asset diversification requirements associated with qualifying as a RIC, we do not have fixed guidelines for diversification, and our investments are likely to be concentrated in relatively few companies.
Additional risks and uncertainties, not presently known to us or otherwise, may also impair the Company's business. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. If any of the risks actually occur, our business, financial condition or results of operations could be materially and adversely affected.
Additional risks and uncertainties, not presently known to us or otherwise, may also impair the Company's business. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated.
Accordingly, we may not be able to realize gains from our equity interests, and any gains that we realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
Accordingly, we may not be able to realize gains from our equity interests, and any gains that we realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our returns on equity.
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. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
Our mezzanine debt investments will be generally subordinated to senior loans and will be generally unsecured. As such, other creditors may rank senior to us in the event of an insolvency, which could likely result in a substantial or complete loss on such investment in the case of such insolvency.
As such, other creditors may rank senior to us in the event of an insolvency, which could likely result in a substantial or complete loss on such investment in the case of such insolvency. This may result in an above average amount of risk and loss of principal. Unsecured Loans and Notes. We may invest in unsecured loans and notes.
Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.
As our portfolio is less diversified than the portfolios of some funds, we are more susceptible to failure if a single investment fails. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

10 edited+4 added−1 removed7 unchanged
Biggest changeThis framework is managed and implemented by Great Elm IT Management, with support from their third-party consultants. Great Elm IT Management alongside the General Counsel and Chief Compliance Officer of GECM are responsible for gathering information with respect to cybersecurity incidents, assessing its severity and determining potential responses, as well as communicating with business leaders and senior management, as appropriate.
Biggest changeThe IT Committee alongside the General Counsel and Chief Compliance Officer of GECM are responsible for gathering information with respect to cybersecurity incidents, assessing their severity and determining potential responses, as well as communicating with business leaders and senior management and the Board of Directors, as appropriate. Our Board monitors cybersecurity risk as part of GECM's overall risk management program.
We acknowledge that we cannot eliminate all security risks within our organization, and we cannot guarantee that any undetected cybersecurity incidents have occurred. For additional information about these risks, see "Item 1A. Risk Factors" in this Annual Report on Form 10-K.
We acknowledge that we cannot eliminate all security risks within our organization, and we cannot guarantee that any undetected cybersecurity incidents have not occurred. For additional information about these risks, see "Item 1A. Risk Factors" in this Annual Report on Form 10-K.
Impact of Cybersecurity Risks As of the filing of this Form 10-K, we are not aware of any cyber-attacks that have occurred since the beginning of 2023 that have materially affected, or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.
Impact of Cybersecurity Risks As of the filing of this Form 10-K, we are not aware of any cyber-attacks that have occurred since the beginning of 2024 that have materially affected , or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.
Great Elm IT Management is responsible for supervising and interfacing with providers to implement GECM’s monitoring and alert response processes, vulnerability management, changes made to its critical systems, including software and network changes, and various other technological and administrative safeguards. GECM has also developed an incident response framework to monitor the prevention, detection, mitigation and remediation of cybersecurity events.
The IT Committee is responsible for supervising and interfacing with providers to implement GECM’s monitoring and alert response processes, vulnerability management, changes made to its critical systems, including software and network changes, and various other technological and administrative safeguards. GECM has also developed an incident response framework to monitor the prevention, detection, mitigation and remediation of cybersecurity events.
In order to oversee and identify risks from cybersecurity threats associated with its use of third parties who will have access to sensitive data or client systems and facilities, GECM requires third parties to adhere to GECM's cybersecurity requirements prior to accessing such data.
In order to oversee and identify risks from cybersecurity threats associated with its use of large vendors and material third parties who will have access to sensitive data or client systems and facilities, GECM requires third parties to adhere to GECM's cybersecurity requirements prior to accessing such data.
In addition, GECM performs annual reviews of its critical vendors with the assistance of a third-party consultant to identify and assess the vendors’ security posture to reduce risk to the Company. GECM also provides its employees with cybersecurity awareness training at onboarding and annually, as well as interim security reminders and alerts.
In addition, GECM performs periodic reviews of its critical vendors with the assistance of a third-party consultant to identify and assess the vendors’ security posture to reduce risk to the Company. GECM also provides its employees with cybersecurity awareness training at onboarding and semiannually, as well as interim security reminders and alerts.
Annual penetration testing of its network, including critical systems and systems that store confidential or sensitive information, is conducted with third-party consultants and vulnerabilities are reviewed by GECM's Chief Operating Officer, IT Specialist and other 43 members of Company management (together, "Great Elm IT Management") and third third-party consultants.
Annual penetration testing of its network, including critical systems and systems that store confidential or sensitive information, is conducted with third-party consultants and vulnerabilities are reviewed by Great Elm's Information Technology & Security Committee ("IT Committee"), comprised of GECM's Chief Operating Officer and other members of Company management as well as its third-party IT and consultant.
Our Board of Directors has delegated the primary responsibility for oversight and review of guidelines and policies with respect to risk assessment and risk management to the Audit Committee, which includes oversight of risks related to cybersecurity threats.
Our Board has delegated the primary responsibility for oversight and review of guidelines and policies with respect to risk assessment and risk management to the Audit Committee, which includes oversight of risks related to cybersecurity threats. The Audit Committee and the Board, as appropriate, are informed about risks related to cybersecurity threats through periodic reports from GECM's Chief Operating Officer.
These reports also include updates on GECM’s preparedness, prevention, detection, responsiveness and recovery with respect to cyber incidents, where applicable.
Such reporting includes updates on GECM’s cybersecurity program, the external threat environment, and GECM’s programs to address and mitigate the risks associated with the evolving cybersecurity threat environment. These reports also include updates on GECM’s preparedness, prevention, detection, responsiveness and recovery with respect to cyber incidents, where applicable.
GECM’s third-party consultants conduct regular phishing tests and provide additional training as appropriate. Governance and Oversight of Cybersecurity Risks GECM’s cybersecurity program is managed by Great Elm IT Management. The members of the IT Management team collectively have years of experience helping to oversee the information technology infrastructure and processes at GECM and other asset managers.
The members of the IT Committee collectively have years of experience helping to oversee the information technology infrastructure and processes at GECM and other asset managers.
Removed
The Audit Committee and the Board, as appropriate, are informed about risks related to cybersecurity threats through periodic reports from GECM's Chief Operating Officer. Such reporting includes updates on GECM’s cybersecurity program, the external threat environment, and GECM’s programs to address and mitigate the risks associated with the evolving cybersecurity threat environment.
Added
GECM’s third-party consultants conduct regular phishing tests and provide additional training as appropriate.
Added
In May 2024, the SEC adopted amendments to Regulation S-P, which, beginning in December 2025, require investment companies and SEC-registered investment advisers to adopt written policies and procedures for incident response programs to address unauthorized access to, or use of, customer information, including providing notice to certain individuals affected by any such incident.
Added
We will need to comply with this amended rule beginning December 2025. With the SEC particularly focused on cybersecurity, we expect increased scrutiny of our and GECM’s policies and systems designed to manage cybersecurity risks and related disclosures. 51 Governance and Oversight of Cybersecurity Risks GECM’s cybersecurity program is managed by the IT Committee .
Added
This framework is managed and implemented by the IT Committee, with support from third-party consultants.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

17 edited+2 added−0 removed30 unchanged
Biggest changeClosing 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.
Biggest changeRisk Factors - Shares of closed-end investment companies, including BDCs, frequently trade at a discount from their NAV." Closing Sales Price (1) Premium (Discount) of High Sales Price Premium (Discount) of Low Sales Price Distributions NAV High Low to NAV (1)(2) to NAV (1)(2) Declared (3) Fiscal year ending December 31, 2025 First Quarter (through March 03, 2025) N/A $ 11.39 $ 11.22 -- -- -- Fiscal year ending December 31, 2024 Fourth Quarter $ 11.79 $ 10.99 $ 9.68 ( 6.8 )% ( 17.9 )% $ 0.35 Third Quarter 12.04 10.90 9.66 ( 9.5 )% ( 19.8 )% 0.35 Second Quarter 12.06 10.91 10.07 ( 9.5 )% ( 16.5 )% 0.35 First Quarter 12.57 11.10 10.22 ( 11.7 )% ( 18.7 )% 0.35 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 53 (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 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.
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 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 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). 57 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.
Purchases 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.
Purchases of Equity Securities None. 55 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, 2024 2023 2022 2021 2020 2019 2018 2017 2016 (6)(7) Per Share Data: (1) Net asset value, beginning of period $ 12.99 $ 11.16 $ 16.63 $ 20.74 $ 51.81 $ 62.02 $ 74.51 $ 81.14 $ 86.46 Net investment income 1.27 1.65 1.67 3.02 3.22 6.40 8.64 9.05 1.61 Net realized gains (loss) 0.19 (0.62 ) (20.16 ) (2.37 ) (4.39 ) 0.76 1.36 1.87 (2.07 ) Net change in unrealized appreciation (depreciation) (1.10 ) 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 0.36 3.33 (2.49 ) (2.52 ) (14.41 ) (4.42 ) (5.07 ) (1.42 ) (8.34 ) Issuance of common stock (0.11 ) - (1.03 ) 0.81 (10.66 ) - - - - Accretion from share buybacks - - - - - 0.51 - 1.99 4.04 Distributions declared from net investment income (2) (1.45 ) (1.50 ) (1.95 ) (2.40 ) (6.00 ) (6.30 ) (7.42 ) (7.20 ) (1.02 ) Net decrease resulting from distributions to common stockholders (1.56 ) (1.50 ) (1.95 ) (2.40 ) (6.00 ) (6.30 ) (7.42 ) (7.20 ) (1.02 ) Net asset value, end of period $ 11.79 $ 12.99 $ 11.16 $ 16.63 $ 20.74 $ 51.81 $ 62.02 $ 74.51 $ 81.14 Per share market value, end of period $ 10.99 $ 10.65 $ 8.29 $ 18.48 $ 21.60 $ 46.68 $ 47.10 $ 59.04 $ 70.02 Shares outstanding, end of period 11,544,415 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) 2.14 % 30.98 % (22.17 )% (8.03 )% (49.51 )% (4.64 )% (7.31 )% 0.69 % (5.30 )% Total return based on market value (3) 17.87 % 50.53 % (46.53 )% (1.27 )% (39.98 )% 15.17 % (8.35 )% (5.56 )% (2.03 )% Ratio/Supplemental Data: Net assets, end of period $ 136,113 $ 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),(5) 22.11 % 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) 22.11 % 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) 2.12 % 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) 10.24 % 13.42 % 12.30 % 14.02 % 11.77 % 11.18 % 12.30 % 11.56 % 10.52 % (5)(7) Portfolio turnover 86 % 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 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.
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. 58 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 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 graph assumes that, on December 31, 2019, 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.
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.
During the year ended December 31, 2024, 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.
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%.
The amounts included in the table above for “Other expenses” represent our estimates for the fiscal year ending December 31, 2024. 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%.
(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.
(2) The per share data for distributions declared reflects the actual amount of distributions of record per share for the period. 56 (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.
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.
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.
(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.
(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, 2024, 2023, 2022, 2021, 2020, 2019, 2018, 2017 and the period ended December 31, 2016 average net assets were $121,555, $93,441, $85,029, $87,975, $60,884, $97,791, $124,668, $151,986, and $179,366, respectively.
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]
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. 59 Item 6. [Reserved]
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% .
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 160.7% of our average net assets at an average annual interest rate of 7.70% .
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).
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 3.27 % (4) Incentive fee 1.90 % (5) Interest payments on borrowed funds 10.93 % (6) Other expenses 3.38 % Total annual expenses 19.49 % (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).
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.
Market Information Our common stock is traded on the NASDAQ Global Market (“Nasdaq”) under the symbol “GECC.” As of March 3, 2025, 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.” 52 The following are our outstanding classes of securities as of December 31, 2024: 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 - 11,544,415 GECCO Notes - - $57.5 million GECCZ Notes - - $40.0 million GECCI Notes - - $56.5 million GECCH Notes - - $41.4 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.
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.
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) $ 165 $ 435 $ 641 $ 968 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) $ 173 $ 452 $ 661 $ 979 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.
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.
The following table summarizes our distributions declared for record dates since January 1, 2023: Record Date Payment Date Distribution Per Share Declared 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 March 15, 2024 March 29, 2024 $ 0.35 June 14, 2024 June 30, 2024 $ 0.35 September 16, 2024 September 30, 2024 $ 0.35 December 16, 2024 December 31, 2024 $ 0.35 December 31, 2024 January 15, 2025 $ 0.05 March 17, 2025 March 31, 2025 $ 0.37 54 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, 2019, the last trading day before the fifth preceding fiscal year, through December 31, 2024.
Added
Our common stock is traded on the NASDAQ Global Market (“Nasdaq”) under the symbol “GECC.” During the last two fiscal years, our common stock has generally traded below NAV.
Added
It is not possible to predict whether our common stock will trade at, above or below NAV. See "Item 1A.

Item 7. Management's Discussion & Analysis

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

56 edited+18 added−15 removed41 unchanged
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.
Biggest change(2) Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving credit facilities). 64 Portfolio Classification The following table shows the fair value of our portfolio of investments by industry as of December 31, 2024 and 2023 (in thousands): December 31, 2024 December 31, 2023 Industry Investments at Fair Value Percentage of Fair Value Investments at Fair Value Percentage of Fair Value Specialty Finance $ 43,215 13.31 % $ 52,322 22.69 % Structured Finance 40,089 12.36 % - - % Technology 29,811 9.19 % 7,342 3.18 % Transportation Equipment Manufacturing 26,140 8.06 % 17,261 7.49 % Chemicals 26,131 8.06 % 27,023 11.72 % Consumer Products 25,179 7.77 % 20,211 8.76 % Insurance 22,364 6.90 % 16,026 6.95 % Metals & Mining 13,071 4.03 % 9,538 4.14 % Industrial 12,874 3.97 % 3,719 1.61 % Oil & Gas Exploration & Production 10,436 3.22 % 11,420 4.95 % Food & Staples 9,367 2.89 % 7,199 3.12 % Shipping 8,872 2.74 % 11,724 5.08 % Consumer Services 8,681 2.68 % 1,742 0.76 % Internet Media 6,997 2.16 % 13,732 5.95 % Energy Services 6,522 2.01 % 6,930 3.01 % Casinos & Gaming 5,485 1.69 % 4,252 1.84 % Apparel 4,911 1.51 % 2,007 0.87 % Aircraft 4,566 1.41 % 3,958 1.72 % Defense 3,999 1.23 % 1,945 0.84 % Restaurants 3,789 1.17 % 3,441 1.49 % Closed-End Fund 3,430 1.06 % 6,770 2.94 % Retail 3,100 0.96 % 54 0.02 % Financial Services 2,532 0.78 % - - % Marketing Services 1,416 0.44 % - - % Textiles 1,285 0.40 % - - % Energy Midstream - - % 1,996 0.87 % Total $ 324,262 100.00 % $ 230,612 100.00 % 65 Results of Operations Investment Income For the Year Ended December 31, 2024 2023 In Thousands Per Share (1) In Thousands Per Share (1) Total Investment Income $ 39,323 $ 3.99 $ 35,825 $ 4.71 Interest income 31,541 3.20 28,901 3.80 Dividend income 6,925 0.70 3,478 0.46 Other commitment fees 700 0.07 3,075 0.40 Other income 157 0.02 371 0.05 (1) The per share amounts are based on a weighted average of 9,844,014 outstanding common shares for the year ended December 31, 2024 and a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023.
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.
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 in net repayments on the revolving credit facility and $10.6 million in distributions to stockholders.
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 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. 60 We have elected to be treated as a RIC for U.S. federal income tax purposes.
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.
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.” Revenues We generate revenue primarily from interest on the debt investments that we hold.
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.
In addition, changes in the market environment and other events may impact the market quotations used to value some of our investments. Those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate.
The 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 schedule of the distribution payment will be established by GECC pursuant to authority granted by our Board. The distribution will be paid in cash. 72
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.
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates. 71 Recent Developments Distribution Our Board set a distribution for the quarter ending March 31, 2025 at a rate of $0.37 per share. The full amount of the distribution will be from distributable earnings.
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.
As of December 31, 2024, our asset coverage ratio was approximately 169.7% . Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%. Interest Rate Risk We are also subject to financial risks, including changes in market interest rates.
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.
As of December 31, 2024, approximately $179.8 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.
Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation) We measure realized gains or losses by the difference between the net proceeds from the repayment or sale of an investment and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized.
Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation) We measure realized gains or losses by the difference between the net proceeds from the repayment or sale of an investment and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses are computed using the specific identification method.
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.
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.
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.
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.
Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (1) are independent of us; (2) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary); (3) are able to transact for the asset; and (4) are willing to transact for the asset (that is, they are motivated but not forced or otherwise compelled to do so).
Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (1) are independent of us; (2) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary); (3) are able to transact for the asset; and (4) are willing to transact for the asset (that is, they are motivated but not forced or otherwise compelled to do so). 61 Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value.
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.
For the year ended December 31, 2024, net cash provided by operating activities was approximately $82.7 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.
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.
Realized loss for the year ended December 31, 2024 includes $0.6 million on the realization of our investment in PFS Holdings Corp. term loan and $0.5 million in loss from the realization of our investment in Blue Ribbon, LLC term loan. 67 During year ended December 31, 2023, realized gain 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.
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”).
On August 16, 2023, we issued $40.0 million in aggregate principal amount of 8.75% notes due 2028 (the “ GECCZ Notes ” ). The aggregate principal balance of the GECCZ Notes outstanding as of December 31, 2024 is $ 40.0 million .
(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.
(in thousands) For the Year Ended December 31, 2024 For the Year Ended December 31, 2023 Beginning Investment Portfolio, at fair value $ 230,612 $ 224,957 Portfolio Investments acquired (1) 345,684 226,063 Amortization of premium and accretion of discount, net 2,437 2,375 Portfolio Investments repaid or sold (2) (245,576 ) (235,570 ) Net change in unrealized appreciation (depreciation) on investments (10,771 ) 17,485 Net realized gain (loss) on investments 1,876 (4,698 ) Ending Investment Portfolio, at fair value $ 324,262 $ 230,612 (1) Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings, and capitalized PIK income.
We also make investments throughout other portions of a company’s capital structure, including subordinated debt, mezzanine debt, and equity or equity-linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals.
We generally define middle market companies as companies with enterprise values between $100 million and $2 billion. We also make investments throughout other portions of a company’s capital structure, including subordinated debt, mezzanine debt, and equity or equity-linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview We are a BDC that seeks to generate both current income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance businesses.
Overview We are a BDC that seeks to generate both current income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance businesses.
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 .
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.
Additionally, we are required to pay a commitment fee of 0.50% per annum on any unused portion of the revolving line of credit.
Additionally, we are required to pay a commitment fee of 0.50% per annum on any unused portion of the revolving line of credit. As of December 31, 2024, there were no borrowings outstanding under the revolving line.
To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe offer sufficient downside protection and have the potential to generate attractive returns. We generally define middle market companies as companies with enterprise values between $100 million and $2 billion.
To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe offer sufficient downside protection and have the potential to generate attractive returns. In addition, we invest in collateralized loan obligation (“CLO”) securities and related warehouse facilities.
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.
Professional services costs increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to increased legal expenses associated with specific transaction matters, as well as general rate increases for professional services including custody, valuation, and accounting costs.
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.
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.
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.
Portfolio and Investment Activity The following is a summary of our investment activity for the years ended December 31, 2024 and 2023: (in thousands) Acquisitions (1) Dispositions (2) Weighted Average Yield End of Period (3) 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 ) Quarter ended March 31, 2024 64,584 (29,289 ) 12.84 % Quarter ended June 30, 2024 121,743 (83,159 ) 12.58 % Quarter ended September 30, 2024 97,633 (62,005 ) 12.76 % Quarter ended December 31, 2024 61,724 (71,123 ) 12.37 % For the Year Ended December 31, 2024 $ 345,684 $ (245,576 ) (1) Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income.
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.
For the Year Ended December 31, 2024 2023 In Thousands Per Share (1) In Thousands Per Share (1) Net change in unrealized appreciation/ (depreciation) $ (10,771 ) $ (1.09 ) $ 17,498 $ 2.30 Unrealized appreciation 15,194 1.55 28,101 3.69 Unrealized depreciation (25,965 ) (2.64 ) (10,603 ) (1.39 ) (1) The per share amounts are based on a weighted average of 9,844,014 outstanding common shares for the year ended December 31, 2024 and a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023.
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.
GESF expects to generate both revenue and cost synergies across its specialty finance company subsidiaries. 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.
We assess the outstanding accrued income receivables for collectability at least quarterly, or more frequently if there is an event that indicates the underlying portfolio company may not be able to make the expected payments.
Discounts on the acquisition of corporate debt instruments are generally amortized using the effective-interest or constant-yield method, unless there are material questions as to collectability. 62 We assess the outstanding accrued income receivables for collectability at least quarterly, or more frequently if there is an event that indicates the underlying portfolio company may not be able to make the expected payments.
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.
Investments in short-term securities, including U.S. Treasury Bills and money market mutual funds, are excluded from the table below.
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.
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. See “—Revolver” and “—Notes Payable” below for more information regarding our outstanding credit facility and notes. As of December 31, 2024, we had approximately $8.4 million of money market fund investments at fair value.
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.
On April 17, 2024, we issued $30.0 million in aggregate principal amount of 8.50% notes due 2029 (the “ GECCI Notes ”). On April 25, 2024, we issued an additional $ 4.5 million of the GECCI Notes upon full exercise of the underwriters’ over-allotment option.
We had sufficient cash and other liquid assets on our December 31, 2023 balance sheet to satisfy the unfunded commitments.
As of December 31, 2024, we had approximately $14.6 million in unfunded commitments to provide financing to certain of our portfolio companies. We had sufficient cash and other liquid assets on our December 31, 2024 balance sheet to satisfy the unfunded commitments.
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.
We redeemed all of the issued and outstanding GECCM Notes on October 12, 2024 at 100% of the principal amount plus accrued and unpaid interest thereon from September 30, 2024 through, but excluding, the redemption date, October 12, 2024. 70 On June 23, 2021, we issued $ 50.0 million in aggregate principal amount of 5.875% notes due 2026 (the “ GECCO Notes ”).
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.
The Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness.
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.
Expenses For the Year Ended December 31, 2024 2023 In Thousands Per Share (1) In Thousands Per Share (1) Total Expenses $ 26,522 $ 2.69 $ 22,996 $ 3.03 Management fees 4,456 0.45 3,539 0.47 Incentive fees 2,580 0.26 3,132 0.41 Total advisory and management fees $ 7,036 $ 0.71 $ 6,671 $ 0.88 Administration fees 1,376 0.14 1,522 0.20 Directors’ fees 211 0.02 205 0.03 Interest expense 14,882 1.51 11,742 1.54 Professional services 1,816 0.18 1,772 0.23 Custody fees 147 0.01 81 0.01 Other 1,054 0.11 1,003 0.13 Income Tax Expense Excise tax 348 0.04 287 0.04 66 (1) The per share amounts are based on a weighted average of 9,844,014 outstanding common shares for the year ended December 31, 2024 and a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023.
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.
As of December 31, 2024, we had investments in 53 debt instruments across 44 companies, totaling approximately $236.7 million at fair value and 18 equity investments in 14 companies, with an aggregate fair value of approximately $87.5 million. 68 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.
The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our Loan Agreement and any other future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. We pay interest on the Notes on March 31, June 30, September 30 and December 31 of each year.
The unsecured notes are effectively subordinated to indebtedness under our Loan Agreement and any other future secured indebtedness that we may incur to the extent of the value of the assets securing such indebtedness and structurally subordinated to all future indebtedness and other obligations of our subsidiaries.
(3) Weighted average yield is based upon the stated coupon rate and fair value of outstanding debt securities at the measurement date. Debt securities on non-accrual status are included in the calculation and are treated as having 0% as their applicable interest rate for purposes of this calculation, unless such debt securities are valued at zero.
Debt securities on non-accrual status are included in the calculation and are treated as having 0% as their applicable interest rate for purposes of this calculation, unless such debt securities are valued at zero. 63 Portfolio Reconciliation The following is a reconciliation of the investment portfolio for the years ended December 31, 2024 and 2023.
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.
Contractual Obligations and Cash Requirements A summary of our material contractual payment obligations and other cash obligations as of December 31, 2024 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 GECCO Notes 57,500 - 57,500 - - GECCZ Notes 40,000 - - 40,000 - GECCI Notes 56,500 - - 56,500 - GECCH Notes 41,400 - - 41,400 - Total $ 195,400 $ - $ 57,500 $ 137,900 $ - See “—Revolver” and “—Notes Payable” below for more information regarding our outstanding credit facility and notes. 69 We have certain contracts under which we have material future commitments.
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.
In connection with this contribution, a strategic investor purchased approximately 12.5% of the equity interests and subordinated indebtedness in GESF. 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.
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.
The GECCO Notes are currently callable at the Company’s option and the GECCZ Notes, GECCI Notes and GECCH Notes can be called on, or after, September 30, 2025, April 30, 2026, and December 31, 2026, respectively. Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity date.
Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity date. The Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof. We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder.
The Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof. We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder. During the year ended December 31, 2024, the Company redeemed the GECCM Notes in full on October 12, 2024.
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.
Interest income increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to growth of the debt portfolio.
These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on February 28, 2022. Expenses are largely comprised of advisory fees and administration fees paid to GECM and interest expense on our outstanding notes payable.
Expenses are largely comprised of advisory fees and administration fees paid to GECM and interest expense on our outstanding notes payable.
Net cash used in purchases and proceeds from sales of investments was approximately $36.5 million, reflecting payments for additional investments of $149.5 million, offset by proceeds from principal repayments and sales of $113.0 million. Such amounts include draws and repayments on revolving credit facilities.
Net cash provided by purchases and proceeds from sales of investments was approximately $$93.6 million, reflecting payments for additional investments of $335.0 million, offset by proceeds from principal repayments and sales of $241.4 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.
On September 12, 2024, we caused redemption notices to be issued to the holders of the GECCM Notes regarding the Company's exercise of its option to redeem, in whole, the issued and outstanding GECCM Notes.
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.
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.
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.
Liquidity and Capital Resources We generate liquidity through our operations with cash received from investment income and sales and paydowns on investments. Such proceeds are generally reinvested in new investment opportunities, distributed to shareholders in the form of dividends, or used to pay operating expenses.
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.
CLO subordinated note securities are entitled to recurring distributions which are generally equal to the residual cash flow of payments received from underlying securities after contractual payments to more senior CLO mezzanine debt holders and fund expenses 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.
These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on February 28, 2022. Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fees, commitment fees and funding fees on loans.
Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fees, commitment fees and funding fees on loans. For the years ended December 31, 2024 and 2023, income includes non-cash PIK income of $3.0 million and $2.6 million, respectively.
For the year ended December 31, 2022, cash provided by financing activities was $33.2 million, which consisted of $37.5 million in proceeds from issuance of common stock and $10.0 million in borrowings under credit facility offset by $13.0 million in distributions and $1.3 million in payments of deferred financing costs.
For the year ended December 31, 2024, cash provided by financing activities was $81.7 million, which consisted of $97.9 million in net proceeds from the issuance of the GECCI Notes and GECCH Notes and $48.7 million in issuances of common stock, which was partially offset by $45.6 million in payments on the redemption of the GECCM Notes and $15.1 million in distributions to stockholders.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, which specific discussion is incorporated herein by reference.
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.
Realized Gains (Losses) For the Year Ended December 31, 2024 2023 In Thousands Per Share (1) In Thousands Per Share (1) Net Realized Gain (Loss) $ 1,874 $ 0.19 $ (4,707 ) $ (0.62 ) Gross realized gain 3,723 0.38 11,702 1.54 Gross realized loss (1,849 ) (0.19 ) (16,409 ) (2.16 ) (1) The per share amounts are based on a weighted average of 9,844,014 outstanding common shares for the year ended December 31, 2024 and a weighted average of 7,601,958 outstanding common shares for the year ended December 31, 2023.
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.
The decrease in administration fees for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is attributable to a decrease in overhead allocations under the administrative agreement with GECM.
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.
Management fees increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 due to increases in the underlying management fee assets which primarily consists of the fair value of the portfolio of investments.
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.
Unrealized depreciation for the year ended December 31, 2024 was primarily driven by a decrease in fair value of approximately $5.8 million in our investments in Dynata, LLC (f/k/a Research Now Group, Inc.) and approximately $4.0 million in our investment in GESF common equity.
Removed
Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This section of this Form 10-K generally discusses 2024 and 2023 items and year to year comparisons between 2024 and 2023. For the discussion of 2023 compared to 2022, see “Part II. Item 7.
Removed
We may purchase debt investments at a discount to their face value. Discounts on the acquisition of corporate debt instruments are generally amortized using the effective-interest or constant-yield method, unless there are material questions as to collectability.
Added
The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto in Part II, Item 8 of this Form 10-K, “Consolidated Financial Statements and Supplementary Data.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of this Form 10-K, “Risk Factors.” Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-K.
Removed
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.
Added
On April 23, 2024, we contributed investments in certain CLOs and formed a joint venture, the CLO Formation JV, LLC (the “CLO JV”) to facilitate the creation of CLOs. The CLO JV invests primarily in the subordinated note securities in CLOs (colloquially referred to as “CLO equity”), as well as loan accumulation facilities (colloquially referred to as “CLO warehouses”).
Removed
For the year ended December 31, 2023, GECC recognized $3.1 million in incentive fees due to increased pre-incentive net investment income.
Added
We may purchase debt investments at a discount to their face value.
Removed
These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on February 28, 2022.
Added
(3) Weighted average yield is based upon the stated coupon rate and fair value of outstanding debt securities at the measurement date.
Removed
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.
Added
Dividend income increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to the investment in CLO Formation JV, LLC, which was formed in the current year and pays periodic dividends to its equity holders.
Removed
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.
Added
Other commitment fees decreased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 attributable to fewer revolver investment positions with associated commitment fees.
Removed
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.
Added
Overall expenses for the year ended December 31, 2024 increased as compared to the year ended December 31, 2023 primarily due to interest expense as a result of the issuance of $56.5 million in aggregate principal amount of 8.50% notes due 2029 (the “GECCI Notes”) in April and July 2024, and the issuance of $41.4 million in aggregate principal amount of 8.125% notes due 2029 (the "GECCH Notes") in September and October 2024, partially offset by the redemption of $45.6 million in aggregate principal amount of 6.75% notes due 2025 ("GECCM Notes") during the year.
Removed
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.
Added
Incentive fees decreased for the year ended December 31, 2024 as compared to the year ended December 31, 2023 due to the annualized return on quarterly net income before incentive fee falling short of the hurdle rate for the three months ended December 31, 2024, offset with higher pre-incentive net investment income during the nine months ended September 30, 2024.
Removed
These weighted average share amounts have been retroactively adjusted for the reverse stock split effected on February 28, 2022.
Added
Realized gain for the year ended December 31, 2024 includes $0.8 million in gains from the partial sale of our investment in American Coastal Insurance Corp ("ACIC") unsecured bond and $0.7 million in gains from the partial sale of our investment in Blackstone Secured Lending Fund common equity.
Removed
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.
Added
For the year ended December 31, 2024, unrealized appreciation was primarily driven by an increase in fair value of our investment in Nice-Pak Products warrants of approximately $2.0 million and in our investment in CW Opportunity 2 LP of approximately $1.2 million.
Removed
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.
Added
The mark downs on our investments in Dynata were due to a slowdown in the demand for their services from a weak mergers and acquisitions environment leading to a bankruptcy filing in May 2024. The decrease in fair value on GESF was attributable to weaker than planned new deal originations.

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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% $ 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.
Biggest changeReference Rate Increase (Decrease) Increase (decrease) of Net Investment Income (in thousands) (1) 3.00% $ 5,395 2.00% 3,597 1.00% 1,798 (1.00)% (1,798 ) (2.00)% (3,597 ) (3.00)% (5,395 ) (1) Several of our debt investments with variable rates contain a reference rate floor.
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.
Although we believe that this analysis is indicative of our existing interest rate sensitivity as of December 31, 2024, 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.
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.
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, 2024.
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.
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, 2024, 9 debt investments in our portfolio bore interest at a fixed rate, and the remaining 43 debt investments were at variable rates, representing approximately $65.1 million and $179.8 million in principal debt, respectively.
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.
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. The variable rates are generally based upon the SOFR or US prime rate.

Other GECCG 10-K year-over-year comparisons