Overview
We are aMaryland corporation that was formed inApril 2016 . We operate as a closedend, externally managed, non-diversified management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition, for tax purposes, we elected to be treated as a RIC under the Code, beginning with our tax year startingOctober 1, 2016 . We seek to generate current income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance businesses. To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe offer sufficient downside protection and have the potential to generate attractive returns. We generally define middle market companies as companies with enterprise values between$100 million and$2 billion . We also make investments throughout other portions of a company's capital structure, including subordinated debt, mezzanine debt, and equity or equitylinked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals. OnSeptember 27, 2016 , we andGreat Elm Capital Management, Inc. ("GECM"), our external investment manager, entered into an investment management agreement (the "Investment Management Agreement") and an administration agreement (the "Administration Agreement"), and we began to accrue obligations to GECM under those agreements. The Investment Management Agreement renews for successive annual periods, subject to requisite Board and/or stockholder approvals. We have elected to be treated as a RIC forU.S. federal income tax purposes. As a RIC, we will not be taxed on our income to the extent that we distribute such income each year and satisfy other applicable income tax requirements. To qualify as a RIC, we must, among other things, meet source-of-income and asset diversification requirements and annually distribute to our stockholders generally at least 90% of our investment company taxable income on a timely basis. If we qualify as a RIC, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders.
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including, among others, the amount of debt and equity capital available from other sources to middle-market companies, the level of merger and acquisition activity, pricing in the high yield and leveraged loan credit markets, opportunities in the specialty finance sector, our expectations of future investment opportunities, the general economic environment as well as the competitive environment for the types of investments we make.
As a BDC, our investments and the composition of our portfolio are required to comply with regulatory requirements.
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Revenues
We generate revenue primarily from interest on the debt investments that we hold, dividends on the equity investments that we hold, capital gains on the disposition of investments, and lease, fee, and other income. Our investments in fixed income instruments generally have an expected maturity of three to five years, although we have no lower or upper constraint on maturity. Our debt investments generally pay interest quarterly or semi-annually. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments and preferred stock investments may defer payments of cash interest or dividends or payment-in-kind ("PIK"). In addition, we may generate revenue in the form of prepayment fees, commitment, origination, due diligence fees, end-of-term or exit fees, fees for providing significant managerial assistance, consulting fees and other investment-related income.
Expenses
Our primary operating expenses include the payment of a base management fee, administration fees (including the allocable portion of overhead under the Administration Agreement), and, depending on our operating results, an incentive fee. The base management fee and incentive fee remunerates GECM for work in identifying, evaluating, negotiating, closing and monitoring our investments. The Administration Agreement provides for reimbursement of costs and expenses incurred for office space rental, office equipment and utilities allocable to us under the Administration Agreement, as well as certain costs and expenses incurred relating to non-investment advisory, administrative or operating services provided by GECM or its affiliates to us. We also bear all other costs and expenses of our operations and transactions. In addition, our expenses include interest on our outstanding indebtedness.
Critical Accounting Policies
Valuation of Portfolio Investments
We value our portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our board of directors (our "Board"). Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (1) are independent of us; (2) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary); (3) are able to transact for the asset; and (4) are willing to transact for the asset (that is, they are motivated but not forced or otherwise compelled to do so). Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value. Debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value, are valued at fair value using a valuation process consistent with our Board-approved policy. Our Board approves in good faith the valuation of our portfolio as of the end of each quarter. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and other events may impact the market quotations used to value some of our investments. 3 -------------------------------------------------------------------------------- Those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples, security covenants, call protection provisions, information rights and the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, and merger and acquisition comparables; and enterprise values. We prefer the use of observable inputs and minimize the use of unobservable inputs in our valuation process. Inputs refer broadly to the assumptions that market participants would use in pricing an asset. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the assumptions market participants would use in pricing an asset developed based on the best information available in the circumstances. Both observable and unobservable inputs are subject to some level of uncertainty and assumptions used bear the risk of change in the future. We utilize the best information available to us, including the factors listed above, in preparing the fair valuations. In determining the fair value of any individual investment, we may use multiple inputs or utilize more than one approach to calculate the fair value to assess the sensitivity to change and determine a reasonable range of fair value. In addition, our valuation procedures include an assessment of the current valuation as compared to the previous valuation for each investment and where differences are material understanding the primary drivers of those changes, incorporating updates to our current valuation inputs and approaches as appropriate. Revenue Recognition Interest and dividend income, including PIK income, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees, including original issue discounts ("OID"), earned with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt investment, as are end-of-term or exit fees receivable upon repayment of a debt investment if such fees are fixed in nature. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, and end-of-term or exit fees that have a contingency feature or are variable in nature are recognized as earned. Prepayment fees and similar income due upon the early repayment of a loan or debt security are recognized when earned and are included in interest income. We may purchase debt investments at a discount to their face value. Discounts on the acquisition of corporate debt instruments are generally amortized using the effective-interest or constant-yield method unless there are material questions as to collectability. We assess the outstanding accrued income receivables for collectability at least quarterly, or more frequently if there is an event that indicates the underlying portfolio company may not be able to make the expected payments. If it is determined that amounts are not likely to be paid we may establish a reserve against or reverse the income and put the investment on non-accrual status.
Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation)
We measure realized gains or losses by the difference between the net proceeds from the repayment or sale of an investment and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses are computed using the specific identification method. 4 -------------------------------------------------------------------------------- Net change in unrealized appreciation or depreciation reflects the net change in portfolio investment fair values and portfolio investment cost bases during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
Portfolio and Investment Activity
The following is a summary of our investment activity for the year ended
Weighted Average Yield (in thousands) Acquisitions(1)
Dispositions(2) End of Period(3)
Quarter ended
10.91 % Quarter ended June 30, 2021 49,904 (35,583 ) 11.10 % Quarter ended September 30, 2021 72,340 (31,640 ) 11.27 % Quarter ended December 31, 2021 34,184 (40,270 ) 10.81 % For the Year Ended December 31, 2021 214,857
(135,761 )
Quarter ended March 31, 2022 27,578 (29,723 ) 10.38 % For the Three Months Ended March 31, 2022 $ 27,578 $ (29,723 ) (1) Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income. Investments in short-term securities, includingU.S. Treasury Bills and money market mutual funds, were excluded.
(2)
Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving credit facilities). Investments in short-term securities, includingU.S. Treasury Bills and money market mutual funds, were excluded.
(3)
Weighted average yield is based upon the stated coupon rate and fair value of outstanding debt securities at the measurement date. Debt securities on non-accrual status are included in the calculation and are treated as having 0% as their applicable interest rate for purposes of this calculation, unless such debt securities are valued at zero.
Portfolio Reconciliation
The following is a reconciliation of the investment portfolio for the three months endedMarch 31, 2022 and the year endedDecember 31, 2021 . Investments in short-term securities, includingU.S. Treasury Bills and money market mutual funds, are excluded from the table below. For the Three For the Year Months Ended March Ended December (in thousands) 31, 2022 31, 2021 Beginning Investment Portfolio, at fair value $ 212,149 $
151,648
Portfolio Investments acquired(1) 27,578
214,857
Amortization of premium and accretion of discount, net 396
3,958
Portfolio Investments repaid or sold(2) (29,723 ) (135,761 ) Net change in unrealized appreciation (depreciation) on investments 8,869 (12,922 ) Net realized gain (loss) on investments (19,931 ) (9,631 ) Ending Investment Portfolio, at fair value $ 199,338 $
212,149
(1)
Includes new investments, additional fundings (inclusive of those on revolving credit facilities), refinancings, and capitalized PIK income.
(2)
Includes scheduled principal payments, prepayments, sales, and repayments (inclusive of those on revolving credit facilities).
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Portfolio Classification
The following table shows the fair value of our portfolio of investments by
industry as of
March 31, 2022
Investments at Percentage of Investments at Percentage of Industry Fair Value Fair Value Fair Value Fair Value Specialty Finance $ 66,513 33.37 % $ 47,952 22.60 % Energy Midstream 29,185 14.64 % 31,815 15.00 % Chemicals 14,912 7.48 % 15,058 7.10 % Metals & Mining 13,708 6.88 % 13,711 6.46 % Internet Media 11,862 5.95 % 11,870 5.60 % Construction Materials 5.17 % 4.93 % Manufacturing 10,299 10,461 Oil & Gas Exploration & 5.03 % 4.64 % Production 10,023 9,849 Industrial 7,149 3.59 % 7,551 3.56 % Transportation Equipment 3.02 % 2.84 % Manufacturing 6,013 6,030 Casinos & Gaming 5,215 2.62 % 5,291 2.49 % Hospitality 4,070 2.04 % 4,085 1.93 % Restaurants 3,956 1.98 % 8,310 3.92 % Oil & Gas Refining 2,970 1.49 % 3,030 1.43 % Apparel 2,890 1.45 % 2,929 1.38 % Food & Staples 2,732 1.37 % 2,724 1.28 % Aircraft 2,550 1.28 % - - % Home Security 2,397 1.20 % 5,590 2.63 % Commercial Printing 1,999 1.00 % 2,025 0.95 % Wireless Telecommunications 0.31 % 3.84 % Services 621 8,137 Communications Equipment 303 0.15 % 1,057 0.50 % Special Purpose Acquisition 0.05 % 1.43 % Company 94 3,044 Consumer Finance 15 0.01 % - - % IT Services 7 - % 7 0.01 % Biotechnology 4 - % 11 0.01 % Retail 2 - % 4,267 2.01 % Technology (151 ) (0.08 )% (158 ) (0.07 )% Healthcare Supplies - - % 2,869 1.35 % Consumer Services - - % 2,640 1.24 % Software Services - - % 1,994 0.94 % Total$ 199,338 100.00 %$ 212,149 100.00 % Results of Operations
This "-Results of Operations" discussion should be read in conjunction with the discussion of ("COVID-19") under "-Recent Developments-COVID 19".
Investment Income For the Three Months Ended March 31, 2022 2021 In Thousands Per Share(1) In Thousands Per Share(2) Total Investment Income$ 5,558 $ 1.22 $ 5,295 $ 1.36 Interest income 4,041 0.89 4,179 1.07 Dividend income 1,267 0.28 801 0.21 Other income 250 0.05 315 0.08 6
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(1)
The per share amounts are based on a weighted average of 4,558,451 outstanding common shares for the three months endedMarch 31, 2022 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 .
(2)
The per share amounts are based on a weighted average of 3,900,306 outstanding common shares for the three months endedMarch 31, 2021 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 . Investment income consists of interest income, including net amortization of premium and accretion of discount on loans and debt securities, dividend income and other income, which primarily consists of amendment fees, commitment fees and funding fees on loans. For the three months endedMarch 31, 2022 , interest income includes non-cash PIK income of$0.3 million . For the three months endedMarch 31, 2021 , interest income includes non-cash PIK income of$1.5 million . Interest income was generally consistent quarter over quarter for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . Our debt investments inAvanti Communications Group, plc ("Avanti") are each on non-accrual status as ofMarch 31, 2022 , with the investments in the Avanti 2ndLien Bond and Avanti 1.5Lien Loan having been on non-accrual sinceDecember 31, 2021 . The Avanti 1.25Lien Loan and 1.125Lien Loan were placed on non-accrual as ofMarch 31, 2022 with any accrued but uncapitalized interest income reversed as of the accrual date. The decrease in interest income from these positions has been offset by interest earned on new positions. Dividend income for the three months endedMarch 31, 2022 increased as compared to the corresponding period in the prior year due to a higher current quarter distribution from our investment inPrestige Capital Finance, LLC ("Prestige") and a distribution fromLenders Funding, LLC which was acquired in the third quarter of 2021. Expenses For the Three Months Ended March 31, 2022 2021 In Thousands Per Share(1) In Thousands Per Share(2) Total Expenses $ (497 )$ (0.11 ) $ 139 $ 0.04 Management fees 780 0.17 660 0.17 Incentive fees - - 108 0.03 Incentive fee waiver (4,854 ) (1.06 ) - -
Total advisory and management fees
$ 768 $ 0.20 Administration fees 221 0.05 156 0.04 Directors' fees 63 0.01 55 0.01 Interest expense 2,670 0.59 2,198 0.56 Professional services 418 0.09 425 0.11 Custody fees 14 - 13 - Other 191 0.04 176 0.05 Income Tax Expense Excise tax 101 0.02 - - (1) The per share amounts are based on a weighted average of 4,558,451 outstanding common shares for the three months endedMarch 31, 2022 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 .
(2)
The per share amounts are based on a weighted average of 3,900,306 outstanding common shares for the three months endedMarch 31, 2021 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 . 7 -------------------------------------------------------------------------------- Expenses are largely comprised of advisory fees and administration fees paid to GECM and interest expense on our outstanding notes payable. See "-Liquidity and Capital Resources." Advisory fees include management fees and incentive fees calculated in accordance with the Investment Management Agreement, and administration fees include direct costs reimbursable to GECM under the Administration Agreement and fees paid for sub-administration services. Excluding incentive fees, total expenses for the three months endedMarch 31, 2022 increased as compared to total expenses for the three months endedMarch 31, 2021 primarily due to increases in management fees, administration fees and interest expense. The increases in management fees are primarily driven by increases in the fair value of the portfolio during through the three months endedMarch 31, 2022 as compared to the corresponding period in 2021 when fair values were still negatively impacted by the effects of COVID-19. Administration fees increased in the three months endedMarch 31, 2022 as compared to the corresponding period in the prior year due to increases in allocable personnel time as a result of changes in staffing. For the three months endedMarch 31, 2022 , interest expense increased as compared to the corresponding period in the prior year as a result of the issuance of$57.5 million in aggregate principal amount of the 5.875% notes due 2026 (the "GECCO Notes") in June andJuly 2021 which was partially offset by the redemption of$30.3 million in aggregate principal amount of the 6.50% Notes due 2022 (the "GECCL Notes") inJuly 2021 . Realized Gains (Losses) For the Three Months Ended March 31, 2022 2021 In Thousands Per Share(1) In Thousands Per Share(2) Net Realized Gain (Loss)$ (19,933 ) $ (4.37 ) $ (3,275 ) $ (0.84 ) Gross realized gain 791 0.17 919 0.24 Gross realized loss (20,724 ) (4.54 ) (4,194 ) (1.08 ) (1) The per share amounts are based on a weighted average of 4,558,451 outstanding common shares for the three months endedMarch 31, 2022 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 .
(2)
The per share amounts are based on a weighted average of 3,900,306 outstanding common shares for the three months endedMarch 31, 2021 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 . During the three months endedMarch 31, 2022 , net realized losses were primarily driven by the sales of our investment inTru (UK) Asia Limited ("Tru Taj") common stock andCalifornia Pizza Kitchen, Inc. ("CPK") common stock for which we recognized realized losses of$15.9 million and$4.2 million , respectively. These realized losses were offset by the corresponding reversals of previously recognized unrealized losses on these positions. During the three months endedMarch 31, 2021 , net realized losses were primarily driven by the sale of our investment inBoardriders, Inc. ("Boardriders") 1st lien secured loan for which we recognized a realized loss of$3.0 million . This realized loss was partially offset by realized gains of$0.3 million on proceeds received from our former investment inPR Wireless, Inc. ,$0.2 million on the early paydown of our investments inFirst Brands, Inc. 1st lien secured loan,$0.1 million in proceeds received from our investment inPE Facility Solutions, LLC common equity.
Change in Unrealized Appreciation (Depreciation) on Investments
For the Three Months Ended March 31, 2022 2021 In Thousands Per Share(1) In Thousands Per Share(2) Net change in unrealized appreciation/ (depreciation)$ 8,870 $ 1.94 $ 14,317 $ 3.67 Unrealized appreciation 20,762 4.55 18,032 4.62 Unrealized depreciation (11,892 ) (2.61 ) (3,715 ) (0.95 ) 8
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(1)
The per share amounts are based on a weighted average of 4,558,451 outstanding common shares for the three months endedMarch 31, 2022 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 .
(2)
The per share amounts are based on a weighted average of 3,900,306 outstanding common shares for the three months endedMarch 31, 2021 . These weighted average share amounts have been retroactively adjusted for the reverse stock split effected onFebruary 28, 2022 . During the three months endedMarch 31, 2022 , gross unrealized appreciation primarily consisted of the reversal of previously recognized unrealized losses on our investments inTru Taj common stock and CPK common stock, which were offset by corresponding realized losses as discussed above. Gross unrealized depreciation was driven by the write downs on our investments in the Avanti 1.125 lien secured loan, Avanti 1.25 lien secured loan and 1.5 lien secured loan, on which we collectively recognized$7.7 million in unrealized depreciation. InApril 2022 , Avanti announced a series of restructuring transactions pursuant to which certain creditors of Avanti (excluding GECC) contributed additional senior debt financing to Avanti, and the 2nd lien secured bond and 1.5 lien secured loan were converted to equity.
Unrealized depreciation for the three months ended
Liquidity and Capital Resources
This "-Liquidity and Capital Resources" discussion should be read in conjunction with the discussion of COVID-19 under "-Recent Developments-COVID 19".
AtMarch 31, 2022 , we had approximately$8.5 million of cash and cash equivalents. AtMarch 31, 2022 , we had investments in 45 debt instruments across 37 companies, totaling approximately$145.2 million at fair value and 116 equity investments in 116 companies, totaling approximately$54.1 million at fair value. In the normal course of business, we may enter into investment agreements under which we commit to make an investment in a portfolio company at some future date or over a specified period of time. As ofMarch 31, 2022 , we had approximately$25.3 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies. We had sufficient cash and other liquid assets on ourMarch 31, 2022 balance sheet to satisfy the unfunded commitments. For the three months endedMarch 31, 2022 , net cash provided by operating activities was approximately$2.1 million , reflecting the purchases and repayments of investments offset by net investment income, including non-cash income related to accretion of discount and PIK income and proceeds from sales of investments and principal payments received. Net cash provided by purchases and proceeds from sales of investments was approximately$0.9 million , reflecting payments for additional investments of$25.3 million , offset by proceeds from principal repayments and sales of$26.2 million . Such amounts include draws and repayments on revolving credit facilities.
For the three months ended
Contractual Obligations
A summary of our significant contractual payment obligations as of
9 -------------------------------------------------------------------------------- Less than More than (in thousands) Total 1 year 1-3 years 3-5 years 5 years Contractual Obligations GECCM Notes 45,610 - 45,610 - - GECCN Notes 42,823 - 42,823 - - GECCO Notes 57,500 - - 57,500 - Total$ 145,933 $ -$ 88,433 $ 57,500 $ - We have certain contracts under which we have material future commitments. Under the Investment Management Agreement, GECM provides investment advisory services to us. For providing these services, we pay GECM a fee, consisting of two components: (1) a base management fee based on the average value of our total assets and (2) an incentive fee based on our performance. We are also party to the Administration Agreement with GECM. Under the Administration Agreement, GECM furnishes us with, or otherwise arranges for the provision of, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and other such services as our administrator. If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement and our Administration Agreement. Any new investment management agreement would also be subject to approval by our stockholders. Both the Investment Management Agreement and the Administration Agreement may be terminated by either party without penalty upon no fewer than 60 days' written notice to the other. Revolver OnMay 5, 2021 , we entered into a Loan, Guarantee and Security Agreement (the "Loan Agreement") withCity National Bank ("CNB"). The Loan Agreement provides for a senior secured revolving line of credit of up to$25 million (subject to a borrowing base as defined in the Loan Agreement). We may request to increase the revolving line in an aggregate amount not to exceed$25 million , which increase is subject to the sole discretion of CNB. The maturity date of the revolving line isMay 5, 2024 . Borrowings under the revolving line bear interest at a rate equal to (i) the LIBOR plus 3.50%, (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by us. As ofMarch 31, 2022 , there were no borrowings outstanding under the revolving line. Borrowings under the revolving line are secured by a first priority security interest in substantially all of our assets, subject to certain specified exceptions. We have made customary representations and warranties and are required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar loan agreements. In addition, the Loan Agreement contains financial covenants requiring (i) net assets of not less than$65 million , (ii) asset coverage equal to or greater than 150% and (iii) bank asset coverage equal to or greater than 300%, in each case tested as of the last day of each fiscal quarter of the Company. Borrowings are also subject to the leverage restrictions contained in the Investment Company Act. InMay 2022 , the Loan Agreement was amended to require an asset coverage equal to or greater than 150% as of the last day of each fiscal quarter except for the fiscal quarters endingMarch 31, 2022 andJune 30, 2022 . In addition, the interest rate was amended to replace LIBOR with the secured overnight financing rate ("SOFR").
Notes Payable
OnJanuary 11, 2018 , we issued$43.0 million in aggregate principal amount of 6.75% notes due 2025 (the "GECCM Notes"). OnJanuary 19, 2018 andFebruary 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 ofMarch 31, 2022 is$45.6 million . 10 -------------------------------------------------------------------------------- OnJune 18, 2019 , we issued$42.5 million in aggregate principal amount of 6.50% Notes due 2024 (the "GECCN Notes"), which included$2.5 million of GECCN Notes issued in connection with the partial exercise of the underwriters' over-allotment option. OnJuly 5, 2019 , we issued an additional$2.5 million of the GECCN Notes upon another partial exercise of the underwriters' over-allotment option. The aggregate principal balance of the GECCN Notes outstanding as ofMarch 31, 2022 is$42.8 million . OnJune 23, 2021 , we issued$50.0 million in aggregate principal amount of 5.875% notes due 2026 (the "GECCO Notes" and, together with the GECCM Notes and GECCN Notes, the "Notes"). OnJuly 9, 2021 , we issued an additional$7.5 million of the GECCO Notes upon full exercise of the underwriters' over-allotment option. The Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our Loan Agreement and any other future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. We pay interest on the Notes onMarch 31 ,June 30 ,September 30 andDecember 31 of each year. The GECCM Notes, GECCM Notes and GECCO Notes will mature onJanuary 31, 2025 ,June 30, 2024 andJune 30, 2026 , respectively. The GECCM Notes and GECCN Notes are currently callable at the Company's option and the GECCO Notes can be called on, or after,June 30, 2023 . Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity date. The Notes were issued in minimum denominations of$25 and integral multiples of$25 in excess thereof.
We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder.
As ofMarch 31, 2022 , our asset coverage ratio was approximately 147.5%. Under the Investment Company Act, we are subject to a minimum asset coverage ratio of 150%. As a result of falling below the Minimum ACR, we will be subject to certain limitations on our ability to incur additional debt, make cash distributions on junior securities or repurchase junior securities, in each case, in accordance with the Investment Company Act of 1940, as amended and the indentures governing our outstanding notes, until such time we are above the Minimum ACR. 11 --------------------------------------------------------------------------------
Recent Developments
Our Board authorized the distribution for the quarter endingSeptember 30, 2022 at$0.45 per share, with the record and payment dates to be set by the officers of GECC pursuant to authority granted by our Board. OnApril 19, 2022 , GECC filed an amendment to its registration statement with theSEC in connection with a non-transferable rights offering to purchase shares of its common stock (the "Rights Offering"). The Company's stockholders who fully exercise all rights issued to them in the Rights Offering are entitled to subscribe for additional shares that were not subscribed for by other stockholders of the Company. The registration statement has not been declared effective by theSEC and the Rights Offering is subject to market and other conditions. There can be no assurance as to whether or when the Rights Offering may be completed, if at all, or as to the actual size or terms of the Rights Offering. COVID-19 The COVID-19 pandemic continues to disrupt economic markets. The economic impact, duration and spread of the COVID-19 virus, including new variants, is uncertain at this time. The operational and financial performance of some of the portfolio companies in which we make investments has been and may further be significantly impacted by COVID-19, which may in turn impact the valuation of our investments, results of our operations and cash flows. Our investment manager prioritizes the health and safety of employees and in earlyMarch 2020 , GECM moved to a remote-working model for all employees. In addition, the officers of GECC have maintained regular communications with key service providers, including the fund administration, legal and accounting professionals, noting that those firms have similarly moved to remote-working models to the extent possible. Our employees and key service providers have been able to effectively transition to working remotely while maintaining a consistent level of capabilities and service, however, we will continue to monitor and make adjustments as necessary. While we have been carefully monitoring the COVID-19 pandemic and its impact on our business and the business of our portfolio companies, we have continued to fund our existing debt commitments. In addition, we have continued to make, and expect to continue to make, new investments. We cannot predict the full impact of the COVID-19 pandemic, including its duration inthe United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S. governmental authorities. As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which the COVID-19 pandemic will negatively affect our portfolio companies' operating results or the impact that such disruptions may have on our results of operations and financial condition. Our portfolio is diversified across multiple industries and the direct and indirect impacts of the COVID-19 pandemic will be dependent on the specific circumstances for each portfolio company. For example, companies that derive revenues through in-person interactions with customers, such as restaurants and retail stores, have been and may be subject to reduced capacity or shutdowns based on local government advisories and regulations. Other companies may be better able to adapt to the changing environment by moving their workforce to a remote-working model and leveraging technology solutions to interact with customers. Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies may experience financial distress and possibly default on their financial obligations to us and their other capital providers. It is possible that some of our portfolio companies may significantly curtail business operations, furlough or lay off employees and terminate service providers, and defer capital expenditures if subjected to prolonged and severe financial distress, which would likely impair their business on a permanent basis. These developments would likely result in a decrease in the value of our investment in any such portfolio company. 12
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The COVID-19 pandemic and the related disruption and financial distress experienced by our portfolio companies may have material adverse effects on our investment income, particularly our interest income, received from our investments. In connection with the adverse effects of the COVID-19 pandemic, we may need to restructure our investments in some of our portfolio companies, which could result in reduced interest payments, an increase in the amount of PIK interest we receive, or result in permanent write-downs on our investments. We will continue to monitor the evolving situation relating to the COVID-19 pandemic and guidance fromU.S. and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. To the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments, their financial condition and the results of operations and financial condition of our portfolio companies. We are also subject to financial risks, including changes in market interest rates. As ofMarch 31, 2022 , approximately$60.6 million in principal amount of our debt investments bore interest at variable rates, which are generally based on LIBOR, and many of which are subject to certain floors. In connection with the COVID-19 pandemic, theU.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments or a decrease in our operating expenses. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for an analysis of the impact of hypothetical base rate changes in interest rates.
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