GREAT ELM CAPITAL CORP. Overview
We are a BDC that seeks to generate both current income and capital appreciation through debt and equity investments. Our investment focus is on debt obligations of middle-market companies for which quotations are typically available in the credit markets. We invest primarily in the debt of middle-market companies as well as small businesses, generally in the form of senior secured and unsecured notes, as well as in senior secured loans, junior loans and mezzanine debt. We will from time to time make equity investments as part of restructuring credits and in rare instances reserve the right to make equity investments directly.
On
Beginning with our tax year startingOctober 1, 2016 , we 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. Formation Transactions
On
? On
shares of our common stock.
? On September 27, 2016 , before we elected to become a BDC, the MAST Funds
contributed to us the Initial GECC Portfolio that we valued at $90.0
million in exchange for 5,935,800 shares of our common stock.
For financial reporting purposes, we have accounted for the contribution of the
Initial GECC Portfolio as an asset acquisition per the Financial Accounting
Standards Board Accounting Standards Codification Topic 805, Business
Combinations ("Topic 805"). For tax purposes, we recorded our basis in the
Initial GECC Portfolio at the fair market value of the Initial GECC Portfolio as
of the date of contribution.
Under the Subscription Agreement, upon consummation of the Merger, we became
obligated to reimburse the costs incurred by GEC and the MAST Funds in
connection with the Merger and the transactions contemplated by the Subscription
Agreement.
Following the closing of the Merger, we entered into a registration rights agreement with GEC and the MAST Funds.
Full Circle Merger
On
?
Merger of Full Circle's portfolio that we valued at $74.7 million at
November 3, 2016 ;
? We became obligated to issue an aggregate of 4,986,585 shares of our common
stock to former
? Our exchange agent paid a$5.4 million special cash dividend to former Full Circle stockholders. 52
-------------------------------------------------------------------------------- We accounted for the Merger as a business combination under Topic 805 and Regulation S-X's purchase accounting guidance. GECC was designated as the acquirer for accounting purposes. The difference between the fair value ofFull Circle's net assets and the consideration was recorded as a purchase accounting loss because the fair value of the assets acquired and liabilities assumed, as of the date of the Merger, was less than that of the merger consideration paid.
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 credit markets, 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. See "Regulation as a Business Development Company" and "Material Federal Income Tax Matters."
Revenues
We generate revenue primarily from interest on the debt investments that we hold. We also may generate revenue from 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 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. 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. 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. We generally obtain market quotations from recognized exchanges, market
quotation systems, independent pricing services or one or more broker-dealers or
market makers. However, short term debt investments with remaining maturities
within ninety days are generally valued at amortized cost, which approximates
fair value.
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-------------------------------------------------------------------------------- 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.
The valuation process approved by our Board with respect to investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value is as follows:
? The investment professionals of GECM provide recent portfolio company
financial statements and other reporting materials to independent valuation
firms approved by our Board;
? Such firms evaluate this information along with relevant observable market
data to conduct independent appraisals each quarter, and their preliminary
valuation conclusions are documented and discussed with senior management
of GECM;
? The fair value of smaller investments comprising in the aggregate less than
5% of our total capitalization may be determined by GECM in good faith in
accordance with our valuation policy without the employment of an
independent valuation firm; and
? Our audit committee recommends, and our Board determines, the fair value of
the investments in our portfolio in good faith based on the input of GECM,
our independent valuation firms (to the extent applicable) and the business
judgment of our audit committee and our Board, respectively.
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, 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, 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.
Investments are classified by GAAP into the three broad levels as follows:
Level 1 Investments valued using unadjusted quoted prices in active markets for
identical assets.
Level 2 Investments valued using other unadjusted observable market inputs, e.g.
quoted prices in markets that are not active or quotes for comparable
instruments.
to the extent available, but which also take into consideration one or
more unobservable inputs that are significant to the valuation taken as a
whole.
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All Level 3 investments that comprise more than 5% of the investments of the fund are valued by independent third parties.
Revenue Recognition
Interest and dividend income, including PIK income, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees, including 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.
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 first in first out method.
Net change in unrealized appreciation or depreciation reflects the net change in portfolio investment 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.
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--------------------------------------------------------------------------------Portfolio and Investment Activity
The following is a summary of our investment activity for the years ended
Weighted Average Yield
Time Period Acquisitions(1) Dispositions(2) End of Period(3)
Quarter ended March 31, 2018 63,220 (29,069 ) 14.8 %
Quarter ended June 30, 2018 37,927 (27,729 ) 11.1 %
Quarter ended September 30, 2018 38,969 (37,991 ) 11.6 %
Quarter ended December 31, 2018 34,849 (40,028 ) 12.0 %
For the year ended December 31, 2018 174,965 (134,817 )
Quarter ended March 31, 2019 54,846 (59,869 ) 11.3 %
Quarter ended June 30, 2019 62,238 (37,802 ) 11.4 %
Quarter ended September 30, 2019 45,873 (44,531 ) 11.0 %
Quarter ended December 31, 2019 14,800 (9,616 ) 10.8 %
For the Year Ended December 31, 2019 177,757 (151,818 )
(1) Includes new deals, additional fundings (inclusive of those on revolving
credit facilities), refinancings and capitalized PIK income. Investments in
short-term securities, including
funds, were excluded.
(2) Includes scheduled principal payments, prepayments, sales and repayments
(inclusive of those on revolving credit facilities). Investments in
short-term securities, including
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
0.00% 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 years
ended
For the Year Ended (in thousands) 2019 2018
2017
Beginning Investment Portfolio$ 184,186 $ 164,870
Portfolio Investments acquired(1) 177,757 174,965
199,878
Amortization of premium and accretion of
discount, net 5,982 3,485
5,627
Portfolio Investments repaid or sold(2) (151,818 ) (134,817
) (174,983 )
Net change in unrealized appreciation
(depreciation) on investments (19,792 ) (26,752
) (23,962 )
Net realized gain (loss) on investments 1,300 2,435
3,633
Ending Investment Portfolio$ 197,615 $ 184,186 $ 164,870
(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 Classifications
The following table shows the fair value of our portfolio of investments by
industry, as of
As of December 31,
2019 2018
Investments at Percentage of Investments at Percentage of
Industry Fair Value Fair Value Fair Value Fair Value
Wireless Telecommunications 20.53 % $ 35,631 19.35 %
Services $ 40,578
Software Services 25,456 12.88 % 15,942 8.66 %
Food & Staples 20,975 10.61 % 8,935 4.85 %
Internet Media 15,923 8.06 % - 0.00 %
Retail 13,470 6.82 % 14,227 7.72 %
Gaming, Lodging & Restaurants 12,127 6.14 % 9,687 5.27 %
Restaurants 11,972 6.06 % - 0.00 %
Apparel & Textile Products 8,744 4.42 % - 0.00 %
Water Transport 8,001 4.05 % 11,889 6.45 %
Radio Broadcasting 7,795 3.94 % 8,807 4.78 %
Construction Materials 7,792 3.94 % - 0.00 %
Manufacturing
Specialty Finance 7,726 3.91 % - 0.00 %
Chemicals 6,917 3.50 % 7,601 4.13 %
Industrial 4,200 2.13 % - 0.00 %
Hotel Operator 3,361 1.70 % 3,212 1.74 %
Real Estate Services 2,065 1.04 % 4,479 2.43 %
Consumer Finance 1,050 0.53 % 1,830 0.99 %
Building Cleaning and 819 0.41 % 18,443 10.01 %
Maintenance Services
Maritime Security Services 30 0.02 % 34 0.02 %
Manufacturing - 0.00 % 15,575 8.46 %
Industrial Conglomerates - 0.00 % 13,365 7.26 %
Business Services - 0.00 % 9,505 5.16 %
Technology Services - 0.00 % 4,428 2.40 %
Wireless Communications - 0.00 % 596 0.32 %
Consulting (458 ) -0.23 % - 0.00 %
Telecommunications Services (928 ) -0.47 % - 0.00 %
Total $ 197,615 99.99 % $ 184,186 100.00 %
Results of Operations
Total Investment Income
For the Year Ended December 31,
2019 2018
In Thousands Per Share(1) In Thousands Per Share(1)
Total Investment Income $ 27,038 $ 2.64 $ 27,754 $ 2.61
Interest income 24,198 2.36 27,334 2.57
Dividend income 2,070 0.20 197 0.02
Other income 770 0.08 223 0.02
(1) The per share amounts are based on a weighted average of 10,249,578 shares
for the year ended
shares for the year ended
Investment income consists of interest income, including net amortization of premium and accretion of discount on debt securities, dividend income and other income, which primarily consists of amendment fees on loans. For the years ended years endedDecember 31, 2019 , 2018 and 2017, interest income includes non-cash PIK income of$5.4 million ,$8.2 million and$11.7 million , respectively. 57 -------------------------------------------------------------------------------- The decrease in interest income for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 is primarily due to theApril 2018 restructuring of our investment in Avanti Communications Group plc's ("Avanti") third lien senior secured notes (the "Avanti third lien notes"), in which the Avanti third lien notes were converted into Avanti common equity which is currently non-income producing. Additionally, inJanuary 2019 theTru Taj, LLC ("Tru Taj") notes were converted to common equity which is currently non-income producing. The Avanti third lien notes andTru Taj notes accrued approximately$3.7 million and$2.2 million , respectively, of interest income during the year endedDecember 31, 2018 . These decreases were partially offset by increases in interest income related to our investments inCommercial Barge Line Company ("Commercial Barge") andPFS Holdings Corp. ("PFS") which earned$3.3 million and$3.2 million , respectively, in interest income for the year endedDecember 31, 2019 as compared to$1.7 million and$0.8 million , respectively, in interest income for the year endedDecember 31, 2018 . Dividend income for the year endedDecember 31, 2019 includes$1.6 million earned from our investment inPrestige Capital Finance, LLC and$0.5 million earned from cash balances invested in short-term investments as compared to$0.2 million in dividend income earned from cash balances invested in short-term investments for the year endedDecember 31, 2018 . The increase in other income for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 is primarily attributable to commitment and funding fees received on our investment in Avanti 1.5 lien notes which totaled$0.6 million for the year endedDecember 31, 2019 . Expenses For the Year Ended December 31, 2019 2018 In Thousands Per Share(1) In Thousands Per Share(1) Net Operating Expenses$ 15,892 $ 1.55$ 12,240 $ 1.15 Management fees 2,953 $ 0.29 2,955 0.28 Incentive fees 2,735 $ 0.26 165 0.02 Total advisory and management fees $ 5,688 $ 0.55$ 3,120 $ 0.29 Administration fees 987 0.10 1,416 0.13 Directors' fees 200 0.02 195 0.02 Interest expense 7,636 0.75 5,645 0.53 Professional services 833 0.08 1,205 0.11 Custody fees 57 0.01 58 0.01 Other 491 0.05 601 0.06 Income Tax Expense Excise Tax Expense 209 0.02 180 0.02
(1) The per share amounts are based on a weighted average of 10,249,578 shares
for the year ended
shares for the year ended
Operating expenses are largely comprised of advisory fees and administration fees paid to GECM and interest expense on our outstanding notes payable. Advisory fees include management fees and incentive fees calculated in accordance with the Investment Management Agreement, and administration fees, which include direct costs reimbursable to GECM under the Administration Agreement and fees paid for sub-administration services. Incentive fees for the year endedDecember 31, 2019 increased as compared to the year endedDecember 31, 2018 primarily due to the reversal of$2.6 million of incentive fees recorded in prior periods in the year endedDecember 31, 2018 . Our largest investment, Avanti, has generated significant non-cash income in the form of PIK interest. As a result of the debt-for-equity conversion, we have determined that the accrued incentive fees payable associated with the portion of such PIK interest generated by the third lien notes should not at this time be recognized as a liability and as such we have reversed for prior periods. Notwithstanding this reversal, such incentive fees remain payable under the Investment Management Agreement (subject to achievement of return hurdles) and will be recognized as an expense to the extent that an exit or recovery results in gross proceeds to us in excess of our initial cost basis in the third lien notes. 58
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The decrease in administration fees for the year ended
Interest expense increased for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 primarily due to the issuance of$45.0 million in aggregate principal amount of 6.50% notes due 2024 (the "GECCN Notes") in June andJuly 2019 , which resulted in a weighted average outstanding debt balance of$103.2 million for the year endedDecember 31, 2019 as compared to$77.6 million for the year endedDecember 31, 2018 . Professional services include fees associated with legal, audit and tax services and third-party valuation specialists. The decrease in professional services for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 was due to certain one-time costs incurred during the year endedDecember 31, 2018 including legal fees associated with the sale of investments and professional fees associated with the acquisition of investments, a portion of which was subsequently reversed and capitalized in the current year. Other expenses include various administrative expenses such as shareholder services, filing, transfer agency, printing and insurance costs.
Realized Gain (Loss) on Investments
The following table summarizes our realized gains (losses) resulting from investment activity and purchase accounting.
For the Year Ended December 31,
2019 2018
In Thousands Per Share(1) In Thousands Per Share(1)
Net Realized Gain (Loss) $ 1,300 $ 0.13 $ 2,419 $ 0.23
Gross realized gain 2,130 0.21 2,685 0.25
Gross realized loss (830 ) (0.08 ) (266 ) (0.02 )
(1) The per share amounts are based on a weighted average of 10,249,578 shares
for the year ended
shares for the year ended
During the year endedDecember 31, 2019 , we recognized gross realized gains on the sale of our investments inInternational Wire Group, Inc. ("International Wire") andMichael Baker International, LLC secured bonds of$1.1 million and$0.4 million , respectively. In addition, we recognized approximately$0.4 million in realized gain due to the acceleration of discount in connection with paydowns. During the year endedDecember 31, 2019 , gross realized losses were primarily related to the realized loss of$0.8 million on the sale of our investment inSungard Availability Services Capital, Inc. secured loan. During the year endedDecember 31, 2018 , we recorded net realized gains of$2.4 million which includes realized gain of approximately$0.7 million on the sale of our first lien senior secured loan toPR Wireless, Inc. , net realized gain of approximately$0.6 million on the restructuring and subsequent sale of our investment inSpeedwell Holdings and net realized gain of approximately$0.2 million on the exercise ofRiceBran Technologies Corporation warrants and the subsequent sale of the common equity received in such exercise. 59 --------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) on Investments
The following table summarizes the significant unrealized appreciation (depreciation) of our investment portfolio.
For the Year Ended December 31,
2019 2018
In Thousands Per Share(1) In Thousands Per Share(1)
Net unrealized appreciation/
(depreciation) $ (19,784 ) $ (1.93 ) $ (26,758 ) $ (2.51 )
Unrealized appreciation 6,333 0.62 3,560 0.33
Unrealized depreciation (26,117 ) (2.55 ) (30,318 ) (2.85 )
(1) The per share amounts are based on a weighted average of 10,249,578 shares
for the year ended
shares for the year ended
For the year endedDecember 31, 2019 , net unrealized depreciation was primarily driven by our investments in Avanti, Commercial Barge,Tru Taj and PFS, for which we recognized unrealized depreciation of$7.9 million ,$4.7 million ,$4.2 million and$2.1 million , respectively. The net unrealized depreciation for Avanti andTru Taj are primarily driven by decreases in the fair value of the investment while net unrealized depreciation for Commercial Barge reflects both a decrease in the fair value of the investment and increase in the cost basis of the investment as a result of the accretion of discount. The fair value of PFS increased as ofDecember 31, 2019 as compared toDecember 31, 2018 , however, the increase in fair value was offset by the increase in cost basis as a result of the accretion of discount. Accretion of discount is reported in interest income. During the year endedDecember 31, 2019 , we recognized unrealized appreciation of$1.0 million and$0.4 million as result of the sale of our investments inInternational Wire Group andSESAC Holdco II LLC , respectively. In addition, we recognized unrealized appreciation of$0.7 million ,$0.6 million and$0.5 million as a result of increased fair value of our investments inFinastra Holdings Group, Ltd. ("Finastra"),Subcom, LLC , andMitchel International, Inc. , respectively. For the year endedDecember 31, 2018 , the net unrealized depreciation was primarily the result of a net decrease of$16.8 million related to our investment in Avanti as a result of Avanti's restructuring, which impacted our costs basis and caused further decreases in fair value through the end of the year. In addition, we had net unrealized depreciation of$5.8 million on our investment inTRU Taj and$1.7 million on our investment inOPS Acquisitions Limited andOcean Protection Services Limited primarily resulting from decreases in fair value. Further, approximately$0.9 million of the decreases in unrealized depreciation was related to securities which were realized during the year and thus are no longer held in the portfolio. Please see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2018 for a discussion of fiscal year 2017.
Significant Subsidiaries
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X ("S-X"), the Company
must determine which of its unconsolidated controlled portfolio companies, if
any, are considered to be "significant subsidiaries" under the conditions
specified in S-X Rule 1-02(w). The Company determined that PE Facility
Solutions, LLC ("PEFS") and Prestige Capital Finance, LLC ("Prestige") were
significant subsidiaries under at least one of the conditions for the year ended
December 31, 2019 .
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-------------------------------------------------------------------------------- OnJuly 31, 2019 , we completed the sale of PEFS toKellermeyer Bergensons Services for$23,750 . Unaudited financial information of PEFS as of and for the years endedDecember 31, 2019 and 2018 and for the period fromFebruary 3, 2017 (inception) throughDecember 31, 2017 has been included below (in thousands): As of December 31, Balance Sheet 2019 2018 2017 Current assets$ 1,701 $ 8,519 $ 9,986 Noncurrent assets - 10,938 12,209 Total Assets 1,701 19,457 22,195 Current liabilities 1,171 7,925 8,048 Noncurrent liabilities - 18,932 19,839 Total Liabilities 1,171 26,857 27,887 Net Equity$ 530 $ (7,400 ) $ (5,692 ) For the period February 3, 2017 For the year ended December 31, (inception) through Statement of Operations 2019 2018 December 31, 2017 Gross Revenues $ 34,951 $ 60,804 $ 49,888 Cost of Sales (28,306 ) (49,173 ) (41,512 ) Other income (expense) (9,418 ) (13,338 ) (14,068 ) Gain on sale of assets 10,704 - - Net Gain from Continuing $ 7,931 $ (1,707 ) $ (5,692 ) Operations
Audited financial statements for Prestige have been included as an exhibit to this Form 10-K.
Liquidity and Capital Resources
At
AtDecember 31, 2019 , we had investments in debt securities of 24 companies, totaling approximately$174.1 million at fair value and equity investments in six companies, totaling approximately$23.5 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 ofDecember 31, 2019 , we had approximately$29.8 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 ourDecember 31, 2019 balance sheet to satisfy the unfunded commitments.
From time to time, the Company may seek to repurchase its securities in the open market at prices it deems attractive.
For the year ended
For the year endedDecember 31, 2018 , cash used in operating activities was$30.5 million and consisted primarily of investment purchases of$146.7 million , partially offset by proceeds from sales and principal payments of$123.9 million . Other non-cash activity includes$26.8 million of net unrealized depreciation on investments, which was partially offset by an increase in short term investments of$12.2 million . 61 -------------------------------------------------------------------------------- For the year endedDecember 31, 2019 , cash provided by financing activities was$24.9 million , consisting of$42.7 million in proceeds from the issuance of the GECCN Notes offering (discussed under "-Notes Payable" below), partially offset by$12.8 million in distributions to investors and$5.0 million in repurchases of the Company's common stock through our stock buyback program. For the year endedDecember 31, 2018 , cash provided by financing activities was$31.7 million , consisting of$44.4 million in proceeds from the issuance of the GECCM Notes offering (discussed under "-Notes Payable" below), partially offset by$12.7 million in distributions to investors.
Contractual Obligations
Less than More than
(in thousands) Total 1 year 1-3 years 3-5 years 5 years
Contractual Obligations
GECCL Notes $ 32,631 $ - $ 32,631 $ - $ -
GECCM Notes 46,398 - - - 46,398
GECCN Notes 45,000 - - 45,000 -
Total $ 124,029 $ - $ 32,631 $ 45,000 $ 46,398 Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.
Notes Payable
OnSeptember 18, 2017 , we sold$28.4 million in aggregate principal amount of 6.50% notes due 2022 (the "GECCL Notes"). OnSeptember 29, 2017 , we sold an additional$4.3 million of the GECCL Notes upon full exercise of the underwriters' over-allotment option. As a result of the issuance of the GECCL Notes, the aggregate principal balance of the GECCL Notes outstanding is$32.6 million . The GECCL Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The GECCL Notes are effectively subordinated, or junior in right of payment, to any 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 GECCL Notes onJanuary 31 ,April 30 ,July 31 andOctober 31 of each year. The GECCL Notes will mature onSeptember 18, 2022 and can be called on, or after,September 18, 2019 . Holders of the GECCL Notes do not have the option to have the GECCL Notes repaid prior to the stated maturity date. The GECCL Notes were issued in minimum denominations of$25 and integral multiples of$25 in excess thereof. OnJanuary 11, 2018 , we sold$43.0 million in aggregate principal amount of 6.75% notes due 2025 (the "GECCM Notes"). OnJanuary 19, 2018 andFebruary 9, 2018 , we sold an additional$1.9 million and$1.5 million , respectively, of the GECCM Notes upon partial exercise of the underwriters' over-allotment option. As a result of the issuance of these additional GECCM Notes, the aggregate principal balance of the GECCM Notes outstanding is$46.4 million . The GECCM Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The GECCM Notes are effectively subordinated, or junior in right of payment, to any 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 GECCM Notes onMarch 31 ,June 30 ,September 30 andDecember 31 of each year. The GECCM Notes will mature onJanuary 31, 2025 and can be called on, or after,January 31, 2021 . Holders of the GECCM Notes do not have the option to have the GECCM Notes repaid prior to the stated maturity date. The GECCM Notes were issued in minimum denominations of$25 and integral multiples of$25 in excess thereof. 62
-------------------------------------------------------------------------------- OnJune 18, 2019 , we sold$42.5 million in aggregate principal amount of the GECCN Notes, which included$2.5 million of GECCN Notes sold in connection with the partial exercise of the underwriters' over-allotment option. OnJuly 5, 2019 , we sold an additional$2.5 million of the GECCN Notes upon another partial exercise of the underwriters' over-allotment option. As a result of the issuance of these additional GECCN Notes, the aggregate principal balance of the GECCN Notes outstanding is$45.0 million . The GECCN Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The GECCN Notes are effectively subordinated, or junior in right of payment, to any 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 GECCN Notes onMarch 31 ,June 30 ,September 30 andDecember 31 of each year beginningSeptember 30, 2019 . The GECCN Notes will mature onJune 30, 2024 and can be called on, or after,June 30, 2021 . Holders of the GECCN Notes do not have the option to have the GECCN Notes repaid prior to the stated maturity date. The GECCN Notes were issued in minimum denominations of$25 and integral multiples of$25 in excess thereof.
Recent Developments
In
• we bought
at approximately 95% of par value.
• we bought
approximately 97% of par value.
• we sold
lien notes at approximately 102% of par value.
• we bought
par value.
• we sold
loan at approximately 100% of par value.
• we bought
revolving loan at approximately 92% of par value.
• we bought
revolving loan at 90% of par value.
In
• we sold
loan at approximately 34% of par value.
• we bought
revolving loan at 98% of par value.
• we bought
approximately 99% of par value.
In
• we sold
lien secured loan at 91% of par value.
• we sold
91% of par value.
• we sold
first lien secured loan at 92% of par value.
The recent global outbreak of COVID-19 has disrupted economic markets and the
economic impact, duration and spread of the COVID-19 virus is uncertain at this
time. The operational and financial performance of the portfolio companies in
which we make investments may be significantly impacted by COVID-19, which may
in turn impact the valuation of our investments.
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