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Dynamic quotes 
OFFON

GREAT ELM CAPITAL CORPORATION

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

08/03/2021 | 07:02am EDT

Overview


We are a BDC that seeks to generate both current income and capital appreciation
through debt and income generating equity investments. We invest in the debt of
middle-market companies in the form of senior secured and unsecured notes as
well as senior secured loans, junior loans and mezzanine debt. We also make
investments in preferred equity, investments in debt and equity securities of
specialty finance businesses and other equity investments.

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

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

Investments


Our level of investment activity can and does vary substantially from period to
period depending on many factors, including, among others, the amount of debt
and equity capital available from other sources to middle-market companies, the
level of merger and acquisition activity, pricing in the high yield and
leveraged loan credit markets, opportunities in the specialty finance sector,
our expectations of future investment opportunities, the general economic
environment as well as the competitive environment for the types of investments
we make.

As a BDC, our investments and the composition of our portfolio are required to comply with regulatory requirements.

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.

                                       2

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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.

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.

                                       3
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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.

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.

                                       4

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Portfolio and Investment Activity

The following is a summary of our investment activity for the year ended December 31, 2020 and the six months ended June 30, 2021:


                                                                                      Weighted Average Yield
(in thousands)                            Acquisitions(1)       Dispositions(2)          End of Period(3)
Quarter ended March 31, 2020             $          31,882     $         (29,420 )                      10.00 %
Quarter ended June 30, 2020                         15,913               (37,497 )                      10.18 %
Quarter ended September 30, 2020                    34,495               (18,037 )                      10.07 %
Quarter ended December 31, 2020                     19,070               (27,039 )                      11.72 %
For the year ended December 31, 2020               101,360              

(111,993 )


Quarter ended March 31, 2021                        58,429               (28,268 )                      10.91 %
Quarter ended June 30, 2021                         49,904               (35,583 )                      11.10 %

For the six months ended June 30, 2021 $ 108,333 $ (63,851 )

(1) Includes new investments, additional fundings (inclusive of those on

revolving credit facilities), refinancings and capitalized PIK

income. Investments in short-term securities, including U.S. Treasury Bills

and money market mutual funds, were excluded.

(2) Includes scheduled principal payments, prepayments, sales, and repayments

(inclusive of those on revolving credit facilities). Investments in

short-term securities, including U.S. Treasury Bills and money market mutual

funds, were excluded.

(3) Weighted average yield is based upon the stated coupon rate and fair value of

outstanding debt securities at the measurement date. Debt securities on

non-accrual status are included in the calculation and are treated as having

0% as their applicable interest rate for purposes of this calculation, unless

such debt securities are valued at zero.

Portfolio Reconciliation


The following is a reconciliation of the investment portfolio for the six months
ended June 30, 2021 and the year ended December 31, 2020. Investments in
short-term securities, including U.S. Treasury Bills and money market mutual
funds, are excluded from the table below.

                                                 For the Six Months       For the Year
                                                   Ended June 30,             Ended
(in thousands)                                          2021            December 31, 2020
Beginning Investment Portfolio, at fair value    $          151,648     $   

197,615

Portfolio Investments acquired(1)                           108,333         

101,360

Amortization of premium and accretion of
discount, net                                                 1,869         

4,999

Portfolio Investments repaid or sold(2)                     (63,851 )            (111,993 )
Net change in unrealized appreciation
(depreciation) on investments                                17,075               (29,356 )
Net realized gain (loss) on investments                      (5,641 )             (10,977 )
Ending Investment Portfolio, at fair value       $          209,433     $   

151,648

(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).


                                       5
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Portfolio Classification

The following table shows the fair value of our portfolio of investments by industry as of June 30, 2021 and December 31, 2020 (in thousands):


                                           June 30, 2021                    

December 31, 2020

                                 Investments at       Percentage of        Investments at       Percentage of
Industry                           Fair Value          Fair Value            Fair Value          Fair Value
Wireless Telecommunications                                    16.69 %                                   19.30 %
Services                        $         34,941                          $         29,270
Oil & Gas                                 26,931               12.86 %              20,290               13.38 %
Specialty Finance                         22,670               10.82 %              15,760               10.39 %
Restaurants                               19,842                9.48 %              10,470                6.91 %
Internet Media                            11,943                5.70 %              18,736               12.35 %
Construction Materials                                          4.70 %                                    6.38 %
Manufacturing                              9,848                                     9,676
Special Purpose Acquisition                                     4.62 %                                       - %
Company                                    9,677                                         -
Media & Entertainment                      8,425                4.02 %                   -                   - %
Retail                                     7,549                3.60 %               6,145                4.05 %
Metals & Mining                            7,313                3.49 %               3,996                2.65 %
Transportation Equipment                                        2.88 %                                    1.95 %
Manufacturing                              6,032                                     2,948
Software Services                          5,013                2.40 %               4,896                3.23 %
Casinos & Gaming                           4,999                2.39 %               2,820                1.86 %
Food & Staples                             4,881                2.33 %               8,694                5.73 %
Apparel                                    4,875                2.33 %                   -                   - %
Industrial                                 4,817                2.30 %               4,642                3.06 %
Chemicals                                  4,063                1.94 %                   -                   - %
Hospitality                                4,059                1.94 %                   -                   - %
Radio Broadcasting                         3,335                1.59 %               3,763                2.48 %
Home Security                              2,900                1.38 %                   -                   - %
Wholesale-Apparel, Piece                                        1.36 %                                    1.82 %
Goods & Notions                            2,849                                     2,762
Consumer Services                          2,685                1.28 %                   -                   - %
Hotel Operator                               165                0.08 %               1,203                0.79 %
Maritime Security Services                    11                0.01 %                  19                0.01 %
Technology                                  (390 )             (0.19 )%                202                0.13 %
Apparel & Textile Products                     -                   - %               5,154                3.40 %
Real Estate Services                           -                   - %                 200                0.13 %
Building Cleaning and                                              - %                                    0.11 %
Maintenance Services                           -                                       162
Telecommunications Services                    -                   - %                (160 )             (0.11 )%
Total                           $        209,433              100.00 %    $        151,648              100.00 %


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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 June 30,                                            For the Six Months Ended June 30,
                                                  2021                                   2020                                  2021                                   2020
                                   In Thousands         Per Share(1)      

In Thousands Per Share(2) In Thousands Per Share(1)

   In Thousands       Per Share(2)
Total Investment Income           $        6,233       $          0.27     $       4,768     $         0.47     $        11,528      $         0.49     $       11,197     $         1.10
Interest income                            5,092                  0.22             4,184               0.41               9,271                0.39             10,171               1.00
Dividend income                            1,093                  0.05               480               0.05               1,894                0.08                883               0.09
Other income                                  48                     -               104               0.01                 363                0.02                143               0.01

(1) The per share amounts are based on a weighted average of 23,508,232 and

23,455,328 outstanding common shares for the three and six months ended

June 30, 2021.

(2) The per share amounts are based on a weighted average of 10,195,857 and

10,129,269 outstanding common shares for the three and six months ended

June 30, 2020.



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 and six months ended June 30, 2021,
interest income includes non-cash PIK income of $1.6 million and $3.1 million,
respectively. For the three and six months ended June 30, 2020, interest income
includes non-cash PIK income of $1.3 million and $2.5 million, respectively.

Interest income increased for the three months ended June 30, 2021 as compared
to the corresponding period in the prior year due to increases in the
interest-earning assets of the portfolio over the past year. Interest income
decreased for the six months ended June 30, 2021 as compared to the
corresponding period in the prior year due to exits from certain high yielding
positions, including Commercial Barge Line Company ("Commercial Barge") 1st lien
secured loan and the restructuring of our investment in PFS Holdings Corp.
("PFS") 1st lien secured loan due 2021, for which we recognized $0.4 million and
$0.6 million, respectively, in accretion income during the first half of fiscal
year 2020. In addition, interest rates on our floating rate investments
decreased sharply beginning at the end of the first fiscal quarter of 2020 as
the London Interbank Offered Rate ("LIBOR") base rates experienced declines
during the COVID-19 pandemic.

Dividend income for the three and six months ended June 30, 2021 increased as
compared to the corresponding period in the prior year due to investments made
in dividend-yielding preferred equities during the 2020 fiscal year and
increases in distributions from our investment in Prestige Capital Finance, LLC.

The decrease in other income for the three months ended June 30, 2021 as
compared to the corresponding period in the prior year is due to certain
one-time commitment fees earned in the three months ended June 30, 2020 which
did not recur in the current year period. The increase in other income for the
six months ended June 30, 2021 as compared to the corresponding period in the
prior year is primarily attributable to PIK commitment and funding fees earned
on our February 2021 investment in Avanti Communications Group, plc ("Avanti")
1.125 lien senior secured notes.

As discussed under "-Recent Developments", the full impact of COVID-19 on each
of our portfolio companies is not known at this time. 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
may be unable to make future interest payments or dividend distributions
resulting in decreased income to the Company. If interest rates stay depressed
or continue to decrease further and we are otherwise unable to offset these
reductions by investing in other debt instruments with higher interest rates, we
will see further decrease in our investment income.

                                       7

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Expenses

                                                        For the Three Months Ended June 30,                                            For the Six Months Ended June 30,
                                                     2021                                   2020                                   2021                                   2020
                                      In Thousands         Per Share(1)       In Thousands       Per Share(2)       In Thousands         Per Share(1)       In Thousands       Per Share(2)
Total Expenses                       $        4,130       $          0.18     $       3,852     $         0.37     $        7,921       $          0.34     $       7,629     $         0.75
Management fees                                 765                  0.03               591               0.06              1,425                  0.06             1,289               0.13
Incentive fees                                  398                  0.02               228               0.02                506                  0.02               328               0.03

Total advisory and management fees $ 1,163 $ 0.05

  $         819     $         0.08     $        1,931       $          0.08     $       1,617     $         0.16
Administration fees                             180                  0.01               191               0.02                336                  0.01               395               0.04
Directors' fees                                  56                     -                51               0.01                111                  0.01               102               0.01
Interest expense                              2,291                  0.10             2,390               0.23              4,489                  0.19             4,695               0.46
Professional services                           251                  0.01               250               0.02                676                  0.03               507               0.05
Custody fees                                     13                     -                19                  -                 26                     -                39                  -
Other                                           176                  0.01               132               0.01                352                  0.02               274               0.03

(1) The per share amounts are based on a weighted average of 23,508,232 and

23,455,328 outstanding common shares for the three and six months ended

June 30, 2021.

(2) The per share amounts are based on a weighted average of 10,195,857 and

10,129,269 outstanding common shares for the three and six months ended

June 30, 2020.



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.

Total expenses for the three and six months ended June 30, 2021 increased as
compared to total expenses for the three and six months ended June 30, 2020
primarily due to increases in management and incentive fees. The increases in
management fees is primarily driven by increases in the fair value of the
portfolio during the first half of 2021 as compared to the first half of 2020
when fair values were negatively impacted by the effects of COVID-19. The
increase in incentive fees for the three months ended June 30, 2021 is
consistent with the increased pre-incentive net investment income for the three
months ended June 30, 2021 as compared to net investment income for the three
months ended June 30, 2020. Incentive fees recognized for the six months ended
June 30, 2021 were higher than the incentive fees recognized for the six months
ended June 30, 2020 as a result of the aforementioned increases in pre-incentive
net investment income during the most recent quarter and lower reversals of
incentive fees recognized in the current period than in prior periods. Such
reversals are the result of investment disposals where proceeds are not
sufficient to cover the accreted cost basis relieved and were approximately $0.2
million for the six months ended June 30, 2021 as compared to $0.4 million for
the six months ended June 30, 2020.

Administration fees decreased in the current period as compared to the
corresponding period in the prior year as a result of changes in certain service
providers and ongoing efficiency efforts at the management company. Fees for
professional services increased in for the six months ended June 30, 2021 as
compared to the corresponding period in the prior year due to certain one-time
costs, including approximately $0.2 million in legal fees for compliance matters
and claims related to certain investments, that are not expected to recur in
future periods.

For the three months ended June 30, 2021, interest expense decreased as compared
to the corresponding period in the prior year as a result of the bond
repurchases in fiscal year 2020 and the issuance of $50.0 million in aggregate
principal amount of the 5.875% notes due 2026 (the "GECCO Notes") on June 23,
2021. The weighted average outstanding debt balance for the three months ended
June 30, 2021 was $123.1 million as compared to $122.2 million for the three
months ended June 30, 2020. However, excluding the impact of the GECCO Notes
which were issued on June 23, 2021, the weighted average outstanding debt
balance for the three months ended June 30, 2021 was $118.7 million. The
decrease in interest expense for the six months ended June 30, 2021 as compared
to the six months ended June 30, 2020 is due to the bond repurchases during the
2020 fiscal year, which resulted in a weighted average outstanding debt balance
of $120.9 million for the six months ended June 30, 2021, as compared to $123.1
million for the six months ended June 30, 2020.

                                       8

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Realized Gains (Losses)

                                                  For the Three Months Ended June 30,                                         For the Six Months Ended June 30,
                                               2021                                  2020                                 2021                                 2020
                                 In Thousands         Per Share(1)      In

Thousands Per Share(2) In Thousands Per Share(1) In Thousands Per Share(2) Net Realized Gain (Loss) $ (2,369 ) $ (0.10 ) $

932 $ 0.10 $ (5,644 ) $ (0.24 ) $ (10,381 ) $ (1.02 ) Gross realized gain

                       3,708                0.16             1,485              0.15              4,579              0.20              1,887              0.19
Gross realized loss                      (6,077 )             (0.26 )            (553 )           (0.05 )          (10,223 )           (0.44 )          (12,268 )           (1.21 )


(1) The per share amounts are based on a weighted average of 23,508,232 and

23,455,328 outstanding common shares for the three and six months ended

June 30, 2021.

(2) The per share amounts are based on a weighted average of 10,195,857 and

10,129,269 outstanding common shares for the three and six months ended

June 30, 2020.



During the three months ended June 30, 2021, net realized losses were primarily
driven by the paydown of our investment in OPS Acquisitions Limited and Ocean
Protection Services Limited ("OPS") 1st lien secured loan for which we
recognized a realized loss of $4.1 million as a result of receiving a portion of
the final expected payout at a rate significantly below par. In addition, we
recognized realized losses of $1.6 million and $0.4 million on sales of our
investments in California Pizza Kitchen, Inc. ("CPK") common stock and Tru (UK)
Asia Limited ("Tru Taj") common stock, respectively. These realized losses were
partially offset by realized gains of $2.3 million on our sale of Crestwood
Equity Partners, LP preferred stock and $1.2 million on the termination of our
investment in the Subcom, LLC ("Subcom") 1st lien secured revolver.

In addition to the above items, during the six months ended June 30, 2021, net
realized losses were primarily driven by the sale of our investment in
Boardriders, Inc. ("Boardriders") 1st lien secured loan for which we recognized
a realized loss of $3.0 million. This realized loss was partially offset by
realized gains of $0.3 million on proceeds received from our former investment
in PR Wireless, Inc., $0.2 million on the early paydown of our investments in
First Brands, Inc. 1st lien secured loan, $0.1 million in proceeds received from
our investment in PE Facility Solutions, LLC common equity.

During the three months ended June 30, 2020, net realized gains were primarily
driven by the realized gains of approximately $0.4 million on the maturity of
our investment in Duff & Phelps 1st lien revolver during the quarter. Realized
gains for the three months ended June 30, 2020 includes approximately $1.0
million in realized gain on repurchases of debt below par. During the six months
ended June 30, 2020, net realized losses on investments were primarily driven by
the sales of our investments in Commercial Barge and Full House Resorts, Inc.
("Full House") during the period, for which we recognized realized losses of
$9.8 million and $1.3 million, respectively. Realized gains for the six months
ended June 30, 2020 includes approximately $1.1 million in realized gain on
repurchases of debt below par.

Change in Unrealized Appreciation (Depreciation) on Investments

                                                   For the Three Months Ended June 30,                                         For the Six Months Ended June 30,
                                                2021                                  2020                                 2021                                 2020
                                   In Thousands       Per Share(1)       In Thousands      Per Share(2)       In Thousands      Per Share(1)       In Thousands      Per Share(2)
Net change in unrealized
appreciation/ (depreciation)      $         2,753     $        0.12     $        1,663     $        0.17     $       17,070     $        0.73     $      (23,214 )   $       (2.29 )
Unrealized appreciation                    13,851              0.59              9,409              0.92             25,901              1.11              7,916              0.78
Unrealized depreciation                   (11,098 )           (0.47 )           (7,746 )           (0.75 )           (8,831 )           (0.38 )          (31,130 )           (3.07 )



(1) The per share amounts are based on a weighted average of 23,508,232 and

23,455,328 outstanding common shares for the three and six months ended

June 30, 2021.

(2) The per share amounts are based on a weighted average of 10,195,857 and

    10,129,269 outstanding common shares for the three and six months ended
    June 30, 2020.


                                       9
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During the three months ended June 30, 2021, unrealized appreciation was largely
driven by the paydown of our investment in OPS and sale of our investment in CPK
common stock, discussed under realized losses above, for which we relieved $4.1
million and $2.3 million of previously recognized unrealized losses,
respectively. In addition, we recognized $2.8 million in unrealized gain on the
remaining shares of CPK common stock still held and $0.8 million in unrealized
gain on our investment in Prestige Capital Finance, LLC common stock as a result
of increases in fair value as of June 30, 2021 as compared to March 31,
2021. During the three months ended June 30, 2021, net unrealized appreciation
included $6.1 million loss on our investment in Avanti 2nd lien secured bond and
$1.6 million loss on our investment in PFS Holding Corporation ("PFS") common
stock, both as a result of decreases in fair value.

In addition to the items noted for the quarter ended June 30, 2021, unrealized
appreciation for the six months ended June 30, 2021 includes $3.5 million and
$1.5 million, respectively, in increase in the fair value of our investments in
Tru Taj common stock and Crestwood preferred equity. Unrealized depreciation for
the six months ended June 30, 2021, includes decreases in fair value of $3.8
million and $1.8 million on our investments in PFS common stock and Avanti 2nd
lien secured bonds, respectively. In addition, we recognized unrealized loss of
$1.2 million on our investment in Subcom 1st lien secured revolver due to the
termination of the revolver and reversal of previously recognized unrealized
gains, as noted under the discussion of realized gains above.

During the three months ended June 30, 2020, we recognized unrealized
appreciation of approximately $2.0 million on our investment in ASP Chromaflo
Technologies Corp. 2nd lien secured loan, approximately $1.3 million on our
investment in Finastra Group Holdings, Ltd. 2nd lien secured loan and
approximately $1.0 million on our investment in Greenway Health, LLC 1st lien
revolver, respectively. We recognized unrealized depreciation of approximately
$3.0 million and $1.6 million on our positions in CPK and Boardriders, Inc.,
respectively.

During the six months ended June 30, 2020, net unrealized depreciation was
largely driven by decreases in portfolio company valuations as compared to the
prior year end. Most notably, we recognized unrealized depreciation of
approximately $5.0 million on our investment in Avanti 2nd lien secured bond,
approximately $3.3 million on our investment in Tru Taj common equity and
approximately $5.7 million and $3.3 million on our investment in CPK 1st lien
loan and 2nd lien loan, respectively.

In the table above, the presentation of gross unrealized appreciation and
depreciation amounts for the three and six months ended June 30, 2020 has been
updated consistent with the current year presentation which groups the funded
and unfunded portion of revolvers together.

As discussed under "-Recent Developments", we cannot predict the duration of the
COVID-19 pandemic and the resulting impact to our individual portfolio companies
or the broader market. It is likely that any recovery may be slow and/or
volatile. The current unrealized depreciation on our portfolio may not be
reversed in the short-term or at all and we may see further declines in fair
value before the pandemic is over.

Liquidity and Capital Resources

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


At June 30, 2021, we had approximately $59.8 million of cash and cash
equivalents. At June 30, 2021, we had investments in 42 debt instruments across
36 companies, totaling approximately $155.7 million at fair value and 171 equity
investments in 118 companies, totaling approximately $53.7 million at fair
value.

In the normal course of business, we may enter into investment agreements under
which we commit to make an investment in a portfolio company at some future date
or over a specified period of time. As of June 30, 2021, we had approximately
$24.6 million in unfunded loan commitments, subject to our approval in certain
instances, to provide debt financing to certain of our portfolio companies. We
had sufficient cash and other liquid assets on our June 30, 2021 balance sheet
to satisfy the unfunded commitments.

                                       10

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For the six months ended June 30, 2021, net cash used for operating activities
was approximately $36.5 million, reflecting the purchases and repayments of
investments offset by net investment income, including non-cash income related
to accretion of discount and PIK income and proceeds from sales of investments
and principal payments received. Net cash used by purchases and proceeds from
sales of investments was approximately $9.7 million, reflecting payments for
additional investments of $50.2 million, offset by proceeds from principal
repayments and sales of $59.9 million. Such amounts include draws and repayments
on revolving credit facilities.

For the six months ended June 30, 2021, net cash provided by financing
activities was $43.1 million consisting of $48.3 million in proceeds from the
issuance of the GECCO Notes on June 23, 2021, net of offering costs paid, offset
by $4.9 million in distributions to stockholders and $0.3 million in deferred
financing costs related to the revolving line of credit.

Contractual Obligations


A summary of our significant contractual payment obligations as of June 30, 2021
is as follows:

                                           Less than                                            More than
(in thousands)               Total           1 year         1-3 years        3-5 years           5 years
Contractual Obligations
GECCL Notes               $    30,293     $     30,293     $          -     $          -     $             -
GECCM Notes                    45,610                -                -           45,610                   -
GECCN Notes                    42,823                -           42,823                -                   -
GECCO Notes                    50,000                -                -           50,000                   -
Total                     $   168,726     $     30,293     $     42,823     $     95,610     $             -


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.

Off-Balance Sheet Arrangements


There were no off-balance sheet arrangements, including any risk management of
commodity pricing or other hedging practices, as of and for the three months
ended June 30, 2021.

                                       11
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Revolver


On May 5, 2021, we entered into a Loan, Guarantee and Security Agreement (the
"Loan Agreement") with City National Bank ("CNB"). The Loan Agreement provides
for a senior secured revolving line of credit of up to $25 million (subject to a
borrowing base as defined in the Loan Agreement). We may request to increase the
revolving line in an aggregate amount not to exceed $25 million, which increase
is subject to the sole discretion of CNB. The maturity date of the revolving
line is the earlier of (i) May 5, 2024 and (ii) May 15, 2022 if the Company's
6.50% notes due 2022 are not refinanced on or prior to such date. Borrowings
under the revolving line bear interest at a rate equal to (i) the LIBOR plus
3.50%, (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined
by us. As of June 30, 2021, 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 160% 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 of 1940, as amended (the "Investment Company Act").

Notes Payable

On September 13, 2017, we sold $28.4 million in aggregate principal amount of 6.50% notes due 2022 (the "GECCL Notes"). On September 29, 2017, we sold an additional $4.3 million of the GECCL Notes upon full exercise of the underwriters' over-allotment option. The aggregate principal balance of the GECCL Notes outstanding as of June 30, 2021 was $30.3 million.


On June 23, 2021, we caused redemption notices to be issued to the holders of
the GECCL Notes regarding the Company's exercise of its option to redeem, in
whole, the issued and outstanding GECCL Notes. We redeemed all of the issued and
outstanding GECCL Notes on July 23, 2021 at 100% of the principal amount plus
accrued and unpaid interest thereon from April 30, 2021 through, but excluding,
the redemption date, July 23, 2021.

On January 11, 2018, we sold $43.0 million in aggregate principal amount of
6.75% notes due 2025 (the "GECCM Notes"). On January 19, 2018 and February 9,
2018, we sold an additional $1.9 million and $1.5 million, respectively, of the
GECCM Notes upon partial exercise of the underwriters' over-allotment
option. The aggregate principal balance of the GECCM Notes outstanding as of
June 30, 2021 is $45.6 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 on March 31, June 30, September 30 and December 31 of each
year. The GECCM Notes will mature on January 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.

On June 18, 2019, we sold $42.5 million in aggregate principal amount of 6.50%
Notes due 2024 (the "GECCN Notes"), which included $2.5 million of GECCN Notes
sold in connection with the partial exercise of the underwriters' over-allotment
option. On July 5, 2019, we sold an additional $2.5 million of the GECCN Notes
upon another partial exercise of the underwriters' over-allotment option. The
aggregate principal balance of the GECCN Notes outstanding as of June 30, 2021
is $42.8 million.

                                       12
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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 on March 31, June 30, September 30 and December 31 of each
year beginning September 30, 2019. The GECCN Notes will mature on June 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.

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

The GECCO Notes are our unsecured obligations and rank equal with all of our
outstanding and future unsecured unsubordinated indebtedness. The GECCO 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 GECCO Notes on March 31, June 30, September 30 and December 31 of each
year beginning September 30, 2021. The GECCO Notes will mature on June 30, 2026
and can be called on, or after, June 30, 2023. Holders of the GECCO Notes do not
have the option to have the GECCO Notes repaid prior to the stated maturity
date. The GECCO Notes were issued in minimum denominations of $25 and integral
multiples of $25 in excess thereof.

We may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder.


As of June 30, 2021, our asset coverage ratio was approximately 166.2%. Under
the Investment Company Act, we are subject to a minimum asset coverage ratio of
150%.

Recent Developments

Our Board authorized the distribution for the quarter ending December 31, 2021
at $0.10 per share, with the record and payment dates to be set by the officers
of GECC pursuant to authority granted by our Board.

On July 9, we sold an additional $7.5 million of the GECCO Notes upon full exercise of the underwriters' over-allotment option.


On July 23, we redeemed all of the issued and outstanding GECCL Notes at 100% of
the principal amount plus accrued and unpaid interest thereon from April 30,
2021 through, but excluding, the redemption date.

In July 2021:

• we purchased 250,000 shares of Equitrans Midstream Corp. preferred stock for

approximately $5.3 million.

• we purchased $3.0 million in par value of Michael Baker International, LLC

second lien notes at approximately 101% of par value.

• we purchased $4.0 million in par value of CURO Group Holdings Corp. first

lien notes at approximately 100% of par value.

• we sold $1.0 million in par value of CURO Group Holdings Corp. first lien

notes at approximately 101% of par value.

• we purchased $1.5 million in par value of Viasat, inc. receivable at 82% of

par value.

• we sold approximately $0.2 million of SPAC positions across eight companies.



                                       13

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COVID-19

The global outbreak of the novel coronavirus ("COVID-19") pandemic has disrupted
economic markets and the economic impact, duration and spread of COVID-19 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 the COVID-19 pandemic, which may in turn impact the
valuation of our investments, results of our operations and cash flows.

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

While we have been carefully monitoring the COVID-19 pandemic and its impact on
our business and the business of our portfolio companies, we have continued to
fund our existing debt commitments. In addition, we have continued to make, and
expect to continue to make, new investments.

We cannot predict the full impact of the COVID-19 pandemic, including its
duration in the United States and worldwide and the magnitude of the economic
impact of the outbreak, including with respect to the travel restrictions,
business closures and other quarantine measures imposed on service providers and
other individuals by various local, state, and federal governmental authorities,
as well as non-U.S. governmental authorities. As such, we are unable to predict
the duration of any business and supply-chain disruptions, the extent to which
the COVID-19 pandemic will negatively affect our portfolio companies' operating
results or the impact that such disruptions may have on our results of
operations and financial condition. Our portfolio is diversified across multiple
industries and the direct and indirect impacts of the COVID-19 pandemic will be
dependent on the specific circumstances for each portfolio company. For example,
companies that derive revenues through in-person interactions with customers,
such as restaurants and retail stores, have been and may be subject to reduced
capacity or shutdowns based on local government advisories and regulations.
Other companies may be better able to adapt to the changing environment by
moving their workforce to a remote-working model and leveraging technology
solutions to interact with customers.

Depending on the duration and extent of the disruption to the operations of our
portfolio companies, we expect that certain portfolio companies may experience
financial distress and possibly default on their financial obligations to us and
their other capital providers. Although vaccines are available in various
locations where we and our investments operate, it is possible the COVID-19
pandemic may continue to disrupt operations. We also expect 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.

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 rapidly evolving situation relating to the
COVID-19 pandemic and guidance from U.S. and international authorities,
including federal, state and local public health authorities and may take
additional actions based on their recommendations. In these circumstances, there
may be developments outside our control requiring us to adjust our plan of
operation. As such, given the dynamic nature of this situation, we cannot
reasonably estimate the impacts of COVID-19 on our financial condition, results
of operations or cash flows in the future. To the extent our portfolio companies
are adversely impacted by the effects of the COVID-19 pandemic, it may have a
material adverse impact on our future net investment income, the fair value of
our portfolio investments, their financial condition and the results of
operations and financial condition of our portfolio companies.

                                       14

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We are also subject to financial risks, including changes in market interest
rates. As of June 30, 2021, approximately $100.4 million in principal amount of
our debt investments bore interest at variable rates, which are generally based
on LIBOR, and many of which are subject to certain floors. In connection with
the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have
reduced certain interest rates and LIBOR has decreased. A prolonged reduction in
interest rates will reduce our gross investment income and could result in a
decrease in our net investment income if such decreases in LIBOR are not offset
by a corresponding increase in the spread over LIBOR that we earn on any
portfolio investments or a decrease in our operating expenses. See "Item 3.
Quantitative and Qualitative Disclosures About Market Risk" for an analysis of
the impact of hypothetical base rate changes in interest rates.

© Edgar Online, source Glimpses

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