Great Elm Capital Q3 Income and NAV Fall as Debt Declines

Great Elm Capital Corp. (NASDAQ: GECC) reported lower investment income and a decline in net asset value for the third quarter of 2026 as investment losses, including a reduced valuation for its CLO Formation joint venture, weighed on results. The business development company also continued to reduce debt and declared a $0.25-per-share distribution for the fourth quarter.

Total investment income fell 20% to $8.7 million from $10.9 million in the second quarter. Great Elm attributed most of the decline to a $2.0 million dividend received in the prior quarter from insurance-related preference shares. Third-quarter interest income was $5.5 million, while dividend and other income totaled $3.1 million.

Net investment income decreased to $2.4 million, or $0.17 per share, from $4.5 million, or $0.32 per share, in the preceding quarter. In addition to lower revenue, the result reflected the reinstatement of incentive-fee accruals after a $0.9 million waiver in the second quarter. Net operating expenses rose to $6.5 million from $6.3 million.

Great Elm recorded earnings per share of negative $0.30, compared with positive $0.46 in the second quarter, as net realized and unrealized investment losses amounted to $0.48 per share.

NAV declines on investment losses

Net assets fell to $102.7 million, or $7.40 per share, at September 30 from $110.4 million, or $7.95 per share, at June 30. The decrease primarily reflected realized and unrealized investment losses, including a $3.3 million reduction in the fair value of the CLO Formation JV investment.

The company ended the quarter with a $245.4 million investment portfolio. Excluding non-accrual positions, corporate credit represented 58% of the portfolio, specialty-finance debt accounted for 13%, and CLO and yielding-equity investments made up 18%. Debt investments had a weighted-average current yield of 11.4%, excluding nine non-accrual investments with a combined fair value of $1.4 million.

Great Elm deployed $20.1 million across 10 investments during the quarter, excluding payment-in-kind interest. That included three private transactions totaling approximately $8.9 million. The company said its portfolio strategy has focused on primarily senior secured investments and exiting higher-risk positions to improve credit quality and earnings durability.

Its CLO exposure included $53.2 million invested in the CLO joint venture and $6.2 million invested directly in CLO equity. The joint venture provides majority ownership in three CLOs with exposure to approximately $1.1 billion of first-lien loans. Great Elm had received about $24.8 million in distributions from the venture through the third quarter, although the quarter-end valuation decline contributed materially to the reduction in NAV.

Debt reduction and capital returns

Total debt outstanding declined to $154.9 million from $166.4 million at the end of the second quarter and $194.4 million at year-end 2025. During the third quarter, Great Elm redeemed $6.5 million of its 8.50% senior notes due April 2029, partially retiring what it described as its highest-cost and nearest-term debt. The company said it has no debt maturity before 2029.

The debt-to-equity ratio remained at 1.51 times, while the asset coverage ratio was 166.3%. Great Elm reported $5.6 million of cash and $44 million of revolving-credit availability at September 30, for total liquidity of about $50 million.

From January 1 through October 30, the company repurchased 349,653 common shares for $1.7 million at an average price of $4.96. Of that amount, 241,235 shares were repurchased from July 1 through October 30 for approximately $1.2 million. About $8.3 million remained available under the board-authorized $10 million repurchase program.

The board declared a fourth-quarter cash distribution of $0.25 per share, payable December 31 to shareholders of record on December 15. The declared payout compares with third-quarter net investment income of $0.17 per share. Great Elm said the distribution represents an annualized yield of 13.5% based on quarter-end NAV and 20.2% based on its October 30 closing share price.

Great Elm identified credit quality, interest-rate movements and leverage as key risks. Its debt investments are below investment grade or would be rated as such, exposing the portfolio to potential defaults, illiquidity and valuation uncertainty. The company also invests in businesses experiencing financial or operational difficulties, where restructurings or liquidations could result in partial or complete investment losses. Other uncertainties cited in the presentation included credit-market conditions, inflation, financing availability and the performance of the portfolio and investment manager.