Business Context and Reporting Period
Great Elm Capital Corp. filed this Form 8-K on May 5, 2021, to report the entry into a material definitive agreement. The company is a Maryland corporation with principal executive offices in Waltham, MA, and its securities trade on the Nasdaq Global Market.
Key Financial Metrics and Debt
This filing details a new debt facility rather than reporting period-end financial results. Key terms of the new agreement include:
- Facility Type: Senior secured revolving line of credit.
- Capacity: Up to $25 million, with an option to increase by an additional $25 million at the lender's discretion.
- Lender: City National Bank (CNB).
- Interest Rate: LIBOR plus 3.50%, Base Rate plus 2.00%, or a combination thereof.
- Collateral: First priority security interest in substantially all of the Company's assets.
Material Changes and Covenants
The primary material change is the establishment of the new credit facility. The agreement imposes specific financial covenants to be tested quarterly:
- Net Assets: Not less than $65 million.
- Asset Coverage: Equal to or greater than 160%.
- Bank Asset Coverage: Equal to or greater than 300%.
The maturity date is the earlier of May 5, 2024, or May 15, 2022, if the Company's 6.50% notes due 2022 are not refinanced by that date.
Guidance, Outlook, and Risks
The filing does not provide updated revenue guidance or management commentary on future earnings. The primary risk disclosed relates to the leverage restrictions contained in the Investment Company Act of 1940 and the requirement to maintain the specified financial covenants. Failure to meet these covenants could impact the Company's ability to borrow under the facility.
Investor Verification Checklist
- Verify the Company's current net assets and asset coverage ratios to ensure compliance with the new $65 million and 160% covenants.
- Review the status of the 6.50% Notes due 2022 to assess the risk of the revolving line maturing early on May 15, 2022.
- Examine the full text of the Loan Agreement (Exhibit 10.1) for specific negative covenants and exceptions to the collateral pledge.
- Confirm whether the Company has drawn any funds against the new $25 million facility as of the filing date.