Business Context and Reporting Period
This Form 8-K, dated November 3, 2016, reports the completion of a merger between Full Circle Capital Corporation and Great Elm Capital Corp. (the "Registrant"). The filing details the entry into material definitive agreements, the assumption of debt obligations, and changes to the Registrant's board of directors and executive officers effective November 3, 2016.
Key Financial Metrics and Capital Structure
- Debt Assumption: The Registrant assumed $33.645 million in aggregate principal amount of 8.25% Senior Notes due June 30, 2020, previously issued by Full Circle.
- Equity Issuance: Approximately 12.9 million shares of common stock are issued and outstanding following the merger and related subscription transactions.
- Asset Contribution: The MAST Funds contributed a portfolio of debt instruments with a fair value of approximately $91.9 million (as of September 30, 2016) in exchange for 5,935,800 shares of Registrant common stock.
- Liquidity: Proceeds from the debt instrument contribution settled on November 1, 2016, and were deposited in the Registrant's custodial account at State Street Bank and Trust Company.
Material Changes Versus Prior Period
- Corporate Structure: Full Circle Capital Corporation merged into the Registrant. Full Circle's outstanding shares were converted into the right to receive 0.2219 shares of Registrant common stock per share.
- Ownership Concentration: Following the merger and subscription agreement, Great Elm Capital Group, Inc. (GEC) owns approximately 15% of outstanding shares, and the MAST Funds own approximately 46%.
- Management Changes: John E. Stuart and Mark C. Biderman were appointed to the Board of Directors. Michael J. Sell was appointed Chief Financial Officer, Secretary, and Treasurer.
- Contractual Obligations: The Registrant entered into new Investment Management and Administration agreements with Great Elm Capital Management, Inc. (GECM), with fees beginning to accrue upon merger completion.
Guidance, Outlook, and Material Agreements
- Registration Rights: The Registrant entered into an Amended and Restated Registration Rights Agreement with GEC and the MAST Funds. The Registrant must file a resale registration statement effective until November 3, 2017, and expects to file it concurrently with its Form 10-K for the partial fiscal year ending December 31, 2016.
- Lock-Up Commitments: GEC agreed not to transfer its shares until November 3, 2017. The MAST Funds and GEC agreed to customary lock-up commitments for future equity sales.
- Debt Terms: The assumed 8.25% Senior Notes may be redeemed by the Registrant at any time at par value plus accrued and unpaid interest. No change of control offer was required for these notes.
- Future Reporting: Pro forma financial information (balance sheet and schedule of investments as of June 30, 2016) will be provided within 70 days of this report.
Investor Verification Checklist
- Verify the final pro forma financial statements to be filed within 70 days to assess the combined entity's leverage and liquidity.
- Review the Investment Management Agreement (Exhibit 10.1) and Administration Agreement (Exhibit 10.2) for specific fee structures and expense reimbursement terms.
- Confirm the exact settlement date and amount of the $91.9 million debt portfolio contribution from the MAST Funds.
- Monitor the filing of the resale registration statement expected with the Form 10-K for the partial fiscal year ending December 31, 2016.
- Assess the impact of the 46% ownership stake held by the MAST Funds on future corporate governance and voting dynamics.