Great Elm Capital (GECC) Analysis | BDC Stock Breakdown

0:00College football is back. So, Hilton called to me the superstition concierge to make your fan rituals a reality. Need a room to match your lucky number? We got you. Want to make sure our team doesn't wash your lucky jersey? Oh, that smells lucky. Hilton's unmatched hospitality can keep up with any superstition. Even a marching bandwick up call it 555 and 55 seconds. Hit it! When you need a team that will do whatever it takes on game day, it matters where you stay. Hilton, for this day. Welcome back to BDC Stock Breakdown, the show where we examine business development companies to determine whether their dividends, portfolios, and valuations deserve a place in an income-focused portfolio. Today we're analyzing great L, capital corporation ticker symbol, GECC. Great L capital is an externally managed BDC that invests in corporate credit,

1:01income-producing equity securities, specialty finance companies, and collateralized loan obligations, commonly known as CLOs. This is not your typical conservative first-lean focused BDC. GECC uses a more opportunistic strategy that can produce substantial income, but it can also create greater volatility. Let's begin with the biggest attraction, the dividend. GECC declared a quarterly dividend of 25 cents per share for the second quarter of 2026. At a recent share price of approximately $5.34, that works out to to a forward annualized yield of roughly 18.7%. That is an extremely high yield even by BDC standards. However, investors need to understand that the dividend has been moving in the wrong direction.

2:04GECC paid quarterly distributions of 37 cents throughout 2025. That was reduced to 30 cents in the first quarter of 2026 and then reduced again to 25 cents for the second quarter. During the first quarter of 2026, oh, sorry. Anyway, basically the current dividend may still provide an enormous income stream, but these reductions show that investors cannot assume the power will remain stable. During the first quarter of 2026, GECC generated net investment income of 36 cents per share up from 31 cents during the previous quarter. That covered the 30 cent first quarter distribution. It would comfortably cover the current to 25 cents quarterly payout. But there is an important catch. The investment advisor waived approximately $2.8 million

3:07or around 20 cents per share or accrued incentive fees through March 31st. Management also waived incentive fees through the second quarter of 2026. The company specifically acknowledged that the fee waiver was a major reason net investment income increased. That means investors should not automatically treat the entire 36 cents of reported net investment income as a sustainable quarterly run rate. Once the waiver expires, GECC may need stronger portfolio income to maintain the same level of dividend coverage. College football is back. So Hilton caught in mean the superstition concierge to make your fan rituals a reality. Need a room to match your lucky number? We got you. Want to make sure our team doesn't wash your lucky jersey? Oh, that smells lucky. Hilton's unmatched hospitality can keep up with any superstition. Even a marching bandwink up call it 555 and 55 seconds. Hit it!

4:08When you need a team that will do whatever it takes on game day, it matters where you stay. Hilton, for this day. This episode is brought to you by PayPal. You know how a mom's bag has everything? Sunscreen, snacks, a stapler, the new PayPal app is like that, but for your money. Shop, pay, manager account, and earn rewards all in one place. And with purchase protection on eligible items, biometric security, and pass keys, you're protected at every step. Download the new PayPal app to get started. See PayPal.com slash protection terms. HMM. Total investment income also declined from $12.6 million to $9.5 million during the quarter. Part of that decline resulted from uneven CLO cash flows. GECC receives $2.5 million from its CLO joint venture, compared with $4.3 million during the previous quarter.

5:10This illustrates how GECC's earnings can fluctuate more than those of a traditional direct lending BDC. Now, let's examine net asset value. GECC finished the first quarter with a net asset value of $7.74 per share, down from $8.07 at the end of 2025, and $11.46 when you're earlier. That represents a decline of approximately 32% in only one year. Unrealized investment appreciation has been a major contributor to that decline. With a stock recently trading around $5.34, GECC trades at approximately a 31% discount to its latest reported nav. That discount could represent an opportunity if management stabilizes the portfolio and protects the remaining nav. However, the discount also reflects legitimate concerns

6:11about previous investment losses, dividends to sustainability, and earnings quality. The company has been buying back shares below nav. Though May 1st, GECC had repurchased approximately 100,000 shares at an average price of $4.98, representing a 36% discount to its March nav. Buying back deeply discounted shares can increase nav per share for the remaining shareholders. Portfolio credit quality appears better than the nav trend might suggest. Management reported that less than 1% of the investment portfolios was on non-accurral at the end of the quarter. GECC also received more than $8 million in total distributions from a core we've related investment against an original investment of approximately $6 million.

7:16The balance sheet remains another area to watch. GECC reported approximately $174 million of debt against $107.5 million of net assets. Producing a debt to equity ratio of roughly set 1.6 times, that is an aggressive level of leverage and increases the effect that portfolio gains or losses can have on shareholders. On the positive side, the company retired, oh sorry, I can't speak today, on the positive side though, the company retired or called all of its notes that were due in June, 2026. GECC now has no fund debt maturity until 2029. It also reported approximately $10 million in cash and money market investments, along with $50 million of availability under its revolving credit facility.

8:18So what is the final verdict? GECC offers an enormous dividend yield, a substantial discount to nav, low reported non-accurals, share repurchases, and improved debt maturity positioning. However, the company has also experienced severe nav erosion. Two recent dividend reductions, volatile, volatile, sorry, I can't speak today, volatile, CLO income, high leverage, and earnings that received meaningful assistance from temporary incentive fee waivers. For aggressive income investors, GECC may be worth considering as a small speculative position. For conservative dividend investors, who prioritize dependable distributions and stable book value, stronger BDC alternatives are available. My rating for great LM capital corporation, what do you guys think it's gonna be? Oh yeah, I don't know. You guys don't know what it's gonna be? Well, you guys probably betting on it, I don't know.

9:21It's gonna be 5.5 out of 10. Once again, my rating is 5.5 out of 10. Look, the yield in discount provide meaningful upside potential, but GECC must demonstrate several quarters of stable nav and sustainable dividend coverage before earning a higher rating. Now, I wanna know what's your opinion of GECC though? Please let me know in the comments. Is the nearly 19% forward yield worth the additional risk? Or is the market correctly pricing this BDC at a major discount? Remember to like the video, subscribe to the channel, and check out the complete BDC stock breakdown playlist. This video is for educational and entertainment purposes only and should not be considered financial advice. Just remember, I do this for the love of the game, talk to a financial advisor. I just, I love BDCs, I love REITs. I love income focused investments, so any investment that I could buy and hold

10:23and get income that grows over time, I love it. So I'm a big BDC fan, big REIT fan, but I'm a big fan of you guys. Thank you guys for actually watching this video. And yeah, we'll see you guys in the next episode. I hope you guys enjoy. Booking got calm is the easiest way from a day surrounded by noise. To a state surrounded by nature. That's nice. Go on, book it. It's easy. Booking.com. Booking. Yeah. Ben.