Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Great Elm Capital Corp. First Quarter 2022 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Garrett Edson of ICR. Sir, please begin.

Good morning, and thank you, everyone, for joining us for Great Elm Capital Corp.'s first quarter 2022 earnings conference call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcc.com. I'd like to note that slide presentation posted on our website accompanying today's call. Slide presentation can be found on our website under Financial Information, Quarterly Results. On our website, you can also find our earnings release and SEC filings. I'd like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our securities. Today's conference call includes forward-looking statements and projections, and we ask that you refer to Great Elm Capital Corp.'s filings with the SEC for important factors that could cause actual results to differ materially from these projections. Great Elm Capital Corp. does not undertake to update forward-looking statements unless required by law. To obtain copies of SEC filings, please visit Great Elm Capital Corp.'s website under Financial Information, SEC filings or visit the SEC's website. Hosting the call this morning is Matt Kaplan, Great Elm Capital Corp.'s Chief Executive Officer. I will now turn the call over to Matt.

Good morning, and thank you for joining us today. On today's call, I'll walk through some first quarter highlights and our CFO, Keri Davis, will take us through some of our financials for the quarter. We'll then open up for Q&A and Adam Kleinman, our Chief Compliance Officer; and Mike Keller, President of Great Elm Specialty Finance, will join us to answer questions. Over the past two months as CEO, I have taken certain actions to seek to ensure our legacy issues are largely behind us and to position the company for future success. Looking at our first quarter, we saw net asset value once again declined from the prior quarter as we work through remaining legacy items. Also, NII, excluding the reversal of past incentive fees, was below what we expect our portfolio can achieve over time. Despite these legacy headwinds, I'm excited about our strategy with support from a refreshed Board of Directors in the clean portfolio. We also believe that our pending rights offering is successfully completed, will provide the capital needed to support our growth. This quarter, the waiver of past incentive fees benefited NII. Going forward, we intend to grow our operational NII by executing on our strategy. On our last call in March, in concert with beginning to transform GECC, we called out three core objectives that were aligned with our new strategy. The first was to increase GECC's allocation to specialty finance to constitute half of the portfolio through direct investments in specialty finance companies, as well as in participation. Secondly, to maintain a high-quality, diversified portfolio focused on performing and cash yielding investments. Finally, to increase our scale by raising equity and debt capital. To that end, I am pleased to report that our team has been executing the strategy we set…

Thanks, Matt. I'll go over our financial highlights, but I invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. As Matt noted, the first quarter of 2022 was an important first step to repositioning GECC in reshaping our portfolio into a diversified book with a stable yield profile. During the first quarter, GECC generated NII of $6 million versus $1.5 million in the prior year quarter and $7.1 million in the fourth quarter of 2021. Current quarter NII was positively impacted by a $4.9 million waiver of previously accrued incentive fees, while the fourth quarter of 2021 was positively impacted by a $5.2 million reversal of such fees. Net assets as of March 31 were $69.3 million, down from $74.6 million at December 31 and $91.5 million as of March 31, 2021. The decrease was largely the result of the reduction in fair value of our Avanti investments, which was driven by Avanti's recent debt restructuring process. Our NAV per share as of March 31, 2022, was $15.06, down from $16.63 per share as of the prior quarter end and $23.36 per share as of March 31, 2021, as adjusted for our reverse stock split in February 2022. Details for the quarter-over-quarter change in net asset value can be found on Slide 8 of the investor presentation. As of March 31, 2022, GECC's asset coverage ratio was approximately 147.5% compared to [151.1%] as of December 31, 2021. Our asset coverage ratio was impacted by the decline in fair value for the quarter. GECC reported a net loss of $1.12 per share in the first quarter compared to a net loss of $4.95 per share in the prior quarter. NII per share was $1.31 compared to $1.58 in the prior quarter. All per…

Thanks, Keri. If you turn to Slide 9, show our income-generating portfolio. This includes only investments which carry cash coupons or pay cash dividends and excludes all nonaccrual and noncash paying equity or debt investments. As I noted on our last call, we have been focused on transitioning our portfolio to become a diversified book of performing cash paying investments with stable yield profile. What I would like to point out here is that, as I mentioned earlier, 98% of our portfolio is income generating today. This is a significant improvement from 88% just one quarter ago and less than 65% a year ago. Moving on to Slide 14. You can see of the approximately $145 million of debt investments, 42% are invested in floating rate instruments with a weighted average current yield of 10% and approximately 58% are invested in fixed rate instruments with a weighted average current yield of around 10.5%. It is important to note that for our fixed rate debt portfolio, the weighted average maturity is only 2.5 years. So while our floating rate mix may be lower than other BDCs, we believe the relatively short duration of our fixed rate portfolio should afford GECC the ability to benefit from a rising rate environment. Flipping back to Slides 10 and 11, I'd like to highlight our diversification as GECC's income-generating portfolio is invested across 18 separate industries. Specialty finance investments are our largest industry and now comprise 34% of total investments, up from 22% in the prior quarter, largely driven by our acquisition of Sterling. We expect further growth from our specialty finance portfolio as these unique investments can offer greater potential returns on invested capital than the traditional leverage credit and are largely uncorrelated to the broader syndicated leveraged credit markets. Ultimately, we are progressing…

[Operator Instructions] Our first question or comment comes from the line of Brian Alexitch from Greenwich. Your line is open.

Good morning . Just a quick question on dividend coverage. As the reversal of the accrued incentive fees this quarter, net investment income would have fallen well short of the dividend and looking at kind of the two quarter trend between fourth quarter of '21 and first quarter '22, you would need a pretty big reversal in NII to cover even the $0.45 has been declared for the next two quarters. Can you speak to that because dividend coverage looks to be pretty far away?

Thanks for the question, Brian. On dividend coverage for the year, it is important to note that the reversal of the incentive fee does benefit our NII and is, therefore, something that we will have to distribute. So we believe that for the year, our NII will cover our dividend or approximately cover our dividend. And then going forward over the year, we will grow NII operationally as we reposition the portfolio into higher-yielding assets. As I noted on the call, we monetized two material amount of legacy reorg positions, including Tru Taj, CPK and our SPAC positions, equities there, and we are working to redeploy those proceeds in the quarter. So there is some timing lag, but our goal is to have that amount ramp over the year. And as we get the rights offering proceeds and further allocate to specialty finance, we believe we can generate additional yield from the portfolio.

Got it. The expense reversal. I mean is that like a required component of NII? Because, I mean, I think there was several quarters where NII have been over distributed. I mean do you not have the ability to retain any of that? Yes, I mean essentially, it seems like we're getting back money from the manager that had been paid out over the course of several quarters already.

So just to make sure I understand your question. Are you asking if this year with the NII reversal, we will be required to distribute that amount of income?

Not exactly, but I mean that's a question I would find the answer too interesting. I'm just saying that in prior quarters where NII has been over distributed, right, and now we're getting back to $4.9 million. I mean it's almost like are you required to -- are you required to over distribute essentially, that's what it boils down to?

Got you. So we -- the -- sorry, the incentive fee reversal benefits are NII. And as a registered investment company, we are required to distribute 90% of our income over the course of the year. If we distribute less than 98% and change percent, then we're subject to the excise tax. So that amount of reversal is going to have to be distributed. So operationally, we are, I would say, I would agree with this year, all on an operational basis, we're over distributing. But from an investment company standpoint, we're going to be distributing what we need to, to maintain our status as a RIC.

I see. So just following up on that. You don't -- there is no way to credit that $4.9 million against prior over distribution. It's all -- is it all just whatever occurs in the current year and you kind of can't go back and adjust or anything like that for payments out of capital essentially?

I think that's a technical question but before turning it over to Keri, I would like to be happy to answer additional questions off-line. And let's see. Keri, can you speak to that?

Yes. So the tax calculations have a lot of factors that go into them. We calculate our tax requirements each year on a stand-alone basis. But we, of course, every year, will assess if there's any opportunity for us to take credit for any book tax differences in prior years that might wash out in the current year. I think it's probably a more involved question that we could talk about offline. But we also have not completed our tax filing for the current year as disclosed in our most recent 10-K.

Okay. That's great. And that's all for me. Thanks for taking the questions.

Thank you. [Operator Instructions] I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Matt Kaplan for any closing remarks.

Thank you again for joining us today. I'm excited about the progress we have made thus far to transform GECC, and we look forward to continued investor dialogue. Please let us know if we can help with any follow-up. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.