Debt

12 Months Ended

Dec. 31, 2022

Debt Disclosure [Abstract]

Debt

5. DEBT

Revolver

On May 5, 2021, the Company entered into a Loan, Guarantee and Security Agreement (the “Loan Agreement”) with City National Bank (“CNB”). The Loan Agreement provides for a senior secured revolving line of credit of up to $25 million (subject to a borrowing base as defined in the Loan Agreement). The Company may request to increase the revolving line in an aggregate amount not to exceed $25 million, which increase is subject to the sole discretion of CNB. The maturity date of the revolving line is May 5, 2024. Borrowings under the revolving line bear interest at a rate equal to (i) the secured overnight financing rate ("SOFR") plus 3.50%, (ii) a base rate plus 2.00% or (iii) a combination thereof, as determined by the Company. As of December 31, 2022, there were $10.0 million borrowings outstanding under the revolving line.

Borrowings under the revolving line are secured by a first priority security interest in substantially all of the Company’s assets, subject to certain specified exceptions. The Company has made customary representations and warranties and is required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar loan agreements. In addition, the Loan Agreement contains financial covenants requiring (i) net assets of not less than $65 million, (ii) asset coverage equal to or greater than 150% and (iii) bank asset coverage equal to or greater than 300%, in each case tested as of the last day of each fiscal quarter of the Company. Borrowings are also subject to the leverage restrictions contained in the Investment Company Act of 1940, as amended. In May 2022, the interest rate in the Loan Agreement was amended to replace the LIBOR with SOFR.

Unsecured Notes

On September 13, 2017, the Company issued $28,375 in aggregate principal amount of 6.50% notes due 2022 (the “GECCL Notes”). On September 29, 2017, the Company issued an additional $4,256 of the GECCL Notes upon full exercise of the underwriters’ over-allotment option. The Company redeemed all of the issued and outstanding GECCL Notes on July 23, 2021 at 100% of the principal amount plus accrued and unpaid interest thereon from April 30, 2021 through, but excluding, the redemption date, July 23, 2021.

On January 11, 2018, the Company offered $43,000 in aggregate principal amount of 6.75% notes due 2025 (the “GECCM Notes”). On January 19, 2018 and February 9, 2018, the Company sold an additional $1,898 and $1,500 of the GECCM Notes upon partial exercise of the underwriters’ over-allotment option.

On June 18, 2019, the Company offered $42,500 in aggregate principal amount of 6.50% notes due 2024 (the “GECCN Notes”), which included $2,500 of the GECCN Notes sold in connection with the partial exercise of the underwriters’ over-allotment option. On July 5, 2019, the Company sold an additional $2,500 of the GECCN Notes upon another partial exercise of the underwriters’ over-allotment option.

On June 23, 2021, the Company issued $50,000 in aggregate principal amount of 5.875% notes due 2026 (the “GECCO Notes”). On July 9, 2021, the Company issued an additional $7,500 of the GECCO Notes upon full exercise of the underwriters’ over-allotment option.

The Notes are our unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our Loan Agreement and any other future secured indebtedness that the Company may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. The Company pays interest on the unsecured notes on March 31, June 30, September 30 and December 31 of each year. The GECCM Notes, GECCN Notes and GECCO Notes will mature on January 31, 2025, June 30, 2024 and June 30, 2026, respectively. The GECCM Notes and GECCN Notes are currently callable at the Company’s option and the GECCO Notes can be called on or after June 30, 2023. Holders of the unsecured notes do not have the option to have the unsecured notes repaid prior to the stated maturity date. The unsecured notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

As part of the offerings, the Company incurred fees and costs, which are treated as a reduction of the carrying amount of the debt on the Company Statements of Assets and Liabilities. These deferred financing costs presented as a reduction to the Notes payable balance are being amortized into interest expense over the term of the Notes.

The Company may repurchase the Notes in accordance with the Investment Company Act and the rules promulgated thereunder.

Information about the Company’s senior securities (including debt securities and other indebtedness) is shown in the following table:

As of	Total Amount Outstanding(1)		Asset Coverage Ratio Per Unit(2)		Involuntary Liquidation Preference Per Unit(3)	Average Market Value Per Unit(4)
December 31, 2016
2020 Notes	$	33,646	$	6,168	N/A	$	1.02
December 31, 2017
GECCL Notes	$	32,631	$	5,010	N/A	$	1.02
December 31, 2018
GECCL Notes	$	32,631	$	2,393	N/A	$	1.01
GECCM Notes		46,398		2,393	N/A		0.98
December 31, 2019
GECCL Notes	$	32,631	$	1,701	N/A	$	1.01
GECCM Notes		46,398		1,701	N/A		1.01
GECCN Notes		45,000		1,701	N/A		1.00
December 31, 2020
GECCL Notes	$	30,293	$	1,671	N/A	$	0.89
GECCM Notes		45,610		1,671	N/A		0.84
GECCN Notes		42,823		1,671	N/A		0.84
December 31, 2021
GECCM Notes	$	45,610	$	1,511	N/A	$	1.00
GECCN Notes		42,823		1,511	N/A		1.00
GECCO Notes		57,500		1,511	N/A		1.02
December 31, 2022
GECCM Notes	$	45,610	$	1,544	N/A	$	0.99
GECCN Notes		42,823		1,544	N/A		1.00
GECCO Notes		57,500		1,544	N/A		1.00
Revolving Credit Facility		10,000		1,544	N/A		-

(1)Total amount of each class of senior securities outstanding at the end of the period presented.

(2)Asset coverage per unit is the ratio of the carrying value of Great Elm’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.

(3)The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it.

(4)The average market value per unit for the Notes, as applicable, is based on the average daily prices of such Notes and is expressed per $1 of indebtedness.

The terms of the unsecured notes are governed by a base indenture, dated as of September 18, 2017, by and between the Company and American Stock Transfer & Trust Company, LLC, as trustee (as supplemented with respect to each series of notes, the "Indenture"). The Indenture’s covenants include restrictions on certain activities in the event the Company falls below the minimum asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act, as well as covenants requiring the Company to provide financial information to the holders of the Notes and the Trustee if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the Indenture. The Investment Company Act limits, with certain exceptions, the Company’s borrowing such that its asset coverage ratio, as defined in the Investment Company Act, is at least 1.5 to 1 after such borrowing.

As of December 31, 2022, the Company’s asset coverage ratio was approximately 154.4%.

As of December 31, 2022 and 2021, the Company was in compliance with all covenants under the indenture.

For the years ended December 31, 2022, 2021 and 2020, the components of interest expense were as follows:

	For the Year Ended December 31,
	2022			2021			2020
Borrowing interest expense	$	9,378		$	8,927		$	7,973
Amortization of acquisition premium		1,312			1,501			1,153
Total	$	10,690		$	10,428		$	9,126
Weighted average interest rate(1)		7.32	%		7.59	%		7.54	%
Average outstanding balance	$	146,070		$	137,336		$	121,012

(1)Annualized.

The fair value of the Company’s Notes are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s Notes is determined by utilizing market quotations at the measurement date as they are Level 1 securities.

	December 31, 2022
Facility	Commitments		Borrowings Outstanding		Fair Value
Unsecured Debt - GECCM Notes	$	45,610	$	45,610	$	45,081
Unsecured Debt - GECCN Notes		42,823		42,823		42,686
Unsecured Debt - GECCO Notes		57,500		57,500		54,510
Total	$	145,933	$	145,933	$	142,277

	December 31, 2021
Facility	Commitments		Borrowings Outstanding		Fair Value
Unsecured Debt - GECCM Notes	$	45,610	$	45,610	$	45,701
Unsecured Debt - GECCN Notes		42,823		42,823		42,823
Unsecured Debt - GECCO Notes		57,500		57,500		58,742
Total	$	145,933	$	145,933	$	147,266