Breaking Down Great Elm Capital Corp. (GECC) Financial Health: Key Insights for Investors

If you're looking at Great Elm Capital Corp. (GECC), you need to look past the headline shock of the recent quarter; honestly, the Q3 2025 results show a clear, two-sided story. The major near-term risk materialized with the First Brands bankruptcy, which drove the Net Asset Value (NAV) per share down from $12.10 to $10.01 as of September 30, 2025, and cut Net Investment Income (NII) to just $0.20 per share, a significant drop from the prior quarter's $0.51. That's a tough pill to swallow, but here's the quick math on the opportunity: management is actively fighting back, having deployed approximately $56.6 million into 36 new investments at a weighted average current yield of 10.7% during the quarter, plus they refinanced high-cost debt to lower future borrowing costs. So, while the stock trades at a deep discount to the new NAV, the Board maintained the $0.37 per share quarterly dividend, which translates to a massive 19.8% annualized yield on the November 3, 2025 closing price of $7.48. The key is whether new income generation can defintely outpace the legacy portfolio's headwinds.

Revenue Analysis

You need a clear picture of where Great Elm Capital Corp. (GECC)'s money actually comes from, and the 2025 data shows a story of strong growth punctuated by segment volatility. The direct takeaway is that while the nine-month revenue is up significantly, the quarterly results reveal a sharp pullback in the third quarter, driven by uneven investment distributions.

As a business development company (BDC), GECC's revenue is primarily categorized as Total Investment Income (TII), which is the interest, dividends, and other income generated from its investment portfolio. This TII is what you should focus on, not just traditional sales. For the first nine months of 2025, GECC reported TII of $37.41 million, a solid increase from $30.18 million in the same period a year prior, representing a YOY growth rate of approximately 24.0%.

Primary Revenue Stream Breakdown

GECC's revenue is a mix of income from various debt and equity positions, but it primarily segments into three key areas: corporate credit, Collateralized Loan Obligations (CLOs), and specialty finance/insurance-related investments. In the first quarter of 2025, the portfolio was heavily weighted toward corporate credit investments at 62.4%, followed by CLO investments at 15.3%. The income from these segments is not always a smooth, predictable stream; it's defintely more lumpy.

• Corporate Credit: Interest income from investments in debt securities, the largest component.
• CLO Investments: Distributions from its CLO joint venture (JV).
• Specialty/Insurance-Related: Income from preference shares and other unique investments.

Near-Term Volatility and Segment Contribution

The quarterly numbers for 2025 clearly map the risk of relying on uneven distributions. The second quarter was a record, but the third quarter saw a significant dip due to segment-specific factors. Here's the quick math on the quarterly TII:

The jump in Q2 2025 TII to a record $14.3 million was primarily driven by a distribution on preference shares in an insurance-related investment and higher income from CLO investments. Specifically, cash distributions from the CLO JV were $4.3 million in Q2 2025. But, in Q3 2025, TII fell to $10.64 million, a $1.09 million drop from Q3 2024's $11.73 million. This significant change was directly tied to the lack of a distribution from that insurance-related investment and a lower income contribution from the CLO JV. That's the kind of segment fluctuation that can derail a quarter, even with a strong overall portfolio yield.

To be fair, management is expecting the Net Investment Income (NII) to recover in the fourth quarter with increased CLO JV distributions. Still, this pattern highlights that a significant portion of GECC's revenue is non-recurring or highly variable, which is a crucial factor for your valuation models. For a deeper dive into the company's balance sheet and valuation, you can check out Breaking Down Great Elm Capital Corp. (GECC) Financial Health: Key Insights for Investors.

Next step: Review the Q4 2025 guidance on CLO distributions to model a more accurate run-rate NII.

Profitability Metrics

You need to know if Great Elm Capital Corp. (GECC) is efficiently turning its investment income into profit, especially after a volatile 2025. The direct takeaway is that while the first half of the year showed strong Net Investment Income (NII) margins, the third quarter saw a sharp drop due to non-recurring income and elevated expenses, pushing the NII margin down to only 22.6%.

For a Business Development Company (BDC) like Great Elm Capital Corp., we focus less on traditional Gross Profit and more on Net Investment Income (NII). NII is your true measure of operating profit, representing the income from the investment portfolio minus all operating expenses, including management fees and interest expense. The 'Gross Profit' equivalent is essentially the Total Investment Income (TII) before operating expenses.

The trend in NII margin-NII as a percentage of TII-shows a clear inflection point in the second half of the year. This is a critical signal for investors to act on, not just watch.

• Q1 2025 NII Margin: 36.8% (Net Investment Income of $4.6 million on Total Investment Income of $12.5 million).
• Q2 2025 NII Margin: 41.3% (Net Investment Income of $5.9 million on Total Investment Income of $14.3 million).
• Q3 2025 NII Margin: 22.6% (Net Investment Income of $2.4 million on Total Investment Income of $10.6 million).

Here's the quick math: The NII margin nearly halved from Q2 to Q3, a significant profitability challenge. This volatility is a key risk you need to price into your valuation models. Exploring Great Elm Capital Corp. (GECC) Investor Profile: Who's Buying and Why?

Operational Efficiency and Cost Management

The drop in Great Elm Capital Corp.'s Q3 profitability was a direct result of both revenue volatility and a spike in the expense ratio. The total expenses for Q3 2025 were approximately $8.2 million, which, against the $10.6 million in TII, resulted in a high expense-to-TII ratio of 77.4%. This is defintely a high hurdle for consistent NII generation.

The company specifically cited three key drivers for the Q3 NII step-down:

• CLO Income Fluctuation: Lower distributions from the CLO Joint Venture (JV), which totaled $1.5 million in Q3, down from $4.3 million in Q2 2025. This uneven cash flow cadence is a structural risk in their portfolio mix.
• Non-Recurring Revenue Loss: The lack of a $2.1 million distribution from an insurance-related preference share investment, which had boosted Q2 results.
• Refinancing Costs: Elevated interest expense associated with the refinancing of their highest-cost debt, the 8.75% GECCZ Notes, which were successfully replaced with the lower-cost 7.75% GECCG Notes. This short-term cost is an investment in long-term efficiency.

Industry Comparison and TTM Ratios

When comparing Great Elm Capital Corp. to the broader BDC sector, the TTM (Trailing Twelve Months) profitability ratios, which smooth out quarterly noise, provide a better benchmark. As of late 2025, Great Elm Capital Corp. reported a TTM Net Profit Margin of 40.55% and a TTM Gross Profit Margin of 57.80%.

While a direct average NII margin for all BDCs in 2025 is elusive, we can use an expense-based comparison. The Q3 expense ratio of 77.4% (Total Expenses/TII) is significantly higher than the expense ratios of many larger, internally managed BDCs. For example, some BDC peers have reported operating expenses as low as 2.6% of assets, indicating a much leaner operational structure. The high expense ratio at Great Elm Capital Corp. is a structural headwind that requires continuous monitoring, especially as they focus on deploying capital at a weighted average current yield of 14.1% in Q2 2025 to drive future income.

The immediate action is to track the Q4 2025 NII, which management expects to significantly rebound due to increased CLO distributions and normalized interest expense.

Debt vs. Equity Structure

You need to know if Great Elm Capital Corp. (GECC) is using its balance sheet effectively, and the short answer is they've been busy rebalancing. As of the third quarter ended September 30, 2025, the company's total debt outstanding (par value) stood at approximately $205.4 million, which is primarily long-term senior notes. This debt is entirely fixed-rate, which is a smart move in a high-rate environment, and they had $0 drawn on their now-expanded $50.0 million revolving line of credit, giving them significant dry powder. That's a good liquidity position.

The core metric to watch is the debt-to-equity ratio, which tells you how much leverage is being used to generate returns. For GECC, the pro forma ratio, after accounting for recent capital activities, is approximately 1.5x. This is at the higher end of the sector average, which typically hovers between 1.19x and under 1.5x for many BDCs. To be fair, the regulatory ceiling for Business Development Companies (BDCs) is a 2:1 debt-to-equity ratio, which corresponds to a 150% asset coverage ratio. GECC's asset coverage ratio of 168.2% as of September 30, 2025, shows they maintain a cushion above that minimum.

The company's recent actions in Q3 2025 show a deliberate effort to optimize its capital structure. They executed a key refinancing move by issuing 7.75% Notes (GECCG) due in December 2030, which allowed them to redeem $40 million of their higher-cost 8.75% Notes (GECCZ). Here's the quick math: that 100-basis-point interest reduction on the redeemed debt saves roughly $0.4 million in cash interest expense annually. That's defintely a positive for Net Investment Income.

GECC is balancing debt financing with equity funding, which is crucial for a BDC's growth and regulatory compliance. In the third quarter, they raised approximately $27 million in net proceeds through equity issuances. This new equity helped absorb the NAV hit from the First Brands bankruptcy and provided capital for new income-generating investments. This dual approach-lowering the cost of debt while raising new equity-shows management is actively managing both sides of the balance sheet to fuel portfolio expansion and maintain their regulatory cushion. You can read more about their strategic focus in their Mission Statement, Vision, & Core Values of Great Elm Capital Corp. (GECC).

• Refinanced 8.75% Notes with 7.75% Notes.
• Raised $27 million in new equity in Q3 2025.
• Maintains $50.0 million undrawn on the Revolver.
• Asset coverage ratio is a solid 168.2%.

What this estimate hides is that the leverage ratio is at the high end of the peer group, meaning they have less room to increase debt for new deals before hitting the regulatory minimum, but the substantial liquidity from the undrawn revolver and new equity gives them immediate flexibility. The company's capital structure is predominantly comprised of senior notes, as shown below:

Finance: Monitor the next quarterly report for any change in the debt-to-equity ratio and new revolver usage.

Liquidity and Solvency

You want to know if Great Elm Capital Corp. (GECC) has the cash to cover its near-term obligations and keep its investment engine running. The direct takeaway is that despite a significant portfolio loss in Q3 2025, GECC's immediate liquidity position is strong, backed by a successful capital raise and debt refinancing. They have ample dry powder for new investments.

Assessing Great Elm Capital Corp.'s Liquidity Position

For a Business Development Company (BDC) like Great Elm Capital Corp., the standard current and quick ratios aren't always the best measure. Why? Because a BDC's current assets often include long-term investments that aren't easily liquidated, making the ratios look artificially low. For instance, some trailing twelve-month (TTM) data suggests a Current Ratio as low as 0.06, which is misleading for a BDC structure. Instead, we focus on available cash, credit facilities, and regulatory leverage.

As of September 30, 2025, the company reported a strong liquidity cushion. Here's the quick math:

• Cash and Money Market Investments: Approximately $24.3 million.
• Undrawn Revolving Credit Facility: $50.0 million in available capacity.
• Total Deployable Liquidity: Over $74 million.

This war chest gives them significant capacity to deploy capital into new, income-generating investments, which is crucial for a BDC's long-term health. The regulatory Asset Coverage Ratio, a key solvency metric for BDCs, stood at approximately 168.2%, which provides a comfortable 12% buffer over the statutory minimum of 150%.

Working Capital and Financing Trends

The third quarter of 2025 showed a proactive and positive trend in managing the capital structure, even as the company dealt with the fallout from the First Brands bankruptcy, which caused a net asset value (NAV) hit of about $1.15-$1.25 per share. GECC raised approximately $27 million in new equity and successfully refinanced its highest-cost debt.

Specifically, they issued $50 million of 7.75% notes (GECCG) to redeem $40 million of 8.75% notes (GECCZ), saving roughly 100 basis points on that portion of their debt. This is smart balance sheet management-they're lowering their cost of capital while increasing their capacity. You can dive deeper into the ownership structure and market sentiment by Exploring Great Elm Capital Corp. (GECC) Investor Profile: Who's Buying and Why?

Cash Flow Statement Overview

Looking at the cash flow trends, the Net Investment Income (NII) saw a temporary dip in Q3 2025 to $2.4 million, or $0.20 per share, down from $5.9 million, or $0.51 per share, in Q2 2025. This was anticipated and primarily driven by the uneven cadence of cash distributions from their Collateralized Loan Obligation (CLO) joint venture and the timing of a preference share dividend. The good news is management expects NII to 'significantly rebound' in Q4 2025 due to normalized interest expense and income from the $56.6 million deployed into new investments in Q3.

The cash flow picture is one of short-term volatility in operating cash flow, but strong, defintely intentional, financing activities to secure long-term stability. The table below summarizes the NII trend for the first three quarters of 2025:

The risk of the First Brands event is a historical one now, but the strength of the recent financing actions is a clear positive for forward-looking liquidity.

Valuation Analysis

You're looking at Great Elm Capital Corp. (GECC) after a tough year for the stock, and the question is simple: Is the current price a deep-value opportunity or a sign of deeper trouble? The direct takeaway is that Great Elm Capital Corp. (GECC) appears undervalued based on core metrics like Price-to-Book and Price-to-Net Asset Value, but the market is clearly pricing in significant risk, evidenced by the sharp stock price decline and conflicting analyst views.

The stock has definitely seen better days. Over the last 12 months, the share price has dropped by a substantial 26.81%, trading near its 52-week low of $7.18 in late November 2025, down from a 52-week high of $11.45. This price action reflects market concern, but when you look at the underlying financial ratios, the picture gets more complex. Here's the quick math on why the stock looks cheap, even with the near-term risk.

• Price-to-Book (P/B) Ratio: At approximately 0.75, the stock is trading at a significant discount to its book value.
• Price-to-Net Asset Value (P/NAV): For a Business Development Company (BDC), this is crucial. With a recent stock price around $7.27 and a Net Asset Value (NAV) per share of $10.01 as of September 30, 2025, the P/NAV is roughly 0.73. This means you are buying the underlying assets for 73 cents on the dollar, a classic sign of undervaluation.
• Forward Price-to-Earnings (P/E) Ratio: The forward P/E sits at a low 5.45, suggesting strong expected earnings relative to the current price. The trailing 12-month (TTM) P/E is technically 'not applicable' due to a TTM net loss of -$7.95 million, which is why we must focus on the forward-looking earnings.
• Enterprise Value-to-EBITDA (EV/EBITDA): This metric is currently 'not applicable' for Great Elm Capital Corp. (GECC) due to the nature of their financial reporting, so we can't defintely use it as a comparison point.

The high dividend yield is a major draw, but it requires careful scrutiny. Great Elm Capital Corp. (GECC) has an annualized dividend of $1.53 per share, translating to a substantial dividend yield of about 20.68% at the current price. The company's Net Investment Income (NII) for the quarter ended June 30, 2025, was $0.51 per share, comfortably covering the quarterly distribution of $0.37 per share by 38%, or $0.14 per share. This is a strong sign of dividend coverage from core operations, but remember, unrealized losses on certain investments have impacted the Net Asset Value per share.

When it comes to Wall Street, the consensus is mixed, which is typical for a stock with deep-value characteristics but also clear risks. The average analyst rating is a 'Buy' with a 12-month price target of $10.75, representing a potential upside of over 45% from the current price. Still, some recent technical analysis has downgraded the stock to a 'Sell candidate,' reflecting the short-term bearish trend. The prudent approach is to acknowledge the deep discount to NAV and the high, currently covered dividend, but also understand that the market is worried about asset quality, which is driving the stock price down.

For a deeper dive into the operational risks and balance sheet health, check out Breaking Down Great Elm Capital Corp. (GECC) Financial Health: Key Insights for Investors.

Next Step: Portfolio Manager: Model a scenario where 10% of the Net Asset Value is impaired to stress-test the true P/NAV discount by the end of the month.

Risk Factors

You need to see the full picture, not just the highlights, and for Great Elm Capital Corp. (GECC), the third quarter of 2025 delivered a sharp reminder that risk is always present in credit markets. The core risks facing GECC are a mix of internal portfolio concentration issues and broader market volatility, which directly hit the Net Asset Value (NAV) this year.

The most immediate and significant blow came from the bankruptcy of First Brands Group, LLC, an event that underscores the danger of oversized positions. GECC's direct exposure to this single investment resulted in an adverse impact on its NAV of approximately $16.5 million in the third quarter of 2025. This loss was the primary driver for the quarter-over-quarter drop in NAV per share, which fell from $12.10 as of June 30, 2025, to $10.01 as of September 30, 2025.

Operational risk also surfaced as the First Brands loans were placed on non-accrual, meaning they stopped generating cash interest. This move alone is expected to adversely impact annualized cash total investment income by approximately $2.6 million (a combined $0.5 million from the First Lien Loan and $2.1 million from the Second Lien Loan). That's a tangible hit to future income. You can see how the company plans to generate income and value Mission Statement, Vision, & Core Values of Great Elm Capital Corp. (GECC).

Here's a quick look at the core risks and their 2025 impact:

• Credit Concentration Risk: Single-name exposure, like First Brands, caused a major NAV drop.
• Income Volatility: Net Investment Income (NII) is susceptible to uneven distributions from the Collateralized Loan Obligation Joint Venture (CLO JV) and other non-core investments.
• Market Conditions: The general economic factors and monetary policy, including interest rate movements, affect the value of their debt portfolio.

Financial Volatility and Mitigation

Beyond the First Brands situation, the company's financial results show a reliance on lumpy income streams. Net Investment Income (NII) dropped sharply in Q3 2025 to $2.4 million, or $0.20 per share, down from $5.9 million, or $0.51 per share, in the second quarter. This drop was largely due to the CLO JV distributions falling from $4.3 million to $1.5 million quarter-over-quarter. That's a big swing, and it means you can't defintely count on a steady NII quarter-to-quarter.

But they are not just sitting still. Management has outlined a clear path for mitigation and capital deployment. The CEO acknowledged the First Brands exposure was 'too large' and is focusing on driving greater portfolio diversification and reducing average position sizing. To rebuild the NAV and income, GECC is leveraging its strong liquidity position, which includes approximately $25 million in cash and money market securities and $50 million of available capacity on its revolving line of credit as of September 30, 2025.

Key mitigation actions for the near term include:

• Harvesting over $20 million in non-yielding assets to reinvest in income-generating opportunities.
• The Board approved a $10 million share repurchase program, signaling a belief that the stock is undervalued after the NAV hit.

This is a classic case of an internal risk materializing, but the response-strong liquidity and a stated commitment to diversification-is the right move to stabilize the portfolio.

Growth Opportunities

You're looking at Great Elm Capital Corp. (GECC) and wondering where the growth comes from, especially after a tough quarter. The direct takeaway is this: GECC is actively re-tooling its balance sheet and investment strategy right now, using fresh capital to pivot toward more reliable, income-generating assets. They are defintely moving past the portfolio issues that hit Q3.

The core growth driver isn't a new product; it's a strategic capital injection and a sharp focus on portfolio quality. In August 2025, Great Elm Capital Corp. raised $15.0 million in gross proceeds by issuing approximately 1.3 million shares of common stock at $11.65 per share. This capital, part of nearly $30 million raised over the last 12 months, is specifically earmarked for new investments. Plus, they doubled their revolving credit facility with City National Bank to $50 million, with the potential to expand it to $90 million, which gives them serious financial flexibility.

• Raise capital: $15.0 million in new equity in Q3 2025.
• Boost liquidity: Doubled credit facility to $50 million.
• Return capital: Approved $10 million share repurchase program.

Here's the quick math on the portfolio shift: Management is planning to harvest nonyielding assets in excess of $20 million to prudently deploy that cash into new, income-generating investments. This is a crucial move to rebuild the Net Investment Income (NII) that dipped in the third quarter. While Q2 2025 NII was strong at $5.9 million (or $0.51 per share), Q3 NII dropped to $2.4 million (or $0.20 per share) due to issues like the bankruptcy of First Brands and lower distributions from their Collateralized Loan Obligation (CLO) joint venture.

The good news is that management expects NII to recover in the fourth quarter of 2025, driven by increased CLO JV distributions and income from these new capital deployments. Looking ahead, analyst consensus estimates a slight dip in earnings per share (EPS) for the next fiscal year, from $1.43 per share to $1.41 per share, a change of -1.40%. This forecast reflects the near-term headwind of the portfolio cleanup, but the strategic initiatives point to a stabilized foundation for future returns.

Great Elm Capital Corp.'s competitive advantage as a Business Development Company (BDC) lies in its strong sourcing engine, which management is confident will continue to find unique income-generating opportunities. Their investment focus is clear: debt instruments, income-producing equity, and specialty finance businesses. The strategic investment from an affiliate of Booker Smith, who has deep credit expertise, is a vote of confidence in this strategy and the turnaround that started in 2022.

What this estimate hides is the potential upside from the successful deployment of the $24.3 million cash on hand (as of September 30, 2025) and the proceeds from asset sales. That capital, once put to work in higher-yielding assets, is the real engine for NII growth in 2026.

For a deeper dive into the company's recent performance, you can read more here: Breaking Down Great Elm Capital Corp. (GECC) Financial Health: Key Insights for Investors.

Your next step should be to monitor the Q4 2025 earnings release for the first signs of that NII recovery and the details on where that $20 million in harvested capital was redeployed.