Great Elm Capital Posts $0.17 NII, NAV Slips to $7.40

Great Elm Capital Corp. (NASDAQ: GECC) reported third-quarter 2026 net investment income of $0.17 per share on November 2, 2026, down from $0.32 in the prior quarter, while net asset value fell 6.9% quarter-over-quarter to $7.40 per share from $7.95. Total investment income was $8.7 million, versus $10.9 million in the second quarter. The business development company attributed the NAV decline mainly to realized and unrealized losses, including a $3.3 million drop in the fair value of its CLO Formation JV investment.

Context — Why the Q3 2026 Results Matter Now

The company's own quarter-over-quarter comparison explains most of the headline weakness. Total investment income fell because the prior quarter included a $2.0 million dividend from its investment in insurance-related preference shares, a one-time item the third quarter did not repeat, the company said.

Net investment income also absorbed the reinstatement of incentive fee accruals. Great Elm waived those fees in the prior quarter; the third-quarter accrual of $593,000 cut into earnings that were already thinner on lower revenue.

Chief Executive Jason Reese described a "challenging credit environment" and "continued pressure on certain portfolio investments, particularly our CLO joint venture." He said the company remains focused on strengthening portfolio performance and disciplined underwriting.

The distribution stayed flat at $0.25 per share, but it now costs more relative to earnings. On a $4.95 closing price from October 30, 2026, that equals a 20.2% annualized yield, against just $0.17 of quarterly net investment income per share.

Macro conditions are not helping. The report does not cite rate or credit-spread levels, but the CLO markdown and the shrinking portfolio suggest a tougher environment for levered credit vehicles. Great Elm's own figures show total investments falling to $251.0 million at September 30 from $331.1 million at December 31, 2025.

Data — What the Numbers Show

The per-share trend across five quarters is the clearest read on the deterioration.

Metric	Q3/25	Q4/25	Q1/26	Q2/26	Q3/26
NII per share	$0.20	$0.31	$0.36	$0.32	$0.17
NAV per share	$10.01	$8.07	$7.74	$7.95	$7.40
Distributions	$0.37	$0.37	$0.30	$0.25	$0.25

Net assets stood at $102.7 million at September 30, down from $110.4 million at June 30. Net realized and unrealized losses for the quarter were about $6.6 million, or $0.48 per share.

Total expenses were $6.3 million, or $0.46 per share, including a $0.2 million excise tax benefit. Interest expense alone was $3.7 million, the single largest cost line and more than the quarter's net investment income.

The balance sheet carries $154.9 million of debt at par: $50.0 million of 8.50% notes due April 2029, $41.4 million of 8.125% notes due December 2029, $57.5 million of 7.75% notes due December 2030, and $6.0 million drawn on the revolver.

The asset coverage ratio was 166.3% at September 30, essentially unchanged from 166.4% at June 30. Liquidity included roughly $6 million of cash and money market funds plus $44 million of revolver availability.

Analysis — What It Means for BDC Investors and Credit Markets

The pressure is concentrated in two places. First, the CLO Formation JV: a $3.3 million fair-value decline in a single quarter is large relative to a $102.7 million net asset base, and management flagged it by name. Second, the affiliated and controlled investment books, which absorbed $744,000 and $4.6 million of unrealized depreciation respectively in the quarter.

One offset is the CoreWeave-related equity position. Great Elm received $0.8 million of distributions from it during the quarter, bringing cumulative distributions to roughly $10.3 million against a $6.0 million original cost, the company said. That is a realized win, but it is not recurring income.

A second offset is Great Elm Specialty Finance. Reese said distributions from that platform increased meaningfully during the quarter, and controlled-investment dividend income rose to $2.6 million from $2.0 million a year earlier.

The counter-argument is that the underlying credit book is not the problem. Management said the core portfolio "remains healthy," and the asset coverage ratio barely moved. If the CLO JV is the main drag, a recovery there would change the earnings picture quickly. If credit broadly deteriorates, the 166.3% coverage ratio has less room to absorb losses than it did when NAV was above $10.

Positioning is visible in the buyback. Great Elm repurchased 349,653 shares year-to-date through October 30 at an average of $4.96, a 33% discount to September 30 NAV, with $8.3 million of authorization remaining. Buying stock below NAV is accretive to remaining holders, but it also signals management sees few better uses for capital at current marks.

Outlook — What to Watch Next

Three catalysts matter. The first is the CLO JV itself: management said it is "actively engaged with our CLO partners" to address performance, without disclosing terms or a timeline. Any change in that investment's fair value will flow straight to NAV.

The second is the fourth-quarter distribution, declared at $0.25 per share, payable December 31, 2026, to holders of record December 15. Watch whether net investment income covers it; at $0.17 per share in Q3, it did not.

The third is the debt stack. Great Elm redeemed $6.5 million of its 8.50% GECCI notes due April 2029, retiring part of its highest-cost and nearest-term debt, and left $8.3 million of buyback capacity. Further redemptions or repurchases would show continued balance-sheet discipline.

The company did not disclose forward earnings guidance. Investors can track the NAV print, the asset coverage ratio, and the CLO JV mark as the three figures that carry the most information.

Frequently Asked Questions

Why did Great Elm Capital's NAV fall in Q3 2026?

Net asset value fell 6.9% quarter-over-quarter, from $7.95 to $7.40 per share. The company attributed the decline mainly to realized and unrealized investment losses, including a $3.3 million decrease in the fair value of its CLO Formation JV investment. Total net realized and unrealized losses for the quarter were approximately $6.6 million, or $0.48 per share.

Is Great Elm Capital's $0.25 dividend covered by earnings?

No. Net investment income was $0.17 per share in the third quarter, below the $0.25 distribution. The prior quarter's $0.32 per share did cover it, but that figure benefited from a $2.0 million one-time dividend and waived incentive fees. The fourth-quarter distribution is payable December 31, 2026, to holders of record December 15.

What is Great Elm Capital's exposure to CLOs and specialty finance?

Great Elm invests in debt and income-generating equity, including specialty finance businesses and CLOs. Its controlled investments totaled $81.4 million at fair value at September 30, 2026, against $106.1 million of amortized cost. The CLO Formation JV was the largest single drag on the quarter, while Great Elm Specialty Finance distributions increased meaningfully, according to the company.

Bottom Line

Great Elm's earnings no longer cover its distribution, and the CLO joint venture is the swing factor for NAV.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.