See accompanying notes to the consolidated financial statements.
Notes to Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 1. Organization and Operations of the Company
TriLinc Global Impact Fund, LLC (the “Company”) was organized as a Delaware limited liability company on April 30, 2012 and formally commenced operations on June 11, 2013. The Company makes impact investments in Small and Medium Enterprises, known as SMEs, which the Company defines as those businesses having less than 500 employees, primarily in developing economies that provide the opportunity to achieve both competitive financial returns and positive measurable impact. The Company uses the proceeds raised from the issuance of units to invest in SMEs through local market sub-advisors in a diversified portfolio of financial assets, including direct loans, convertible debt instruments, trade finance, structured credit and preferred and common equity investments. To a lesser extent, the Company may also make impact investments in companies that may not meet our technical definition of SMEs due to a larger number of employees but that also provide the opportunity to achieve both competitive financial returns and positive measurable impact. In addition, the Company may also make investments in developed economies, including the United States. The Company generally expects that such investments will have similar investment characteristics as SMEs as defined by the Company. The Company’s investment objectives are to generate current income, capital preservation and modest capital appreciation primarily through investments in SMEs. The Company is externally managed by TriLinc Advisors, LLC (the “Advisor”). The Advisor is an investment advisor registered with the Securities and Exchange Commission (“SEC”).
TriLinc Global, LLC (the “Sponsor”) is the sponsor of the Company and employs staff who operate both the Advisor and the Company. The Sponsor owns 100% of the Advisor.
In May 2012, the Advisor purchased 22,161 Class A units for aggregate gross proceeds of $200,000. The Company commenced its initial public offering of up to $1,500,000,000 in units of limited liability company interest (the “Offering”) on February 25, 2013. On June 11, 2013, the Company satisfied its minimum offering requirement of $2,000,000 when the Sponsor purchased 321,330 Class A units for aggregate gross proceeds of $2,900,000 and the Company commenced operations. The primary public offering terminated on March 31, 2017. The Company continues to offer and sell units pursuant to its Distribution Reinvestment Plan (“DRP”). Through the termination of the primary offering, the Company raised approximately $361,776,000 in gross proceeds, including approximately $13,338,000 raised through the DRP. For the period from April 1, 2017 to September 30, 2022, the Company raised an additional $100,108,000 pursuant to a private placement and $50,814,000 pursuant to the DRP, for total gross proceeds of approximately $512,698,000 as of September 30, 2022.
Although the Company was organized and intends to conduct its business in a manner so that it is not required to register as an investment company under the Investment Company Act of 1940, as amended, the consolidated financial statements are prepared using the specialized accounting principles of the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies. Overall, the Company’s management believes the use of investment company accounting makes the Company’s financial statements more useful to investors and other financial statement users since it allows a more appropriate basis of comparison to other entities with similar objectives.
To assist the Company in achieving its investment objective, the Company makes investments via wholly owned subsidiaries (each a “Subsidiary” and collectively, the “Subsidiaries”), all of which are Cayman Islands exempted companies. The Subsidiaries own all of the Company’s investments. As of September 30, 2022, the Company’s subsidiaries are as follows:
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TriLinc Global Impact Fund – Asia, Ltd. |
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TriLinc Global Impact Fund – Latin America, Ltd. |
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TriLinc Global Impact Fund – Trade Finance, Ltd. |
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TriLinc Global Impact Fund – African Trade Finance, Ltd. |
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TriLinc Global Impact Fund – Africa, Ltd. |
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TriLinc Global Impact Fund – Latin America II, Ltd. |
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TriLinc Global Impact Fund – African Trade Finance II, Ltd. |
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TriLinc Global Impact Fund – Latin America III, Ltd. |
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TriLinc Global Impact Fund – Asia II, Ltd. |
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TriLinc Global Impact Fund – Asia III, Ltd. |
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TriLinc Global Impact Fund – Asia IV, Ltd. |
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TriLinc Global Impact Fund – African Trade Finance III, Ltd. |
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TriLinc Global Impact Fund – Europe, Ltd. |
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TriLinc Global Impact Fund – North America, Ltd. |
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TriLinc Global Impact Fund – Africa Latin America, Ltd. |
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TriLinc Global Impact Fund - Africa Latin America Trade Finance, Ltd |
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TriLinc Global Impact Fund – Cayman, Ltd. |
Through September 30, 2022, the Company has made, through its Subsidiaries, loans in a number of countries located in South America, Asia, Africa, North America, and Europe.
Liquidity
The COVID-19 pandemic and its lingering effects has adversely impacted many of the Company’s borrowers both directly and indirectly. First, the adverse impact on the global supply chain has been one of the largest challenges for our borrowers, as most of them are exporters directly tied to global trade. Some of these challenges include: demand from suppliers to be paid in cash rather than supplier credit, significant increases in shipping costs (when and if shipping is reliably available), and delays in the payment of receivables, all of which put pressure on borrowers’ working capital needs. Although not as severe as they once were, supply chain problems continue to be aggravated by China’s rolling lockdowns to control COVID-19 and the conflict between Russia and Ukraine. Second, our borrowers experienced challenges related to the decrease in global demand during 2020 and 2021, which decreased revenue for many of them. Additionally, input costs remain high and the conflict between Russia and Ukraine has increased the disruption, instability and volatility in global markets and industries. The Company expects some of the regions in which it invests to achieve economic normalization once the lingering supply chain disruptions and input cost increases dissipate. However, the Company believes certain regions, industries and borrowers may experience further material economic distress due to the compound impact of more than two years of economic hardship and some borrowers may find it difficult or impossible to recover. If the continuing impacts of COVID-19 combined with rising input costs further adversely affect borrowers’ businesses, financial condition and results of operations, borrowers may be unable to make required payments in the near term, which could impact the fair value of the Company’s investments.
While inflation and rising interest rates are major issues in most advanced economies, the Company believes they are not core issues in the Company’s markets. The Company continues to believe that the central issue driving results is that borrowers are struggling to recover from the compound impact of more than two years of economic hardship. Indeed, although the Company’s NAV per unit modestly decreased by $0.06 as of September 30, 2022, compared to the NAV per unit as of June 30, 2022, the Company’s NAV is a reflection of the cumulative effect of 11 consecutive quarters of the adverse economic impact of COVID-19 and its ramifications, including persistent supply chain and cash flow issues, on our borrowers.
As a result of the current macro-economic environment, the Company has experienced decreased liquidity; however, it expects this will be short-lived, as the decline in liquidity is primarily the result of the inconsistent cash flows generated from the existing portfolio caused by these economic uncertainties. The decrease in liquidity has the potential to impact the Company’s ability to cover its future distributions to its unitholders or meet other Company obligations. In order to address the Company’s temporary liquidity needs, on September 1, 2022, the Company sold $1.25 million of its investment in Africell Holding Limited to an entity whose advisor is under common ownership with the Company’s Advisor and, subsequent to September 30, 2022, the Company sold one of its participation interests to a third party for $5.0 million, with an agreement to repurchase the participation from the buyer in approximately four months (as further discussed in Note 11 to the financial statements). In addition, the Company anticipates closing a significant leverage facility prior to year-end, and, in the short-term, may pursue additional repurchase or other financial transactions, as needed, in order to supplement cash flows to allow it to maintain normal future operations.
Note 2. Significant Accounting Policies
Basis of Presentation
The Company’s financial information is prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company follows the accounting and reporting guidance in the FASB ASC Topic 946 — Financial Services, Investment Companies (“ASC 946”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may differ from these estimates. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business, the businesses of the Company's borrowers and the global markets generally. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including fair value measurements, and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
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The interim consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP is not required for interim reporting purposes and has been omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 30, 2022.
The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results that ultimately may be achieved for the full year ending December 31, 2022.
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, which were established to hold certain investments of the Company. The Company owns 100% of each subsidiary and, as such, the subsidiaries are consolidated into the Company’s consolidated financial statements. Transactions between subsidiaries, to the extent they occur, are eliminated in consolidation. The consolidated financial statements reflect all adjustments, consisting solely of normal recurring accruals, that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. These financial statements are presented in United States (“U.S.”) dollars, which is the functional and reporting currency of the Company and all its subsidiaries.
Cash
Cash consists of demand deposits at a financial institution located in the U.S. Such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Company considers the credit risk of this financial institution to be remote and has not experienced and does not expect to experience any losses in any such accounts. The Company limits its credit risk by selecting financial institutions considered to be highly creditworthy.
Revenue Recognition
The Company records interest income on an accrual basis to the extent that the Company expects to collect such amounts. The Company does not accrue as a receivable interest on loans for accounting purposes if there is reason to doubt the ability to collect such interest. Structuring, upfront and similar fees are recorded as a discount on investments purchased and are accreted into interest income, on a straight-line basis over the life of the associated loan, which the Company has determined not to be materially different from the effective yield method.
The Company records prepayment fees for loans and debt securities paid back to the Company prior to the maturity date as income upon receipt.
The Company generally places loans on non-accrual status when there is a reasonable doubt that principal or interest will be collected. If, however, management believes the principal and interest will be collected, a loan may be left on accrual status during the period the Company is pursuing repayment of the loan. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment of the financial condition of the borrower. Non-accrual loans are generally restored to accrual status when past due principal and interest is paid and, in the Company’s management’s judgment, is likely to remain current over the remainder of the term.
Valuation of Investments
The Company carries all of its investments at fair value with changes in fair value recognized in the consolidated statement of operations. Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value measurement guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:
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Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
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Level 2 — Valuations based on inputs other than quoted prices included in Level 1, which are either directly or indirectly observable. |
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Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. |
These investments include debt and equity investments in private companies or assets valued using the income, market or cost approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. The information may also include pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. Certain investments may be valued based upon a collateral approach, which uses estimated value of underlying collateral and include adjustments deemed necessary for estimates of costs to obtain control and liquidate available collateral. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.
The inputs used in the determination of fair value may require significant judgment or estimation.
Investments for which market quotations are readily available are valued at those quotations. Most of the Company’s investments are loans to private companies, which are not actively traded in any market and for which quotations are not available. For those investments for which market quotations are not readily available, or when such market quotations are deemed by the Advisor not to represent fair value, the Company’s board of managers has approved a multi-step valuation process to be followed each fiscal quarter, as described below:
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Each investment is valued by the Advisor on a quarterly basis; |
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Materiality is assessed quarterly on all investments to determine whether an independent review is appropriate. The Advisor engages a third-party valuation firm to conduct an independent review of the reasonableness of the Advisor’s internal estimates of fair value on qualifying loans, and to provide an opinion of whether they concur with the Advisor’s analysis. The independent assessment occurs on a discretionary basis based on qualifications that takes into account both quantitative thresholds and qualitative considerations, as determined by the Advisor. The analysis performed by the independent valuation firm was based upon data and assumptions provided to it by the Company and received from third party sources, which the independent valuation firm relied upon as being accurate without independent verification. The results of the analyses performed by the independent valuation firm are among the factors taken into consideration by the Company and its management in making its determination with respect to the fair value of such investments, but are not determinative. The Company and its management are solely and ultimately responsible for determining the fair value of the Company’s investments in good faith; |
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The audit committee of the Company’s board of managers reviews and discusses the preliminary valuation prepared by the Advisor and any report rendered by the independent valuation firm; and |
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The board of managers discusses the valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the inputs which include but are not limited to, inputs of the Advisor, the independent valuation firm and the audit committee. The Company and its board of managers are solely and ultimately responsible for the determination, in good faith, of the fair value of each investment. |
Below is a description of factors that the Company’s board of managers may consider when valuing the Company’s investments.
Any potential valuation adjustments are subject to a materiality threshold as determined by the Advisor. Due to the fact that all non-Watch List investments are performing loans, with no macroeconomic indicator or other event observed that would reasonably be expected to have a material impact on the underlying performance or collateral value of the investment, most of these investments generally do not deviate materially from the amortized cost. If, pursuant to the Company's quarterly review, the Company determines that one or more material valuation adjustments are appropriate, then the Company adjusts the fair value. Historically, in most cases when these adjustments that have resulted in a fair value that is materially different from the investment’s amortized cost, the Company has determined to place it on the Watch List. Fixed income investments are typically valued utilizing a market approach, income approach, collateral based approach, or a combination of these approaches (and any others, as appropriate). The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including the sale of a business) and is used less frequently due to the private nature of the Company’s investments. The income approach uses valuation techniques to convert future amounts (for example, interest and principal payments) to a single present value amount (Discounted Cash Flow or “DCF”) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. For Watch List investments, the Company predominantly uses the income approach, but may also use a collateral based approach (also known as a liquidation or net recovery approach), or a hybrid approach consisting of the income approach and the collateral based approach. The collateral based approach uses estimates of the collateral value of the borrower’s assets using an expected recovery model. When using the collateral based approach, the Company determines the fair value of the remaining assets, discounted to reflect the anticipated amount of time to recovery and the uncertainty of recovery. The Company also may make further adjustments to account for anticipated costs of recovery, including legal fees and expenses. In following a given approach, the types of factors that the Company may take into account in valuing the Company’s investments include, as applicable:
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Macro-economic factors that are relevant to the investment or the underlying borrower |
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Industry factors that are relevant to the investment or the underlying borrower |
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Historical and projected financial performance of the borrower based on most recent financial statements |
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Borrower draw requests and payment track record |
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Loan covenants, duration and drivers |
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Performance and condition of the collateral (nature, type and value) that supports the investment |
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Sub-Advisor recommendation as to possible impairment or reserve, including updates and feedback |
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For participations, the Company’s ownership percentage of the overall facility |
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Key inputs and assumptions that are believed to be most appropriate for the investment and the approach utilized |
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Applicable global interest rates |
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Impact of investments placed on non-accrual status |
With respect to warrants and other equity investments, as well as certain fixed income investments, the Company may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies, option pricing models or industry practices in determining fair value. The Company may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors the Company deems relevant in measuring the fair values of the Company’s investments.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation on Investments
The Company records all of its investment transactions on a trade date basis. The Company measures net realized gains or losses by the difference between the net proceeds from the repayment or sale on investments and the amortized cost basis of the investment including unamortized upfront fees and prepayment penalties. Realized gains or losses on the disposition of an investment are calculated using the specific identification method, utilizing the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Payment-in-Kind Interest
The Company has investments that contain a payment-in-kind, or PIK, interest provision. For loans with contractual PIK interest, any interest will be added to the principal balance of such investments and be recorded as income, if the valuation indicates that such interest is collectible as of September 30, 2022. For the three and nine months ended September 30, 2022, the Company earned and capitalized PIK interest of $4,675,878 and $15,857,638, respectively. For the three and nine months ended September 30, 2021, the Company earned and capitalized PIK interest of $6,049,186 and $15,640,421, respectively.
Distribution and Ongoing Dealer Manager and Service Fees
The Company pays a distribution fee equal to 0.8% per annum of the Company’s current estimated value per share for each Class C unit sold in the Offering or pursuant to a private placement. The distribution fee is payable until the earlier to occur of the following: (i) a listing of the Class C units on a national securities exchange, (ii) following completion of each respective offering, total selling compensation equaling 10% of the gross proceeds of such offering, or (iii) there are no longer any Class C units outstanding. In addition, the Company pays an ongoing dealer manager fee for each Class I unit and Class W unit sold pursuant to a private placement. Such ongoing dealer manager fee is payable for five years until the earlier of: (x) the date on which such Class I units or Class W units are repurchased by the Company; (y) the listing of the Class I units or Class W units on a national securities exchange, the sale of the Company or the sale of all or substantially all of the Company’s assets; or (z) the fifth anniversary of the admission of the investor as a unitholder. Further, the Company pays an ongoing service fee for each Class W unit sold pursuant to the private placement. Such ongoing service fee is payable for six years until the earlier of: (x) the date on which such Class W units are repurchased by the Company; (y) the listing of the Class W units on a national securities exchange, the sale of the Company or the sale of all or substantially all of the Company’s assets; or (z) the sixth anniversary of the admission of the investor as a unitholder. The distribution fees, ongoing dealer manager fees and service fees are not paid at the time of purchase. Such fees are payable monthly in arrears, as they become contractually due.
The Company accounts for the distribution fees as a charge to equity at the time each Class C unit was sold in the Offering and recorded a corresponding liability for the estimated amount to be paid in future periods. The Company accounts for the ongoing dealer manager fees and service fees paid in connection with the sale of Class I and Class W units in the private placement in the same manner. At September 30, 2022, the estimated unpaid distribution fees for Class C units amounted to $409,000, the unpaid dealer manager fees for Class I units amounted to $18,000 and the unpaid dealer manager and service fees for Class W units amounted to $1,000.
Income Taxes
The Company is classified as a partnership for U.S. federal income tax purposes. As such, the Company allocates all income or loss to its unitholders according to their respective percentage of ownership, and is generally not subject to tax at the entity level. Therefore, no provision for federal or state income taxes has been included in these financial statements.
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The Company and its subsidiaries may be subject to withholding taxes on income and capital gains imposed by certain countries in which the Company invests. The withholding tax on income is netted against the income accrued or received. Any reclaimable taxes are recorded as income. The withholding tax on realized or unrealized gain is recorded as a liability.
The Company follows the guidance for uncertainty in income taxes included in the ASC 740, Income Taxes. This guidance requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position.
As of September 30, 2022, no tax liability for uncertain tax provision had been recognized in the accompanying financial statements nor did the Company recognize any interest and penalties related to unrecognized tax benefits. The earliest year that the Company’s income tax returns are subject to examination is the period ended December 31, 2017.
Unitholders are individually responsible for reporting income or loss, to the extent required by the federal and state income tax laws and regulations, based upon their respective share of the Company’s income and expense as reported for income tax purposes.
Calculation of Net Asset Value
The Company’s net asset value is calculated on a quarterly basis. As of September 30, 2022, the Company has six classes of units: Class A units, Class C units, Class I units, Class W units, Class Y units and Class Z units. All units participate in the income and expenses of the Company on a pro-rata basis based on the number of units outstanding. Under GAAP, pursuant to SEC guidance, the Company records liabilities for (i) ongoing fees that the Company currently owes to the dealer manager under the terms of the dealer manager agreement and (ii) for an estimate of the fees that the Company may pay to the dealer manager in future periods. As of September 30, 2022, under GAAP, the Company has recorded a liability in the amount of $428,000 for the estimated future amount of Class C unit distribution fees, Class I unit dealer manager fees, Class W unit ongoing dealer manager fees and Class W unit service fees payable.
The Company does not deduct the liability for estimated future distribution fees in its calculation of net asset value per unit for Class C units. Further, the Company does not deduct the liability for estimated future dealer manager fees in its calculation of the net asset value per unit for Class I units and Class W units. Likewise, the Company does not deduct the liability for estimated future service fees in its calculation of the net asset value per unit for Class W units. The Company believes this approach is consistent with the industry standard and appropriate since the Company intends for the net asset value to reflect the estimated value on the date that the Company determines its net asset value.
Accordingly, the Company believes that its estimated net asset value at any given time should not include consideration of any estimated future distribution, ongoing dealer manager or service fees that may become payable after such date. As a result, as of September 30, 2022, each of the Class A, Class C, Class I, Class W, Class Y and Class Z units have the same net asset value per unit of approximately $6.84, which is different than the net asset value per unit of approximately $6.81 (on an aggregate basis for all unit classes) as shown in Note 10 – Financial Highlights. This net asset value per unit reflects a decrease of approximately $0.28 per unit from the net asset value per unit of approximately $7.12 as of December 31, 2021. The decrease in net asset value per unit was due to a combination of factors, including the adverse impact of COVID-19 and inflation and the Company having recorded $10,866,588 in unrealized depreciation on its investments during the nine months ended September 30, 2022.
See Note 3 “Investments — Watch List Investments” for additional information.
Net Income (Loss) per Unit
Basic net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members’ units outstanding during the period. Diluted net income or loss per unit is computed by dividing net income (loss) by the weighted average number of members’ units and members’ unit equivalents outstanding during the period. The Company did not have any potentially dilutive units outstanding at September 30, 2022 and 2021.
Organization and Offering Costs
The Sponsor has incurred organization and offering costs on behalf of the Company. Organization and offering costs incurred in connection with the Offering were reimbursable to the Sponsor to the extent the aggregate of selling commissions, dealer manager fees and other organization and offering costs did not exceed 15.0% of the gross offering proceeds raised from the Offering (the “O&O Reimbursement Limit”) and were accrued and payable by the Company only to the extent that such costs did not exceed the O&O Reimbursement Limit. Reimbursements to the Sponsor of organization and offering costs are included as a reduction to net assets on the Consolidated Statement of Changes in Net Assets. Based on the proceeds raised in the Offering as of the end of the Offering, the organization and offering costs have not exceeded the O&O Reimbursement Limit. The Company continues to incur certain offering costs associated with the DRP as well as the ongoing fees described above in “Distribution and Ongoing Dealer Manager and Service Fees.” The Company may incur these costs directly, or may reimburse the Sponsor for paying these offering costs on behalf of the Company.
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Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces an approach based on expected losses to estimate credit losses for financial instruments measured at amortized cost. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. The guidance requires companies to apply the requirements in the year of adoption through cumulative adjustment with some aspects of the update requiring a prospective transition approach. The Company believes that the adoption of ASU 2016-13 will not have a material impact on its consolidated financial statements.
Risk Factors
As an externally-managed company, the Company is largely dependent on the efforts of the Advisor, the sub-advisors and other service providers and has been dependent on the Sponsor for financial support in prior periods.
The Company’s sub-advisors are responsible for locating, performing due diligence and closing on suitable acquisitions based on their access to local markets, local market knowledge for quality deal flow and extensive local private credit experience. However, because the sub-advisors are separate companies from the Advisor, the Company is subject to the risk that one or more of its sub-advisors will be ineffective or materially underperform. The Company’s ability to achieve its investment objectives and to pay distributions to unitholders will be dependent upon the performance of its sub-advisors in the identification, performance of due diligence on and acquisition of investments, the determination of any financing arrangements, and the management of the Company’s projects and assets. The Company is subject to the risk that the Company’s sub-advisors may fail to perform according to the Company’s expectations, or the due diligence conducted by the sub-advisors may fail to reveal all material risks of the Company’s investments, which could result in the Company being materially adversely affected.
The Company is subject to financial market risks, including changes in interest rates. Global economies and capital markets can and have experienced significant volatility, which has increased the risks associated with investments in collateralized private debt instruments. Investment in the Company carries risk and there are no guarantees that the Company’s investment objectives will be achieved. The Company relies on the ability of the Advisor and the ability of the sub-advisors’ investment professionals to obtain adequate information to evaluate the potential returns from these investments, which primarily are made in, with or through private companies. If the Company is unable to uncover all material information about these companies or is provided incorrect or inadequate information about these companies from the Company’s subadvisors, the Company may not make a fully informed investment decision, and the Company may lose money on its investments. As described further in “Note 3—Investments—Watch List Investments,” IIG was the sub-advisor with respect to five of the 21 investments that the Company has deemed Watch List investments, which are investments with respect to which the Company has determined there have been significant changes in the credit and collection risk of the investment. As described in Note 3, IIG failed to provide the Company with complete and accurate information with respect to the Company’s investments for which IIG was the sub-advisor, and sold the Company a $6 million participation in a loan that did not exist. In November 2019, the SEC charged IIG with fraud and revoked IIG's registration as an investment adviser. On March 30, 2020, the SEC obtained a final judgment on consent that enjoins IIG from violating the antifraud provisions of the federal securities laws. IIG has ceased operations and the Company does not expect to receive any further reporting from IIG with respect to its outstanding investments. IIG’s acts and omissions have negatively affected and are likely to continue to negatively affect the value of certain of the Company’s investments, which could adversely affect returns to the Company’s unitholders.
The Company’s investments consist of loans, loan participations and trade finance participations that are illiquid and non-traded, making purchase or sale of such financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.
The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral securing the loan and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as the Company’s borrowers, and those for which market yields are observable increase materially. The majority of the Company’s investments are in the form of participation interests, in financing facilities originated by one of the Company’s sub-advisors. Accordingly, the Company’s counterparty for investments in participation interests generally will be the respective sub-advisor or its affiliate. The Company will not have a contract with the underlying borrower and therefore, in the event of default, will not have the ability to directly seek recovery against the collateral and instead will have to seek recovery through the Company’s sub-advisor counterparty, which
14
increases the risk of full recovery. These risks may be further exacerbated by the adverse impact the COVID-19 pandemic has had and is expected to continue to have on the business of our borrowers. In addition, as of September 30, 2022 and December 31, 2021, all of the Company’s investments were denominated in U.S. dollars. If the U.S. dollar rises, it may become more difficult for borrowers to make loan payments if the borrowers are operating in markets where the local currencies are depreciating relative the U.S. dollar.
In addition, certain of the Company’s investments in loans contain a PIK interest provision. These investments may expose us to higher risks, including an increased risk of potential loss because PIK interest results in an increase in the size of the outstanding loan balance. The Company may also be exposed to the risk that it may be more difficult to value the investments because the continuing accrual of interest requires continuing subjective judgments about the collectability of the deferred payments and the value of the underlying collateral. To the extent the loan is structured as a PIK interest-only loan, the probability and magnitude of a loss on the Company’s investment may increase.
At September 30, 2022, the Company’s largest loan by value was $37,254,268 or 12.6% of total investments and provides for PIK interest, with principal and interest due at maturity. The Company’s five largest loans by value comprised 37.0% of the Company’s portfolio at September 30, 2022. Participation in loans amounted to 58.4% of the Company’s total portfolio at September 30, 2022.
Note 3. Investments
As of September 30, 2022, the Company’s investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
of Total
Investments |
|
|
Senior secured term loans |
|
$ |
129,266,765 |
|
|
$ |
118,328,770 |
|
|
|
39.9 |
% |
|
Senior secured term loan participations |
|
|
146,219,640 |
|
|
|
128,851,567 |
|
|
|
43.4 |
% |
|
Senior secured trade finance participations |
|
|
67,761,665 |
|
|
|
44,591,325 |
|
|
|
15.0 |
% |
|
Other investments |
|
|
6,000,000 |
|
|
|
3,758,063 |
|
|
|
1.3 |
% |
|
Equity warrants |
|
|
— |
|
|
|
1,205,503 |
|
|
|
0.4 |
% |
|
Total investments |
|
$ |
349,248,070 |
|
|
|
296,735,228 |
|
|
|
100.0 |
% |
As of December 31, 2021, the Company’s investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
of Total
Investments |
|
|
Senior secured term loans |
|
$ |
122,535,227 |
|
|
$ |
119,374,062 |
|
|
|
39.5 |
% |
|
Senior secured term loan participations |
|
|
147,557,201 |
|
|
|
132,290,743 |
|
|
|
43.9 |
% |
|
Senior secured trade finance participations |
|
|
67,157,549 |
|
|
|
45,092,689 |
|
|
|
15.0 |
% |
|
Other investments |
|
|
6,000,000 |
|
|
|
3,758,063 |
|
|
|
1.2 |
% |
|
Equity warrants |
|
|
— |
|
|
|
1,088,168 |
|
|
|
0.4 |
% |
|
Total investments |
|
$ |
343,249,977 |
|
|
$ |
301,603,725 |
|
|
|
100.0 |
% |
Participations
The majority of the Company’s investments are in the form of participation interests (“Participations”). Participations are interests in financing facilities originated by one of the Company’s sub-advisors. Participations may be interests in one specific loan or trade finance transaction, several loans or trade finance transactions under a facility, or may be interests in an entire facility. The Company’s rights under Participations include, without limitation, all corresponding rights in payments, collateral, guaranties, and any other security interests obtained by the respective sub-advisor in the underlying financing facilities.
Interest Receivable
Depending on the specific terms of the Company’s investments, interest earned by the Company is payable either monthly, quarterly, or, in the case of most trade finance investments, at maturity. In addition, certain of the Company’s investments in term loans accrue deferred interest, which is not payable until the maturity of the loans. Accrued deferred interest included in the interest receivable balance as of September 30, 2022 and December 31, 2021 amounted to approximately $4,164,000 and $3,487,000, respectively. The Company’s interest receivable balances at September 30, 2022 and December 31, 2021 are recorded at the amounts that the Company expects to collect.
15
Trade Finance
Trade finance encompasses a variety of lending structures that support the export, import or sale of goods between producers and buyers in various countries and across various jurisdictions. The strategy is most prevalent in the financing of commodities. The Company’s Participations in trade finance positions typically fall into two broad categories: pre-export financing and receivable/inventory financing. Pre-export financing represents advances to borrowers based on proven orders from buyers. Receivable/inventory financing represents advances on borrowers’ eligible receivable and inventory balances. For trade finance, the structure and terms of the facility underlying the Company’s Participations vary according to the nature of the transaction being financed. The structure can take the form of a revolver with multiple draw requests and maturity of up to one year based on collateral and performance requirements. The structure can also be specific to the individual transaction being financed, which typically have shorter durations of 60 – 180 days. With respect to underwriting, particular consideration is given to the following:
|
|
• |
nature of the goods or transaction being financed, |
|
|
• |
the terms associated with the sale and repayment of the goods, |
|
|
• |
the execution risk associated with producing, storing and shipment of the goods, |
|
|
• |
the financial and performance profile of both the borrower and end buyer(s), |
|
|
• |
the underlying advance rate and subsequent Loan to Value (“LTV”) associated with lending against the goods that serve to secure the facility or transaction, |
|
|
• |
collateral and financial controls (collection accounts and inventory possession), |
|
|
• |
third party inspections and insurance, and |
|
|
• |
the region, country or jurisdiction in which the financing is being completed. |
Collateral varies by transaction, but is typically raw or finished goods inventory, and/or receivables. In the case of pre-export finance, the transaction is secured by purchase orders from buyers or offtake contracts, which are agreements between a buyer and seller to purchase/sell a future product.
Terms depend on the nature of the facility or transaction being financed. As such, they depend on the credit profile of the underlying financing, as well as the speed and detail associated with the request for financing. Interest can be paid as often as monthly or quarterly on revolving facilities (one year in duration) or at maturity when dealing with specific transactions with shorter duration, which is the case for the majority of the Company’s trade finance positions. At times, settlement can be delayed due to documentation, shipment, transportation or port clearing issues, delays associated with the end buyer or off-taker assuming possession, possible changes to contract or offtake terms, and the aggregation of settlement of multiple individual transactions. Conversely, at times payments are made ahead of schedule, as transactions either clear faster than expected, borrowers decide to prepay or pay down ahead of schedule, counterparties clear multiple individual transactions in one settlement, or less expensive financing is secured by the borrower.
On occasion, the Company may receive notice from the respective sub-advisor that a borrower or counterparty to a financing facility underlying one of the Company’s Participations intends to pay ahead of schedule or in one lump sum (settling multiple draw requests all at once). Depending on timing and the ability to redeploy these funds, combined with projected inflows of fund capital, these outsize payments can negatively impact the Company’s performance. In these situations, the credit profile of the borrower, and the transaction in general, is reviewed with the sub-advisor and a request may be made to either stagger payments, where at all possible, or request that payment only be made at the end of that specific financial quarter. These requests or accommodations, which happen very rarely, will only be made where the Company has strong comfort in and around the credit profile of the transaction or borrower.
Short Term Investments
Short term investments are defined by the Company as investments that generally meet the standard underwriting guidelines for trade finance and term loan transactions and that also have the following characteristics: (1) maturity of less than one year, (2) loans to borrowers to whom, at the time of funding, the Company does not expect to re-lend. Impact data is not tracked for short term investments.
Warrants
Certain investments, including loans and participations, may carry equity warrants, which allow the Company to buy shares of the portfolio company at a given price, which the Company may exercise at its discretion during the life of the portfolio company. The Company’s goal is to ultimately dispose of such equity interests and realize gains upon the disposition of such interests. However, these warrants and equity interests are generally illiquid and it may be difficult for the Company to dispose of them. In addition, the Company expects that any warrants or other return enhancements received when the Company makes or invests in loans may require several years to appreciate in value and may not appreciate at all.
16
Watch List Investments
The Company monitors and reviews the performance of its investments and if the Company determines that there are any significant changes in the credit and collection risk of an investment, the investment will be placed on the Watch List. The Company places an investment on the Watch List when it believes the investment has material performance weakness driven by company-specific and macro events that may affect the timing of future cash flows. For all Watch List investments, the Company evaluates: (i) liquidation value of collateral; (ii) rights and remedies enforceable against the borrower; (iii) any credit insurance and/or guarantees; (iv) market, sector and macro events and (v) other relevant information (e.g., third party purchase of the borrower and potential or ongoing litigation). At September 30, 2022, eleven portfolio companies were on non-accrual status with an aggregate fair value of approximately $38,181,000 or 12.9% of the fair value of the Company’s total investments. At December 31, 2021, nine portfolio companies were on non-accrual status with an aggregate fair value of approximately $25,393,000 or 8.4% of the fair value of the Company’s total investments. As of September 30, 2022 and December 31, 2021, respectively, the Company had 21 and 17 Watch List investments.
As of September 30, 2022, the Company’s Watch List investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest not accrued on Investments on Watch List
status |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
Portfolio Company |
|
Principal Balance |
|
|
Fair Value |
|
|
Accrued Interest |
|
|
Sub-advisor |
|
Valuation Approach |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Trustco Group Holdings Ltd. (3) |
|
$ |
18,717,631 |
|
|
$ |
14,222,622 |
|
|
$ |
4,363,486 |
|
|
Helios |
|
Collateral based approach |
|
$ |
597,924 |
|
|
$ |
— |
|
|
$ |
597,924 |
|
|
$ |
— |
|
|
TRG Cape Verde Holdings Ltd. |
|
|
17,987,949 |
|
|
|
17,101,321 |
|
|
|
103,035 |
|
|
Helios |
|
Hybrid income/collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Helios Maritime |
|
|
16,443,585 |
|
|
|
7,476,711 |
|
|
|
2,811,920 |
|
|
Helios |
|
Hybrid income/collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Compania Argentina de Granos
S.A. (2), (3) |
|
|
12,500,000 |
|
|
|
5,592,112 |
|
|
|
664,011 |
|
|
IIG |
|
Income approach |
|
|
— |
|
|
|
333,820 |
|
|
|
— |
|
|
|
990,574 |
|
|
Frigorifico Regional Industrias
Alimentarias, S.A.,
Sucursal Uruguay (2), (3) |
|
|
9,000,000 |
|
|
|
6,361,679 |
|
|
|
264,500 |
|
|
IIG |
|
Collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Sancor Cooperativas Unidas Ltda |
|
|
5,802,296 |
|
|
|
4,393,274 |
|
|
|
1,347,047 |
|
|
IIG |
|
Collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
IIG TOF B.V. (2), (3) |
|
|
6,000,000 |
|
|
|
3,758,063 |
|
|
|
572,000 |
|
|
IIG |
|
Collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Algodonera Avellaneda S.A. (2), (3) |
|
|
6,000,000 |
|
|
|
3,398,558 |
|
|
|
778,500 |
|
|
IIG |
|
Collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Triton Metallics Pte Ltd. |
|
|
20,907,297 |
|
|
|
18,643,927 |
|
|
|
1,296,838 |
|
|
TransAsia |
|
Income approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Conplex International Ltd. (1), (2), (3) |
|
|
9,072,469 |
|
|
|
1,685,937 |
|
|
|
— |
|
|
TransAsia |
|
Collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Producam S.A. |
|
|
16,035,023 |
|
|
|
15,314,592 |
|
|
|
— |
|
|
Scipion |
|
Hybrid income/collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Global Pharma Intelligence
Sarl (1), (3) |
|
|
648,430 |
|
|
|
648,430 |
|
|
|
134,215 |
|
|
Scipion |
|
Collateral based approach |
|
|
24,194 |
|
|
|
24,194 |
|
|
|
71,793 |
|
|
|
71,793 |
|
|
Mac Z Group SARL (1), (3) |
|
|
1,433,058 |
|
|
|
628,862 |
|
|
|
183,152 |
|
|
Scipion |
|
Collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Applewood Trading 199 Pty,
Ltd. (1), (3) |
|
|
785,806 |
|
|
|
83,298 |
|
|
|
— |
|
|
Barak |
|
Hybrid income/collateral based approach |
|
|
35,143 |
|
|
|
35,143 |
|
|
|
104,283 |
|
|
|
104,283 |
|
|
Multiple ICD (Kenya) Limited |
|
|
15,062,231 |
|
|
|
13,072,206 |
|
|
|
4,586,391 |
|
|
Barak |
|
Income approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Agilis Partners Holding LLC (1) |
|
|
568,179 |
|
|
|
568,179 |
|
|
|
— |
|
|
Origin |
|
Income approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Agilis Partners |
|
|
12,100,913 |
|
|
|
11,071,375 |
|
|
|
361,162 |
|
|
Origin |
|
Income approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Usivale Industria E Commercio
Ltda (1), (3) |
|
|
2,851,296 |
|
|
|
555,673 |
|
|
|
635,932 |
|
|
N/A |
|
Hybrid income/collateral based approach |
|
|
90,573 |
|
|
|
90,573 |
|
|
|
268,766 |
|
|
|
268,766 |
|
|
Itelecom Holding Chile SPA (1), (3) |
|
|
1,456,162 |
|
|
|
1,245,868 |
|
|
|
322,032 |
|
|
Alsis |
|
Income approach |
|
|
— |
|
|
|
— |
|
|
|
40,489 |
|
|
|
— |
|
|
Limas Commodities House Limited |
|
|
22,219,565 |
|
|
|
17,791,170 |
|
|
|
— |
|
|
TransAsia |
|
Hybrid income/collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Vikudha Malaysia Sdn Bhd |
|
|
18,484,703 |
|
|
|
16,744,391 |
|
|
|
896,935 |
|
|
TransAsia |
|
Hybrid income/collateral based approach |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total Watchlist |
|
$ |
214,076,593 |
|
|
$ |
160,358,248 |
|
|
$ |
19,321,156 |
|
|
|
|
|
|
$ |
747,834 |
|
|
$ |
483,730 |
|
|
$ |
1,083,256 |
|
|
$ |
1,435,416 |
|
|
1 |
Investments with a fair value equal to less than 1.0% of the aggregate fair value of the Company's net assets as of September 30, 2022. Additional information regarding Watch List investments with a fair value equal to or greater than 1.0% of the aggregate fair value of the Company's net assets as of September 30, 2022 are presented below. |
|
2 |
Excludes interest not accrued with respect to investments which the Company may not legally accrue interest, such as those that are the subject of bankruptcy proceedings. |
|
3 |
Investments were on non-accrual status. |
17
As of December 31, 2021, the Company’s Watch List investments consisted of the following:
|
Portfolio Company |
|
Principal Balance |
|
|
Fair Value |
|
|
Accrued Interest |
|
|
Sub-advisor |
|
Valuation Approach |
|
Trustco Group Holdings Ltd. |
|
$ |
18,253,506 |
|
|
$ |
15,184,914 |
|
|
$ |
3,668,770 |
|
|
Helios |
|
Collateral based approach |
|
TRG Cape Verde Holdings Ltd. |
|
|
14,141,063 |
|
|
|
11,830,862 |
|
|
|
3,316,102 |
|
|
Helios |
|
Hybrid income/collateral based approach |
|
Helios Maritime |
|
|
17,007,004 |
|
|
|
8,673,930 |
|
|
|
2,770,970 |
|
|
Helios |
|
Hybrid income/collateral based approach |
|
Compania Argentina de Granos
S.A. (2), (3) |
|
|
12,500,000 |
|
|
|
5,772,744 |
|
|
|
664,010 |
|
|
IIG |
|
Income approach |
|
Frigorifico Regional Industrias
Alimentarias, S.A.,
Sucursal Uruguay (2), (3) |
|
|
9,000,000 |
|
|
|
6,361,679 |
|
|
|
264,500 |
|
|
IIG |
|
Collateral based approach |
|
Sancor Cooperativas Unidas Ltda |
|
|
5,802,296 |
|
|
|
4,393,274 |
|
|
|
877,559 |
|
|
IIG |
|
Collateral based approach |
|
IIG TOF B.V. (2), (3) |
|
|
6,000,000 |
|
|
|
3,758,063 |
|
|
|
572,000 |
|
|
IIG |
|
Collateral based approach |
|
Algodonera Avellaneda S.A. (2), (3) |
|
|
6,000,000 |
|
|
|
3,398,558 |
|
|
|
778,500 |
|
|
IIG |
|
Collateral based approach |
|
Triton Metallics Pte Ltd. |
|
|
19,777,304 |
|
|
|
17,634,943 |
|
|
|
833,343 |
|
|
TransAsia |
|
Income approach |
|
Conplex International Ltd. (2), (3) |
|
|
9,500,000 |
|
|
|
2,495,595 |
|
|
|
716,452 |
|
|
TransAsia |
|
Collateral based approach |
|
Producam S.A. |
|
|
14,979,753 |
|
|
|
14,387,877 |
|
|
|
— |
|
|
Scipion |
|
Hybrid income/collateral based approach |
|
Global Pharma Intelligence
Sarl (1), (3) |
|
|
648,430 |
|
|
|
648,430 |
|
|
|
134,215 |
|
|
Scipion |
|
Collateral based approach |
|
Mac Z Group SARL (3) |
|
|
1,433,058 |
|
|
|
628,862 |
|
|
|
210,568 |
|
|
Scipion |
|
Collateral based approach |
|
Applewood Trading 199 Pty,
Ltd. (1), (3) |
|
|
785,806 |
|
|
|
497,462 |
|
|
|
— |
|
|
Barak |
|
Hybrid income/collateral based approach |
|
Multiple ICD (Kenya) Limited |
|
|
14,612,822 |
|
|
|
13,058,231 |
|
|
|
3,689,897 |
|
|
Barak |
|
Income approach |
|
Usivale Industria E Commercio
Ltda (3) |
|
|
2,851,296 |
|
|
|
1,832,492 |
|
|
|
645,932 |
|
|
N/A |
|
Hybrid income/collateral based approach |
|
Itelecom Holding Chile SPA (1) |
|
|
1,456,162 |
|
|
|
1,456,162 |
|
|
|
281,987 |
|
|
Alsis |
|
Income approach |
|
Total Watchlist |
|
$ |
154,748,500 |
|
|
$ |
112,014,078 |
|
|
$ |
19,424,805 |
|
|
|
|
|
|
1 |
Investments with a fair value equal to less than 1.0% of the aggregate fair value of the Company's net assets as of December 31, 2021. Additional information regarding Watch List investments with a fair value equal to or greater than 1.0% of the aggregate fair value of the Company's net assets as of December 31, 2021 are presented below. |
|
2 |
Excludes interest not accrued with respect to investments which the Company may not legally accrue interest, such as those that are the subject of bankruptcy proceedings. |
|
3 |
Investments were on non-accrual status. |
Investments through Helios Investment Partners, LLP (“Helios”) as the Sub-Advisor
Trustco Group Holdings Ltd
In January 2017, the Company purchased a $15,000,000 Participation in a term loan facility with Trustco Group Holdings Ltd (“Trustco”), a Namibia based group operating a diversified set of business lines including property development, financial services (insurance, retail banking), education, and diamond mining. Repayment on this position has been slower than originally anticipated, largely due to a slowdown in the local real estate market. Helios has been actively working with the borrower to restructure the facility. As this has proved challenging, Helios issued a notice of default and acceleration notice to Trustco along with launching initial legal proceedings on April 15, 2020. A demand has also been made against Elisenheim as guarantor in respect of Trustco’s obligations to Helios. In addition to recourse against Trustco, Helios has the benefit of a security interest in property owned by the guarantor. During the fourth quarter of 2021, an initial judgment was issued in Helios’ favor in the UK and Trustco appealed the court’s decision and the requirements to deposit the full outstanding balance into an escrow account. This appeal was dismissed in February 2022 and we are now seeking enforcement of the UK judgment in Namibia, which is proceeding and the judge ordered a pre-trial conference hearing to be held prior to March 2023. Trustco is likely to pursue an appeal of the lower court's decision to the UK's Supreme Court; however, it is expected that any such appeal would be dismissed. The fair value declined by approximately $1,426,000 during the nine months ended September 30, 2022 as a result of the Namibian dollar weaking against the USD during the third quarter of 2022, thus affecting the potential value of the property collateral.
TRG Cape Verde Holdings Ltd
In May 2016, the Company purchased a $17,000,000 Participation in a term loan facility with TRG Cape Verde Holdings Ltd (“TRG Cape Verde”), an owner and developer of resorts based in Cabo Verde. Repayment on this position has been slower than originally anticipated due to regulatory changes in TRG Cape Verde’s fundraising model, along with further challenges associated with little to no occupancy at its resort properties due to the ongoing COVID-19 pandemic. The loan was restructured with a final maturity in December 2023. In addition to the restructuring being conducted, the borrower has pledged certain of its real properties as collateral in support of its repayment obligations under this facility. All hotels are up and operational and the borrower continues to pay monthly interest payments in a timely fashion.
18
Helios Maritime I
Between July 2015 and December 2017, the Company purchased six Participations totaling $15,300,000 in a term loan facility with Helios Maritime I (“Helios Maritime”), a company setup for the purposes of on-lending to Starz Investment Company, Ltd., a Nigerian shipping and logistics company for the purpose of acquiring a handling tug vessel. Repayment on this position has been slower than originally anticipated due to delays in acquiring a long-term contract, which was further prolonged based on challenges presented by the COVID-19 pandemic and the volatility in oil prices. The borrower has pledged a marine vessel as collateral in support of its repayment obligations under this facility.
The borrower received a term sheet subsequent to the fourth quarter of 2021 to support its performance against its obligations, which requires an $8 million payment in exchange for a partial forgiveness of debt and restructured amortization profile. An extension was granted to the borrower to meet this requirement and while the borrower was able to secure a loan facility from a local bank for the payment, it was funded in Namibian Nira, which is a difficult currency to convert to USD. Through the quarter ended September 30, 2022, approximately $563,000 has been converted and paid; however, as the extension date has passed, a demand notice was sent to both the borrower and the guarantor during the third quarter of 2022. The Company continues to work with the borrower on payment of the $8 million, with a new expected payment date of June 2023. The delay in payment resulted in a negative valuation adjustment of approximately $634,000 during the nine months ended September 30, 2022.
Investments through IIG as the Sub-Advisor
IIG was the sub-advisor with respect to certain investments that the Company made in South America, including five of the 21 Watch List investments as of September 30, 2022. Since June 30, 2018, the Company has discovered, among other things, that IIG failed to provide the Company with complete and accurate information with respect to the investments for which IIG was the sub-advisor and, in 2017, sold the Company a $6 million participation in a loan to Nacadie (defined below) that did not exist. The Company has not received any material updated information from IIG concerning the investments for which IIG was the sub-advisor since the first quarter of 2019, despite IIG being contractually obligated to provide the Company with updated information.
The SEC previously charged IIG with fraud on November 21, 2019 and revoked IIG's registration as an investment adviser on November 26, 2019. On March 30, 2020, the SEC obtained a final judgment on consent that enjoins IIG from violating the antifraud provisions of the federal securities laws. On July 17, 2020, the SEC filed fraud charges against David Hu, one of IIG's co-founders, who was also charged by the U.S. Attorney's Office for the Southern District of New York in a parallel criminal action. In January 2021, David Hu pled guilty to one count of securities fraud, one count of wire fraud, and one count of conspiracy to commit securities fraud and wire fraud and was sentenced to 12 years' imprisonment in April 2022. On April 13, 2021, the U.S. Attorney's Office for the Southern District of New York announced that Martin Silver, IIG's other co-founder, pled guilty to one count of conspiracy to commit investment adviser fraud, securities fraud, and wire fraud, one count of securities fraud, and one count of wire fraud for his role in overvaluing and selling fake loans to investors so IIG could collect management and performance fees. Also on April 13, 2021, the SEC filed a civil complaint against Martin Silver, asserting several claims that involve allegations of a string of frauds perpetrated by Mr. Silver and others at IIG in order to keep IIG afloat. IIG has ceased operations and the Company does not expect to receive any further reporting from IIG with respect to its outstanding investments. The Company is taking necessary steps, including legal action in some cases, in order to ascertain as much information as possible regarding these investments.
Most of the outstanding investments for which IIG was the sub-advisor were purchased from IIG TOF B.V., a Dutch Limited Liability Company advised by IIG. On December 11, 2019, a subsidiary of the Company filed an application in Amsterdam District Court to declare IIG TOF B.V. bankrupt. As set forth in the application for the Declaration of Bankruptcy, the Company and other creditors believe they have multiple due and payable claims against IIG TOF B.V. which IIG TOF B.V. has acknowledged it is unable to pay. On January 21, 2020, the Amsterdam District Court declared IIG TOF B.V. bankrupt and appointed a Dutch law firm as liquidator. The Company is seeking recovery of amounts due and payable to the Company with respect to the Participations it acquired from IIG TOF B.V. There can be no assurances as to when or if the Company will recover the amounts to which the Company believes it is entitled. Additional information regarding Watch List investments for which IIG was the sub-advisor with a fair value equal to or greater than 1.0% of the Company's net assets as of September 30, 2022 is presented below.
Compania Argentina de Granos
Between October 2016 and February 2017, the Company purchased two Participations in a trade finance facility originated by IIG TOF B.V., with Compania Argentina de Granos (“CAGSA”), as borrower. The Company purchased the initial Participation in October 2016 for $10,000,000 and subsequently increased the Participation by another $2,500,000 in February 2017. This facility was collateralized by two export contracts. CAGSA, an Argentine company, is mainly engaged in the trading of grain and oilseed and the distribution and processing of food ingredients. Due to unfavorable weather conditions, CAGSA was unable to make delivery of toasted soybean meal under the terms of its export contracts. As a result, it failed to pay IIG its outstanding principal due on June 30, 2018.
IIG previously informed the Company that it had been in active discussions with CAGSA and other CAGSA lenders to protect its rights under the credit facility. Additionally, IIG had previously informed the Company that IIG is a member of the creditors committee, which would determine all financial and restructuring options of CAGSA, which may include additional equity infusions by the existing shareholders. In February 2019, CAGSA disclosed that it had reached a preliminary settlement with its creditors.
19
Recently, the administrator of IIG TOF B.V.’s bankruptcy proceedings in the Netherlands notified the Company that the settlement discussions with CAGSA’s creditors had resumed and are close to being finalized. The administrator indicated that the terms of the settlement being discussed are different from the terms that had been part of the preliminary settlement that had been reached in February 2019. The settlement is expected to result in the assumption of the entirety of CAGSA’s debt by its parent company, Molinos Cañuelas (“MolCa”), with a portion to be repaid over a ten-year period and the remaining portion to be repaid over a period of up to ten years from the proceeds of the sale of 62.5% of the outstanding interests in MolCa, which are expected to be pledged to the unsecured creditors of CAGSA and MolCa as part of the proposed settlement. The proposed changes to the settlement terms were less favorable to the Company with respect to its Participations than the terms of the preliminary settlement that had been reached in February 2019 (but was never finalized) and therefore, had a negative impact on the valuation of this investment. On September 27, 2021, MolCa and CAGSA filed for debt restructuring in the Argentinian bankruptcy court. On March 11, 2022, IIG TOF BV filed claims on behalf of the Company for the court to recognize the amounts due. The terms of the restructuring had been widely pre-approved by the creditors group prior to the filing. Therefore, the Company does not expect significant changes to the restructuring plan other than it will delay its implementation by an estimated 12 months.
Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay and Algodonera Avellaneda S.A.
Between June 2016 and July 2016, the Company purchased two Participations in a trade finance facility originated by IIG TOF B.V., with Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay (“FRIAR”), an Argentine company that produces, processes and exports beef, as the borrower. In June 2017, IIG called a technical event of default due to non-payment by FRIAR. In an effort to seek repayment from FRIAR, IIG filed the promissory notes for FRIAR in the commercial court in Buenos Aires, Argentina.
In March 2017, the Company purchased a Participation in a trade finance facility originated by IIG TOF B.V., with Algodonera Avellaneda S.A. (“Algodonera”) as the borrower for $6,000,000. The loan agreement states that Vicentin has guaranteed the payments to be made by Algodonera under the facility. Algodonera is an Argentinian vertically integrated cotton business. IIG informed the Company that in June 2017, IIG called a technical default on Algodonera under the facility due to nonpayment of interest and on Vicentin under the payment guarantee due to the breach of informational covenants. Thereafter, IIG made a filing against Vicentin and Algodonera in the commercial court in Buenos Aires, Argentina on July 4, 2017.
In August 2019, the Company was informed by IIG’s legal counsel that the commercial court proceedings with FRIAR and Algonodera had been terminated due to the parties having reached a settlement. The Company obtained evidence that the settlement proceeds for all participant holders had been placed in an escrow account with a New York law firm. In January 2022, the largest participant holder with respect to claims against the escrow account filed an action in New York district court to release these funds to all the participant holders. The Company expects a final decision by the relevant bankruptcy courts and a final settlement agreement amongst all the creditors regarding the distribution of funds by the end of the first quarter of 2023.
Sancor Cooperativas Unidas Limitada
In April 2016 the Company purchased two Participations in a trade finance facility originated by IIG TOF B.V., with Sancor Cooperativas Unidas Limitada (“Sancor”), an Argentine company that distributes dairy products, as the borrower. IIG had worked with Sancor to restructure the existing loan and extended the maturity to July 29, 2019, with an annual renewal option. Since February 2019, Sancor has announced the sale of certain of its assets, which allowed it to make some payments to creditors and maintain operations, but the Company has not received any payment as a result of those asset sales. As noted above, IIG has ceased operations and the Company has taken legal action in an attempt to recover amounts due. During the quarter ended December 31, 2020, the Company learned, in connection with certain court proceedings in the United States Bankruptcy Court for the Southern District of New York regarding a fund advised by IIG, that funds had been received in a New York bank account controlled by an affiliate of IIG and that such funds may include prior debt service payments by Sancor related to the Company’s interests in the Sancor trade finance facility. During the year ended December 31, 2021, the Company was able to obtain control of the assets in the bank account and determined that they should primarily be allocated to outstanding interest. The Company is monitoring the proceedings and expects to take steps, which may include legal action, to obtain control over any funds in such account to which the Company is entitled. Sancor is engaged in ongoing negotiations with its lenders regarding a debt restructuring, including discussions with the administrator of IIG TOF B.V.’s bankruptcy proceedings in the Netherlands. The Company is continuing to actively monitor this process. During the year ended December 31, 2021, the Company received interest payments of approximately $700,000 and principal payments of approximately $198,000 from the borrower.
IIG Trade Opportunities Fund B.V. Receivable
In March 2017, the Company purchased a Participation from IIG TOF B.V. in what the Company at that time believed to be a trade finance facility originated by IIG TOF B.V., with Nacadie Commercial S.A. (“Nacadie”) as the borrower. The Company purchased the Participation in March 2017 for $6,000,000. In connection with the Company’s review of this investment during the third quarter of 2018, IIG informed the Company that IIG had misapplied the funds the Company had transmitted at the time the Company made this investment. As a result, IIG offered to refund the Company’s investment amount, including all accrued interest. However, IIG did not repay the Company for this Participation. As noted above, the Company knows that the Nacadie facility in which it purchased this Participation did not exist and the Company considers this asset to be a receivable from IIG TOF B.V. rather than a Participation in a trade finance facility.
20
As noted above, IIG TOF B.V. has been declared bankrupt in the Netherlands, and the Company is seeking to recover amounts to which it is entitled through the bankruptcy proceedings. The Company has applied a discount to the fair value based on the risk created by the uncertainty of the ultimate resolution of the Company’s attempt to recover amounts to which it is entitled through the bankruptcy proceedings in the Netherlands.
Investments through TransAsia Private Capital Ltd. (“TransAsia”) as the Sub-Advisor
Triton Metallics Pte. Ltd.
In November 2019, the Company made an investment in Triton Metallics Pte. Ltd. (“Triton”) totaling $16,456,270 in a trade finance facility. Triton is a Singapore based diversified commodities trading company. TransAsia informed the Company in early 2020 that due to the COVID-19 pandemic there have been constrained trading volumes. As a result, TransAsia then began working with the borrower to restructure the facility and a restructuring agreement was executed on August 17, 2020. We further amended the facility in June 2021, which reduced the interest rate from 11.5% to 6% PIK-only for a period of two years, in order to give Triton additional flexibility as it manages its business amidst the resurgence of the pandemic in Asia. The unpaid interest of $1,503,463 under the old trade finance facility has been capitalized and added to the outstanding principal balance as of the date of the new agreement. During the period of July 1, 2020 through August 16, 2020, $241,816 of interest income was recognized prior to the date the loan was restructured. Subsequent to September 30, 2022, the borrower was able to modestly increase its trading business and is expected to resume debt service to the Company in late 2023.
Conplex International Ltd.
Between November 2018 and May 2019, the Company purchased three Participations totaling $9,500,000 in a trade finance facility with Conplex International Ltd. (“Conplex”), a Hong Kong-based international open market distributor and wholesaler of electronics products. TransAsia had informed the Company that the borrower had a large portion of receivables overdue from a large off-taker. Subsequently, TransAsia began to actively work with the borrower to restructure the facility. While the restructuring was still progressing, TransAsia, after its regular search and review process, found that a winding-up petition was filed and approved on October 7, 2020. TransAsia immediately notified the Company while a court-appointed provisional liquidator took control of Conplex. On October 14, 2020, TransAsia appointed a receiver to enforce its rights under the secured facility. The facility is secured by a lien on four properties, accounts receivable and two personal guarantees. Deloitte was subsequently appointed as liquidator and has transferred the keys to the mortgaged properties to the receiver. One property was sold in the fourth quarter of 2021, with approximately $596,000 of interest payments received by the Company. Two other properties were sold in January 2022, with approximately $716,000 of interest payments and approximately $67,000 of principal payments received by the Company. A sale and purchase agreement was executed for the remaining property in March 2022 and closed in April 2022, with approximately $361,000 received by the Company. Given that this is a secured facility with the Company in liquidation, it has been valued using the collateral based approach to arrive at the estimated fair value. Our ability to collect under the guarantee is in question based on the statement of affairs filed with the bankruptcy trustee, and one of the two guarantors was forced into bankruptcy during the three months ended June 30, 2021. A funds tracing exercise regarding loan disbursements was commenced and continues to progress with results expected by the end of 2022. The exercise is to determine if there are any additional potential sources of recovery.
Vikudha Malaysia Sdn Bhd
In March 2017, the Company provided a $15,000,000 term loan facility to Vikudha Malaysia Sdn Bhd (“Vikudha”). Vikudha is a trading and manufacturing company, founded in 2007, principally involved in procurement of fast-moving consumer goods and agricultural related products. The borrower company had strong performance through year-end 2019 and then was significantly impacted by COVID-19 and was unable to meet scheduled debt repayments due to commence. The facility was successfully restructured in November 2020, and able to service the debt through when there was a resurgence of the pandemic in the Asia region and global supply chains continued to be disrupted. In June 2021, a six-month final maturity extension was granted to June 2023. During the second quarter of 2022, the local office of one of Vikudha’s local bank lenders filed a winding up petition against the company’s Hong Kong-based parent company and loan guarantor. The wind-up petition has been postponed until November 2022; however, based on the possibility of an enforcement, the Company issued a Reservation of Rights Letter to Vikudha in June 2022. In August 2022, the Company issued an Acceleration Notice to the borrower and Demand Notices to Corporate and Personal Guarantors. Once the winding up petition was granted by the Hong Kong court, the Company also filed proof of debt forms at the Hong Kong Receiver office to ensure legal rights are protected while continuing to work with the borrower on repayment of the debt.
Limas Commodities House Limited
In August 2017, the Company provided a $15,000,000 million senior secured term loan facility to Limas Commodities House Limited (“Limas”), a Hong Kong-based company 100% owned by an Indonesian entrepreneur. Limas was established as a financing SPV for PT Limas Tunggal, an Indonesian resource trader, for the purpose of gaining better access to international banking and capital markets. As a resource trading company, demand for Limas’ products were significantly affected by the global pandemic, reflected in lower shipping volume in 2020 and early 2021. The Company’s sub-advisor provided $6 million of working capital to Limas, which secured additional collateral for the sub-advisor and the Company in the form of assignment of three claims won in Korean cases totaling $15,000,000. The collateral was assigned pro-rata, adding $13.4 million to the Company’s existing collateral pool. Due to the
21
continued impact of COVID-19, in June 2020, the Company executed an extension of final maturity to June 2023. Subsequent to June 30, 2022, PT Limas Tunggal, the corporate guarantor of the Company’s facility, entered restructuring legal proceedings in Indonesia, and as a result, the Company issued an Acceleration Notice to the borrower and a Demand Notice to the Guarantor. The restructure legal proceedings concluded during the third quarter of 2022 which extended repayment of the debt and reduced the future interest rate from 11.5% to 10%. As a result, a negative valuation adjustment for the third quarter of 2022 of approximately $2.4 million was recognized.
Investments through Scipion Capital, Ltd. (“Scipion”) as the Sub-Advisor
Producam SA
Between March 2018 and June 2018, the Company purchased three Participations totaling $15,986,369 in a trade finance facility with Producam SA (“Producam”), a Cameroon based cocoa and coffee exporter, as the borrower. Repayment on these Participations has been slower than originally anticipated due to short run cash flow pressure on Producam. The original sub-advisor for this facility was Africa Merchant Capital Group (“AMC”). In the third quarter of 2018, AMC informed the Company that the borrower misapplied the proceeds from the sale of certain of its inventory to finance its own cash flow needs rather than repay the facility. AMC then began working with the borrower to restructure the facility to recover amounts due. In April 2021, Scipion replaced AMC as the sub-advisor with respect to Producam and has agreed to undertake efforts to liquidate the collateral underlying the facility in order to recover amounts due to the Company and the restructuring process is finalized. Under the new agreement, the loan was restructured with the interest rate reduced from 17.5% to 9.5% for the cocoa facility and 6.0% for the coffee facility retro-actively to January 1, 2019. As part of the restructure, the Company included a PIK component which increased the principal amount. The fair value as a percentage of face value decreased during the year ended December 31, 2021 due to collections from completed cocoa and coffee shipments being slower than anticipated resulting in further decline in fair value amounting to approximately $129,000 during the nine months ended September 30, 2022. As all interest was capitalized as part of the amendment, no interest remains outstanding as of the date of the new agreement. During the period from April 1, 2021 through April 14, 2021 (the date the loan was restructured), $49,014 of interest income was recognized. The Company is continuing to work with the borrower to process and sell the remaining coffee, as well as pursuing an arbitration settlement with the collateral manager.
Mac Z Group SARL
Between July 2016 and April 2017, the Company purchased nine Participations totaling $9,000,000 in a trade finance facility with Mac Z Group SARL (“Mac Z”), a scrap metal recycler, as the borrower. Mac Z is located in Morocco. The primary collateral securing this Participation was 1,970 tons of copper scrap. In late October 2017, Scipion’s designated collateral manager for Mac Z notified Scipion of an investigation into a 1,820 ton, approximately $13.3 million, shortage of copper scrap inventory physically held in the warehouse. The copper scrap is pledged to the Company and serves as the primary collateral for this Participation. The missing inventory led the Company to place Mac Z on the Watch List and on non-accrual status.
In addition to conducting its investigation, Scipion issued an event of default and has taken steps to enforce the corporate guarantee, personal guarantee and relevant pledges made for the benefit of Scipion with respect to the facility, which include two insurance policies. Scipion has placed a blocking notice on all of Mac Z’s bank accounts and has requested a freeze order from the Moroccan local courts on the physical assets of the company. Since the initial discovery and actions, Mac Z sold remaining inventory and the Company was paid interest of approximately $330,000 in January 2018 and $292,000 during the first week April 2018.
A judgment was received on December 18, 2017, in English court ordering the borrower and the corporate guarantor to make payment. In parallel to its recovery plan with respect to Mac Z, Scipion informed the Company that it has received a judgment in its favor with respect to its claim against the collateral manager under its professional indemnity insurance policy, which covers up to $40 million in losses. During the fourth quarter of 2020, $9,377,199 from a settlement under this insurance policy was received by the Company. The policy covered the copper scrap that was lost. The remaining copper scrap is being stripped and processed and currently expected to cover its principal value. The Company received approximately $27,000 in proceeds from the sale of the copper scrap during the first quarter of 2022 and continues to pursue options for sale of the remaining copper scrap.
Investments through Barak Fund Management Ltd. (“Barak”) as the Sub-Advisor
Multiple ICD (Kenya) Limited
In July 2017, the Company purchased a $15,000,000 Participation in a term loan facility with Multiple ICD (Kenya) Ltd ("MICD"), an inland container depot storage and warehousing company. Repayment on this position has been slower than originally anticipated due initially to unfavorable local industry dynamics at the Port of Mombasa, which were further complicated by the COVID-19 pandemic. Barak is in the midst of actively restructuring the loan facility with MICD and its other lenders. The loan is currently on standstill as the lenders’ discussions progress. Agreement on the final terms of the restructure is in progress with the other lenders, which has been slower than anticipated and the target for agreement on final terms has been revised to year-end 2022.
22
Investments through Origin Capital Ltd. (“Origin”) as the Sub-Advisor
Agilis Partners
In 2018, the Company originally provided financing totaling approximately $10,968,000 to Agilis Partners ("Agilis"), a Ugandan company engaged in the farming, storage, processing, and trading of maize, soybean, and sunflower seeds through Scipion. This financing was refinanced into a new loan through Origin, in July 2021 as part of a broader financial restructuring. Repayment on the facility has been slower than originally anticipated due to ongoing liquidity challenges of the borrower, as well as record drought conditions in Uganda, which resulted in a decline in fair value of $1,030,000 to account for increased credit risk associated with the position during the nine months ended September 30, 2022. The Company and Origin agreed to a deferral of Agilis’ March 2022 interest payment, and are actively working with the borrower on solutions to increase working capital, manage other creditor relationships and improve the overall financial condition of the borrower.
Other Investments
Usivale Industria E Commercio Ltda
In December 2013, the Company made an investment in Usivale Industria E Comercio, Ltda. (“Usivale”), a sugar processing company located in Brazil, comprised of two senior secured term loans for an aggregate loan amount of $2,500,000. During 2016, Usivale entered into a judicial recovery process that resulted in an approved repayment plan on October 7, 2016. The Company received regular annual interest payments for 2017 and 2018. Unfortunately, Usivale continued to have challenges and was not able to make any payments thereafter. Usivale is currently not complying with the payment obligations under the above mentioned judicial recovery process. The Company has been negotiating a potential restructuring of the loan to support the sustainability of Usivale, including engaging industry and financial consultants to that effect. The judge responsible for the bankruptcy proceedings of Usivale has asked the Company and Usivale to seek an agreement on a potential restructuring to be submitted to a creditors meeting to be held in June 2022. The judge overseeing the judicial restructuring urged Usivale and the Company to come to an agreement to avoid liquidation of the company. Usivale and the Company completed a settlement agreement in the second quarter of 2022. Terms of the settlement require Usivale to make an upfront payment of $10,000 and $200,000 per year for 5 years, for expected repayments totaling $1,010,000. The new settlement agreement requires assignment of new collateral that would shift the repayment risk to a receivable from SucDen, one of the world's largest traders of sugar. As the SucDen contract is Usivale's most important, execution risk on the settlement amount is expected to be lower. The first partial installment is expected on December 15, 2022.
23
The industry composition of the Company’s portfolio, at fair value as of September 30, 2022 and December 31, 2021, was as follows:
|
|
|
As of September 30, 2022 |
|
|
As of December 31, 2021 |
|
|
Industry |
|
Fair
Value |
|
|
Percentage
of Total |
|
|
Fair
Value |
|
|
Percentage
of Total |
|
|
Beef Cattle, Except Feedlots |
|
$ |
6,361,679 |
|
|
|
2.1 |
% |
|
$ |
6,361,679 |
|
|
|
2.1 |
% |
|
Boatbuilding and Repairing |
|
|
6,985,352 |
|
|
|
2.4 |
% |
|
|
6,466,030 |
|
|
|
2.1 |
% |
|
Chemicals and Allied Products |
|
|
16,744,391 |
|
|
|
5.6 |
% |
|
|
17,537,201 |
|
|
|
5.8 |
% |
|
Chocolate and Cocoa Products |
|
|
30,314,592 |
|
|
|
10.2 |
% |
|
|
29,387,877 |
|
|
|
9.7 |
% |
|
Coal and Other Minerals and Ores |
|
|
36,435,097 |
|
|
|
12.3 |
% |
|
|
38,024,207 |
|
|
|
12.6 |
% |
|
Computer Related Services, NEC |
|
|
19,246,894 |
|
|
|
6.5 |
% |
|
|
19,032,888 |
|
|
|
6.3 |
% |
|
Corn |
|
|
11,639,554 |
|
|
|
3.9 |
% |
|
|
11,694,030 |
|
|
|
3.9 |
% |
|
Corrugated and solid fiber boxes |
|
|
11,102,781 |
|
|
|
3.7 |
% |
|
|
12,387,189 |
|
|
|
4.1 |
% |
|
Cotton Ginning |
|
|
3,398,558 |
|
|
|
1.1 |
% |
|
|
3,398,558 |
|
|
|
1.1 |
% |
|
Dairy Farms |
|
|
4,393,274 |
|
|
|
1.5 |
% |
|
|
4,393,274 |
|
|
|
1.5 |
% |
|
Drugs, Proprietaries, and Sundries |
|
|
648,430 |
|
|
|
0.2 |
% |
|
|
648,430 |
|
|
|
0.2 |
% |
|
Electric Services |
|
|
1,245,868 |
|
|
|
0.4 |
% |
|
|
1,456,162 |
|
|
|
0.5 |
% |
|
Farm Products |
|
|
1,484,583 |
|
|
|
0.5 |
% |
|
|
1,508,208 |
|
|
|
0.5 |
% |
|
Freight Transportation Arrangement |
|
|
13,072,206 |
|
|
|
4.4 |
% |
|
|
13,058,231 |
|
|
|
4.3 |
% |
|
Hotels and Motels |
|
|
17,101,321 |
|
|
|
5.8 |
% |
|
|
11,830,862 |
|
|
|
3.9 |
% |
|
Land Subdividers and Developers |
|
|
14,222,622 |
|
|
|
4.8 |
% |
|
|
15,184,914 |
|
|
|
5.0 |
% |
|
Miscellaneous Business Credit |
|
|
3,758,063 |
|
|
|
1.3 |
% |
|
|
3,758,063 |
|
|
|
1.2 |
% |
|
Motor Vehicle Parts and Accessories |
|
|
9,779,546 |
|
|
|
3.3 |
% |
|
|
9,278,031 |
|
|
|
3.1 |
% |
|
Personal Credit Institutions |
|
|
2,121,530 |
|
|
|
0.7 |
% |
|
|
5,342,393 |
|
|
|
1.8 |
% |
|
Petroleum and Petroleum Products |
|
|
4,588,390 |
|
|
|
1.5 |
% |
|
|
8,367,480 |
|
|
|
2.8 |
% |
|
Refuse Systems |
|
|
38,459,771 |
|
|
|
13.0 |
% |
|
|
34,050,695 |
|
|
|
11.3 |
% |
|
Retail Bakeries |
|
|
4,127,441 |
|
|
|
1.4 |
% |
|
|
3,915,874 |
|
|
|
1.3 |
% |
|
Salted and Roasted Nuts and Seeds |
|
|
83,298 |
|
|
|
0.0 |
% |
|
|
497,462 |
|
|
|
0.2 |
% |
|
Sanitary Paper Products |
|
|
4,990,692 |
|
|
|
1.7 |
% |
|
|
4,880,364 |
|
|
|
1.6 |
% |
|
Secondary Nonferrous Metals |
|
|
628,862 |
|
|
|
0.2 |
% |
|
|
628,862 |
|
|
|
0.2 |
% |
|
Short-Term Business Credit |
|
|
4,740,000 |
|
|
|
1.6 |
% |
|
|
4,740,000 |
|
|
|
1.6 |
% |
|
Soybeans |
|
|
5,592,112 |
|
|
|
1.9 |
% |
|
|
5,772,744 |
|
|
|
1.9 |
% |
|
Sugarcane and Sugar Beets |
|
|
555,673 |
|
|
|
0.2 |
% |
|
|
1,832,492 |
|
|
|
0.6 |
% |
|
Telephone and Telegraph Apparatus |
|
|
1,685,937 |
|
|
|
0.6 |
% |
|
|
2,495,595 |
|
|
|
0.8 |
% |
|
Telephone Communications |
|
|
13,750,000 |
|
|
|
4.6 |
% |
|
|
15,000,000 |
|
|
|
5.0 |
% |
|
Towing and Tugboat Service |
|
|
7,476,711 |
|
|
|
2.6 |
% |
|
|
8,673,930 |
|
|
|
3.0 |
% |
|
Total |
|
$ |
296,735,228 |
|
|
|
100.0 |
% |
|
$ |
301,603,725 |
|
|
|
100.0 |
% |
24
The table below shows the portfolio composition by geographic classification at fair value as of September 30, 2022 and December 31, 2021:
|
|
|
As of September 30, 2022 |
|
|
As of December 31, 2021 |
|
|
|
|
Fair |
|
|
Percentage |
|
|
Fair |
|
|
Percentage |
|
|
Country |
|
Value |
|
|
of Total |
|
|
Value |
|
|
of Total |
|
|
Argentina (1) |
|
$ |
19,745,623 |
|
|
|
6.7 |
% |
|
$ |
19,926,255 |
|
|
|
6.6 |
% |
|
Botswana |
|
|
4,740,000 |
|
|
|
1.6 |
% |
|
|
4,740,000 |
|
|
|
1.6 |
% |
|
Brazil |
|
|
26,787,919 |
|
|
|
9.0 |
% |
|
|
27,331,410 |
|
|
|
9.1 |
% |
|
Cabo Verde |
|
|
17,101,321 |
|
|
|
5.8 |
% |
|
|
11,830,862 |
|
|
|
3.9 |
% |
|
Cameroon |
|
|
15,314,592 |
|
|
|
5.2 |
% |
|
|
14,387,877 |
|
|
|
4.8 |
% |
|
Chile |
|
|
1,245,868 |
|
|
|
0.4 |
% |
|
|
1,456,162 |
|
|
|
0.5 |
% |
|
Colombia |
|
|
2,121,530 |
|
|
|
0.7 |
% |
|
|
5,342,393 |
|
|
|
1.8 |
% |
|
Ecuador |
|
|
11,102,781 |
|
|
|
3.7 |
% |
|
|
12,387,189 |
|
|
|
4.1 |
% |
|
Ghana |
|
|
4,588,390 |
|
|
|
1.5 |
% |
|
|
8,367,480 |
|
|
|
2.8 |
% |
|
Hong Kong |
|
|
19,477,107 |
|
|
|
6.6 |
% |
|
|
22,884,859 |
|
|
|
7.6 |
% |
|
Indonesia |
|
|
15,000,000 |
|
|
|
5.1 |
% |
|
|
15,000,000 |
|
|
|
5.0 |
% |
|
Jersey |
|
|
13,750,000 |
|
|
|
4.6 |
% |
|
|
15,000,000 |
|
|
|
5.0 |
% |
|
Kenya |
|
|
13,072,206 |
|
|
|
4.4 |
% |
|
|
13,058,231 |
|
|
|
4.3 |
% |
|
Malaysia |
|
|
16,744,391 |
|
|
|
5.6 |
% |
|
|
17,537,201 |
|
|
|
5.8 |
% |
|
Mexico |
|
|
38,459,771 |
|
|
|
13.0 |
% |
|
|
34,050,695 |
|
|
|
11.3 |
% |
|
Morocco |
|
|
628,862 |
|
|
|
0.2 |
% |
|
|
628,862 |
|
|
|
0.2 |
% |
|
Namibia |
|
|
14,222,622 |
|
|
|
4.8 |
% |
|
|
15,184,914 |
|
|
|
5.0 |
% |
|
Netherlands |
|
|
9,779,546 |
|
|
|
3.3 |
% |
|
|
9,278,031 |
|
|
|
3.1 |
% |
|
Nigeria |
|
|
8,961,294 |
|
|
|
3.0 |
% |
|
|
10,182,138 |
|
|
|
3.4 |
% |
|
Peru |
|
|
4,990,692 |
|
|
|
1.7 |
% |
|
|
4,880,364 |
|
|
|
1.6 |
% |
|
Romania |
|
|
4,127,441 |
|
|
|
1.4 |
% |
|
|
3,915,874 |
|
|
|
1.3 |
% |
|
Singapore |
|
|
18,643,927 |
|
|
|
6.3 |
% |
|
|
17,634,943 |
|
|
|
5.8 |
% |
|
South Africa |
|
|
83,298 |
|
|
|
0.0 |
% |
|
|
497,462 |
|
|
|
0.2 |
% |
|
United Arab Emirates |
|
|
648,430 |
|
|
|
0.2 |
% |
|
|
648,430 |
|
|
|
0.2 |
% |
|
Uganda |
|
|
11,639,554 |
|
|
|
3.9 |
% |
|
|
11,694,030 |
|
|
|
3.9 |
% |
|
N/A (2) |
|
|
3,758,063 |
|
|
|
1.3 |
% |
|
|
3,758,063 |
|
|
|
1.1 |
% |
|
Total |
|
$ |
296,735,228 |
|
|
|
100.0 |
% |
|
$ |
301,603,725 |
|
|
|
100.0 |
% |
|
(1) |
All of the Company’s investments in Argentina are Participations in trade finance facilities originated by IIG TOF B.V. See Note 3 “Watch List Investments” for further information. |
|
(2) |
This investment was in a credit facility originated by IIG TOF B.V., which has been placed into bankruptcy; therefore, no geographic classification is applicable. |
25
Note 4. Fair Value Measurements
The following table summarizes the valuation of the Company’s investments by the fair value hierarchy levels required under ASC 820 as of September 30, 2022:
|
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Senior secured term loan participations |
|
$ |
128,851,567 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
128,851,567 |
|
|
Senior secured term loans |
|
|
118,328,770 |
|
|
|
— |
|
|
|
— |
|
|
|
118,328,770 |
|
|
Senior secured trade finance participations |
|
|
44,591,325 |
|
|
|
— |
|
|
|
— |
|
|
|
44,591,325 |
|
|
Other investments |
|
|
3,758,063 |
|
|
|
— |
|
|
|
— |
|
|
|
3,758,063 |
|
|
Equity warrants |
|
|
1,205,503 |
|
|
|
— |
|
|
|
— |
|
|
|
1,205,503 |
|
|
Total |
|
$ |
296,735,228 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
296,735,228 |
|
The following table summarizes the valuation of the Company’s investments by the fair value hierarchy levels required under ASC 820 as of December 31, 2021:
|
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Senior secured term loan participations |
|
$ |
132,290,743 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
132,290,743 |
|
|
Senior secured term loans |
|
|
119,374,062 |
|
|
|
— |
|
|
|
— |
|
|
|
119,374,062 |
|
|
Senior secured trade finance participations |
|
|
45,092,689 |
|
|
|
— |
|
|
|
— |
|
|
|
45,092,689 |
|
|
Other investments |
|
|
3,758,063 |
|
|
|
— |
|
|
|
— |
|
|
|
3,758,063 |
|
|
Equity warrants |
|
|
1,088,168 |
|
|
|
— |
|
|
|
— |
|
|
|
1,088,168 |
|
|
Total |
|
$ |
301,603,725 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
301,603,725 |
|
The following is a reconciliation of activity for the nine months ended September 30, 2022, of investments classified as Level 3:
|
|
|
Fair Value at December 31, 2021 |
|
|
Purchases |
|
|
Proceeds from disposition of investments |
|
|
Payment-in-
kind interest |
|
|
Net change in
depreciation |
|
|
Fair Value at September 30, 2022 |
|
|
Senior secured term loan participations |
|
$ |
132,290,743 |
|
|
$ |
— |
|
|
$ |
(8,642,981 |
) |
|
$ |
7,305,419 |
|
|
$ |
(2,101,614 |
) |
|
$ |
128,851,567 |
|
|
Senior secured term loans |
|
|
119,374,062 |
|
|
|
— |
|
|
|
(1,714,588 |
) |
|
|
8,446,125 |
|
|
|
(7,776,829 |
) |
|
|
118,328,770 |
|
|
Senior secured trade finance participations |
|
|
45,092,689 |
|
|
|
— |
|
|
|
(451,155 |
) |
|
|
1,055,271 |
|
|
|
(1,105,480 |
) |
|
|
44,591,325 |
|
|
Short term and other investments |
|
|
3,758,063 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,758,063 |
|
|
Equity warrants |
|
|
1,088,168 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
117,335 |
|
|
|
1,205,503 |
|
|
Total |
|
$ |
301,603,725 |
|
|
$ |
— |
|
|
$ |
(10,808,724 |
) |
|
$ |
16,806,815 |
|
|
$ |
(10,866,588 |
) |
|
$ |
296,735,228 |
|
There were no transfers into and out of Level 3 investments and no recorded realized losses for the Company’s investments classified as Level 3 during the three and nine months ended September 30, 2022, and we recorded realized losses of $0 and $909,584 for the Company’s investments classified as Level 3 during the three and nine months ended September 30, 2021, respectively. Net change in unrealized depreciation for the nine months ended September 30, 2022 and 2021 reported in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets still held at period end were $10,866,588 and $11,579,186, respectively. These unrealized losses were primarily driven by macro events including the uncertainty created by the COVID-19 pandemic and its impact on the future cash flows generated by our investments as well as the ultimate realization of the underlying collateral.
26
As of September 30, 2022, all of the Company’s portfolio investments utilized Level 3 inputs. The following table presents the quantitative information about Level 3 fair value measurements of the Company’s investments as of September 30, 2022:
|
|
|
Fair value |
|
|
Valuation technique |
|
Unobservable input |
|
Range (weighted
average) (4) |
|
Senior secured trade finance
participations (2) |
|
$ |
27,474,585 |
|
|
Collateral based approach
Income approach (DCF) |
|
Value of collateral (collateral coverage ratio)
Discount rate |
|
0.17x - 1.18x
11.5% - 15.75% (10.2%) |
|
Senior secured trade finance
participations (1) |
|
$ |
17,116,740 |
|
|
Collateral based approach |
|
Value of collateral (collateral coverage ratio) |
|
1.0x - 1.67x |
|
Senior secured term loans (2) |
|
$ |
118,328,770 |
|
|
Collateral based approach
Income approach (DCF) |
|
Value of collateral (collateral coverage ratio)
Discount rate |
|
0.91x - 1.24x
12.0% - 16.5% (11.5%) |
|
Senior secured term loan participations (2) |
|
$ |
114,628,945 |
|
|
Collateral based approach
Income approach (DCF) |
|
Value of collateral (collateral coverage ratio)
Discount rate |
|
0.58x - 8.7x
12.0% - 20.75% (11.8%) |
|
Senior secured term loan participations (1) |
|
$ |
14,222,622 |
|
|
Collateral based approach |
|
Value of collateral (collateral coverage ratio) |
|
1.4x |
|
Other investments (3) |
|
$ |
3,758,063 |
|
|
Collateral based approach |
|
Value of collateral (collateral coverage ratio) |
|
1.0x |
|
Equity warrants |
|
$ |
1,205,503 |
|
|
Option Pricing Method |
|
Equity value, volatility, time to exit |
|
72%, 5 years |
|
(1) |
Collateral based approach used for the following watch list investments: Trustco, Sancor, FRIAR, Algonodera, Mac Z, GPI and Conplex. See Note 3 “Watch List Investments” for further information. |
|
(2) |
The Company used the income approach for the following Watch List investments: CAGSA, Triton, MICD and Itelecom and a hybrid of the collateral based approach and the income approach for TRG Cape Verde, Helios Martime, Producam, Applewood and Usivale, using additional unobservable inputs including recovery rates ranging from 15% to 30%, after considering potential and ongoing litigation and expected collection period ranging from 2 to 3 years. See Note 3 “Watch List Investments” for further information. |
|
(3) |
This investment was originally classified as an investment in a credit facility originated by IIG TOF B.V. Due to the fact that IIG TOF B.V. has been placed into bankruptcy, this investment utilizes the collateral based approach. |
|
(4) |
The inputs were weighted based on the fair value of the investments included in the range. |
27
As of December 31, 2021, all of the Company’s portfolio investments utilized Level 3 inputs. The following table presents the quantitative information about Level 3 fair value measurements of the Company’s investments as of December 31, 2021:
|
|
|
Fair value |
|
|
Valuation technique |
|
Unobservable input |
|
Range (weighted average) |
|
Senior secured trade finance
participations (2) |
|
$ |
27,166,291 |
|
|
Income approach (DCF) |
|
Discount rate |
|
11.0% - 15.75% (12.4%) |
|
Senior secured trade finance
participations (1) |
|
$ |
17,926,398 |
|
|
Collateral based approach |
|
Value of collateral (collateral coverage ratio) |
|
0.43x - 1.67x |
|
Senior secured term loans (2) |
|
$ |
119,374,062 |
|
|
Income approach (DCF) |
|
Discount rate |
|
11.25% - 18.0% (14.3%) |
|
Senior secured term loan participations (2) |
|
$ |
117,105,829 |
|
|
Income approach (DCF) |
|
Discount rate |
|
11.0% - 20.0% (15.5%) |
|
Senior secured term loan participations (1) |
|
$ |
15,184,914 |
|
|
Collateral based approach |
|
Value of collateral (collateral coverage ratio) |
|
0.99x |
|
Other investments (3) |
|
$ |
3,758,063 |
|
|
Collateral based approach |
|
Value of collateral (collateral coverage ratio) |
|
1.0x |
|
Equity warrants |
|
$ |
1,088,168 |
|
|
Option Pricing Method |
|
Equity value, volatility, time to exit |
|
71%, 5 years |
|
(1) |
Collateral based approach used for the following Watch List investments: Trustco, Sancor, FRIAR, Algonodera, MacZ, GPI and Conplex. See Note 3 “Watch List Investments” for further information. |
|
(2) |
The Company used the income approach for the following Watch List investments: CAGSA, Triton, MICD and Itelecom and a hybrid of the collateral based approach and the income approach for TRG Cape Verde, Helios Maritime, Producam, Applewood and Usivale, using additional unobservable inputs including recovery rates ranging from 15% to 30%, after considering potential and ongoing litigation and expected collection period ranging from 2 to 3 years. See Note 3 “Watch List Investments” for further information. |
|
(3) |
This investment was originally classified as an investment in a credit facility originated by IIG TOF B.V. Due to the fact that IIG TOF B.V. has been placed into bankruptcy, this investment utilizes the collateral based approach. |
|
(4) |
The inputs were weighted based on the fair value of the investments included in the range. |
The significant unobservable Level 3 inputs used in the fair value measurement of the Company’s investments are market yields used to discount the estimated future cash flows expected to be received from the underlying investments, which include both future principal and interest payments. Significant increases in market yields would result in significantly lower fair value measurements. In addition, a significant decrease in future cash flows is expected to be received from the underlying investments due to a projected decrease in results of operations and cash flows from the underlying investments, would result in significantly lower fair value measurements.
For additional information concerning of the country-specific risk concentrations for the Company’s investments, refer to the Consolidated Schedule of Investments and Note 3.
Note 5. Contingencies and Related Parties
Agreements
Advisory Agreement
The current term of the Advisory Agreement between the Company and the Advisor, (the “Advisory Agreement”) ends on February 25, 2023, subject to an unlimited number of one-year renewals upon mutual consent of the Company and the Advisor.
Asset management fees payable to the Advisor are remitted quarterly in arrears and are equal to 0.50% (2.00% per annum) of Gross Asset Value, as defined in the Advisory Agreement between the Company and the Advisor. Asset management fees are paid to the Advisor in exchange for fund management and administrative services. Although the Advisor manages, on the Company’s behalf, many of the risks associated with global investments in developing economies, management fees do not include the cost of any hedging instruments or insurance policies that may be required to appropriately manage the Company’s risk.
28
If certain financial goals are reached by the Company, the Company is required to pay the Advisor an incentive fee that is comprised of two parts: (i) a subordinated fee on net investment income and (ii) an incentive fee on capital gains. The subordinated incentive fee on income is calculated and payable quarterly in arrears and is based upon the Company’s pre-incentive fee net investment income for the immediately preceding quarter. No subordinated incentive fee is earned by the Advisor in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the quarterly preferred return rate of 1.50% (6.00% annualized) (the “Preferred Return”). In any quarter, all of the Company’s pre-incentive fee net investment income, if any, that exceeds the quarterly Preferred Return, but is less than or equal to 1.875% (7.50% annualized) at the end of the immediately preceding fiscal quarter, is payable to the Advisor. For any quarter in which the Company’s pre-incentive fee net investment income exceeds 1.875% on its net assets at the end of the immediately preceding fiscal quarter, the subordinated incentive fee on income equals 20% of the amount of the Company’s pre-incentive fee net investment income.
An incentive fee on capital gains will be earned on investments sold and shall be determined and payable to the Advisor in arrears as of the end of each calendar year. The incentive fee on capital gains is equal to 20% of the Company’s realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees on capital gains. The Company had no capital gains and therefore did not accrue an incentive fee on capital gains for the three and nine months ended September 30, 2022 and 2021.
Operating Expense Responsibility Agreement
On May 12, 2021, the Company entered into the Second Amended and Restated Operating Expense Responsibility Agreement with the Advisor and the Sponsor (the “Responsibility Agreement”). The Responsibility Agreement amends and replaces the prior agreement and amended the manner in which reimbursements to the Sponsor under the agreement will be allocated. Since the inception of the Company through December 31, 2017, pursuant to the terms of the Responsibility Agreement, the Sponsor paid approximately $12,420,600 of operating expenses, asset management fees, and incentive fees on behalf of the Company and will reimburse to the Company an additional $4,240,231 of operating expenses, which had been paid by the Company as of December 31, 2017.
Pursuant to the Responsibility Agreement, the Sponsor will only be entitled to reimbursement of the cumulative expenses it has incurred on the Company’s behalf to the extent the Company’s investment income in any quarter, as reflected on the statement of operations, exceeds the sum of (a) total distributions to unitholders incurred during the quarter and (b) the Company’s expenses as reflected on the statement of operations for the same quarter (the “Reimbursement Hurdle”). If the Sponsor is entitled to receive reimbursement for any given quarter because the Company’s investment income exceeds the Reimbursement Hurdle for such quarter, the Company will apply 50% of the excess amount (the “Reimbursement Amount”) for such quarter as follows: (i) first, the Company will apply the Reimbursement Amount to reimburse the Sponsor for all expenses, other than asset management fees and incentive fees, that the Sponsor previously paid on the Company’s behalf, which will generally consist of operating expenses (the “Previously Paid Operating Expenses”) until all Previously Paid Operating Expenses have been reimbursed; and (ii) second, the Company will apply the Reimbursement Amount remaining after the payment of all Previously Paid Operating Expenses to reimburse the Sponsor for the asset management fees and incentive fees that the Sponsor has agreed to pay on the Company’s behalf until all such asset management fees and incentive fees accrued to date have been reimbursed.
The Company did not meet the Reimbursement Hurdle for the three months ended September 30, 2022 and 2021. Therefore, none of the expenses of the Company covered by the Responsibility Agreement have been recorded as expenses of the Company for the three months ended September 30, 2022 and 2021. As of September 30, 2022, there is a remaining aggregate balance of approximately $16,274,000 in expenses covered by the Responsibility Agreement which are not yet reimbursable to the Sponsor and have not been recorded by the Company. In accordance with ASC 450, Contingencies, such expenses will be accrued and payable by the Company in the period that they become both probable and estimable. The Sponsor may demand the reimbursement of cumulative Company expenses covered by the Responsibility Agreement to the extent the Company exceeds the Reimbursement Hurdle during any quarter.
Transactions
For the three months ended September 30, 2022 and 2021, the Advisor earned $1,641,882 and $1,758,565, respectively, in asset management fees and $995,962 and $1,049,785, respectively, in incentive fees. For the nine months ended September 30, 2022 and 2021, the Advisor earned $4,987,817 and $5,337,777, respectively, in asset management fees and $3,151,543 and $3,178,782, respectively, in incentive fees.
As of September 30, 2022 and December 31, 2021, due from affiliates on the Consolidated Statement of Assets and Liabilities in the amount of $4,240,231 and $4,240,231, respectively was due from the Sponsor pursuant to the Responsibility Agreement for operating expenses which were paid by the Company, but, under the terms of the Responsibility Agreement, are the responsibility of the Sponsor. The Sponsor anticipates paying this receivable as future cash flows and fee income from its operations are sufficient to allow it to begin making consistent and regular payments. As of September 30, 2022, no future date of scheduled repayments has been determined by the Sponsor.
On September 1, 2022, the Company sold $1.25 million of its investment in Africell Holding Limited to an entity whose advisor is under common ownership with the Company’s Advisor. The transaction was recorded at par with no realized gain or loss. The Company engaged an independent valuation firm to validate the transaction price.
29
Note 6. Organization and Offering Costs
The Sponsor previously paid approximately $17,692,000 of offering costs and $236,000 of organization costs relating to the Offering, all of which were paid directly by the Sponsor on behalf of the Company. Such amounts include approximately $38,000 and $25,000 of offering costs incurred by the Sponsor during the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022 and 2021, the Company paid approximately $38,000 and $80,000 in reimbursement of offering costs to the Sponsor, respectively. Such offering costs reimbursed by the Company have been recognized against the proceeds from the issuance of units.
Since the commencement of the Company’s operations, the Company has reimbursed the Sponsor a total of approximately $17,355,000 of offering and organization costs through September 30, 2022.
For the nine months ended September 30, 2022 and 2021, the Company paid SC Distributors, formally known as StratCap Securities, the dealer manager for certain of the Company’s prior offerings, approximately $299,000 and $327,000, respectively in ongoing distribution fees, dealer manager fees and service fees.
Note 7. Note Payable
The Company’s note payable consists of the following:
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
|
|
Outstanding Balance |
|
|
Outstanding Balance |
|
|
Christian Super promissory note |
|
$ |
— |
|
|
$ |
5,000,000 |
|
|
Total note payable |
|
$ |
— |
|
|
$ |
5,000,000 |
|
Christian Super Promissory Note
On December 18, 2018, Trilinc Global Impact Fund Cayman, Ltd. (“TGIFC”) issued $5 million of Series 2 Senior Secured Promissory Note (“CS Note”) to State Street Australia Ltd ACF Christian Super (“Christian Super”) pursuant to the CS Note private offering. The CS Note had an interest rate of 3.5% per annum plus one-year LIBOR and interest is payable quarterly in arrears within 15 days after the end of each calendar quarter. The entire principal balance under the CS Note (and any unpaid interest) was due in one balloon payment on December 18, 2021, which was the fourth anniversary of the issuance date. The due date was extended and the CS Note was repaid in full on January 18, 2022.
For the nine months ended September 30, 2022 and 2021, the Company recognized $11,169 and $143,381, respectively, in interest expense.
30
Note 8. Unit Capital
As of September 30, 2022, the Company had six classes of units: Class A, Class C, Class I, Class W, Class Y and Class Z units. The unit classes have been sold with different upfront sales commissions and dealer manager fees as well as different ongoing distribution fees, dealer manager fees and/or service fees with respect to certain classes of units, including a distribution fee with respect to Class C units, an ongoing dealer manager fee with respect to Class I and Class W units, and an ongoing service fee with respect to Class W units. As of September 30, 2022, the Company recorded a liability in the aggregate amount of $428,000 for the estimated future amount of ongoing distribution fees, dealer manager fees and service fees payable. The estimated liability as of September 30, 2022 is calculated based on a net asset value per Class C, Class I and Class W units of $6.899 with a distribution fee of 0.80% for Class C units, an ongoing dealer manager fee of 0.50% for Class I units, and ongoing aggregate dealer and service fees of 0.75% for Class W units, per annum applied to the net asset value, during the expected period that Class C, Class W and Class I units remain outstanding, and discounted using an annual rate of 4%. All units participate in the income and expenses of the Company on a pro-rata basis based on the number of units outstanding. The following table is a summary of unit activity during the nine months ended September 30, 2022:
|
|
|
Units |
|
|
|
|
|
|
|
|
|
|
Units |
|
|
|
|
Outstanding |
|
|
|
|
|
|
Units |
|
|
Outstanding |
|
|
|
|
as of |
|
|
Units Issued |
|
|
Repurchased |
|
|
as of |
|
|
|
|
December 31, |
|
|
During |
|
|
During |
|
|
September 30, |
|
|
|
|
2021 |
|
|
the Period |
|
|
the Period |
|
|
2022 |
|
|
Class A units |
|
|
18,128,699 |
|
|
|
346,166 |
|
|
|
(272,050 |
) |
|
|
18,202,815 |
|
|
Class C units |
|
|
7,827,952 |
|
|
|
161,994 |
|
|
|
(139,335 |
) |
|
|
7,850,611 |
|
|
Class I units |
|
|
10,517,764 |
|
|
|
229,463 |
|
|
|
(292,249 |
) |
|
|
10,454,978 |
|
|
Class W units |
|
|
24,555 |
|
|
|
— |
|
|
|
— |
|
|
|
24,555 |
|
|
Class Y units |
|
|
2,696,506 |
|
|
|
44,325 |
|
|
|
(44,355 |
) |
|
|
2,696,476 |
|
|
Class Z units |
|
|
8,423,851 |
|
|
|
— |
|
|
|
— |
|
|
|
8,423,851 |
|
|
Total |
|
|
47,619,327 |
|
|
|
781,948 |
|
|
|
(747,989 |
) |
|
|
47,653,286 |
|
The total of 781,948 units issued during the nine months ended September 30, 2022 included 741,000 units issued under the DRP at a value of approximately $5,243,000 and 41,163 units sold pursuant to our private placement for aggregate gross proceeds of approximately $295,000.
Beginning June 11, 2014, the Company commenced a unit repurchase program pursuant to which the Company may conduct quarterly unit repurchases of up to 5% of the weighted average number of outstanding units in any 12-month period to allow the Company’s unitholders, who have held units for a minimum of one year, to sell their units back to the Company at a price equal to the most recently determined net asset value per unit for each class of units, as most recently disclosed by the Company in a public filing with the SEC at the time of repurchase. Repurchases for the third quarter of 2022 have been made at a price equal to $6.899 per units, which was the net asset value per unit of each class as of June 30, 2022, the most recently disclosed net asset value at the time of repurchase.
The unit repurchase program includes numerous restrictions, including a one-year holding period, that limit the ability of the Company’s unitholders to sell their units. Unless the Company’s board of managers determines otherwise, the Company will limit the number of units to be repurchased during any calendar year to the number of units that can be repurchased with the proceeds the Company receives from the sale of units under the Company’s DRP. At the sole discretion of the Company’s board of managers, the Company may also use cash on hand, cash available from borrowings and cash from the repayment or liquidation of investments as of the end of the applicable quarter to repurchase units.
During the nine months ended September 30, 2022, the Company fulfilled repurchase requests for a total of 747,989 units at a weighted average repurchase price per unit of $7.03 for an aggregate repurchase price of $5,256,564. As of September 30, 2022, $1,619,293 of these repurchase requests were pending processing and were completed by the Company in October 2022. For the quarter ended September 30, 2022, eligible repurchase requests exceeded the limitations of the Company’s unit repurchase program described above and the requests were fulfilled on a pro rata basis, such that the Company repurchased approximately 249,000 units or 6.37% of eligible repurchase requests (based on the number of units submitted for repurchase), and approximately 3,449,000 units or 93.63% of eligible repurchase requests (based on the number of units submitted for repurchase) were not redeemed. Pursuant to the terms of the Company’s unit repurchase program, the unsatisfied portion of repurchase requests that were not fulfilled at quarter-end will be carried over to the next quarter and treated as a request for repurchase at the next quarter-end repurchase date, unless the repurchase request is withdrawn.
31
Note 9. Distributions
Since July 2013, the Company has paid monthly distributions for all classes of units. The following table summarizes the distributions paid for the nine months ended September 30, 2022:
|
|
|
|
|
Daily Rate |
|
|
Cash |
|
|
Distributions |
|
|
Total |
|
|
Month ended |
|
Date Declared |
|
Per Unit |
|
|
Distributions |
|
|
Reinvested |
|
|
Declared |
|
|
January 31, 2022 |
|
November 12, 2021 |
|
$ |
0.00139060 |
|
|
$ |
1,431,971 |
|
|
$ |
616,109 |
|
|
$ |
2,048,080 |
|
|
February 28, 2022 |
|
November 12, 2021 |
|
$ |
0.00139060 |
|
|
|
1,298,531 |
|
|
|
554,580 |
|
|
|
1,853,111 |
|
|
March 31, 2022 |
|
February 17, 2022 |
|
$ |
0.00139060 |
|
|
|
1,442,429 |
|
|
|
612,752 |
|
|
|
2,055,181 |
|
|
April 30, 2022 |
|
March 29, 2022 |
|
$ |
0.00136605 |
|
|
|
1,380,602 |
|
|
|
566,059 |
|
|
|
1,946,661 |
|
|
May 31, 2022 |
|
March 29, 2022 |
|
$ |
0.00136605 |
|
|
|
1,419,163 |
|
|
|
595,824 |
|
|
|
2,014,987 |
|
|
June 30, 2022 |
|
May 11, 2022 |
|
$ |
0.00135186 |
|
|
|
1,364,770 |
|
|
|
569,848 |
|
|
|
1,934,618 |
|
|
July 31, 2022 |
|
May 11, 2022 |
|
$ |
0.00135186 |
|
|
|
1,404,321 |
|
|
|
586,611 |
|
|
|
1,990,932 |
|
|
August 31, 2022 |
|
May 11, 2022 |
|
$ |
0.00135186 |
|
|
|
1,407,220 |
|
|
|
587,655 |
|
|
|
1,994,875 |
|
|
September 30, 2022 |
|
August 12, 2022 |
|
$ |
0.00135186 |
|
|
|
1,339,120 |
|
|
|
554,062 |
|
|
|
1,893,182 |
|
|
Total for 2022 |
|
|
|
|
|
|
|
$ |
12,488,127 |
|
|
$ |
5,243,500 |
|
|
$ |
17,731,627 |
|
In August 2022, the Company’s board of managers authorized the declaration of distributions for September, October and November of 2022. These distributions have been or will be calculated based on unitholders of record for each day in an amount equal to $0.001323189 per unit per day (less the distribution fee with respect to Class C units, the ongoing dealer manager fee with respect to certain Class I units and Class W units and the ongoing service fee with respect to Class W units). On an annualized basis, these distributions are equal to approximately 7.0% of the NAV per unit of $6.90, determined as of June 30, 2022. These distributions have been or will be paid in cash or reinvested in units, for those unitholders participating in the DRP, on or about the first day of the month following the month to which the distributions relate. There can be no assurances that distributions will continue to be paid at this rate in subsequent periods or at all.
Note 10. Financial Highlights
The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2022 and 2021:
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Per unit data (1): |
|
|
|
|
|
|
|
|
Net asset value at beginning of period |
$ |
7.10 |
|
|
$ |
7.58 |
|
|
Net investment income |
|
0.32 |
|
|
|
0.34 |
|
|
Net change in unrealized depreciation on investments |
|
(0.23 |
) |
|
|
(0.25 |
) |
|
Realized loss on investments |
|
— |
|
|
|
(0.02 |
) |
|
Net increase in net assets resulting from operations |
|
0.09 |
|
|
|
0.07 |
|
|
Distributions |
|
(0.37 |
) |
|
|
(0.42 |
) |
|
Net change in accrued distribution and other fees |
|
— |
|
|
|
— |
|
|
Net decrease in net assets |
|
(0.29 |
) |
|
|
(0.35 |
) |
|
Net asset value at end of period (2) |
$ |
6.81 |
|
|
$ |
7.23 |
|
|
Total return based on net asset value (3) |
|
1.23 |
% |
|
|
0.95 |
% |
|
Net assets at end of period |
$ |
325,432,459 |
|
|
$ |
343,904,586 |
|
|
Units Outstanding at end of period |
|
47,653,286 |
|
|
|
47,490,815 |
|
|
Ratio/Supplemental data (annualized) (3): |
|
|
|
|
|
|
|
|
Ratio of net investment income to average net assets |
|
6.06 |
% |
|
|
6.36 |
% |
|
Ratio of total expenses to average net assets |
|
4.67 |
% |
|
|
5.11 |
% |
|
1 |
The per unit data was derived by using the weighted average units outstanding during the nine months ended September 30, 2022 and 2021, which were 47,721,878 and 47,155,072, respectively. |
|
2 |
For financial statement reporting purposes under GAAP, as of September 30, 2022 and 2021, the Company recorded a liability in the amount of $428,000 and $452,000, respectively, for the estimated future amount of Class C distribution fees, Class I dealer manager fees, Class W dealer manager fees and Class W services fees payable. This liability is reflected in this table, which is consistent with the financial statements. While the Company follows GAAP for financial reporting purposes, it has determined that deducting the accrual for the estimated future amount of Class C distribution fees, Class I dealer manager fees, Class W dealer manager fees and Class W services fees may not be the appropriate approach for determining the net asset value used on the quarterly investor statements and for other purposes. The Company believes that not making such deduction for purposes of net |
32
|
asset value determination is consistent with the industry standard and is more appropriate since the Company intends for the net asset value to reflect the estimated value on the date that the Company determines its net asset value. |
|
3 |
The Company’s net investment income has been annualized assuming consistent results over a full fiscal year, however, this may not be indicative of actual results over a full fiscal year. |
Note 11. Subsequent Events
The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. Except as discussed below, there have been no subsequent events that occurred during such period that would require disclosure in the Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the three and nine months ended September 30, 2022.
Distributions
The cash distributions for October totaled $1,344,223. With respect to unitholders participating in the Distribution Reinvestment Plan, $572,275 of the distributions for October were reinvested in units.
The Company’s board of managers authorized the declaration of distributions for September, October and November of 2022. These distributions will be calculated based on unitholders of record for each day in an amount equal to $0.001323189 per unit per day (less the distribution fee with respect to Class C units, the ongoing dealer manager fee with respect to certain Class I units and Class W units and the ongoing service fee with respect to Class W units). On an annualized basis, these distributions are equal to approximately 7.0% of the NAV per unit of $6.84, determined as of September 30, 2022. These distributions will be paid in cash or reinvested in units, for those unitholders participating in the DRP, on or about the first day of the month following the month to which the distributions relate. There can be no assurances that distributions will continue to be paid at this rate in subsequent periods or at all.
Sub-advisor
On October 3, 2022, one of the Company’s sub-advisors, TransAsia, notified the Company of its intention to terminate the sub-advisory agreement between the two parties. The Company is working with TransAsia to transition all of TransAsia's responsibilities under the agreement to the Advisor in an orderly and timely fashion and expects to complete the process by early 2023.
Investments
On November 3, 2022, the Company entered into a transaction with an unrelated financial institution, whereby, it sold a $5.0 million participation interest in one of its term loan positions and agreed to repurchase the participation 135 days after the transaction date at a price equal to the sum of the original sales price plus accrued interest calculated at a simple 10% annualized rate. The excess between the interest earned on the term loan position and the simple 10% annualized rate was paid by the Company to another unrelated party as a transaction fee. No gain or loss was recognized with respect to this transaction.
Subsequent to September 30, 2022 through November 14, 2022, the Company did not fund any new investments and received proceeds from repayment of investments of approximately $1.0 million.
33
