Filed Pursuant to Rule 424(b)(3)
Registration No. 333-277157
TRILINC GLOBAL IMPACT FUND, LLC
SUPPLEMENT NO. 3, DATED NOVEMBER 15, 2024
TO THE PROSPECTUS, DATED APRIL 24, 2024
This prospectus supplement (this “Supplement”) is part of and should be read in conjunction with the prospectus of TriLinc Global Impact Fund, LLC, dated April 24, 2024 (the “Prospectus”). Unless otherwise defined herein, capitalized terms used in this Supplement shall have the same meanings as in the Prospectus.
The purpose of this Supplement is to include our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on November 14, 2024. The report (without exhibits) is attached to this Supplement.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-55432
TriLinc Global Impact Fund, LLC
(Exact name of registrant as specified in its charter)
Delaware | 36-4732802 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1230 Rosecrans Avenue, Suite 605,
Manhattan Beach, CA 90266
(Address of principal executive offices)
(310) 997-0580
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | None | None |
As of November 14, 2024, the Company had outstanding 18,303,923 Class A units, 7,759,822 Class C units, 10,582,821 Class I units, 24,555 Class W units, 2,683,015 Class Y units, and 8,423,851 Class Z units.
Item 1. Consolidated Financial Statements.
TriLinc Global Impact Fund, LLC
Consolidated Statements of Assets and Liabilities
As of | ||||||||
September 30, | December 31, | |||||||
2024 | 2023 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Investments owned, at fair value (amortized cost of $327,399,081 and $323,444,218, respectively) | $ | 267,287,486 | $ | 261,680,707 | ||||
Cash | 878,027 | 980,741 | ||||||
Interest receivable | 14,528,509 | 15,894,031 | ||||||
Other assets | 68,303 | 201,860 | ||||||
Total assets | 282,762,325 | 278,757,339 | ||||||
LIABILITIES | ||||||||
Management fee payable | 1,400,781 | 1,206,930 | ||||||
Accrued distribution and other fees | 352,000 | 350,000 | ||||||
Accrued expenses | 2,083,554 | 3,650,966 | ||||||
Due to affiliates | 128,048 | — | ||||||
Other payable | 42,495 | 694,571 | ||||||
Total liabilities | 4,006,878 | 5,902,467 | ||||||
Commitments and Contingencies (see Note 5) | ||||||||
NET ASSETS | $ | 278,755,447 | $ | 272,854,872 | ||||
ANALYSIS OF NET ASSETS: | ||||||||
Net capital on Class A units | $ | 114,999,232 | $ | 112,737,934 | ||||
Net capital on Class C units | 48,443,376 | 47,502,038 | ||||||
Net capital on Class I units | 66,448,115 | 65,125,371 | ||||||
Net capital on Class W units | 153,273 | 150,239 | ||||||
Net capital on Class Y units | 16,856,748 | 16,525,284 | ||||||
Net capital on Class Z units | 49,210,105 | 48,169,408 | ||||||
Offering costs | (17,355,402 | ) | (17,355,402 | ) | ||||
Net assets (equivalent to $5.842 and $5.718, respectively per unit based on total units outstanding of 47,777,985 and 47,777,985, respectively) (see Note 2) | $ | 278,755,447 | $ | 272,854,872 | ||||
Net assets, Class A (units outstanding of 18,303,923 and 18,303,923, respectively) | $ | 106,927,096 | $ | 104,665,798 | ||||
Net assets, Class C (units outstanding of 7,764,000 and 7,766,734, respectively) | 45,019,407 | 44,076,863 | ||||||
Net assets, Class I (units outstanding of 10,578,641 and 10,575,907, respectively) | 61,782,872 | 60,461,334 | ||||||
Net assets, Class W (units outstanding of 24,555 and 24,555, respectively) | 142,444 | 139,410 | ||||||
Net assets, Class Y (units outstanding of 2,683,015 and 2,683,015, respectively) | 15,673,523 | 15,342,059 | ||||||
Net assets, Class Z (units outstanding of 8,423,851 and 8,423,851, respectively) | 49,210,105 | 48,169,408 | ||||||
NET ASSETS | $ | 278,755,447 | $ | 272,854,872 | ||||
See accompanying notes to the consolidated financial statements.
TriLinc Global Impact Fund, LLC
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
INVESTMENT INCOME | ||||||||||||||||
Interest income | $ | 1,711,014 | $ | 2,557,090 | $ | 5,112,473 | $ | 9,738,511 | ||||||||
Payment-in-kind interest income | 4,822,398 | 3,103,789 | 13,475,937 | 9,038,468 | ||||||||||||
Fee income | — | 104,004 | 485,906 | 553,574 | ||||||||||||
Interest from cash | 158 | 460 | 2,247 | 1,762 | ||||||||||||
Total investment income | 6,533,570 | 5,765,343 | 19,076,563 | 19,332,315 | ||||||||||||
EXPENSES | ||||||||||||||||
Asset management fees | 1,400,781 | 1,379,874 | 4,149,500 | 4,167,875 | ||||||||||||
Professional fees | 1,555,970 | 1,120,850 | 5,165,500 | 4,537,802 | ||||||||||||
General and administrative expenses | 261,844 | 299,649 | 1,136,500 | 837,022 | ||||||||||||
Interest expense | — | 802,723 | — | 2,207,040 | ||||||||||||
Board of managers fees | 64,375 | 64,375 | 193,125 | 193,125 | ||||||||||||
Total expenses | 3,282,970 | 3,667,471 | 10,644,625 | 11,942,864 | ||||||||||||
NET INVESTMENT INCOME | 3,250,600 | 2,097,872 | 8,431,938 | 7,389,451 | ||||||||||||
Net change in unrealized appreciation on investments | 287,405 | 951,316 | 1,651,915 | 2,611,916 | ||||||||||||
Net realized loss on investments | — | (2,042,012 | ) | — | (11,114,481 | ) | ||||||||||
Foreign exchange gain | — | — | — | 5,644 | ||||||||||||
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 3,538,005 | $ | 1,007,176 | $ | 10,083,853 | $ | (1,107,470 | ) | |||||||
NET INVESTMENT INCOME PER UNIT - BASIC AND DILUTED | $ | 0.07 | $ | 0.04 | $ | 0.18 | $ | 0.16 | ||||||||
EARNINGS (LOSS) PER UNIT - BASIC AND DILUTED | $ | 0.07 | $ | 0.02 | $ | 0.21 | $ | (0.02 | ) | |||||||
WEIGHTED AVERAGE UNITS OUTSTANDING - BASIC AND DILUTED | 47,777,985 | 47,778,359 | 47,777,985 | 47,753,569 | ||||||||||||
See accompanying notes to the consolidated financial statements.
TriLinc Global Impact Fund, LLC
Consolidated Statements of Changes in Net Assets
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2024 | 2023 | |||||||
INCREASE (DECREASE) FROM OPERATIONS | ||||||||
Net investment income | $ | 8,431,938 | $ | 7,389,451 | ||||
Foreign exchange gain | — | 5,644 | ||||||
Net change in unrealized appreciation on investments | 1,651,915 | 2,611,916 | ||||||
Net realized loss on investments | — | (11,114,481 | ) | |||||
Net increase (decrease) from operations | 10,083,853 | (1,107,470 | ) | |||||
DECREASE FROM DISTRIBUTIONS | ||||||||
Distributions to Class A unitholders | (1,602,618 | ) | (2,795,439 | ) | ||||
Distributions to Class C unitholders | (678,438 | ) | (1,170,198 | ) | ||||
Distributions to Class I unitholders | (925,834 | ) | (1,601,353 | ) | ||||
Distributions to Class W unitholders | (2,144 | ) | (3,379 | ) | ||||
Distributions to Class Y unitholders | (234,859 | ) | (409,989 | ) | ||||
Distributions to Class Z unitholders | (737,385 | ) | (1,287,287 | ) | ||||
Net decrease from distributions | (4,181,278 | ) | (7,267,645 | ) | ||||
INCREASE (DECREASE) FROM CAPITAL TRANSACTIONS | ||||||||
Issuance of Class A units under distribution reinvestment plan | — | 491,720 | ||||||
Issuance of Class C units under distribution reinvestment plan | — | 263,353 | ||||||
Issuance of Class I units under distribution reinvestment plan | — | 302,396 | ||||||
Issuance of Class Y units under distribution reinvestment plan | — | 5,063 | ||||||
Repurchase of Class A units | — | (11,883 | ) | |||||
Repurchase of Class C units | — | (87,393 | ) | |||||
Repurchase of Class I units | — | (16,435 | ) | |||||
Change in accrual of distribution and other fees | (2,000 | ) | 76,000 | |||||
Net (decrease) increase from capital transactions | (2,000 | ) | 1,022,821 | |||||
NET CHANGE IN NET ASSETS | 5,900,575 | (7,352,294 | ) | |||||
Net assets at beginning of period | 272,854,872 | 281,947,405 | ||||||
Net assets at end of period | $ | 278,755,447 | $ | 274,595,111 | ||||
See accompanying notes to the consolidated financial statements.
TriLinc Global Impact Fund, LLC
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2024 | 2023 | |||||||
Cash flows from operating activities | ||||||||
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 10,083,853 | $ | (1,107,470 | ) | |||
ADJUSTMENTS TO RECONCILE NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
Purchase of investments | — | (11,624,375 | ) | |||||
Proceeds from disposition and paydowns of investments | 12,715,916 | 26,642,835 | ||||||
Payment-in-kind interest | (13,475,937 | ) | (9,038,468 | ) | ||||
Net change in unrealized appreciation on investments | (1,651,915 | ) | (2,611,916 | ) | ||||
Net realized loss on investments | — | 11,114,481 | ||||||
Foreign exchange gain | — | (5,644 | ) | |||||
Accretion of discounts on investments | — | (113,885 | ) | |||||
Amortization of debt issuance costs | — | 1,014,909 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) Decrease in interest receivable | (1,829,321 | ) | (3,046,691 | ) | ||||
Increase in due from affiliate | — | (29,876 | ) | |||||
Decrease in other assets | 133,557 | 617,645 | ||||||
Increase (Decrease) in management fee payable | 193,851 | (1,008,256 | ) | |||||
Increase (Decrease) in accrued expenses | (1,567,412 | ) | 2,189,074 | |||||
Increase in due to affiliates | 128,048 | 370,739 | ||||||
Decrease in other payables | (652,076 | ) | (178,145 | ) | ||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 4,078,564 | 13,184,957 | ||||||
Cash flows from financing activities | ||||||||
Distributions paid to unitholders | (4,181,278 | ) | (7,549,558 | ) | ||||
Repayment of note payable | — | (18,000,000 | ) | |||||
Repurchase of units | — | (1,885,181 | ) | |||||
NET CASH USED IN FINANCING ACTIVITIES | (4,181,278 | ) | (27,434,739 | ) | ||||
TOTAL DECREASE IN CASH | (102,714 | ) | (14,249,782 | ) | ||||
Cash at beginning of period | 980,741 | 14,510,817 | ||||||
Cash at end of period | $ | 878,027 | $ | 261,035 | ||||
Supplemental information | ||||||||
Cash paid for interest during the period | $ | — | $ | 1,224,199 | ||||
Supplemental non-cash information | ||||||||
Issuance of units in connection with distribution reinvestment plan | $ | — | $ | 1,063,205 | ||||
Change in accrual of distribution and other fees | $ | 2,000 | $ | (76,000 | ) | |||
See accompanying notes to the consolidated financial statements.
TriLinc Global Impact Fund, LLC
Consolidated Schedule of Investments
As of September 30, 2024
(Unaudited)
Investment Type / Country | Portfolio Company | Sector | Description | Interest | Fees (2) | Maturity (3) | Principal Amount | Participation % (4) | Amortized Cost | Fair Value | % of Net Assets | |||||||||||||||||||||||||||||
Senior Secured Term Loans (1) | ||||||||||||||||||||||||||||||||||||||||
Ecuador | Grupo Surpapel | Corrugated and Solid Fiber Boxes | Sustainable Packaging Manufacturer | 12.86% Cash / 2.2% PIK | 0.0 | % | 6/18/2025 | $ | 2,958,631 | 5 | % | $ | 2,958,631 | $ | 2,958,631 | 1.1 | % | |||||||||||||||||||||||
Hong Kong | Limas Commodities House Limited (5), (6), (12) | Coal and Other Minerals and Ores | Resource Trader | 11.50 | % | 0.0 | % | 6/30/2023 | 22,219,566 | 100 | % | 22,219,566 | 15,201,540 | 5.5 | % | |||||||||||||||||||||||||
Indonesia | PT Citra Labuantirta (15) | Chocolate and Cocoa Products | Cocoa Processor | PIK 12.5% | 2.0 | % | 8/31/2024 | 19,249,834 | 0 | % | 19,249,834 | 19,249,834 | 6.9 | % | ||||||||||||||||||||||||||
Malaysia | Vikudha Malaysia Sdn Bhd (5), (6), (12) | Chemicals and Allied Products | Wholesale Distributor | 12.00 | % | 0.0 | % | 6/30/2023 | 18,484,704 | 67 | % | 18,484,704 | 6,699,815 | 2.4 | % | |||||||||||||||||||||||||
Mexico | Blue Arrow Biojet Holdings, LLC (8) | Refuse Systems | Waste to Fuels Processor | 20% PIK | 0.0 | % | 9/30/2024 | 55,222,314 | 65 | % | 55,222,314 | 55,222,314 | 19.8 | % | ||||||||||||||||||||||||||
Singapore | Triton Metallics Pte Ltd. (5), (6) | Coal and Other Minerals and Ores | Non-Ferrous Metal Trader | 6.0% Cash/7.50% PIK | 0.0 | % | 8/18/2025 | 21,799,281 | 100 | % | 21,799,281 | 19,329,239 | 6.9 | % | ||||||||||||||||||||||||||
Total Senior Secured Term Loans | 139,934,330 | 118,661,373 | 42.6 | % | ||||||||||||||||||||||||||||||||||||
Senior Secured Term Loan Participations (1) | ||||||||||||||||||||||||||||||||||||||||
Botswana | Ecsponent Holdings Limited (5), (6), (13) | Short-Term Business Credit | SME Financier | 13.90 | % | 0.0 | % | 8/18/2023 | 5,601,000 | 47 | % | 5,601,000 | 2,788,336 | 1.0 | % | |||||||||||||||||||||||||
Brazil | Dock Brasil Engenharia E Servicos S.A. | Boatbuilding and Repairing | Ship Maintenance & Repair Service Provider | 14% Cash / 3% PIK | 0.0 | % | 2/28/2025 | 7,838,301 | 42 | % | 7,838,301 | 7,838,301 | 2.8 | % | ||||||||||||||||||||||||||
Cabo Verde | TRG Cape Verde Holdings Ltd | Hotels and Motels | Hospitality Service Provider | 10.0% Cash/3.5% PIK | 0.0 | % | 12/31/2024 | 12,015,507 | 88 | % | 12,015,507 | 11,702,486 | 4.2 | % | ||||||||||||||||||||||||||
Kenya | Multiple ICD (Kenya) Limited (5), (6), (12) | Freight Transportation Arrangement | Freight and Cargo Transporter | 12.70% Cash / 4.00% PIK | 0.0 | % | 3/31/2023 | 15,063,954 | 100 | % | 15,063,954 | 4,176,315 | 1.5 | % | ||||||||||||||||||||||||||
Namibia | Trustco Group Holdings Ltd. (5), (6), (12) | Land Subdividers and Developers | Property Developer | 8.50% Cash/4.0% PIK | 0.0 | % | 8/15/2021 | 18,717,631 | 100 | % | 18,717,631 | 16,242,236 | 5.8 | % | ||||||||||||||||||||||||||
Netherlands | Cevher International B.V. Netherlands | Motor Vehicle Parts and Accessories | Wheel Manufacturer | 11.00 | % | 0.0 | % | N/A | (16) | 8,275,000 | 44 | % | 11,399,439 | 11,399,439 | 4.1 | % | ||||||||||||||||||||||||
Nigeria | Helios Maritime I (5) | Towing and Tugboat Service | Marine Logistics Provider | 3.00 | % | 0.0 | % | 10/31/2026 | 6,162,701 | 100 | % | 6,162,701 | 5,459,429 | 2.0 | % | |||||||||||||||||||||||||
Romania | Lidas SRL (9) | Retail Bakeries | Frozen Bakery Products Manufacturer | 18.50 | % | 0.0 | % | N/A | (16) | 6,836,622 | 100 | % | 7,136,229 | 7,136,229 | 2.6 | % | ||||||||||||||||||||||||
Uganda | Agilis Partners Holding LLC (5), (15) | Corn | Grain Processor G | 12.80% PIK | 0.0 | % | 12/31/2024 | 730,724 | 49 | % | 730,724 | 498,234 | 0.2 | % | ||||||||||||||||||||||||||
Uganda | Agilis Partners (5), (15) | Corn | Grain Processor F | 3.50% Cash/8.00% PIK | 0.0 | % | 9/19/2025 | 14,188,395 | 57 | % | 14,188,395 | 12,399,764 | 4.4 | % | ||||||||||||||||||||||||||
Total Senior Secured Term Loan Participations | 98,853,881 | 79,640,769 | 28.6 | % | ||||||||||||||||||||||||||||||||||||
Senior Secured Trade Finance Participations (1) | ||||||||||||||||||||||||||||||||||||||||
Argentina | Compania Argentina de Granos S.A. (5), (6), (13) | Soybeans | Agriculture Distributor | N/A | 0.0 | % | 6/30/2018 | 12,500,000 | N/A | 12,500,000 | 5,723,296 | 2.1 | % | |||||||||||||||||||||||||||
Argentina | Sancor Cooperativas Unidas Ltda (5), (6), (12) | Dairy Farms | Dairy Co-Operative | 10.67 | % | 0.0 | % | 7/29/2019 | 5,802,296 | N/A | 5,802,296 | 4,528,841 | 1.6 | % | ||||||||||||||||||||||||||
Cameroon | Producam SA (5), (6), (14) | Chocolate and Cocoa Products | Cocoa & Coffee Exporter | 9.50%, 6.0% | (17) | 0.0 | % | 6/30/2024 | 16,077,863 | 76 | % | 16,077,863 | 14,519,154 | 5.2 | % | |||||||||||||||||||||||||
Ecuador | Worldwide Investments and Representations Winrep S.A. and Vannapack S.A. (5), (6), (12) | Frozen Fish and Seafood | Seafood Processing Company II | 11.75 | % | 0.0 | % | 10/25/2023 | 4,424,931 | 59 | % | 4,424,931 | 2,893,848 | 1.0 | % | |||||||||||||||||||||||||
Total Senior Secured Trade Finance Participations | 38,805,090 | 27,665,139 | 9.9 | % | ||||||||||||||||||||||||||||||||||||
Other Investments (1) | ||||||||||||||||||||||||||||||||||||||||
| N/A | IIG TOF B.V. (5), (6), (13) | Other | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 5,924,697 | N/A | 5,924,697 | 3,164,986 | 1.2 | % | |||||||||||||||||||||||||||
Chile | Itelecom Holding Chile SPA (5), (6), (13) | Electric Services | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 1,456,162 | N/A | 1,456,162 | 970,393 | 0.3 | % | |||||||||||||||||||||||||||
Argentina | Algodonera Avellaneda S.A. (5), (6), (13) | Cotton Ginning | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 4,935,048 | N/A | 4,935,048 | 1,792,698 | 0.6 | % | |||||||||||||||||||||||||||
Argentina | Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay (5), (6), (13) | Beef Cattle, Except Feedlots | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 6,499,323 | N/A | 6,499,323 | 2,955,774 | 1.1 | % | |||||||||||||||||||||||||||
Nigeria | Equity Participation in Cocoa Transaction (10) | Other | Profit sharing rights on cocoa distribution | N/A | 0.0 | % | N/A | 1,759,694 | N/A | 1,759,694 | 1,759,694 | 0.6 | % | |||||||||||||||||||||||||||
Morocco | Mac Z Group SARL (5), (6) | Other | Scrap Metal liquidation | N/A | 0.0 | % | N/A | 1,433,058 | N/A | 1,433,058 | 29,772 | 0.0 | % | |||||||||||||||||||||||||||
Brazil | Usivale Industria E Commercio Ltda | Other | Installment under Judicial Recovery | N/A | 0.0 | % | N/A | 600,060 | N/A | 600,060 | 503,075 | 0.2 | % | |||||||||||||||||||||||||||
Peru | TriLinc Peru S.A.C. | Other | Real estate property | N/A | 0.0 | % | N/A | 3,502,265 | N/A | 3,502,265 | 3,261,346 | 1.2 | % | |||||||||||||||||||||||||||
Total other investments | 26,110,307 | 14,437,738 | 5.2 | % | ||||||||||||||||||||||||||||||||||||
Convertible Notes (1) | ||||||||||||||||||||||||||||||||||||||||
Brazil | Qintess Tecnologia e Participacoes Ltda, Series A (5), (11) | Computer Related Services, NEC | IT Service Provider | 5.35% PIK | 0.0 | % | 2/11/2027 | 357,267 | 2 | % | 572,062 | 643,085 | 0.2 | % | ||||||||||||||||||||||||||
Brazil | Qintess Tecnologia e Participacoes Ltda, Series B (5), (11) | Computer Related Services, NEC | IT Service Provider | 12% PIK | 0.0 | % | 8/11/2026 | 25,619,750 | 23 | % | 23,123,411 | 23,772,848 | 8.6 | % | ||||||||||||||||||||||||||
Total convertible notes | 23,695,473 | 24,415,933 | 8.8 | % | ||||||||||||||||||||||||||||||||||||
Equity Warrants | ||||||||||||||||||||||||||||||||||||||||
Mexico | Blue Arrow Biojet Holdings, LLC (7) | Refuse Systems | Waste to Fuels Processor | N/A | N/A | N/A | N/A | N/A | — | 2,466,534 | 0.9 | % | ||||||||||||||||||||||||||||
Total Investments | $ | 327,399,081 | $ | 267,287,486 | ||||||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
1 | Refer to Notes 2, 3 and 4 of the consolidated financial statements for additional information on the Company’s investments. |
2 | Fees may include upfront, origination, commitment, facility and/or other fees that the borrower must contractually pay to the Company. Fees, if any, are typically received in connection with term loan transactions and are rarely applicable to trade finance transactions. |
3 | Trade finance borrowers may be granted flexibility with respect to repayment relative to the stated maturity date to accommodate specific contracts and/or business cycle characteristics. This flexibility in each case is agreed upon between the Company and the sub-advisor and between the sub-advisor and the borrower. |
4 | Percentage of the Company’s participation in total borrowings outstanding under sub-advisor provided financing facility. The participation percentages are calculated based on the global outstanding balance for the facility. |
5 | Watch List investment (i.e., an investment with any significant changes in the credit and collection risk). |
6 | Investment on non-accrual status. |
7 | The Company holds four equity warrants, which upon exercise would entitle the Company to equity interests equivalent to 16.5% of the investee’s equity interest. The warrants have a strike price of $0.01 and expire on April 8, 2074. |
| 8 | The Company is negotiating with the borrower to amend the loan term and to extend the maturity date. |
| 9 | Lidas SRL is the operating company for the investment. The participation is in a senior security term loan to Cristal Project SRL, which is guaranteed by Lidas SRL. |
| 10 | Courtyard Farms Limited and Alfa Systems and Commodity Company Limited are the original borrowers of this investment. The borrowers were not able to meet scheduled debt repayments, and the Company entered into a settlement agreement for the outstanding amount. The borrowers' inventory serves as collateral, which the Company plans to trade through a local agent. The settlement dates for Courtyard Farms Limited and Alfa Systems and Commodity Company Limited were July 31, 2024 and October 16, 2024, respectively. |
| 11 | Class A and Class B convertible notes were issued to the Company through restructuring in August 2023. |
| 12 | Investment is in default. |
| 13 | Investment is in bankruptcy. |
| 14 | Investment is in arbitration. |
| 15 | Investment is undergoing a restructuring. |
| 16 | The borrower is required to repay the loan upon request. |
| 17 | The interest rate is 9.5% on the first and second trade finance participation, and 6% on the third trade finance participation. |
TriLinc Global Impact Fund, LLC
Consolidated Schedule of Investments
Investment Type /Country | Portfolio Company | Sector | Description | Interest | Fees (2) | Maturity (3) | Principal Amount | Participation % (4) | Amortized Cost | Fair Value | % of Net Assets | |||||||||||||||||||||||||
Senior Secured Term Loans (1) | ||||||||||||||||||||||||||||||||||||
Brazil | Usivale Industria E Commercio Ltda (5), (6) | Sugarcane and Sugar Beets | Sugar Producer | N/A | 0.0 | % | 12/15/2026 | $ | 600,060 | 100 | % | $ | 600,060 | $ | 453,112 | 0.2 | % | |||||||||||||||||||
Ecuador | Grupo Surpapel | Corrugated and Solid Fiber Boxes | Sustainable Packaging Manufacturer | 12.88% Cash / 2.2% PIK | 0.0 | % | 6/18/2025 | 3,598,133 | 5 | % | 3,598,133 | 3,598,133 | 1.3 | % | ||||||||||||||||||||||
Hong Kong | Limas Commodities House Limited (5), (6) | Coal and Other Minerals and Ores | Resource Trader | 11.50% | 0.0 | % | 6/30/2023 | 22,219,566 | 100 | % | 22,219,566 | 15,302,209 | 5.6 | % | ||||||||||||||||||||||
Indonesia | PT Citra Labuantirta (8) | Chocolate and Cocoa Products | Cocoa Processor | 13.00% | 2.0 | % | 3/4/2024 | 10,000,000 | 33 | % | 10,000,000 | 10,000,000 | 3.7 | % | ||||||||||||||||||||||
Indonesia | PT Citra Labuantirta (8) | Chocolate and Cocoa Products | Cocoa Processor | 11.00% | 2.0 | % | 12/31/2023 | 5,000,000 | 17 | % | 5,000,000 | 5,000,000 | 1.8 | % | ||||||||||||||||||||||
Malaysia | Vikudha Malaysia Sdn Bhd (5), (6) | Chemicals and Allied Products | Wholesale Distributor | 12.00% | 0.0 | % | 6/30/2023 | 18,484,704 | 67 | % | 18,484,704 | 7,032,859 | 2.6 | % | ||||||||||||||||||||||
Mexico | Blue Arrow Biojet Holdings, LLC (8) | Refuse Systems | Waste to Fuels Processor | 20% PIK | 0.0 | % | 4/30/2024 | 47,602,300 | 65 | % | 47,602,300 | 47,602,300 | 17.4 | % | ||||||||||||||||||||||
Singapore | Triton Metallics Pte Ltd. (5), (6) | Coal and Other Minerals and Ores | Non-Ferrous Metal Trader | 6.0% Cash/7.50% PIK | 0.0 | % | 8/18/2025 | 21,799,281 | 100 | % | 21,799,281 | 19,329,238 | 7.1 | % | ||||||||||||||||||||||
Total Senior Secured Term Loans | 129,304,044 | 108,317,851 | 39.7 | % | ||||||||||||||||||||||||||||||||
Senior Secured Term Loan Participations (1) | ||||||||||||||||||||||||||||||||||||
Botswana | Ecsponent Holdings Limited (5), (6) | Short-Term Business Credit | SME Financier | 14.97% | 0.0 | % | 8/18/2023 | 5,601,000 | 47 | % | 5,601,000 | 2,792,341 | 1.0 | % | ||||||||||||||||||||||
Brazil | Dock Brasil Engenharia E Servicos S.A. (8) | Boatbuilding and Repairing | Ship Maintenance & Repair Service Provider | 8% Cash / 12% PIK | 0.0 | % | 12/7/2023 | 8,056,522 | 42 | % | 8,056,522 | 8,056,522 | 3.0 | % | ||||||||||||||||||||||
Cabo Verde | TRG Cape Verde Holdings Ltd | Hotels and Motels | Hospitality Service Provider | 10.0% Cash/3.5% PIK | 0.0 | % | 12/31/2024 | 15,499,826 | 88 | % | 15,499,826 | 15,186,805 | 5.6 | % | ||||||||||||||||||||||
Colombia | Kredit Plus S.A.S. | Personal Credit Institutions | Consumer Lender II | 11.90% | 0.0 | % | 12/24/2026 | 4,245,889 | 69 | % | 4,245,889 | 4,245,889 | 1.6 | % | ||||||||||||||||||||||
Kenya | Multiple ICD (Kenya) Limited (5), (6) | Freight Transportation Arrangement | Freight and Cargo Transporter | 13.15% Cash / 4.00% PIK | 0.0 | % | 3/31/2023 | 15,063,954 | 100 | % | 15,063,954 | 4,601,330 | 1.7 | % | ||||||||||||||||||||||
Mexico | HINV, S.A. DE C.V. | Personal Credit Institutions | Consumer Lender III | 11.95% | 0.0 | % | 1/21/2027 | 2,011,075 | 14 | % | 2,011,075 | 2,011,075 | 0.7 | % | ||||||||||||||||||||||
Namibia | Trustco Group Holdings Ltd. (5), (6) | Land Subdividers and Developers | Property Developer | 8.50% Cash/4.0% PIK | 0.0 | % | 8/15/2021 | 18,717,631 | 100 | % | 18,717,631 | 15,326,637 | 5.6 | % | ||||||||||||||||||||||
Netherlands | Cevher International B.V. Netherlands (8) | Motor Vehicle Parts and Accessories | Wheel Manufacturer | 8.00% | 0.0 | % | 2/7/2024 | 8,275,000 | 44 | % | 10,697,318 | 10,697,318 | 3.9 | % | ||||||||||||||||||||||
Nigeria | Helios Maritime I (5) | Towing and Tugboat Service | Marine Logistics Provider | 3.00% | 0.0 | % | 10/31/2026 | 6,929,992 | 100 | % | 6,929,992 | 5,573,992 | 2.0 | % | ||||||||||||||||||||||
Romania | Lidas SRL (9) | Retail Bakeries | Frozen Bakery Products Manufacturer | 7.0% Cash/7.0% PIK | 0.0 | % | 5/20/2024 | 6,645,029 | 100 | % | 6,944,636 | 6,944,636 | 2.5 | % | ||||||||||||||||||||||
Uganda | Agilis Partners Holding LLC (5) | Corn | Grain Processor G | 12.80% PIK | 0.0 | % | 7/8/2024 | 644,238 | 49 | % | 644,238 | 411,748 | 0.2 | % | ||||||||||||||||||||||
Uganda | Agilis Partners (5) | Corn | Grain Processor F | 3.50% Cash/8.00% PIK | 0.0 | % | 9/19/2025 | 13,101,741 | 57 | % | 13,101,741 | 11,457,753 | 4.2 | % | ||||||||||||||||||||||
Total Senior Secured Term Loan Participations | 107,513,822 | 87,306,046 | 32.0 | % | ||||||||||||||||||||||||||||||||
Senior Secured Trade Finance Participations (1) | ||||||||||||||||||||||||||||||||||||
Argentina | Compania Argentina de Granos S.A. (5), (6) | Soybeans | Agriculture Distributor | 10.45% | 0.0 | % | 6/30/2018 | 12,500,000 | N/A | 12,500,000 | 5,723,296 | 2.1 | % | |||||||||||||||||||||||
Argentina | Sancor Cooperativas Unidas Ltda (5), (6) | Dairy Farms | Dairy Co-Operative | 10.67% | 0.0 | % | 7/29/2019 | 5,802,296 | N/A | 5,802,296 | 4,289,181 | 1.6 | % | |||||||||||||||||||||||
Cameroon | Producam SA (5), (6) | Chocolate and Cocoa Products | Cocoa & Coffee Exporter | 9.50%, 6.0% | 0.0 | % | 6/30/2023 | 16,035,023 | 76 | % | 16,035,023 | 14,476,313 | 5.3 | % | ||||||||||||||||||||||
Ecuador | Worldwide Investments and Representations Winrep S.A. and Vannapack S.A. (5), (6) | Frozen Fish and Seafood | Seafood Processing Company II | 11.75% | 0.0 | % | 10/25/2023 | 4,424,931 | 59 | % | 4,424,931 | 3,470,108 | 1.3 | % | ||||||||||||||||||||||
United Arab Emirates | Global Pharma Intelligence Sarl (5), (6) | Drugs, Proprietaries, and Sundries | Pharmaceuticals Distributor | 14.60% | 0.0 | % | 6/30/2018 | 648,430 | 60 | % | 648,430 | 648,430 | 0.2 | % | ||||||||||||||||||||||
Total Senior Secured Trade Finance Participations | 39,410,680 | 28,607,328 | 10.5 | % | ||||||||||||||||||||||||||||||||
Other Investments (1) | ||||||||||||||||||||||||||||||||||||
| N/A | IIG TOF B.V. (5), (6) | Other | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 6,000,000 | N/A | 6,000,000 | 3,240,290 | 1.2 | % | |||||||||||||||||||||||
Chile | Itelecom Holding Chile SPA (5), (6) | Electric Services | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 1,456,162 | N/A | 1,456,162 | 970,393 | 0.4 | % | |||||||||||||||||||||||
Argentina | Algodonera Avellaneda S.A. (5), (6) | Cotton Ginning | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 4,935,048 | N/A | 4,935,048 | 1,792,698 | 0.7 | % | |||||||||||||||||||||||
Argentina | Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay (5), (6) | Beef Cattle, Except Feedlots | Claim in Bankruptcy | N/A | 0.0 | % | N/A | 6,499,323 | N/A | 6,499,323 | 2,955,774 | 1.1 | % | |||||||||||||||||||||||
Nigeria | Equity Participation in Cocoa Transaction (5), (6), (10) | Other | Profit sharing rights on cocoa distribution | N/A | 0.0 | % | N/A | 1,797,488 | N/A | 1,797,488 | 1,797,488 | 0.7 | % | |||||||||||||||||||||||
Morocco | Mac Z Group SARL (5), (6) | Other | Scrap Metal liquidation | N/A | 0.0 | % | N/A | 1,433,058 | N/A | 1,433,058 | 239,370 | 0.1 | % | |||||||||||||||||||||||
Peru | TriLinc Peru S.A.C. (5) | Other | Real estate property | N/A | 0.0 | % | N/A | 3,502,265 | N/A | 3,502,265 | 3,375,367 | 1.2 | % | |||||||||||||||||||||||
Total other investments | 25,623,344 | 14,371,380 | 5.4 | % | ||||||||||||||||||||||||||||||||
Convertible Notes (1) | ||||||||||||||||||||||||||||||||||||
Brazil | Qintess Tecnologia e Participacoes Ltda, Series A (5), (11) | Computer Related Services, NEC | IT Service Provider | 5.35% | 0.0 | % | 8/11/2026 | 343,562 | 2 | % | 558,357 | 558,357 | 0.2 | % | ||||||||||||||||||||||
Brazil | Qintess Tecnologia e Participacoes Ltda, Series B (5), (11) | Computer Related Services, NEC | IT Service Provider | 12.00% | 0.0 | % | 8/11/2026 | 23,530,310 | 23 | % | 21,033,971 | 21,210,341 | 7.8 | % | ||||||||||||||||||||||
Total convertible notes | 21,592,328 | 21,768,698 | 8.0 | % | ||||||||||||||||||||||||||||||||
Equity Warrants | ||||||||||||||||||||||||||||||||||||
Mexico | Blue Arrow Biojet Holdings, LLC | Refuse Systems | Waste to Fuels Processor | N/A | N/A | N/A | N/A | N/A | — | 1,309,404 | 0.5 | % | ||||||||||||||||||||||||
Total Investments | $ | 323,444,218 | $ | 261,680,707 | ||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
1 | Refer to Notes 2, 3 and 4 of the consolidated financial statements for additional information on the Company’s investments. |
2 | Fees may include upfront, origination, commitment, facility and/or other fees that the borrower must contractually pay to the Company. Fees, if any, are typically received in connection with term loan transactions and are rarely applicable to trade finance transactions. |
3 | Trade finance borrowers may be granted flexibility with respect to repayment relative to the stated maturity date to accommodate specific contracts and/or business cycle characteristics. This flexibility in each case is agreed upon between the Company and the sub-advisor and between the sub-advisor and the borrower. |
4 | Percentage of the Company’s participation in total borrowings outstanding under sub-advisor provided financing facility. The participation percentages are calculated based on the global outstanding balance for the facility. |
5 | Watch List investment (i.e., an investment with any significant changes in the credit and collection risk). |
6 | Investment on non-accrual status. |
7 | The Company holds four equity warrants, which upon exercise would entitle the Company to equity interests equivalent to 2.0% of the investee’s equity interest. The warrants have a strike price of $0.01 and expire on July 27, 2024. |
8 | The Company is negotiating with the borrower to amend the loan term and to extend the maturity date. |
| 9 | Lidas SRL is the operating company for the investment. The participation is in a senior security term loan to Cristal Project SRL, which is guaranteed by Lidas SRL. |
| 10 | Courtyard Farms Limited and Alfa Systems and Commodity Company Limited are the original borrowers of this investment. The borrowers were not able to meet scheduled debt repayments, and the Company entered into a settlement agreement for the outstanding amount. The borrowers' inventory serves as collateral, which the Company plans to trade through a local agent. |
| 11 | Class A and Class B convertible notes were issued to the Company through restructuring in August 2023. |
TRILINC GLOBAL IMPACT FUND, LLC
Notes to Consolidated Financial Statements
(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. As a result of the Company's LLC structure, the Company's unitholders have limited legal and financial liability for the obligations or debts of the Company. 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 has a distribution reinvestment plan (the "DRP"), pursuant to which participants' distributions are reinvested in additional units. 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. The Company temporarily suspended the DRP effective April 1, 2023. On February 16, 2024, the Company filed with the SEC a Registration Statement on Form S-1 (File No. 333-277157), which was subsequently amended on April 17, 2024, to register units to be issued pursuant to the DRP (as amended, the "DRP Registration Statement"). The temporary suspension of the DRP was lifted when the DRP Registration Statement was declared effective by the SEC on April 24, 2024. For the period from April 1, 2017 to September 30, 2024, the Company raised an additional $99,753,000 pursuant to a private placement and $53,561,000 pursuant to the DRP, for total gross proceeds of approximately $515,089,000 as of September 30, 2024.
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 ("FASB") Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies ("ASC 946"). 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, 2024, the Company’s subsidiaries are as follows:
● | TriLinc Global Impact Fund – Asia, Ltd. |
● | TriLinc Global Impact Fund – Latin America, Ltd. |
● | TriLinc Global Impact Fund – Trade Finance, Ltd. |
● | TriLinc Global Impact Fund – African Trade Finance, Ltd. |
● | TriLinc Global Impact Fund – Africa, Ltd. |
● | TriLinc Global Impact Fund – Latin America II, Ltd. |
● | TriLinc Global Impact Fund – African Trade Finance II, Ltd. |
● | TriLinc Global Impact Fund – Latin America III, Ltd. |
● | TriLinc Global Impact Fund – Asia II, Ltd. |
● | TriLinc Global Impact Fund – Asia III, Ltd. |
● | TriLinc Global Impact Fund – Asia IV, Ltd. |
● | TriLinc Global Impact Fund – African Trade Finance III, Ltd. |
● | TriLinc Global Impact Fund – Europe, Ltd. |
● | TriLinc Global Impact Fund – Cayman Master (formerly known as TriLinc Global Impact Fund - North America, Ltd.) |
● | TriLinc Global Impact Fund – Africa Latin America, Ltd. |
● | TriLinc Global Impact Fund - Africa Latin America Trade Finance, Ltd |
● | TriLinc Global Impact Fund – Cayman, Ltd. |
Through September 30, 2024, the Company has made, through its Subsidiaries, loans in a number of countries located in South America, Asia, Africa, North America, and Europe.
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 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.
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. Following the initial accrual of interest income, receivable balances are adjusted to have such balances reflect their net realizable value at each reporting date. The Company determines the net realizable value using the same methodologies used to determine the fair value of investments. Structuring, upfront and similar fees are recorded as a discount on investments purchased and are accreted into interest income, on a straight-line basis, which the Company has determined not to be materially different from the effective yield method.
The Company records prepayment penalties 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 when they become due. Non-accrual loans are generally restored to accrual status when past due principal and interest is paid and, in the Company’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:
● | 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. |
● | Level 2 — Valuations based on inputs other than quoted prices included in Level 1, which are either directly or indirectly observable. |
● | 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 or liquidation 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 includes 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:
1. | Each investment is valued by the Advisor on a quarterly basis; |
2. | Materiality is assessed quarterly on all investments to determine whether an independent review is appropriate. When deemed 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 all term loans and trade finance Watch List investments, 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 is based upon data and assumptions provided to it by the Company and received from third party sources, which the independent valuation firm relies 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; |
3. | 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 |
4. | 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, no macroeconomic indicator or other event observed would reasonably be expected to have a material impact on the underlying performance or collateral value of the investment. 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 have resulted in a fair value that is materially less than the investment’s amortized cost, the Company has determined to place it on the Watch List. Fixed income investments are typically valued utilizing an income approach, collateral based approach, or a combination of these approaches (and any others, as appropriate). 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:
● | Macro-economic factors that are relevant to the investment or the underlying borrower |
● | Industry factors that are relevant to the investment or the underlying borrower |
● | Historical and projected financial performance of the borrower based on most recent financial statements |
● | Borrower draw requests and payment track record |
● | Loan covenants, duration and drivers |
● | Performance and condition of the collateral (nature, type and value) that supports the investment |
● | Sub-Advisor recommendation as to possible impairment or reserve, including updates and feedback |
● | For participations, the Company’s ownership percentage of the overall facility |
● | Key inputs and assumptions that are believed to be most appropriate for the investment and the approach utilized |
● | Applicable global interest rates |
● | 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 measures net realized gains or losses as 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 but considering unamortized upfront fees. 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 payment-in-kind ("PIK") interest provisions. For loans with contractual PIK interest, any interest will be added to the principal balance of such investments and be recorded as interest income, if the valuation indicates that such interest is collectible as of September 30, 2024. For the three and nine months ended September 30, 2024, the Company earned and capitalized PIK interest of $4,822,398 and $13,475,937, respectively. For the three and nine months ended September 30, 2023, the Company earned and capitalized PIK interest of $3,103,789 and $9,038,468, 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, 2024, the estimated unpaid distribution fees for Class C units amounted to $336,000, the unpaid dealer manager fees for Class I units amounted to $15,000 and the unpaid dealer manager and service fees for Class W units amounted to $1,000. At December 31, 2023, the estimated unpaid distribution fees for Class C units amounted to $335,000, the unpaid dealer manager fees for Class I units amounted to $14,000 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.
The Company 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 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, 2024, no tax liability for uncertain tax positions had been recognized in the accompanying consolidated 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, 2021.
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, 2024, 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, 2024, under GAAP, the Company has recorded a liability in the amount of $352,000 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. Such fees are charged against capital when incurred.
The Company is not required to determine its net asset value per unit under GAAP and therefore, its determination of net asset value per unit for Class C units, Class I units and Class W units varies from GAAP. 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, 2024, each of the Class A, Class C, Class I, Class W, Class Y and Class Z units have the same estimated net asset value per unit of approximately $5.84, which is different than the net asset value per unit of approximately $5.83 (on an aggregate basis for all unit classes) as shown in Note 8 – Financial Highlights. This estimated net asset value per unit as of September 30, 2024 reflects an increase of approximately $0.12 from the net asset value per unit of approximately $5.72 as of December 31, 2023. The increase in net asset value per unit was due to the improvement in current macroeconomic conditions as well as some of the Company's borrowers gradually ramping up their trading activities. The Company recorded $1,651,915 in unrealized appreciation and $0 in realized loss on its investments during the nine months ended September 30, 2024. The Company also recorded $2,611,916 in unrealized appreciation and $11,114,481 in net realized loss on its investments during the nine months ended September 30, 2023.
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, 2024 and 2023.
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 through the end of the Offering, the organization and offering costs did not exceed the O&O Reimbursement Limit, and reimbursement to the Sponsor of the initial offering and organization costs were recorded in periods prior to 2021. 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.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This update provided specific guidance and optional expedients relating to contract modifications, hedging relationships, cash flow hedges and other transactions associated with the London Interbank Offered Rate (“LIBOR”), which has since been discontinued.
In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) to defer the sunset date of Topic 848 to December 31, 2024. The optional expedients are not applied subsequent to December 31, 2024, except for certain optional expedients elected for hedging relationships. The Company has evaluated the guidance and does not expect 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. The International Investment Group L.L.C. (“IIG”) was the sub-advisor with respect to five of the 19 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. 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. In these instances, 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 increases the risk of full recovery. These risks may be further exacerbated by the conflict between Russia and Ukraine. Fortunately, most supply side conditions normalized in 2023, providing some economic relief to borrower companies. However, the combination of pandemic period effects, in many cases, had devastating and long-lasting impacts on the businesses, financial condition and results of operations of several borrower companies. In addition, as of September 30, 2024 and December 31, 2023, all but one 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 the Company 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, 2024, the Company’s largest loan by value was $55,222,314 or 20.7% of total investments and provides for PIK interest, with principal and interest due at maturity. The Company’s five largest loans by value comprised 50.1% of the Company’s investment portfolio at September 30, 2024. Participations in loans amounted to 40.2% of the fair value of the Company’s total portfolio at September 30, 2024.
Note 3. Investments
As of September 30, 2024, the Company’s investments consisted of the following:
Percentage | ||||||||||||
Amortized Cost | Fair Value | of Total Investments | ||||||||||
Senior secured term loans | $ | 139,934,330 | $ | 118,661,373 | 44.4 | % | ||||||
Senior secured term loan participations | 98,853,881 | 79,640,769 | 29.8 | % | ||||||||
Senior secured trade finance participations | 38,805,090 | 27,665,139 | 10.4 | % | ||||||||
Other investments | 26,110,307 | 14,437,738 | 5.4 | % | ||||||||
Convertible notes | 23,695,473 | 24,415,933 | 9.1 | % | ||||||||
Equity warrants | — | 2,466,534 | 0.9 | % | ||||||||
Total investments | $ | 327,399,081 | 267,287,486 | 100.0 | % | |||||||
As of December 31, 2023, the Company’s investments consisted of the following:
Percentage | ||||||||||||
Amortized Cost | Fair Value | of Total Investments | ||||||||||
Senior secured term loans | $ | 129,304,044 | $ | 108,317,851 | 41.4 | % | ||||||
Senior secured term loan participations | 107,513,822 | 87,306,046 | 33.4 | % | ||||||||
Senior secured trade finance participations | 39,410,680 | 28,607,328 | 10.9 | % | ||||||||
Other investments | 25,623,344 | 14,371,380 | 5.5 | % | ||||||||
Convertible notes | 21,592,328 | 21,768,698 | 8.3 | % | ||||||||
Equity warrants | — | 1,309,404 | 0.5 | % | ||||||||
Total investments | $ | 323,444,218 | $ | 261,680,707 | 100.0 | % | ||||||
Participations
Some of the Company’s investments are in the form of participation interests in financing facilities (“Participations”). Certain of the Company's 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.
As of September 30, 2024 and December 31, 2023, Participations with sub-advisors represented the following as a percentage of Net Assets:
As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
Fair | Percentage | Fair | Percentage | |||||||||||||
Sub-advisor | Value | of Total | Value | of Total | ||||||||||||
CEECAT Capital Limited & CCL Investments SARL | $ | 11,399,439 | 4.1 | % | $ | 17,641,954 | 6.5 | % | ||||||||
Origin Capital Limited | 15,856,629 | 5.7 | % | 15,467,634 | 5.7 | % | ||||||||||
Scipion Capital, Ltd. | 17,337,262 | 6.2 | % | 17,917,084 | 6.6 | % | ||||||||||
TRG Management LP | 32,254,234 | 11.6 | % | 36,082,184 | 13.2 | % | ||||||||||
Total | $ | 76,847,564 | 27.6 | % | $ | 87,108,856 | 32.0 | % | ||||||||
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. As such, some of the Company's trade finance investments have up to a year or more of accrued interest receivable as of September 30, 2024. In addition, certain of the Company’s investments in term loans accrue deferred interest, which is not payable until the maturity of the loans. Lastly, certain of the Company's investments have PIK interest, which is accrued as interest receivable and capitalized on a regular basis. As a result, a significant portion of the Company's interest receivable balance may not be received in cash in the short term. The Company’s interest receivable balances at September 30, 2024 and December 31, 2023 are recorded at net realizable value.
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 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.
The industry composition of the Company’s portfolio, at fair value as of September 30, 2024 and December 31, 2023, was as follows:
As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
Fair | Percentage | Fair | Percentage | |||||||||||||
Industry | Value | of Total | Value | of Total | ||||||||||||
Beef Cattle, Except Feedlots | $ | 2,955,774 | 1.1 | % | $ | 2,955,774 | 1.1 | % | ||||||||
Boatbuilding and Repairing | 7,838,301 | 2.9 | % | 8,056,522 | 3.1 | % | ||||||||||
Chemicals and Allied Products | 6,699,815 | 2.5 | % | 7,032,859 | 2.7 | % | ||||||||||
Chocolate and Cocoa Products | 33,768,988 | 12.6 | % | 29,476,313 | 11.3 | % | ||||||||||
Coal and Other Minerals and Ores | 34,530,779 | 12.9 | % | 34,631,447 | 13.2 | % | ||||||||||
Computer Related Services, NEC | 24,415,933 | 9.1 | % | 21,768,698 | 8.3 | % | ||||||||||
Corn | 12,897,998 | 4.8 | % | 11,869,501 | 4.5 | % | ||||||||||
Corrugated and Solid Fiber Boxes | 2,958,631 | 1.1 | % | 3,598,133 | 1.4 | % | ||||||||||
Cotton Ginning | 1,792,698 | 0.7 | % | 1,792,698 | 0.7 | % | ||||||||||
Dairy Farms | 4,528,841 | 1.7 | % | 4,289,181 | 1.6 | % | ||||||||||
Drugs, Proprietaries, and Sundries | — | 0.0 | % | 648,430 | 0.2 | % | ||||||||||
Electric Services | 970,393 | 0.4 | % | 970,393 | 0.4 | % | ||||||||||
Freight Transportation Arrangement | 4,176,315 | 1.6 | % | 4,601,330 | 1.8 | % | ||||||||||
Frozen Fish and Seafood | 2,893,848 | 1.1 | % | 3,470,108 | 1.3 | % | ||||||||||
Hotels and Motels | 11,702,486 | 4.4 | % | 15,186,805 | 5.8 | % | ||||||||||
Land Subdividers and Developers | 16,242,236 | 6.1 | % | 15,326,637 | 5.9 | % | ||||||||||
Motor Vehicle Parts and Accessories | 11,399,439 | 4.3 | % | 10,697,318 | 4.1 | % | ||||||||||
Personal Credit Institutions | — | 0.0 | % | 6,256,964 | 2.4 | % | ||||||||||
Refuse Systems | 57,688,848 | 21.6 | % | 48,911,704 | 18.7 | % | ||||||||||
Retail Bakeries | 7,136,229 | 2.7 | % | 6,944,636 | 2.7 | % | ||||||||||
Short-Term Business Credit | 2,788,336 | 1.0 | % | 2,792,341 | 1.1 | % | ||||||||||
Soybeans | 5,723,296 | 2.1 | % | 5,723,296 | 2.2 | % | ||||||||||
Sugarcane and Sugar Beets | — | 0.0 | % | 453,112 | 0.2 | % | ||||||||||
Towing and Tugboat Service | 5,459,429 | 2.0 | % | 5,573,992 | 2.1 | % | ||||||||||
Other | 8,718,873 | 3.3 | % | 8,652,515 | 3.2 | % | ||||||||||
Total | $ | 267,287,486 | 100.0 | % | $ | 261,680,707 | 100.0 | % | ||||||||
The table below shows the portfolio composition by geographic classification at fair value as of September 30, 2024 and December 31, 2023:
As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
Fair | Percentage | Fair | Percentage | |||||||||||||
Country | Value | of Total | Value | of Total | ||||||||||||
Argentina (1) | $ | 15,000,609 | 5.6 | % | $ | 14,760,949 | 5.6 | % | ||||||||
Botswana | 2,788,336 | 1.0 | % | 2,792,341 | 1.1 | % | ||||||||||
Brazil | 32,757,309 | 12.3 | % | 30,278,332 | 11.6 | % | ||||||||||
Cabo Verde | 11,702,486 | 4.4 | % | 15,186,805 | 5.8 | % | ||||||||||
Cameroon | 14,519,154 | 5.4 | % | 14,476,313 | 5.5 | % | ||||||||||
Chile | 970,393 | 0.4 | % | 970,393 | 0.4 | % | ||||||||||
Colombia | — | 0.0 | % | 4,245,889 | 1.6 | % | ||||||||||
Ecuador | 5,852,479 | 2.2 | % | 7,068,241 | 2.7 | % | ||||||||||
Hong Kong | 15,201,540 | 5.7 | % | 15,302,209 | 5.8 | % | ||||||||||
Indonesia | 19,249,834 | 7.2 | % | 15,000,000 | 5.7 | % | ||||||||||
Kenya | 4,176,315 | 1.6 | % | 4,601,330 | 1.8 | % | ||||||||||
Malaysia | 6,699,815 | 2.5 | % | 7,032,859 | 2.7 | % | ||||||||||
Mexico | 57,688,848 | 21.6 | % | 50,922,779 | 19.5 | % | ||||||||||
Morocco | 29,772 | 0.0 | % | 239,370 | 0.1 | % | ||||||||||
Namibia | 16,242,236 | 6.1 | % | 15,326,637 | 5.9 | % | ||||||||||
Netherlands | 11,399,439 | 4.3 | % | 10,697,318 | 4.1 | % | ||||||||||
Nigeria | 7,219,123 | 2.7 | % | 7,371,480 | 2.8 | % | ||||||||||
Peru | 3,261,346 | 1.2 | % | 3,375,367 | 1.3 | % | ||||||||||
Romania | 7,136,229 | 2.7 | % | 6,944,636 | 2.7 | % | ||||||||||
Singapore | 19,329,239 | 7.2 | % | 19,329,238 | 7.4 | % | ||||||||||
United Arab Emirates | — | 0.0 | % | 648,430 | 0.2 | % | ||||||||||
Uganda | 12,897,998 | 4.8 | % | 11,869,501 | 4.5 | % | ||||||||||
N/A | 3,164,986 | 1.1 | % | 3,240,290 | 1.2 | % | ||||||||||
Total | $ | 267,287,486 | 100.0 | % | $ | 261,680,707 | 100.0 | % | ||||||||
(1) | All of the Company’s investments in Argentina are Participations in trade finance facilities originated by IIG TOF B.V. |
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, Fair Value Measurement ("ASC 820") as of September 30, 2024:
Fair | ||||||||||||||||
Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Senior secured term loans | $ | 118,661,373 | $ | — | $ | — | $ | 118,661,373 | ||||||||
Senior secured term loan participations | 79,640,769 | — | — | 79,640,769 | ||||||||||||
Senior secured trade finance participations | 27,665,139 | — | — | 27,665,139 | ||||||||||||
Other investments | 14,437,738 | — | — | 14,437,738 | ||||||||||||
Convertible notes | 24,415,933 | — | — | 24,415,933 | ||||||||||||
Equity warrants | 2,466,534 | — | — | 2,466,534 | ||||||||||||
Total | $ | 267,287,486 | $ | — | $ | — | $ | 267,287,486 | ||||||||
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, 2023:
Fair | ||||||||||||||||
Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Senior secured term loans | $ | 108,317,851 | $ | — | $ | — | $ | 108,317,851 | ||||||||
Senior secured term loan participations | 87,306,046 | — | — | 87,306,046 | ||||||||||||
Senior secured trade finance participations | 28,607,328 | — | — | 28,607,328 | ||||||||||||
Other investments | 14,371,380 | — | — | 14,371,380 | ||||||||||||
Convertible notes | 21,768,698 | — | — | 21,768,698 | ||||||||||||
Equity warrants | 1,309,404 | — | — | 1,309,404 | ||||||||||||
Total | $ | 261,680,707 | $ | — | $ | — | $ | 261,680,707 | ||||||||
The following is a reconciliation of activity for the nine months ended September 30, 2024, of investments classified as Level 3:
Fair Value at December 31, 2023 | Purchases | Proceeds from disposition and paydowns of investments | Reclassifications | Capitalized payment-in-kind interest income | Net change in unrealized appreciation (depreciation) | Net realized gains (losses) | Fair Value at September 30, 2024 | |||||||||||||||||||||||||
Senior secured term loans | $ | 108,317,851 | $ | — | $ | (719,742 | ) | $ | (503,075 | ) | $ | 11,950,088 | $ | (383,749 | ) | $ | — | $ | 118,661,373 | |||||||||||||
Senior secured term loan participations | 87,306,046 | — | (11,234,648 | ) | — | 2,574,707 | 994,664 | — | 79,640,769 | |||||||||||||||||||||||
Senior secured trade finance participations | 28,607,328 | — | (648,430 | ) | — | 42,840 | (336,599 | ) | — | 27,665,139 | ||||||||||||||||||||||
Other investments | 14,371,380 | — | (113,096 | ) | 503,075 | — | (323,621 | ) | — | 14,437,738 | ||||||||||||||||||||||
Convertible notes | 21,768,698 | — | — | — | 2,103,145 | 544,090 | — | 24,415,933 | ||||||||||||||||||||||||
Equity warrants | 1,309,404 | — | — | — | — | 1,157,130 | — | 2,466,534 | ||||||||||||||||||||||||
Total | $ | 261,680,707 | $ | — | $ | (12,715,916 | ) | $ | — | $ | 16,670,780 | $ | 1,651,915 | $ | — | $ | 267,287,486 | |||||||||||||||
The following is a reconciliation of activity for the year ended December 31, 2023, of investments classified as Level 3:
Fair Value at December 31, 2022 | Purchases | Proceeds from disposition and paydowns of investments | Reclassifications | Capitalized payment-in-kind interest income | Net change in unrealized appreciation (depreciation) | Net realized gains (losses) | Fair Value at December 31, 2023 | |||||||||||||||||||||||||
Senior secured term loans | $ | 105,084,728 | $ | — | $ | (6,815,940 | ) | $ | 5,000,000 | $ | 9,705,068 | $ | (5,110,334 | ) | $ | 454,329 | $ | 108,317,851 | ||||||||||||||
Senior secured term loan participations | 119,690,547 | 1,803,105 | (25,108,771 | ) | (22,557,046 | ) | 7,412,280 | 11,068,644 | (5,002,713 | ) | 87,306,046 | |||||||||||||||||||||
Senior secured trade finance participations | 31,710,623 | 9,511,909 | (5,358,233 | ) | (6,797,488 | ) | — | 8,285,570 | (8,745,053 | ) | 28,607,328 | |||||||||||||||||||||
Other investments | 15,925,381 | — | (3,565,628 | ) | 1,797,488 | — | 214,139 | — | 14,371,380 | |||||||||||||||||||||||
Convertible notes | — | — | — | 22,557,046 | 980,158 | 176,370 | (1,944,876 | ) | 21,768,698 | |||||||||||||||||||||||
Equity warrants | 1,205,503 | — | — | — | — | 103,901 | — | 1,309,404 | ||||||||||||||||||||||||
Total | $ | 273,616,782 | $ | 11,315,014 | $ | (40,848,572 | ) | $ | — | $ | 18,097,506 | $ | 14,738,290 | $ | (15,238,313 | ) | $ | 261,680,707 | ||||||||||||||
The Company recorded net realized losses of $0 and $15,238,313 for the Company’s investments classified as Level 3 during nine months ended September 30, 2024 and the year ended December 31, 2023, respectively. Net change in unrealized appreciation for the nine months ended September 30, 2024 and net change in unrealized depreciation for the year ended December 31, 2023 reported in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets still held at period end were approximately $1,652,000 and $6,091,000, respectively.
As of September 30, 2024, 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, 2024:
Fair value | Valuation technique | Unobservable input | Range (weighted average) (4) | ||||||
Senior secured trade finance participations (1) | $ | 7,422,689 | Collateral based approach | Value of collateral (collateral coverage ratio) | 0.65x - 1.58x | ||||
Senior secured trade finance participations (2) | $ | 20,242,450 | Income approach (DCF) | Discount rate | 15.0% - 17.5% (16.79%) | ||||
Senior secured term loans (2) | $ | 111,961,558 | Income approach (DCF) | Discount rate | 14.0% - 20.5% (18.81%) | ||||
Senior secured term loans (3) | $ | 6,699,815 | A hybrid of the collateral based approach and the income approach (DCF) | Value of collateral (collateral coverage ratio), Discount rate | 0.06x - 1.18x, 20% (20%) | ||||
Senior secured term loan participations (1) | $ | 16,242,236 | Collateral based approach | Value of collateral (collateral coverage ratio) | 1.09x | ||||
Senior secured term loan participations (2) | $ | 56,433,882 | Income approach (DCF) | Discount rate | 15.0% - 21.0% (16.62%) | ||||
Senior secured term loan participations (3) | $ | 6,964,651 | A hybrid of the collateral based approach and the income approach (DCF) | Value of collateral (collateral coverage ratio), Discount rate | 0.0x - 2.64x, 22.25% - 23.43% (22.96%) | ||||
Other investments (1) | $ | 12,174,969 | Collateral based approach | Value of collateral (collateral coverage ratio) | 0.0x - 1.12x | ||||
Other investments (2) | $ | 2,262,769 | Income approach (DCF) | Discount rate | 9.5% - 13.25% (10.33%) | ||||
Convertible notes (2) | $ | 24,415,933 | Income approach (DCF) | Discount rate | 15.75% - 17.0% (16.97%) | ||||
Equity warrants | $ | 2,466,534 | Option Pricing Method | Risk free rate, volatility, time to liquidity | 3.6%, 91.9%, 5 years | ||||
(1) | Collateral based approach used for the following Watch List investments: Trustco, Sancor and WinRep, IIG TOF B.V., Itelecom, Algodonera, Frigorifico and MacZ. |
(2) | The Company used the income approach for the following Watch List investments: Limas, Triton, Helios Maritime, Agilis Partners, CAGSA, Producam and Qintess. |
(3) | The Company used a hybrid of the collateral based approach and the income approach for Vikudha, Ecsponent, and MICD, 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. |
(4) | The inputs were weighted based on the fair value of the investments included in the range. |
As of December 31, 2023, 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, 2023:
Fair value | Valuation technique | Unobservable input | Range (weighted average) | ||||||
Senior secured trade finance participations (2) | $ | 23,669,717 | Collateral based approach, Income approach (DCF) | Value of collateral (collateral coverage ratio), Discount rate | 0.88x, 16.75% - 17.50% (17.28%) | ||||
Senior secured trade finance participations (1) | $ | 4,937,611 | Collateral based approach | Value of collateral (collateral coverage ratio) | 0.85x - 1.67x | ||||
Senior secured term loans (2) | $ | 108,317,851 | Collateral based approach, Income approach (DCF) | Value of collateral (collateral coverage ratio), Discount rate | 0.12x, 13.25% - 20.50% (18.54%) | ||||
Senior secured term loan participations (2) | $ | 71,979,409 | Collateral based approach, Income approach (DCF) | Value of collateral (collateral coverage ratio), Discount rate | 0.0x - 0.25x, 11.0% - 23.40% (17.26%) | ||||
Senior secured term loan participations (1) | $ | 15,326,637 | Collateral based approach | Value of collateral (collateral coverage ratio) | 0.76x | ||||
Other investments (3) | $ | 14,371,380 | Collateral based approach, Income approach (DCF) | Value of collateral (collateral coverage ratio), Discount rate | 0.0x - 1.20x, 9.5% (9.5%) | ||||
Convertible note (2) | $ | 21,768,698 | Income approach (DCF) | Discount rate | 15.75% - 16.75% (16.72%) | ||||
Equity warrants | $ | 1,309,404 | Option Pricing Method | Risk free rate, volatility, time to liquidity | 3.84%, 82%, 5 years | ||||
(1) | Collateral based approach used for the following Watch List investments: Trustco, Sancor and GPI. |
(2) | The Company used the income approach for the following Watch List investments: Usivale, Limas, Triton, Helios Maritime, Agilis Partners, CAGSA, Producam, Qintess and Equity Participation in Cocoa Transaction and a hybrid of the collateral based approach and the income approach for Vikudha, Ecsponent, MICD, and WinRep, 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. |
(3) | These investments were originally classified as trade finance participations or term loans. Due to the fact that the original borrowers have been placed into bankruptcy, or the original loans were converted to other types of investments, the original investments have been reclassified as other investments. |
(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 March 31, 2025, 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.
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 did not accrue an incentive fee on capital gains for the three and nine months ended September 30, 2024 and 2023. In the fourth quarter of 2022, our Advisor determined to voluntarily waive all incentive fees that may become due and payable to our Advisor for the year ended December 31, 2023. This is a waiver, rather than a deferral, and any amounts waived for 2023 will not be paid to our Advisor in the future.
Related Party Transactions
For the three months ended September 30, 2024 and 2023, the Advisor earned $1,400,781 and $1,379,874, respectively, in asset management fees and $0 and $0, respectively, in incentive fees.
For the nine months ended September 30, 2024 and 2023, the Advisor earned $4,149,500 and $4,167,875, respectively, in asset management fees and $0 and $0, respectively, in incentive fees.
On September 6, 2024, the Company sold $2.01 million of its investment in HINV, S.A. DE C.V. to an entity whose advisor is under common ownership with the Company’s Advisor. The Company did not recognize any realized gain or loss from the sale.
As of September 30, 2024 and December 31, 2023, amounts due to affiliates on the Consolidated Statements of Assets and Liabilities totaled $128,048 and $0, respectively, reflecting that the Company is obligated to reimburse an affiliate of the Advisor for certain operating expenses of the Company that were initially paid by the affiliate.
Note 6. Unit Capital
As of September 30, 2024, 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, 2024, the Company recorded a liability in the aggregate amount of $352,000 for the estimated future amount of ongoing distribution fees, dealer manager fees and service fees payable. The estimated liability as of September 30, 2024 is calculated based on a net asset value per Class C, Class I and Class W units of $5.768 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 manager 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, 2024:
Units | Units Issued | Units Issued | Units | Units | Units | |||||||||||||||||||
Outstanding | under Private | under Distribution | Exchanged | Repurchased | Outstanding | |||||||||||||||||||
| as of | Placement | Reinvestment Plan | as of | |||||||||||||||||||||
December 31, | During | During | During | During | September 30, | |||||||||||||||||||
2023 | the Period | the Period | the Period | the Period | 2024 | |||||||||||||||||||
Class A units | 18,303,923 | — | — | — | — | 18,303,923 | ||||||||||||||||||
Class C units | 7,766,734 | — | — | (2,734 | ) | — | 7,764,000 | |||||||||||||||||
Class I units | 10,575,907 | — | — | 2,734 | — | 10,578,641 | ||||||||||||||||||
Class W units | 24,555 | — | — | — | — | 24,555 | ||||||||||||||||||
Class Y units | 2,683,015 | — | — | — | — | 2,683,015 | ||||||||||||||||||
Class Z units | 8,423,851 | — | — | — | — | 8,423,851 | ||||||||||||||||||
Total | 47,777,985 | — | — | — | — | 47,777,985 | ||||||||||||||||||
During the nine months ended September 30, 2024, no units were issued under the DRP and no units were sold pursuant to the Company's private placement.
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.
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, 2024, no repurchase requests were fulfilled. Given that the Company had not yet filed its Annual Report on Form 10-K for the year ended December 31, 2022 with the SEC as of March 31, 2023, the Company temporarily suspended the private placement, the DRP and the unit repurchase program effective April 1, 2023. The suspension of the DRP was lifted effective April 24, 2024. On August 9, 2024, the Company's board of managers approved the reopening of the unit repurchase program, effective September 1, 2024, solely with respect to repurchase requests submitted in connection with the death or disability of a unitholder, subject to the other terms and limitations of the unit repurchase program. The private placement remained suspended through September 30, 2024.
As of September 30, 2023, the Company recorded a liability in the aggregate amount of $344,000 for the estimated future amount of ongoing distribution fees, dealer manager fees and service fees payable. The estimated liability as of September 30, 2023 is calculated based on a net asset value per Class C, Class I and Class W units of $5.652 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 manager 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 three months ended September 30, 2023:
Units | Units Issued | Units Issued | Units | Units | Units | |||||||||||||||||||
Outstanding | under Private | under Distribution | Exchanged | Repurchased | Outstanding | |||||||||||||||||||
| as of | Placement | Reinvestment Plan | as of | |||||||||||||||||||||
December 31, | During | During | During | During | September 30, | |||||||||||||||||||
2022 | the Period | the Period | the Period | the Period | 2023 | |||||||||||||||||||
Class A units | 18,233,751 | — | 71,911 | — | (1,738 | ) | 18,303,924 | |||||||||||||||||
Class C units | 7,831,059 | — | 38,809 | (90,353 | ) | (12,781 | ) | 7,766,734 | ||||||||||||||||
Class I units | 10,443,595 | — | 44,734 | 90,353 | (2,403 | ) | 10,576,279 | |||||||||||||||||
Class W units | 24,555 | — | — | — | — | 24,555 | ||||||||||||||||||
Class Y units | 2,682,275 | — | 740 | — | — | 2,683,015 | ||||||||||||||||||
Class Z units | 8,423,851 | — | — | — | — | 8,423,851 | ||||||||||||||||||
Total | 47,639,086 | — | 156,194 | — | (16,922 | ) | 47,778,358 | |||||||||||||||||
During the nine months ended September 30, 2023, the total redemptions were for an aggregate of 16,922 units at a weighted average repurchase price per unit of $6.84 for an aggregate repurchase price of $115,711. These repurchases were approved and effective as of December 31, 2022, but the repurchase payments were made during the nine months ended September 30, 2023.
Note 7. Distributions
The following table summarizes the distributions for the nine months ended September 30, 2024:
Daily Rate | Cash | Distributions | Total | |||||||||||||||
Date Paid | Date Authorized | Per Unit | Distributions | Reinvested | Declared | |||||||||||||
February 21, 2024 | February 15, 2024 | $ | 0.04376771 | $ | 2,091,411 | $ | — | $ | 2,091,411 | |||||||||
March 27, 2024 | March 26, 2024 | $ | 0.04376771 | 2,089,867 | — | 2,089,867 | ||||||||||||
Total for 2024 | $ | 4,181,278 | $ | — | $ | 4,181,278 | ||||||||||||
In February 2024, the Company’s board of managers authorized the declaration of special distributions. These distributions were calculated based on unitholders of record for each day of the month in an amount equal to $0.04376771 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). The distributions were paid in cash on February 21, 2024 and none of these distributions were reinvested pursuant to our DRP.
In March 2024, the Company’s board of managers authorized the declaration of special distributions. These distributions were calculated based on unitholders of record for each day of the month in an amount equal to $0.04376771 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). The distributions were paid in cash on March 27, 2024 and none of these distributions were reinvested pursuant to our DRP.
On an annualized basis, these distributions are equal to approximately 3.0% of the net asset value per unit of $5.754 determined as of September 30, 2023. There can be no assurances that distributions will be paid at this rate in subsequent periods or at all.
The following table summarizes the distributions for the nine months ended September 30, 2023:
Daily Rate | Cash | Distributions | Total | |||||||||||||||
Date Paid | Date Authorized | Per Unit | Distributions | Reinvested | Declared | |||||||||||||
February 2, 2023 | November 11, 2022 | $ | 0.00131143 | $ | 1,374,744 | $ | 558,839 | $ | 1,933,583 | |||||||||
March 27, 2023 | November 11, 2022 | $ | 0.00131143 | 1,240,987 | 504,366 | 1,745,353 | ||||||||||||
May 19, 2023 | November 11, 2022 | $ | 0.00131143 | 1,928,567 | — | 1,928,567 | ||||||||||||
August 21, 2023 | August 21, 2023 | $ | 0.00115953 | 1,660,142 | — | 1,660,142 | ||||||||||||
Total for 2023 | $ | 6,204,440 | $ | 1,063,205 | $ | 7,267,645 | ||||||||||||
Note 8. Financial Highlights
The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2024 and 2023:
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2024 | 2023 | |||||||
Per unit data (1): | ||||||||
Net asset value at beginning of period | $ | 5.71 | $ | 5.92 | ||||
Net investment income | 0.18 | 0.16 | ||||||
Net change in unrealized appreciation on investments | 0.03 | 0.06 | ||||||
Net realized loss on investments | — | (0.23 | ) | |||||
Foreign exchange gain | — | 0.00 | ||||||
Net increase (decrease) in net assets resulting from operations | 0.21 | (0.01 | ) | |||||
Distributions | (0.09 | ) | (0.16 | ) | ||||
Net change in accrued distribution and other fees | (0.00 | ) | 0.00 | |||||
Net increase (decrease) in net assets | 0.12 | (0.17 | ) | |||||
Net asset value at end of period (2) | $ | 5.83 | $ | 5.75 | ||||
Total return based on net asset value (4) | 3.68 | % | -0.22 | % | ||||
Net assets at end of period | $ | 278,755,447 | $ | 274,595,111 | ||||
Units Outstanding at end of period | 47,777,985 | 47,778,359 | ||||||
Ratio/Supplemental data (annualized) (3): | ||||||||
Ratio of net investment income to average net assets | 4.09 | % | 3.55 | % | ||||
Ratio of total expenses to average net assets | 5.17 | % | 5.74 | % | ||||
1 | The per unit data was derived by using the weighted average units outstanding during the nine months ended September 30, 2024 and 2023, which were 47,777,985 and 47,753,569, respectively. |
2 | For financial statement reporting purposes under GAAP, as of September 30, 2024 and 2023, the Company recorded a liability in the amount of $352,000 and $344,000, 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 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. |
4 | Total return does not assume the reinvestment of distributions paid. |
Note 9. Subsequent Events
The Company’s management has evaluated subsequent events through November 14, 2024, the date of issuance of the consolidated financial statements included herein. 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, 2024.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Company’s financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.
Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to TriLinc Global Impact Fund, LLC.
Forward Looking Statements
Some of the statements in this Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this Quarterly Report involve risks and uncertainties, including statements as to:
● | our future operating results; |
● | our ability to purchase or make investments in a timely manner; |
● | our business prospects and the prospects of our borrowers; |
● | the economic, social and/or environmental impact of the investments that we expect to make; |
● | our contractual arrangements and relationships with third parties; |
● | our ability to make distributions to our unitholders; |
● | the dependence of our future success on the general economy and its impact on the companies in which we invest; |
● | the availability of cash flow from operating activities for distributions and payment of operating expenses; |
● | the performance of our Advisor, our sub-advisors and our Sponsor; |
● | our dependence on our Advisor and our dependence on and the availability of the financial resources of our Sponsor; |
● | the ability of our borrowers to make required payments; |
● | our Advisor’s ability to attract and retain sufficient personnel to support our growth and operations; |
● | the lack of a public trading market for our units; |
● | the outcome and costs associated with our ongoing proceedings related to the recovery of amounts with respect to certain of our Watch List investments; |
● | our ability to borrow funds; |
● | our expected financings and investments; |
● | the adequacy of our cash resources and working capital; |
● | performance of our investments relative to our expectations and the impact on our actual return on invested equity, as well as the cash provided by these investments; |
● | any failure in our Advisor’s or sub-advisors’ due diligence to identify all relevant facts in our underwriting process or otherwise; |
● | the ability of our sub-advisors and borrowers to achieve their objectives; |
● | the effectiveness of our portfolio management techniques and strategies; |
● | failure to maintain effective internal controls; and |
● | the loss of our exemption from the definition of an “investment company” under the Investment Company Act of 1940, as amended. |
We use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason.
The foregoing list of factors is not exhaustive. We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the SEC.
Overview
We make impact investments in SMEs that provide the opportunity to achieve both competitive financial returns and positive measurable impact. We were organized as a Delaware limited liability company on April 30, 2012. We have operated and intend to continue to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act of 1940, as amended. We use 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, loan participations, convertible debt instruments, trade finance, structured credit and preferred and common equity investments. A substantial portion of our assets consists of collateralized private debt instruments, which we believe offer opportunities for competitive risk-adjusted returns and income generation. We are externally managed and advised by TriLinc Advisors, LLC, or the Advisor. The Advisor is an investment advisor registered with the SEC.
Our business strategy is to generate competitive financial returns and positive economic, social and environmental impact by providing financing to SMEs, which we define as those business having less than 500 employees, primarily in developing economies. To a lesser extent, we 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. We generally expect that such investments will have similar investment characteristics as SMEs as defined by us. Our style of investment is referred to as impact investing, which J.P. Morgan Global Research and Rockefeller Foundation in a 2010 report called “an emerging alternative asset class” and defined as investing with the intent to create positive impact beyond financial return. We believe it is possible to generate competitive financial returns while creating positive, measurable impact. We measure the economic, social and environmental impact of our investments using industry-standard metrics, including the Impact Reporting and Investment Standards. Through our investments in SMEs, we intend to enable job creation and stimulate economic growth.
We commenced the Offering on February 25, 2013. Pursuant to the Offering, we were offering on a continuous basis up to $1.5 billion in units of our limited liability company interest, consisting of up to $1.25 billion of units in the primary offering consisting of Class A and Class C units at initial offering prices of $10.00 and $9.576 per unit, respectively, and Class I units at $9.025 per unit, and up to $250 million of units pursuant to our DRP. In May 2012, the Advisor purchased 22,161 Class A units for aggregate gross proceeds of $200,000. On June 11, 2013, we satisfied the 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 we commenced operations. The Offering terminated on March 31, 2017. Through the termination of the Offering, we raised approximately $361,776,000 in gross proceeds, including approximately $13,338,000 raised through our DRP, which was temporarily suspended effective April 1, 2023. The suspension of the DRP was lifted on April 24, 2024. See "Notes to Consolidated Financial Statements - Note 6. Unit Capital" for additional information regarding the suspension.
Upon termination of the primary portion of the Offering, we registered $75 million in Class A, Class C and Class I units to continue to be offered pursuant to our DRP to the investors who have purchased units in the Offering. Units issued pursuant to our DRP are being offered at the price equal to the net asset value per unit of each class of units, as most recently disclosed by the Company in a public filing with the SEC at the time of reinvestment. Our DRP was amended, effective May 25, 2020, to allow holders of all classes of units other than Class Z units to participate, including holders who purchased units in our private placements. The offering must be registered or exempt from registration in every state in which we offer or sell units. If the offering is not exempt from registration, the required registration generally is for a period of one year. Therefore, we may have to stop selling units in any state in which the registration is not renewed annually and the offering is not otherwise exempt from registration.
For the nine months ended September 30, 2024, we did not issue any units through the private placement or the DRP. As of September 30, 2024, $21,439,000 in units remained available for sale pursuant to the DRP, which was temporarily suspended effective April 1, 2023. The suspension of the DRP was lifted effective April 24, 2024. See "Notes to Consolidated Financial Statements - Note 6. Unit Capital" for additional information regarding the suspension.
From our inception through September 30, 2024, we issued an aggregate of 56,401,934 of our units, including 8,179,305 units issued under our DRP, for gross proceeds of approximately $515,089,000 including approximately $66,899,000 reinvested under our DRP (before dealer manager fees of approximately $4,801,000 and selling commissions of $16,862,000), for net proceeds of $493,428,000.
Outlook
The global economy continues to appear to have largely achieved a "soft landing" following the negative effects of the post-pandemic surge in inflation and interest rates. While economic risks remain across the globe, particularly for advanced economies, including large and increasing budget deficits and sovereign debt levels, the global economy weathered tighter monetary policy better than most economists originally forecasted, particularly in the United States. Many of the Company's borrowers experienced significant negative effects during the 2020-2022 period, due to higher operating costs and supply chain issues that began in 2020 with the onset of the COVID-19 pandemic, which were further exacerbated by the conflict between Russia and Ukraine. Fortunately, most supply side conditions normalized in 2023 and have remained stable through September 30, 2024, providing some economic relief to borrower companies. However, as noted in prior quarters, the combination of pandemic period effects, in many cases, had devastating and long-lasting impacts on the businesses, financial condition and results of operations of several borrower companies. Together, these factors made it more difficult for some borrowers to repay their obligations to the Company in a timely manner or at all, resulting in the Company experiencing inconsistent cash flows. The Company believes that the central issue driving results is the legacy effect from borrower companies struggling to recover from the compound impact of approximately three years of economic hardship. However, current macroeconomic conditions have significantly improved for most borrower companies, though improvement ultimately has been slow. Still, the Company has seen several borrowers improve, particularly in 2024, due in large part to the sustained improvement in supply side macroeconomic conditions over the last seven quarters. The Company does not currently expect any material near-term negative changes to the macroeconomic environment to further affect the Company’s borrowers. The Company’s net asset value per unit increased by approximately $0.12 as of September 30, 2024, compared to the net asset value per unit as of December 31, 2023. The Company’s September 30, 2024 net asset value reflects the improvement in current macroeconomic conditions, as well as some of the Company's borrowers gradually ramping up their trading activities.
While the macroeconomic environment has materially improved in recent quarters, the fact that the Company's borrower companies are still attempting to recover from the historically bad 2020-2022 pandemic/broken supply chain period has made it challenging for the Company’s borrowers to repay their obligations to the Company, as discussed above. As a result of the inconsistent cash flows generated from the Company’s existing portfolio, the Company has experienced decreased liquidity, which, among other things, may continue to impact the Company’s ability to pay distributions to its unitholders or meet other Company obligations. Additionally, due to an event of default triggered under the Company’s credit facilities as a result of the resignation of the Company’s former independent registered public accounting firm in February 2023, which rendered the Company unable to timely file its Annual Report on Form 10-K for the year ended December 31, 2022, the Company entered into a Waiver and Agreement, dated as of May 9, 2023, pursuant to which the Company agreed to accelerate its repayment of the $18 million outstanding balance under the credit facilities. Pursuant to the terms of the Waiver and Agreement, the Company repaid the amounts outstanding under the credit facilities in full on August 31, 2023. Accordingly, the Company expects that in the near term it will experience additional significant constraints on its liquidity. As a result, the Company did not pay monthly distributions for periods subsequent to June 2023 and anticipates that it may not be able to pay regular monthly distributions in the coming quarters. The Company’s unit repurchase program was suspended effective April 1, 2023. On August 9, 2024, the Company's board of managers approved the reopening of the unit repurchase program, effective September 1, 2024, solely with respect to repurchase requests submitted in connection with the death or disability of a unitholder, subject to the other terms and limitations of the unit repurchase program. The Company's board of managers authorized the declaration of special distributions on February 15, 2024 and March 26, 2024. The distributions were paid in cash on February 21, 2024 and March 27, 2024, respectively. None of these distributions were reinvested pursuant to our DRP. Our net asset value per unit as of September 30, 2024 is higher than it would have been if the Company had continued to pay regular monthly distributions through September 30, 2024.
The Company intends to pursue multiple strategies in order to address its temporary liquidity needs, which may include the sale of all or a portion of certain investments, seeking to obtain new credit facilities and the pursuit of additional financing transactions as needed to supplement cash flows.
Investments
Our investment objectives are to provide our unitholders current income, capital preservation, and modest capital appreciation. These objectives are achieved primarily through SME trade finance and term loan financing, while employing rigorous risk-mitigation and due diligence practices, and transparently measuring and reporting the economic, social and environmental impacts of our investments. The majority of our investments are senior and other collateralized loans to SMEs with established, profitable businesses in developing economies. To a lesser extent, we may also make investments in financing to companies that may not meet our technical definition of SMEs due, for example, to the companies having a larger number of employees, but that also provide the opportunity to achieve both competitive financial returns and positive measurable impact. Furthermore, we may also make investments in developed economies, including the United States. With the sub-advisors that our Advisor has contracted with to assist the Advisor in implementing the Company’s investment program, we expect to provide growth capital financing generally ranging in size from $5-20 million per transaction for direct SME loans and $500,000 to $15 million for trade finance transactions. We seek to protect and grow investor capital by: (1) targeting countries with favorable economic growth and investor protections; (2) partnering with sub-advisors with significant experience in local markets; (3) focusing on creditworthy lending targets who have at least 3-year operating histories and demonstrated cash flows enabling loan repayment; (4) making primarily debt investments, backed by collateral and borrower guarantees; (5) employing best practices in our due diligence and risk mitigation processes; and (6) monitoring our portfolio on an ongoing basis. By providing additional liquidity to growing small businesses, we believe we support both economic growth and the expansion of the global middle class.
Investments will continue to be primarily credit facilities and participations in credit facilities to developing economy SMEs, including trade finance and term loans, through the Advisor’s team of professional sub-advisors with a local presence in the markets where they invest. As of September 30, 2024, some of our investments were in the form of participations, and we expect that some of our future investments will continue to be in the form of participations. We typically provide financing that is collateralized, has a short to medium-term maturity and is self-liquidating through the repayment of principal. Our counterparty for certain participations is the respective sub-advisor or its affiliate that originates the loan in which we are participating. In such case, we will not have a contract with the underlying borrower and therefore, in the event of default, we will not have the ability to directly seek recovery against the collateral and instead will have to seek recovery through our sub-advisor counterparty, which increases the risk of full recovery.
Certain investments, including loans and participations, may carry equity warrants on borrowers, which allow us to buy shares of the portfolio company at a given price, which we will exercise at our discretion during the life of the portfolio company. Our 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 illiquid and it may be difficult for the Company to dispose of them. In addition, we expect that any warrants or other return enhancements received when we make or invest in loans may require several years to appreciate in value and may not appreciate at all.
LIBOR
In July 2017, the United Kingdom's Financial Conduct Authority (“FCA”) announced it intended to stop compelling banks to submit rates for the calculation of LIBOR. On March 15, 2022, President Biden signed the Consolidated Appropriation Act of 2022 into law, which includes the Adjustable Interest Rate (LIBOR) Act, containing legislation related to the transition away from LIBOR. This legislation is intended to establish a uniform process for replacing LIBOR in existing contracts and securities that continue after the cessation of LIBOR and do not contain clearly defined or practicable fallback provisions. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR in derivatives and other financial contracts.
LIBOR was phased out in June 2023, and new contracts ceased to be written using USD LIBOR at the beginning of 2022. As of September 30, 2024, 0.0% of the fair value of the Company’s total investments bore interest at floating rates based on LIBOR, with an alternative rate to be designated by the Company in the event that LIBOR is unavailable.
The Company's legacy loans transitioned from LIBOR to Synthetic LIBOR in July 2023. The majority of the Company's legacy loans have transitioned to SOFR following the complete phase-out of LIBOR as of September 30, 2024. The Company has one investment that will use the 3-month LIBOR rate until the next interest rate reset date in December 2024. There can be no assurances as to whether this alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the phasing out of LIBOR and work with our sub-advisors to seek to ensure the transition away from LIBOR will have minimal impact on our investments, but we can provide no assurances regarding the continuing impact of the discontinuation of LIBOR.
Revenues
Since we anticipate that the majority of our assets will continue to consist of trade finance instruments and term loans, we expect that the majority of our revenue will continue to be generated in the form of interest income. Our senior and subordinated debt investments may bear interest at a fixed or floating rate. Interest on debt securities is generally payable monthly, quarterly or semi-annually. In some cases, some of our investments provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued but unpaid interest generally is due at the maturity date. In addition, we generate revenue in the form of acquisition and other fees in connection with some transactions. Original issue discounts and market discounts or premiums are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums on loans and debt securities as interest income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amounts.
Expenses
Our primary operating expenses include the payment of asset management fees and expenses reimbursable to our Advisor under the Advisory Agreement. We bear all other costs and expenses of our operations and transactions.
Portfolio and Investment Activity
During the nine months ended September 30, 2024, the Company did not make any investments. The Company's investments consist of senior secured trade finance participations, senior secured term loan participations, senior secured term loans, convertible notes, other investments, and equity warrants. Additionally, the Company received proceeds from repayments of investment principal of approximately $12.7 million.
At September 30, 2024 and December 31, 2023, the Company’s investment portfolio included 29 and 32 companies, respectively, and the fair value of our portfolio was comprised of the following:
As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
Investments | Percentage of | Investments | Percentage of | |||||||||||||
at | Total | at | Total | |||||||||||||
Fair Value | Investments | Fair Value | Investments | |||||||||||||
Senior secured term loans | $ | 118,661,373 | 44.4 | % | $ | 108,317,851 | 41.4 | % | ||||||||
Senior secured term loan participations | 79,640,769 | 29.8 | % | 87,306,046 | 33.4 | % | ||||||||||
Senior secured trade finance participations | 27,665,139 | 10.4 | % | 28,607,328 | 10.9 | % | ||||||||||
Other investments | 14,437,738 | 5.4 | % | 14,371,380 | 5.5 | % | ||||||||||
Convertible notes | 24,415,933 | 9.1 | % | 21,768,698 | 8.3 | % | ||||||||||
Equity warrants | 2,466,534 | 0.9 | % | 1,309,404 | 0.5 | % | ||||||||||
Total investments | $ | 267,287,486 | 100.0 | % | $ | 261,680,707 | 100.0 | % | ||||||||
As of September 30, 2024, the weighted average yields, based upon the cost of our portfolio, on trade finance participations, term loan participations, senior secured term loans and convertible notes were 7.5%, 13.1%, 15.4% and 11.8%, respectively, for a weighted average yield on investments of approximately 12.3% on our total portfolio.
As of December 31, 2023, the weighted average yields, based upon the cost of our portfolio, on trade finance participations, term loan participations, senior secured term loans, and convertible notes were 10.6%, 12.7%, 15.2%, and 11.8%, respectively, for a weighted average yield on investments of approximately 12.4% on our total portfolio.
As of September 30, 2024, we had the following investments, listed by description of the underlying borrower (if applicable):
Description | Sector | Industry Classification | Country | Interest | Maturity (1) | Principal Amount | Fair Value | ||||||||||||||||||||
Installment under Judicial Recovery | Other | Other | Brazil | N/A | N/A | $ | 600,060 | $ | 503,075 | ||||||||||||||||||
Claim in Bankruptcy | (7) | Electric Services | Technological Innovation | Chile | N/A | N/A | (2) | 1,456,162 | 970,393 | ||||||||||||||||||
Sustainable Packaging Manufacturer | Corrugated and Solid Fiber Boxes | Recycling | Ecuador | 12.86% Cash / 2.2% PIK | 6/18/2025 | 2,958,631 | 2,958,631 | ||||||||||||||||||||
Resource Trader | (6) | Coal and Other Minerals and Ores | Responsible Natural Resources Distribution | Hong Kong | 11.50 | % | 6/30/2023 | (2) | 22,219,566 | 15,201,540 | |||||||||||||||||
Cocoa Processor | (5) | Chocolate and Cocoa Products | Sustainable Agriculture & Agroprocessing | Indonesia | PIK 12.5% | 8/31/2024 | (5) | 19,249,834 | 19,249,834 | ||||||||||||||||||
Wholesale Distributor | (6) | Chemicals and Allied Products | Responsible Industrial Goods Distribution | Malaysia | 12.00 | % | 6/30/2023 | (2) | 18,484,704 | 6,699,815 | |||||||||||||||||
Waste to Fuels Processor | Refuse Systems | Recycling | Mexico | 20% PIK | 9/30/2024 | (3), (4) | 55,222,314 | 57,688,848 | |||||||||||||||||||
Non-Ferrous Metal Trader | Coal and Other Minerals and Ores | Responsible Natural Resources Distribution | Singapore | 6.0% Cash/7.50% PIK | 8/18/2025 | (2) | 21,799,281 | 19,329,239 | |||||||||||||||||||
SME Financier | (7) | Short-Term Business Credit | Inclusive Finance | Botswana | 13.90 | % | 8/18/2023 | (2) | 5,601,000 | 2,788,336 | |||||||||||||||||
IT Service Provider | Computer Related Services, NEC | Access to Technology | Brazil | 5.35% PIK | 2/11/2027 | (2) | 357,267 | 643,085 | |||||||||||||||||||
IT Service Provider | Computer Related Services, NEC | Access to Technology | Brazil | 12% PIK | 8/11/2026 | (2) | 25,619,750 | 23,772,848 | |||||||||||||||||||
Ship Maintenance & Repair Service Provider | Boatbuilding and Repairing | Infrastructure Development | Brazil | 14% Cash / 3% PIK | 2/28/2025 | 7,838,301 | 7,838,301 | ||||||||||||||||||||
Hospitality Service Provider | Hotels and Motels | Infrastructure Development | Cabo Verde | 10.0% Cash/3.5% PIK | 12/31/2024 | 12,015,507 | 11,702,486 | ||||||||||||||||||||
Freight and Cargo Transporter | (6) | Freight Transportation Arrangement | Responsible Logistics Management | Kenya | 12.70% Cash / 4.00% PIK | 3/31/2023 | (2) | 15,063,954 | 4,176,315 | ||||||||||||||||||
Property Developer | (6) | Land Subdividers and Developers | Infrastructure Development | Namibia | 8.50% Cash/4.0% PIK | 8/15/2021 | (2) | 18,717,631 | 16,242,236 | ||||||||||||||||||
Wheel Manufacturer | Motor Vehicle Parts and Accessories | Responsible Consumer Goods Production | Netherlands | 11.00 | % | N/A | (9) | 8,275,000 | 11,399,439 | ||||||||||||||||||
Marine Logistics Provider | Towing and Tugboat Service | Responsible Logistics Management | Nigeria | 3.00 | % | 10/31/2026 | (2) | 6,162,701 | 5,459,429 | ||||||||||||||||||
Frozen Bakery Products Manufacturer | Retail Bakeries | Responsible Consumer Goods Production | Romania | 18.50 | % | N/A | (9) | 6,836,622 | 7,136,229 | ||||||||||||||||||
Grain Processor G | (5) | Corn | Sustainable Agriculture & Agroprocessing | Uganda | 12.80% PIK | 12/31/2024 | (2) | 730,724 | 498,234 | ||||||||||||||||||
Grain Processor F | (5) | Corn | Sustainable Agriculture & Agroprocessing | Uganda | 3.50% Cash/8.00% PIK | 9/19/2025 | (2) | 14,188,395 | 12,399,764 | ||||||||||||||||||
Agriculture Distributor | (7) | Soybeans | Sustainable Agriculture & Agroprocessing | Argentina | N/A | 6/30/2018 | (2) | 12,500,000 | 5,723,296 | ||||||||||||||||||
Dairy Co-Operative | (6) | Dairy Farms | Sustainable Dairy Production | Argentina | 10.67 | % | 7/29/2019 | (2) | 5,802,296 | 4,528,841 | |||||||||||||||||
Claim in Bankruptcy | (7) | Beef Cattle, Except Feedlots | Sustainable Agriculture & Agroprocessing | Argentina | N/A | N/A | (2) | 6,499,323 | 2,955,774 | ||||||||||||||||||
Claim in Bankruptcy | (7) | Cotton Ginning | Sustainable Agriculture & Agroprocessing | Argentina | N/A | N/A | (2) | 4,935,048 | 1,792,698 | ||||||||||||||||||
Cocoa & Coffee Exporter | (8) | Chocolate and Cocoa Products | Sustainable Agriculture & Agroprocessing | Cameroon | 9.50%, 6.0 | % | (10) | 6/30/2024 | (2) | 16,077,863 | 14,519,154 | ||||||||||||||||
Seafood Processing Company II | (6) | Frozen Fish and Seafood | Sustainable Aquaculture & Processing | Ecuador | 11.75 | % | 10/25/2023 | (2) | 4,424,931 | 2,893,848 | |||||||||||||||||
Scrap Metal liquidation | Other | Recycling | Morocco | N/A | N/A | (2) | 1,433,058 | 29,772 | |||||||||||||||||||
Profit sharing rights on cocoa distribution | Other | Sustainable Agriculture & Agroprocessing | Nigeria | N/A | N/A | 1,759,694 | 1,759,694 | ||||||||||||||||||||
Claim in Bankruptcy | (7) | Other | Other | N/A | N/A | N/A | (2) | 5,924,697 | 3,164,986 | ||||||||||||||||||
Real estate property | Other | Other | Peru | N/A | N/A | 3,502,265 | 3,261,346 | ||||||||||||||||||||
Total Investments | $ | 267,287,486 | |||||||||||||||||||||||||
1 | Trade finance borrowers may be granted flexibility with respect to repayment relative to the stated maturity date to accommodate specific contracts and/or business cycle characteristics. This flexibility in each case is agreed upon between the Company and the sub-advisor and between the sub-advisor and the borrower. |
2 | See Watch List Investments section below for further information. |
3 | This investment consists of a senior secured term loan and equity warrants in the borrower. |
| 4 | The Company is negotiating with the borrower to amend the loan term to extend the maturity date. |
| 5 | Investment is undergoing a restructuring. |
| 6 | Investment is in default. |
| 7 | Investment is in bankruptcy. |
| 8 | Investment is in arbitration. |
| 9 | The borrower is required to pay the loan upon request. |
| 10 | The interest rate is 9.5% on the first and second trade finance participation, and 6% on the third trade finance participation. |
As of September 30, 2024, the composition our investments at fair value based on the Company created industry classification was as follows:
Fair | Percentage | |||||||
Industry Classification | Value | of Total | ||||||
Access to Technology | $ | 24,415,933 | 9.1 | % | ||||
Inclusive Finance | 2,788,336 | 1.0 | % | |||||
Infrastructure Development | 35,783,023 | 13.4 | % | |||||
Recycling | 60,677,251 | 22.7 | % | |||||
Responsible Consumer Goods Production | 18,535,668 | 6.9 | % | |||||
Responsible Industrial Goods Distribution | 6,699,815 | 2.5 | % | |||||
Responsible Logistics Management | 9,635,744 | 3.6 | % | |||||
Responsible Natural Resources Distribution | 34,530,779 | 12.9 | % | |||||
Sustainable Agriculture & Agroprocessing | 58,898,448 | 22.0 | % | |||||
Sustainable Aquaculture & Processing | 2,893,848 | 1.1 | % | |||||
Sustainable Dairy Production | 4,528,841 | 1.7 | % | |||||
Technological Innovation | 970,393 | 0.4 | % | |||||
Other | 6,929,407 | 2.7 | % | |||||
Total | $ | 267,287,486 | 100.0 | % | ||||
Concentration Limits
The Company is subject to the following concentration limits:
● | Maximum 45% regional exposure |
● | Maximum 20% country exposure |
● | Maximum 5% individual investment exposure |
We may only make investments that do not cause us to exceed these limits on the date of investment. These limits are calculated as a percentage of the fair value of all investments and cash on the date of investment. As of September 30, 2024, the Company has made investments in compliance with all of the above concentration limits.
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, 2024, fifteen portfolio companies were on non-accrual status with an aggregate fair value of approximately $101,016,243 or 37.8% of the fair value of the Company’s total investments. At December 31, 2023, eighteen portfolio companies were on non-accrual status with an aggregate fair value of approximately $104,441,067 or 39.9% of the fair value of the Company’s total investments. As of September 30, 2024 and December 31, 2023, the Company had 19 and 23 Watch List investments, respectively.
As of September 30, 2024, 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 | |||||||||||||||||||||||||||||||
Portfolio Company | Principal Balance | Fair Value | Accrued Interest | Sub-advisor | Valuation Approach | September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||||||||||||
Trustco Group Holdings Ltd. (3) | $ | 18,717,631 | $ | 16,242,236 | $ | — | N/A | Collateral based approach | $ | 648,250 | $ | 622,545 | $ | 1,911,466 | $ | 1,829,103 | ||||||||||||||||
Helios Maritime | 6,162,701 | 5,459,429 | 15,905 | N/A | Income approach | — | — | — | — | |||||||||||||||||||||||
Compania Argentina de Granos S.A. (2), (3) | 12,500,000 | 5,723,296 | — | IIG | Income approach | — | — | — | — | |||||||||||||||||||||||
Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay (2), (3) | 6,499,323 | 2,955,774 | — | IIG | Collateral based approach | — | — | — | — | |||||||||||||||||||||||
Sancor Cooperativas Unidas Ltda (3) | 5,802,296 | 4,528,841 | 1,347,047 | IIG | Collateral based approach | 158,216 | 158,216 | 471,208 | 469,488 | |||||||||||||||||||||||
IIG TOF B.V. (1), (2), (3) | 5,924,697 | 3,164,987 | — | IIG | Collateral based approach | — | — | — | — | |||||||||||||||||||||||
Algodonera Avellaneda S.A. (1), (2), (3) | 4,935,048 | 1,792,698 | — | IIG | Collateral based approach | — | — | — | — | |||||||||||||||||||||||
Triton Metallics Pte Ltd.(3) | 21,799,281 | 19,329,239 | 1,513,671 | N/A | Income approach | 678,423 | 700,562 | 1,979,375 | 1,283,356 | |||||||||||||||||||||||
Ecsponent Holdings Limited (1), (3) | 5,601,000 | 2,788,336 | — | Scipion | Hybrid income/collateral based approach | 207,058 | 211,875 | 630,846 | 591,922 | |||||||||||||||||||||||
Producam S.A. (3) | 16,077,863 | 14,519,154 | — | Scipion | Income approach | 446,000 | 398,950 | 1,297,911 | 1,157,296 | |||||||||||||||||||||||
Mac Z Group SARL (1), (3) | 1,433,058 | 29,772 | — | Scipion | Collateral based approach | — | — | — | — | |||||||||||||||||||||||
Multiple ICD (Kenya) Limited (3) | 15,063,954 | 4,176,315 | — | N/A | Hybrid income/collateral based approach | 704,600 | 677,411 | 2,084,980 | 1,940,711 | |||||||||||||||||||||||
Agilis Partners Holding LLC (1) | 730,724 | 498,234 | — | Origin | Income approach | — | — | — | — | |||||||||||||||||||||||
Agilis Partners | 14,188,395 | 12,399,764 | 1,274,437 | Origin | Income approach | — | — | — | — | |||||||||||||||||||||||
Itelecom Holding Chile SPA (1), (2), (3) | 1,456,162 | 970,394 | 69,032 | N/A | Collateral based approach | — | — | — | — | |||||||||||||||||||||||
Limas Commodities House Limited (3) | 22,219,566 | 15,201,540 | — | N/A | Income approach | 798,548 | 711,628 | 2,311,978 | 2,053,223 | |||||||||||||||||||||||
Vikudha Malaysia Sdn Bhd (3) | 18,484,704 | 6,699,815 | — | N/A | Hybrid income/collateral based approach | 641,161 | 597,491 | 1,876,656 | 1,742,673 | |||||||||||||||||||||||
Qintess Tecnologia e Participacoes Ltda | 25,977,017 | 24,415,933 | — | TRG | Income approach | — | — | — | — | |||||||||||||||||||||||
Worldwide Investments and Representations Winrep S.A. and Vannapack S.A. (3) | 4,424,931 | 2,893,848 | — | N/A | Hybrid income/collateral based approach | 132,871 | — | 395,725 | — | |||||||||||||||||||||||
| $ | 207,998,351 | $ | 143,789,605 | $ | 4,220,092 | $ | 4,415,127 | $ | 4,078,678 | $ | 12,960,145 | $ | 11,067,772 | |||||||||||||||||||
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, 2024. 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, 2024 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. |
As of December 31, 2023, 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. (3) | $ | 18,717,631 | $ | 15,326,637 | $ | — | Helios | Collateral based approach | |||||||||
Helios Maritime | 6,929,992 | 5,573,992 | 21,740 | Helios | Income approach | ||||||||||||
Compania Argentina de Granos S.A. (2), (3) | 12,500,000 | 5,723,296 | — | IIG | Income approach | ||||||||||||
Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay (2), (3) | 6,499,323 | 2,955,774 | — | IIG | Collateral based approach | ||||||||||||
Sancor Cooperativas Unidas Ltda (3) | 5,802,296 | 4,289,181 | 1,347,047 | IIG | Collateral based approach | ||||||||||||
IIG TOF B.V. (2), (3) | 6,000,000 | 3,240,290 | — | IIG | Collateral based approach | ||||||||||||
Algodonera Avellaneda S.A. (1), (2), (3) | 4,935,048 | 1,792,698 | — | IIG | Collateral based approach | ||||||||||||
Triton Metallics Pte Ltd. (3) | 21,799,281 | 19,329,239 | 1,513,671 | TransAsia | Income approach | ||||||||||||
Ecsponent Holdings Limited (1), (3) | 5,601,000 | 2,792,341 | — | Scipion | Hybrid income/collateral based approach | ||||||||||||
Producam S.A. (3) | 16,035,023 | 14,476,313 | — | Scipion | Income approach | ||||||||||||
Global Pharma Intelligence Sarl (1), (3) | 648,430 | 648,430 | 134,215 | Scipion | Collateral based approach | ||||||||||||
Mac Z Group SARL (1), (3) | 1,433,058 | 239,371 | — | Scipion | Collateral based approach | ||||||||||||
Multiple ICD (Kenya) Limited (3) | 15,063,954 | 4,601,330 | — | Barak | Hybrid income/collateral based approach | ||||||||||||
Agilis Partners Holding LLC (1) | 644,238 | 411,748 | 21,074 | Origin | Income approach | ||||||||||||
Agilis Partners | 13,101,741 | 11,457,753 | 1,184,071 | Origin | Income approach | ||||||||||||
Usivale Industria E Commercio Ltda (1), (3) | 600,060 | 453,112 | — | N/A | Income approach | ||||||||||||
Itelecom Holding Chile SPA (1), (2), (3) | 1,456,162 | 970,394 | 276,032 | Alsis | Collateral based approach | ||||||||||||
Limas Commodities House Limited (3) | 22,219,566 | 15,302,209 | — | TransAsia | Income approach | ||||||||||||
Vikudha Malaysia Sdn Bhd (3) | 18,484,704 | 7,032,859 | — | TransAsia | Hybrid income/collateral based approach | ||||||||||||
Qintess Tecnologia e Participacoes Ltda | 23,873,872 | 21,768,698 | — | TRG | Income approach | ||||||||||||
Worldwide Investments and Representations Winrep S.A. and Vannapack S.A. (3) | 4,424,931 | 3,470,108 | 119,451 | WCA | Hybrid income/collateral based approach | ||||||||||||
Equity Participation in Cocoa Transaction (1), (3) | 1,797,488 | 1,797,488 | — | N/A | Income approach | ||||||||||||
TriLinc Peru S.A.C. | 3,502,265 | 3,375,367 | — | N/A | Collateral based approach | ||||||||||||
Total Watchlist | $ | 212,070,063 | $ | 147,028,628 | $ | 4,617,301 | |||||||||||
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, 2023. 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, 2023 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 The International Investment Group L.L.C. (“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 19 Watch List investments as of September 30, 2024. 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. In November of 2019, the SEC charged IIG with fraud and revoked IIG’s registration. Shortly thereafter, IIG ceased all operations. A fund managed by IIG, which sold most of the participations to the Company, was placed into bankruptcy in January 2020. Subsequently, the Company filed a bankruptcy claim against the remaining assets of the estate.
The SEC 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. On January 28, 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. 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, 2024 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. 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 were 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. 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. Since then, there have been several iterations of the settlement terms, with each set of terms representing slightly better terms for the lenders. Due to the progress being made, during the third quarter of 2024, the presiding concurso judge has granted an extension of the expiration for the exclusivity period to negotiate with creditors to November 14, 2024. The Company does not expect significant changes to the restructuring plan.
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 Algodonera 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. In August of 2023, the court awarded the Company $4.6 million in proceeds from the escrow account. The creditors are now working with the IIG TOF B.V. Liquidator on further claims to satisfy the remaining debt owed.
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. 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 and seek an assignment of the rights to the loans. 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. The Company is cooperating with the lenders group in seeking a default judgement in a court in Argentina to take control of the collateral in an effort to facilitate negotiation with Sancor on settlement of the debt. In July 2024, a joint liquidation agreement for the warrants was executed between Sancor and the creditor group for the immediate liquidation of 70% of the warrants, with the remaining warrants to be liquidated and paid in four equal installments starting in September 2024. In August 2024, the proceeds from the liquidation of 70% of the warrants were transferred to an Argentinean escrow agent to be held for 9 to 12 months on behalf of all creditors, with a currency hedge in place; however, Sancor did not make the first installment in September. Therefore, the creditors group has notified Sancor that it will start an auction process with the Control Union, the local collateral manager, to sell the collateral and potentially begin the liquidation of Sancor’s headquarters building, which is also held as collateral by the creditors.
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.
As noted above, IIG TOF B.V. was 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. On July 25, 2024, the Company received $75,000 from the U.S. Attorney’s Office as part of a restitution settlement with David Hu and was notified that a restitution settlement with Martin Silver is still in process.
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 retroactively to January 1, 2019. As part of the restructure, the Company included a PIK component which increased the principal amount. The fair value of the investment decreased during the year ended December 31, 2021 due to collections from completed cocoa and coffee shipments being slower than anticipated. As all interest was capitalized as part of the amendment, no accrued 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 continuing with the legal claim through the UK courts against 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 has sold the 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. In the first quarter of 2024, Scipion received a bid for the remaining copper, which was lower than anticipated. During the third quarter of 2024, Scipion liquidated the final remaining inventory, and the Company received its pro-rata share of the proceeds, with a deduction for collateral control management fees, resulting in a decrease in fair value of $14,453. Scipion will continue to explore the possibility of legal action for the remaining amounts due on a no win, no fee basis, which is expected to be resolved by the end of 2024.
Ecsponent Holdings, Ltd.
In December 2017, TriLinc made a $4.74 million investment in Ecsponent Holdings, Ltd. (“Ecsponent”) to finance SMEs and provide fee-based services to entrepreneurs based in Botswana through the borrower’s Business Credit Unit. Subsequently, during the third quarter of 2020, Ecsponent announced that its board of directors had launched a forensic investigation into the use of proceeds for various financial transactions executed by its former management, including the Company’s investment. The combination of misapplied financing transactions and significant poor performance by other business units of the group caused Ecsponent to seek deferment of its interest payments while it sought additional fund raising due to financial and liquidity challenges, which the Company granted in the fourth quarter of 2020. However, the COVID-19 pandemic and the resulting economic environment delayed several of the borrower’s plans and initiatives.
Throughout the first three quarters of 2022, the Company worked closely with the CEO of the group of companies Ecsponent is a part of and several of its existing creditors as part of a potential restructuring. During the fourth quarter of 2022 and the first quarter of 2023, one of the key companies in the borrower’s group was placed into judicial management, which materially increased the risk of liquidation for itself and Ecsponent. The Company remains in close contact with Ecsponent’s CEO, the group’s creditors and judicial administrators in Botswana to reach an agreement, which the Company expects to progress in future quarters. During 2023, conversations continued with Ecsponent’s CEO about the best way to restructure the loan, possibly into a new entity. Furthermore, an insurance claim is underway through the Company’s sub-advisor, Scipion, and counsel is being consulted regarding the potential for claims against management for the misapplied financing as an additional source of recovery.
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. 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. Origin, the borrower and the Company are in the late stages of finalizing a restructuring of the loans, which will likely result in the Company taking control of 100% of the equity of the borrower, with a plan to retain and incent management to achieve a successful exit in a reasonable time frame. Due to a delay in restructuring, a decrease in fair value of approximately $145,000 was recognized during the three months ended September 30, 2024.
Other Investments
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. On July 31, 2024, the local court ordered Trustco to pay Helios a total amount of 636,410.18 in Namibian dollars (approximately US$35,870) as payment for Helios to defend Trustco's legal action, which was ultimately dismissed. This will be applied toward incurred costs and future retainer for the advocate for work going forward. The judge scheduled the hearing for the main application on March 18 and 19, 2025.
A trial was held for the Elisenheim property case in Namibia from June 24, 2024 to July 5, 2024. The judge ruled in favor of Helios, and a hearing was set for July 14, 2024 during which the judge determined that the judge presiding over the case to enforce the UK judgement in Namibia should first rule on the referral relief. A case management meeting for the UK Trustco case was held on December 10, 2023, and a hearing was set for July 31, 2024 during which the judge gave Trustco time to determine if they will bring an application for leave. The Namibian judge has indicated that a trial date will be set about 6 months after the enforcement proceedings are heard, which is estimated to be September 2025. Counsel is expected to provide further updates at the next hearing, which is set on November 28, 2024.
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 ("Tranche 1") and restructured amortization profile ("Tranche 2"). 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 Naira, which is a difficult currency to convert to USD. As of June 30, 2023, approximately 3 billion Naira were converted and paid, completing Tranche 1 requirements. The Company began to service the remaining loan in Tranche 2 with a payment in September 2023. An agreement on the final terms of the full restructuring was reached in the fourth quarter of 2023. The borrower has continued servicing the debt since the restructuring was completed. As a result, an increase in fair value of approximately $208,000 was recognized during the three months ended September 30, 2024.
Worldwide Investments and Representations Winrep S.A. and Vannapack S.A.
In the beginning of 2023, the Company made investments through Working Capital Associates, LLP (“WCA”) in Worldwide Investments and Representations Winrep S.A. and Vannapack S.A. (“WinRep”), a frozen fish and seafood company located in Ecuador, comprised of three trade finance participations for an aggregate amount of $5,400,000.
In March 2023, WinRep started experiencing liquidity issues due to problems related to its main offtake market in China. The Company, through WCA, made several attempts to support WinRep through debt restructuring, which were rejected by WinRep. WinRep’s financial situation worsened, and the Company decided to sign a Loan Purchase and Elevation Agreement dated as of September 28, 2023, to take over direct responsibility of the loan from WCA. The Company is currently evaluating several recovery strategies, including the liquidation of the Ecuadorian trust holding the collateral, which primarily consists of a land parcel in Ecuador. Due to the recent instability in Ecuador, the value of the land has decreased. The instability in Ecuador has improved; however, real estate prices remain relatively low. The Company has engaged several brokers on a non-exclusive basis to begin marketing the property for sale.
Qintess Tecnologia e Participacoes Ltda
Beginning in June 2019, the Company made investments through TRG Management LP. (“TRG”) in Qintess Tecnologia e Participacoes Ltda. (“Qintess”), an IT service provider located in Brazil, comprised of two term loan participations for an outstanding aggregate amount of approximately $22,557,000 prior to the settlement agreement in 2023 described below.
In the beginning of 2023, Qintess started experiencing liquidity issues and delaying scheduled repayments. The Company, through TRG, made an attempt to support Qintess through debt restructuring and entered into a settlement agreement for the outstanding amount in August 2023. Through the restructuring, multiple classes of convertible notes were issued to the Company. The principal amounts of those notes are convertible into Class A and B units representing membership interests in Qintess Global, LLC, a newly formed Delaware limited liability company that holds 100% of the equity of Qintess. Although Qintess has not yet achieved positive EBITDA or cash flow, the restructuring, cost-cutting efforts and new contracts have resulted in improved performance for Qintess. The position has been performing as expected since the restructuring in August 2023. As a result, an increase in fair value of approximately $279,000 was recognized during the three months ended September 30, 2024.
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 managed 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. During the nine months ended September 30, 2024, the borrower was able to modestly increase its trading business; however, considering the extended timeline anticipated for business ramp-up, the borrower is not expected to be able to provide debt service for the next 12 months.
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 the borrower was able to service the debt until there was a resurgence of the COVID-19 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 wind-up petition against the company’s Hong Kong-based parent company and loan guarantor. The Company issued a Reservation of Rights Letter to Vikudha in June 2022. Subsequently, in August 2022, the Company issued an Acceleration Notice to the borrower and Demand Notices to Corporate and Personal Guarantors. Once the wind-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. The borrower continues to seek additional equity and working capital as part of its efforts to rebuild its trading volumes; however, as this process has continued to be delayed, the probability of more negative scenarios, including ultimate liquidation, have increased. As a result of the continued delays, a negative valuation adjustment during the three months ended June 30, 2024 of approximately $333,000 was recognized.
Limas Commodities House Limited
In August 2017, the Company provided a $15,000,000 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 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 restructuring 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%. The borrower has progressed slowly towards materially ramping up its trading activity, with the expectation that progress will be accelerated once Limas receives its production quotas from the government, which are now expected to be issued by the end of 2024. Part of the collateral package for this loan are proceeds from the Korean cases, which have been delayed.
Multiple ICD (Kenya) Limited
In July 2017, the Company purchased a $15,000,000 Participation in a term loan facility with Multiple ICD (Kenya) Limited ("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 has been actively seeking to restructure the loan facility with MICD and its other lenders. Although progress had stalled, negotiations are currently active again. However, the loan is no longer on standstill as the lenders are requiring additional progress in order to renew it. The ongoing uncertainty regarding the restructuring has continued to increase the probability that MICD may be liquidated, with no material progress during the third quarter of 2024. The Company is in the process of being elevated to Lender of Record which should increase transparency from the other lenders going forward.
Interest Receivable
Depending on the specific terms of our investments, interest earned by us is payable either monthly, quarterly, or, in the case of most trade finance investments, at maturity. As such, some of our investments have up to a year or more of accrued interest receivable as of September 30, 2024. In addition, certain of our investments in term loans accrue deferred interest, which is not payable until the maturity of the loans. Lastly, certain of the Company's investments have PIK interest, which is accrued as interest receivable and capitalized on a regular basis. As a result, a significant portion of the Company's interest receivable balance may not be received in cash in the short term. The Company's interest receivable balances at September 30, 2024 and December 31, 2023 are recorded at net realizable value.
Results of Operations
Consolidated operating results for the three and nine months ended September 30, 2024 and 2023 are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
Investment income | ||||||||||||||||
Interest income | $ | 1,711,014 | $ | 2,557,090 | $ | 5,112,473 | $ | 9,738,511 | ||||||||
Payment-in-kind interest income | 4,822,398 | 3,103,789 | 13,475,937 | 9,038,468 | ||||||||||||
Fee income | — | 104,004 | 485,906 | 553,574 | ||||||||||||
Interest from cash | 158 | 460 | 2,247 | 1,762 | ||||||||||||
Total investment income | 6,533,570 | 5,765,343 | 19,076,563 | 19,332,315 | ||||||||||||
Expenses | ||||||||||||||||
Asset management fees | 1,400,781 | 1,379,874 | 4,149,500 | 4,167,875 | ||||||||||||
Professional fees | 1,555,970 | 1,120,850 | 5,165,500 | 4,537,802 | ||||||||||||
General and administrative expenses | 261,844 | 299,649 | 1,136,500 | 837,022 | ||||||||||||
Interest expenses | — | 802,723 | — | 2,207,040 | ||||||||||||
Board of managers fees | 64,375 | 64,375 | 193,125 | 193,125 | ||||||||||||
Total expenses | 3,282,970 | 3,667,471 | 10,644,625 | 11,942,864 | ||||||||||||
Net investment income | $ | 3,250,600 | $ | 2,097,872 | $ | 8,431,938 | $ | 7,389,451 | ||||||||
Net change in unrealized appreciation (depreciation) on investments | 287,405 | 951,316 | 1,651,915 | 2,611,916 | ||||||||||||
Net realized loss on investments | — | (2,042,012 | ) | — | (11,114,481 | ) | ||||||||||
Foreign exchange gain | — | — | — | 5,644 | ||||||||||||
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 3,538,005 | $ | 1,007,176 | $ | 10,083,853 | $ | (1,107,470 | ) | |||||||
Revenues
Three months ended September 30, 2024 and 2023
For the three months ended September 30, 2024 and 2023, total investment income amounted to $6,533,570 and $5,765,343, respectively. Investment income increased by approximately $768,227 during the three months ended September 30, 2024 compared to the same period in 2023, primarily due to the write-off of certain interest income related to a restructuring amounting to approximately $676,000 during the three months ended September 30, 2023.
During the three months ended September 30, 2024, $2,856,627 or 43.7% of the investment income was earned from loan and trade finance participations and $3,676,785 or 56.3% was earned from direct loans. In addition, we earned $158 in interest income on our cash balances.
During the three months ended September 30, 2023, $2,962,799 or 51.4% of the investment income was earned from loan and trade finance participations and $2,802,084 or 48.6% was earned from direct loans. In addition, we earned $460 in interest income on our cash balances.
Nine months ended September 30, 2024 and 2023
For the nine months ended September 30, 2024 and 2023, total investment income amounted to $19,076,563 and $19,332,315, respectively. Investment income decreased by approximately $255,752 during the nine months ended September 30, 2024 compared to the same period in 2023. The decrease in investment income is primarily due to a write-off of interest receivable from certain investments during the nine months ended September 30, 2024.
During the nine months ended September 30, 2024, $8,078,273 or 42.4% of the investment income was earned from loan and trade finance participations and $10,996,043 or 57.6% was earned from direct loans. In addition, we earned $2,247 in interest income on our cash balances.
During the nine months ended September 30, 2023, $10,425,021 or 53.9% of the investment income was earned from loan and trade finance participations and $8,905,532 or 46.1% was earned from direct loans. In addition, we earned $1,762 in interest income on our cash balances.
Expenses
Three months ended September 30, 2024 and 2023
Total operating expenses, excluding the asset management and incentive fees, incurred for the three months ended September 30, 2024 decreased by $405,408 to $1,882,189 from $2,287,597 for the three months ended September 30, 2023. This decrease was primarily attributable to a decrease in the interest expense of $802,723 due to the leverage facility that was fully repaid in August 2023. This decrease was partially offset by an increase in consulting and legal fees in relation to some of our new projects, including the restructuring of a few investments.
For the three months ended September 30, 2024 and 2023, the asset management fees amounted to $1,400,781 and $1,379,874, respectively. The incentive fees for the three months ended September 30, 2024 and 2023 amounted to $0 and $0, respectively.
Nine months ended September 30, 2024 and 2023
Total operating expenses, excluding the asset management and incentive fees, incurred for the nine months ended September 30, 2024 decreased by $1,279,864 to $6,495,125 from $7,774,989 for the nine months ended September 30, 2023. This decrease was primarily attributable to a decrease in the interest expense of $2,207,040 due to the leverage facility that was fully repaid in August 2023. This decrease was partially offset by an increase in consulting and legal fees in relation to some of our new projects, including the restructuring of a few investments.
For the nine months ended September 30, 2024 and 2023, the asset management fees amounted to $4,149,500 and $4,167,875, respectively. The incentive fees for the nine months ended September 30, 2024 and 2023 amounted to $0 and $0, respectively.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation on Investments.
We measure net realized gains or losses by the difference between the net proceeds from the repayment or sale of an investment and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment fair market values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized. We recorded net realized losses of $0 and $2,042,012 for the three months ended September 30, 2024 and 2023, respectively. We recorded net realized losses of $0 and $11,114,481 for the nine months ended September 30, 2024 and 2023, respectively. We recorded net change in unrealized appreciation of $287,405 and $951,316 for the three months ended September 30, 2024 and 2023, respectively. We recorded net change in unrealized appreciation of $1,651,915 and $2,611,916 for the nine months ended September 30, 2024 and 2023, respectively. The net realized loss and net change in unrealized appreciation were primarily driven by macroeconomic events, including the uncertainty created by the COVID-19 pandemic and rising input costs (caused in part by the conflict between Russian and Ukraine) and their impact on the future cash flows generated by our investments as well as the ultimate realization of the underlying collateral.
Financial Condition, Liquidity and Capital Resources
As of September 30, 2024, we had approximately $878,000 in cash. We generate cash primarily from cash flows from interest, dividends and fees earned from our investments and principal repayments, proceeds from sales of our investments and from sales of promissory notes, proceeds from the issuance of notes payable, and proceeds from private placements of our units. We may also generate cash in the future from additional debt financing. Our primary use of cash will be to make loans, either directly or through participations, payments of our expenses, payments on our notes and any other borrowings, and cash distributions to our unitholders. We expect to maintain cash reserves from time to time for investment opportunities, working capital and distributions. Due to multiple factors, we have been experiencing inconsistent cash flows and significant constraints on our liquidity, which we expect will continue to be the case in the coming quarters. See “Outlook as of September 30, 2024” above for further information regarding the factors negatively impacting our cash flows.
The following discussions provide additional detail regarding our cash flows.
Cash Flows from Operating Activities
Cash flows from operating activities for the nine months ended September 30, 2024, decreased by $9.1 million compared to the same period in 2023. This decrease is primarily due to a $13.9 million decrease in the proceeds from disposition and paydowns of investments compared to the same period in 2023. This decrease was partially offset by a decrease in redeployment following the repayments.
Cash Flows Used in Financing Activities
Cash flows used in financing activities for the nine months ended September 30, 2024, decreased by approximately $23.2 million compared to the same period in 2023. The decrease is primarily attributable to $18 million in repayments of notes payable, along with a decrease of $3.4 million in distributions and a decrease of $1.9 million in the repurchase of units compared to the same period in 2023, as the Company's unit repurchase program was temporarily suspended effective as of April 1, 2023.
Debt Financings and Financing Obligations
We may borrow additional funds to make investments. We have not decided to what extent going forward we will finance portfolio investments using debt or the specific form that any such financing would take, but we believe that obtaining financing is necessary for us to fully achieve our long-term goals. We have been, and still are, actively seeking further financing through both development banks and several commercial banks. Accordingly, we cannot predict with certainty what terms any such financing would have or the costs we would incur in connection with any such arrangement. On August 7, 2017, TriLinc Global Impact Fund - Cayman, Ltd. ("TGIFC") issued $5 million in the first of a Series 1 Senior Secured Promissory Notes private offering to State Street Australia Ltd ACF Christian Super (“Christian Super”). On December 18, 2018, TGIFC issued $5 million of Series 2 Senior Secured Promissory Notes to Christian Super, which TGIFC repaid in full in January 2022. On November 3, 2022, we entered into a transaction with an unrelated financial institution, whereby, we sold a $5.0 million participation interest in one of our term loan positions and, as of March 31, 2023, we had agreed to repurchase the participation by October 2023 at a price equal to the sum of the original sales price plus accrued interest calculated at a simple 10% annualized rate. On November 22, 2022, TGIFC entered into two Facility Agreements (the "Facility Agreements") with DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH ("DEG") and BlueOrchard Microfinance Fund ("BlueOrchard") as Lenders. Pursuant to the Loan Documents, each of DEG and BlueOrchard will provide a loan with a principal amount of up to $25 million, for an aggregate principal amount of up to $50 million (the “Credit Facility”). On May 15, 2023, due to a breach of a reporting covenant of our leverage facility caused by the delayed filing of our Annual Report on Form 10-K for the year ended December 31, 2022, we and our leverage providers agreed that we would repay the outstanding leverage facility of $18,000,000 by August 31, 2023. The leverage facility was fully repaid by that date. As of September 30, 2024, we had no debt outstanding.
Company Strategy
Although the Company has a perpetual duration, it disclosed previously that if the Company did not consummate a liquidity event by August 25, 2021, it would commence an orderly liquidation of its assets unless a majority of the board of managers, including a majority of the independent managers, determined that liquidation is not in the best interests of the Company’s unitholders. Following the completion of a review process, in May 2021, the board of managers, including all of the independent managers, determined that a liquidation was not in the best interests of the Company’s unitholders and approved the continuation of the Company’s operations through at least August 26, 2022. In August 2022, the board of managers again determined that a liquidation is not in the best interests of the Company's unitholders and approved the continuation of the Company's operations through at least November 2023. In November 2023, the board of managers again determined that a liquidation is not in the best interests of the Company's unitholders and approved the continuation of the Company's operations through December 31, 2024.
Distributions
Distributions are subject to the board of managers’ discretion and applicable legal restrictions and accordingly, there can be no assurance that we will make distributions at a specific rate or at all. Distributions are made on all classes of our units at the same time. The cash distributions received by our unitholders with respect to the Class C units, Class W units and certain Class I units, are and will continue to be lower than the cash distributions with respect to Class A and certain other Class I units because of the distribution fee relating to Class C units, the ongoing dealer manager fee relating to Class W units and Class I units issued pursuant to a private placement and the ongoing service fee relating to the Class W units, which are expenses specific to those classes of units. Amounts distributed to each class are allocated among the unitholders in such class in proportion to their units. Distributions are paid in cash or reinvested in units, for those unitholders participating in the DRP. For the nine months ended September 30, 2024, total distributions of $4,181,278 were paid in cash and none of the distributions were reinvested under our DRP.
Related Party Transactions
For the nine months ended September 30, 2024 and 2023, the Company incurred $4,149,500, and $4,167,875, respectively, in asset management fees and $0 and $0, respectively, in incentive fees, both of which are paid to the Advisor.
On September 6, 2024, the Company sold $2.01 million of its investment in HINV, S.A. DE C.V. to an entity whose advisor is under common ownership with the Company’s Advisor.
As of September 30, 2024 and December 31, 2023, amounts due to affiliates on the Consolidated Statements of Assets and Liabilities totaled $128,048 and $0, respectively, reflecting that the Company is obligated to reimburse an affiliate of the Advisor for certain operating expenses of the Company that were initially paid by the affiliate.
Legal Proceedings
As of September 30, 2024, the Company was not a defendant in any litigation.
Critical Accounting Policies and Use of Estimates
In preparing our Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations promulgated by the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and discuss our critical accounting policies and estimates with the audit committee of our board of managers. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions.
There have been no significant changes to our critical accounting policies, estimates and judgments during the nine months ended September 30, 2024, compared to the critical accounting policies, estimates and judgments disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023.
The preparation of financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the amounts reported in the financial statements. 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, economic conditions globally remain challenging, particularly for advanced economies, largely due to inflation and a sustained period of high interest rates. Additionally, many of the Company’s borrowers were negatively affected by higher operating costs and supply chain issues that began in 2020 with the onset of the COVID-19 pandemic, which were further exacerbated by the conflict between Russia and Ukraine. Fortunately, most supply side conditions normalized in 2023 and have remained stable through September 30, 2024, providing some economic relief to borrower companies. However, as noted in prior quarters, the combination of pandemic period effects, in many cases, had devastating and long-lasting impacts on the businesses, financial condition and results of operations of several borrower companies. Together, these factors made it more difficult for some borrowers to repay their obligations to the Company in a timely manner or at all, resulting in the Company experiencing inconsistent cash flows. The Company believes that the central issue driving results is the legacy effect from borrower companies struggling to recover from the compound impact of approximately three years of economic hardship. However, current macroeconomic conditions have significantly improved for most borrower companies, though improvement ultimately has been slow. Still, the Company has seen several borrowers improve, particularly in 2024, due in large part to the sustained improvement in supply side macroeconomic conditions over the last seven quarters. The Company does not currently expect any material near-term negative changes to the macroeconomic environment to further affect the Company’s borrowers.
Recent Accounting Pronouncements
See Note 2 to the Company’s accompanying Consolidated Financial Statements for a description of recent accounting pronouncements and its expectation of their impact on the Company’s results of operations and financial condition.
Subsequent Events
Please see “Notes to Consolidated Financial Statements—Note 9. Subsequent Events.”
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures were effective as of September 30, 2024.
There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of September 30, 2024, the Company was not a defendant in any litigation.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024 (“2023 Form 10-K”) which could materially affect our business, financial condition, and/or future results. The risks described in our 2023 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.
There have been no material changes to the risk factors disclosed in our 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unit Repurchase Program
Beginning June 11, 2014, we commenced a unit repurchase program pursuant to which we conduct quarterly unit repurchases of up to 5% of our weighted average number of outstanding units in any 12-month period to allow our unitholders, who have held our units for a minimum of one year, to sell their units back to us. Our unit repurchase program includes numerous restrictions, including a one-year holding period, that limit our unitholders’ ability to sell their units. Additionally, we have no obligation to repurchase units if the repurchase would violate the restrictions on distributions under federal law or Delaware law, and all units to be repurchased under the program must be fully transferable and not be subject to any liens or other encumbrances and free from any restrictions on transfer. Unless our board of managers determines otherwise, we will limit the number of units to be repurchased during any calendar year to the number of units we can repurchase with the proceeds we receive from the sale of units under our DRP. At the sole discretion of our board of managers, we may also use cash on hand, cash available from borrowings and cash from liquidation of investments as of the end of the applicable quarter to repurchase units.
On August 9, 2019, our board of managers amended and restated our unit repurchase program in order to amend the basis on which we will honor repurchase requests in the event repurchase requests exceed the existing limitations of the program. The amended and restated unit repurchase program took effect on September 30, 2019. Under the amended and restated unit repurchase program, if we cannot repurchase all units presented for repurchase in any quarter because of the limitations on repurchases set forth in the program, then we will honor repurchase requests in the following order of priority (unless our board of managers determines that we will not repurchase units in that quarter):
● | first, we will repurchase units pursuant to repurchase requests made in connection with the death or disability of a unitholder (or on a pro rata basis among such requests if less than all of such death or disability requests can be satisfied); |
● | second, we will repurchase units pursuant to any repurchase request that has been carried over from one or more previous quarterly periods where the value of the units that have not yet been repurchased pursuant to such request (with the value calculated as the number of units multiplied by the estimated net asset value per unit for units of that class, as most recently disclosed by us in a filing with the SEC) is less than $2,500 (or on a pro rata basis among such requests if less than all of such requests carried over from prior periods can be satisfied); and |
● | third, we will repurchase units pursuant to all other repurchase requests on a pro rata basis. |
Unit repurchases are made on the last calendar day of the quarter at a price equal to the estimated net asset value per unit for each class of units, as most recently disclosed by us in a public filing with the SEC.
For the nine months ended September 30, 2024, no repurchase requests were fulfilled.
For the nine months ended September 30, 2023, the total redemptions were for an aggregate of 1,738 Class A units, 12,781 Class C units and 2,403 Class I units for a total of $115,711.
Our board of managers has the right to amend, suspend or terminate the unit repurchase program to the extent that it determines that it is in our best interest to do so. We will promptly notify our unitholders of any changes to the unit repurchase program, including any amendment, suspension or termination of it in our periodic or current reports or by means of other notice. Moreover, the unit repurchase program will terminate on the date that our units are listed on a national securities exchange, are included for quotation in a national securities market or, in the sole determination of our board of managers, a secondary trading market for the units otherwise develops. Given that the Company had not yet filed its Annual Report on Form 10-K for the year ended December 31, 2022 with the SEC as of March 31, 2023, the Company temporarily suspended the private placement, the DRP and the unit repurchase program effective April 1, 2023. The suspension of the DRP was lifted effective April 24, 2024. On August 9, 2024, the Company's board of managers approved the reopening of the unit repurchase program, effective September 1, 2024, solely with respect to repurchase requests submitted in connection with the death or disability of a unitholder, subject to the other terms and limitations of the unit repurchase program. The private placement remained suspended through September 30, 2024.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Rule 10b5-1 Trading Plans
During the nine months ended September 30, 2024, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."
Number | Description | |
3.1 | ||
3.2 | ||
4.1 | ||
| 4.2 | Fifth Amended and Restated Unit Repurchase Program. Incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed with the SEC on August 13, 2024. | |
31.1 | ||
32.1 | ||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TRILINC GLOBAL IMPACT FUND, LLC. | ||
By: | /s/ Gloria S. Nelund | |
Gloria S. Nelund | ||
Chief Executive Officer and interim Chief Financial Officer | ||
