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EX-32.1 - EX-32.1 - TriLinc Global Impact Fund LLCtrilinc-ex321_8.htm
EX-31.2 - EX-31.2 - TriLinc Global Impact Fund LLCtrilinc-ex312_7.htm
EX-31.1 - EX-31.1 - TriLinc Global Impact Fund LLCtrilinc-ex311_6.htm
EX-4.1 - EX-4.1 - TriLinc Global Impact Fund LLCtrilinc-ex41_133.htm

 

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 March 31, 2020

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 May 14, 2020, the Company had outstanding 17,922,291 Class A units, 8,034,595 Class C units, 10,535,837 Class I units, 24,555 Class W units, 1,613,383 Class Y units, and 8,423,851 Class Z units.

 

 

 


Table of Contents

 

Part I. Financial Information

 

1

 

 

 

Item 1. Consolidated Financial Statements

 

1

 

 

 

Consolidated Statements of Assets and Liabilities as of March 31, 2020 (unaudited) and December 31, 2019

 

1

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)

 

2

 

 

 

Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2020 and 2019 (unaudited)

 

3

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

 

4

 

 

 

Consolidated Schedules of Investments as of March 31, 2020 (unaudited) and December 31, 2019

 

5-8

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

9

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

35

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

53

 

 

 

Item 4. Controls and Procedures

 

53

 

 

 

Part II. Other Information

 

54

 

 

 

Item 1. Legal Proceedings

 

54

 

 

 

Item 1A. Risk Factors

 

54

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

55

 

 

 

Item 3. Defaults Upon Senior Securities

 

56

 

 

 

Item 4. Mine Safety Disclosures

 

56

 

 

 

Item 5. Other Information

 

56

 

 

 

Item 6. Exhibits

 

57

 

 

 

 


Part I. Financial Information

Item 1. Consolidated Financial Statements.

TriLinc Global Impact Fund, LLC

Consolidated Statements of Assets and Liabilities

 

 

 

As of

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

(Unaudited)

 

 

 

 

 

Investments owned, at fair value (amortized cost of $348,119,393 and $352,351,819, respectively)

 

$

327,080,310

 

 

$

340,298,376

 

Cash

 

 

23,810,311

 

 

 

22,333,304

 

Interest receivable

 

 

20,466,497

 

 

 

16,501,872

 

Due from affiliates (see Note 5)

 

 

4,240,231

 

 

 

4,240,231

 

Other assets

 

 

970,700

 

 

 

317,000

 

Total assets

 

 

376,568,049

 

 

 

383,690,783

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Due to unitholders

 

 

1,607,192

 

 

 

1,572,295

 

Management fee payable

 

 

2,218,117

 

 

 

1,889,835

 

Incentive fee payable

 

 

851,111

 

 

 

1,481,726

 

Notes payable

 

 

5,000,000

 

 

 

5,000,000

 

Unit repurchases payable

 

 

3,260,514

 

 

 

2,312,031

 

Accrued distribution and other fees

 

 

637,000

 

 

 

647,000

 

Other payables

 

 

1,380,656

 

 

 

1,192,336

 

Total liabilities

 

 

14,954,590

 

 

 

14,095,223

 

Commitments and Contingencies (see Note 5)

 

 

 

 

 

 

 

 

NET ASSETS

 

$

361,613,459

 

 

$

369,595,560

 

 

 

 

 

 

 

 

 

 

ANALYSIS OF NET ASSETS:

 

 

 

 

 

 

 

 

Net capital paid in on Class A units

 

$

147,656,668

 

 

$

151,476,548

 

Net capital paid in on Class C units

 

 

65,709,793

 

 

 

67,804,541

 

Net capital paid in on Class I units

 

 

86,558,021

 

 

 

88,748,417

 

Net capital paid in on Class W units

 

 

207,295

 

 

 

206,243

 

Net capital paid in on Class Y units

 

 

12,978,271

 

 

 

11,007,080

 

Net capital paid in on Class Z units

 

 

65,741,218

 

 

 

67,590,538

 

Offering costs

 

 

(17,237,807

)

 

 

(17,237,807

)

Net assets (equivalent to $7.804 and $8.024, respectively per unit based

   on total units outstanding of 46,417,517 and 46,143,564, respectively)

 

$

361,613,459

 

 

$

369,595,560

 

Net assets, Class A (units outstanding of 17,880,704 and 17,861,312, respectively)

 

$

139,544,155

 

 

$

143,313,977

 

Net assets, Class C (units outstanding of 8,030,731 and 8,067,787, respectively)

 

 

62,066,233

 

 

 

64,117,584

 

Net assets, Class I (units outstanding of 10,485,263 and 10,468,162, respectively)

 

 

81,800,835

 

 

 

83,964,495

 

Net assets, Class W (units outstanding of 25,345 and 24,555, respectively)

 

 

195,796

 

 

 

195,021

 

Net assets, Class Y (units outstanding of 1,571,623 and 1,297,897, respectively)

 

 

12,265,222

 

 

 

10,413,945

 

Net assets, Class Z (units outstanding of 8,423,851 and 8,423,851, respectively)

 

 

65,741,218

 

 

 

67,590,538

 

NET ASSETS

 

$

361,613,459

 

 

$

369,595,560

 

See accompanying notes to the consolidated financial statements.

 

 

1


TriLinc Global Impact Fund, LLC

Consolidated Statements of Operations

(Unaudited)

 

 

For the Three Months Ended

 

 

March 31,

 

 

March 31,

 

 

2020

 

 

2019

 

INVESTMENT INCOME

 

 

 

 

 

 

 

Interest income

$

9,956,842

 

 

$

11,279,504

 

Interest from cash

 

43,657

 

 

 

14,996

 

Total investment income

 

10,000,499

 

 

 

11,294,500

 

EXPENSES

 

 

 

 

 

 

 

Asset management fees

 

1,846,556

 

 

 

1,959,123

 

Incentive fees

 

851,111

 

 

 

1,458,513

 

Professional fees

 

1,269,819

 

 

 

938,202

 

General and administrative expenses

 

356,167

 

 

 

440,287

 

Interest expense

 

68,537

 

 

 

599,949

 

Board of managers fees

 

64,375

 

 

 

64,375

 

Total expenses

 

4,456,565

 

 

 

5,460,449

 

NET INVESTMENT INCOME

 

5,543,934

 

 

 

5,834,051

 

Net change in unrealized depreciation on investments

 

(8,678,718

)

 

 

(2,147,016

)

Foreign exchange loss

 

(3,072

)

 

 

(1,008

)

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$

(3,137,856

)

 

$

3,686,027

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME PER UNIT - BASIC AND DILUTED

$

0.12

 

 

$

0.13

 

(LOSS) EARNINGS PER UNIT - BASIC AND DILUTED

$

(0.07

)

 

$

0.08

 

WEIGHTED AVERAGE UNITS OUTSTANDING - BASIC AND DILUTED

 

46,381,431

 

 

 

44,019,402

 

See accompanying notes to the consolidated financial statements.

 

 

2


TriLinc Global Impact Fund, LLC

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

INCREASE (DECREASE) FROM OPERATIONS

 

 

 

 

 

 

 

 

Net investment income

 

$

5,543,934

 

 

$

5,834,051

 

Foreign exchange (loss) gain

 

 

(3,072

)

 

 

(1,008

)

Net change in unrealized depreciation on investments

 

 

(8,678,718

)

 

 

(2,147,016

)

Net (decrease) increase from operations

 

 

(3,137,856

)

 

 

3,686,027

 

DECREASE FROM DISTRIBUTIONS

 

 

 

 

 

 

 

 

Distributions to Class A unitholders

 

 

(2,746,530

)

 

 

(2,734,103

)

Distributions to Class C unitholders

 

 

(1,208,275

)

 

 

(1,233,177

)

Distributions to Class I unitholders

 

 

(1,609,102

)

 

 

(1,606,583

)

Distributions to Class W unitholders

 

 

(3,376

)

 

 

(3,464

)

Distributions to Class Y unitholders

 

 

(221,712

)

 

 

(178,846

)

Distributions to Class Z unitholders

 

 

(1,293,013

)

 

 

(905,538

)

Net decrease from distributions

 

 

(7,082,008

)

 

 

(6,661,711

)

INCREASE (DECREASE) FROM CAPITAL TRANSACTIONS

 

 

 

 

 

 

 

 

Issuance of  Class A units

 

 

1,085,946

 

 

 

1,109,964

 

Issuance of  Class C units

 

 

558,440

 

 

 

592,053

 

Issuance of  Class I units

 

 

666,528

 

 

 

675,449

 

Issuance of  Class W units

 

 

708

 

 

 

 

Issuance of  Class Y units

 

 

2,225,000

 

 

 

270,000

 

Repurchase of units

 

 

(2,308,859

)

 

 

(4,269,255

)

Distribution and other fees

 

 

10,000

 

 

 

184,000

 

Net increase (decrease) from capital transactions

 

 

2,237,763

 

 

 

(1,437,789

)

NET DECREASE IN NET ASSETS

 

 

(7,982,101

)

 

 

(4,413,473

)

Net assets at beginning of period

 

 

369,595,560

 

 

 

360,070,359

 

Net assets at end of period

 

$

361,613,459

 

 

$

355,656,886

 

See accompanying notes to the consolidated financial statements.

 

 

3


TriLinc Global Impact Fund, LLC

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(3,137,856

)

 

$

3,686,027

 

ADJUSTMENT TO RECONCILE NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of investments

 

 

(21,000,000

)

 

 

(9,275,000

)

Maturity of investments

 

 

27,839,372

 

 

 

13,125,387

 

Payment-in-kind interest

 

 

(2,032,823

)

 

 

(1,669,477

)

Net change in unrealized depreciation on investments

 

 

8,678,718

 

 

 

2,147,016

 

Foreign exchange loss

 

 

3,072

 

 

 

1,008

 

Accretion of discounts on investments

 

 

(267,201

)

 

 

(131,008

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Increase in interest receivable

 

 

(3,967,697

)

 

 

(362,082

)

(Increase) decrease in other assets

 

 

(653,700

)

 

 

25,445

 

Increase in due to unitholders

 

 

34,897

 

 

 

1,771

 

(Decrease) increase in management and incentive fees payable

 

 

(302,332

)

 

 

687,632

 

Increase in other payables

 

 

188,320

 

 

 

496,871

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

5,382,770

 

 

 

8,733,590

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net proceeds from issuance of units

 

 

2,226,672

 

 

 

269,910

 

Distributions paid to unitholders

 

 

(4,772,058

)

 

 

(4,284,156

)

Repurchase of units

 

 

(1,360,377

)

 

 

(2,726,310

)

Repayments of notes payable

 

 

 

 

 

(125,000

)

NET CASH USED IN FINANCING ACTIVITIES

 

 

(3,905,763

)

 

 

(6,865,556

)

TOTAL INCREASE  IN CASH

 

 

1,477,007

 

 

 

1,868,034

 

Cash at beginning of period

 

 

22,333,304

 

 

 

8,101,629

 

Cash at end of period

 

$

23,810,311

 

 

$

9,969,663

 

Supplemental information

 

 

 

 

 

 

 

 

Cash paid for interest during the period

 

$

69,290

 

 

$

512,234

 

Supplemental non-cash information

 

 

 

 

 

 

 

 

Issuance of units in connection with distribution reinvestment plan

 

$

2,309,949

 

 

$

2,377,555

 

Change in accrual of distribution and other fees

 

$

(10,000

)

 

$

(184,000

)

See accompanying notes to the consolidated financial statements.

 

 

 

4


TriLinc Global Impact Fund, LLC

Consolidated Schedule of Investments

As of March 31, 2020

(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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brazil

 

Usivale Industria E Commercio  Ltda (12), (17)

 

Agricultural Products

 

Sugar Producer

 

12.43%

 

 

 

0.0

%

 

12/15/2020

 

$

2,851,296

 

 

N/A

 

 

$

2,851,296

 

 

$

2,577,164

 

 

 

0.7

%

Chile

 

Other Investments (5)

 

Electric Services

 

LED Lighting Service Provider

 

11.00%

 

 

 

0.0

%

 

6/6/2021

 

 

1,456,161

 

 

N/A

 

 

 

1,395,953

 

 

 

1,395,953

 

 

 

0.4

%

Colombia

 

Other Investments (5)

 

Personal Credit Institutions

 

Consumer Lender

 

11.25%

 

 

 

0.0

%

 

8/1/2021

 

 

3,173,803

 

 

N/A

 

 

 

3,173,803

 

 

 

3,173,803

 

 

 

0.9

%

Ecuador

 

Other Investments

 

Corrugated and solid fiber boxes

 

Sustainable Packaging Manufacturer

 

9.16% Cash/2.20% PIK

 

 

 

0.0

%

 

6/18/2025

 

 

10,000,000

 

 

N/A

 

 

 

10,000,000

 

 

 

10,000,000

 

 

 

2.8

%

Hong Kong

 

Other Investments (22)

 

Secondary Nonferrous Metals

 

Minor Metals Resource Trader

 

12.00%

 

 

 

0.0

%

 

6/22/2021

 

 

10,000,000

 

 

N/A

 

 

 

10,000,000

 

 

 

10,000,000

 

 

 

2.8

%

Hong Kong

 

Other Investments (23)

 

Coal and Other Minerals and Ores

 

Resource Trader

 

11.50%

 

 

 

0.0

%

 

12/31/2020

 

 

15,891,820

 

 

N/A

 

 

 

15,891,820

 

 

 

15,891,820

 

 

 

4.4

%

Malaysia

 

Other Investments (24)

 

Chemicals and Allied Products

 

Wholesale Distributor

 

12.00%

 

 

 

0.0

%

 

3/31/2021

 

 

15,000,000

 

 

N/A

 

 

 

15,000,000

 

 

 

15,000,000

 

 

 

4.1

%

Mexico

 

Blue Arrow Biojet Holdings, LLC (9)

 

Refuse Systems

 

Waste to Fuels Processor

 

14.50% PIK

 

 

 

0.0

%

 

7/27/2021

 

 

25,600,588

 

 

N/A

 

 

 

25,600,588

 

 

 

25,600,588

 

 

 

7.1

%

New Zealand

 

Other Investments (10)

 

Logging

 

Sustainable Timber Exporter

 

11.50%

 

 

 

0.0

%

 

2/11/2021

 

 

5,797,622

 

 

N/A

 

 

 

5,797,622

 

 

 

5,797,622

 

 

 

1.6

%

Peru

 

Kinder Investments, Ltd. (16)

 

Consumer Products

 

Diaper Manufacturer II

 

11.00%

 

 

 

0.0

%

 

8/15/2021

 

 

4,599,086

 

 

N/A

 

 

 

4,599,086

 

 

 

4,599,086

 

 

 

1.3

%

Total Senior Secured Term Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

94,310,168

 

 

 

94,036,036

 

 

 

26.1

%

Senior Secured Term Loan Participations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Botswana

 

Other Investments (7)

 

Short-Term Business Credit

 

SME Financier

 

11.67%

 

 

 

0.0

%

 

8/18/2021

 

 

4,740,000

 

 

47%

 

 

 

4,740,000

 

 

 

4,740,000

 

 

 

1.3

%

Brazil

 

Other Investments (7), (21)

 

Programming and Data Processing

 

IT Service Provider

 

10.00% Cash/1.50% PIK

 

 

 

0.0

%

 

11/24/2022

 

 

17,711,880

 

 

75%

 

 

 

17,711,880

 

 

 

17,852,490

 

 

 

4.9

%

Brazil

 

Other Investments (6), (21)

 

Boatbuilding and Repairing

 

Ship Maintenance & Repair Service Provider

 

8.00% Cash/4.00% PIK

 

 

 

0.0

%

 

12/7/2023

 

 

5,799,797

 

 

42%

 

 

 

5,732,574

 

 

 

5,775,774

 

 

 

1.6

%

Cabo Verde

 

TRG Cape Verde Holdings Ltd (6), (17)

 

Hotels and Motels

 

Hospitality Service Provider

 

10.00% Cash/4.75% PIK

 

 

 

0.0

%

 

8/21/2021

 

 

13,002,528

 

 

88%

 

 

 

13,002,528

 

 

 

11,354,899

 

 

 

3.1

%

Colombia

 

Azteca Comunicaciones Colombia S.A.S. (11), (21)

 

Telephone Communications

 

Fiber Optics Network Provider

 

8.95% Cash/5.00% PIK

 

 

 

0.0

%

 

10/15/2023

 

 

20,008,704

 

 

76%

 

 

 

19,870,383

 

 

 

20,113,924

 

 

 

5.6

%

Croatia

 

Other Investments (8), (20)

 

Department Stores

 

Mall Operator

 

7.00% Cash/6.00% PIK

 

 

 

0.0

%

 

1/23/2021

 

 

8,635,527

 

 

5%

 

 

 

8,635,527

 

 

 

8,726,737

 

 

 

2.4

%

Ghana

 

Other Investments (6)

 

Petroleum and Petroleum Products

 

Tank Farm Operator

 

12.00%

 

 

 

0.0

%

 

8/10/2021

 

 

15,500,000

 

 

76%

 

 

 

15,500,000

 

 

 

15,500,000

 

 

 

4.3

%

Jersey

 

Africell Holding Limited (27)

 

Telephone Communications

 

Mobile Network Operator

 

12.35%

 

 

 

3.0

%

 

3/28/2023

 

 

16,435,000

 

 

16%

 

 

 

16,093,000

 

 

 

16,093,000

 

 

 

4.5

%

Kenya

 

Other Investments (6)

 

Freight Transportation Arrangement

 

Freight and Cargo Transporter

 

9.88% Cash/4.00% PIK

 

 

 

0.0

%

 

3/31/2023

 

 

13,641,586

 

 

42%

 

 

 

13,641,586

 

 

 

13,641,586

 

 

 

3.8

%

Namibia

 

Trustco Group Holdings Ltd. (14), (17)

 

Land Subdividers and Developers

 

Property Developer

 

8.50% Cash/4.00% PIK

 

 

 

0.0

%

 

8/15/2021

 

 

17,006,658

 

 

100%

 

 

 

16,961,122

 

 

 

14,695,323

 

 

 

4.1

%

Netherlands

 

Other Investments (9)

 

Motor Vehicle Parts and Accessories

 

Wheel Manufacturer

 

15.00%

 

 

 

0.0

%

 

8/20/2021

 

 

8,776,515

 

 

44%

 

 

 

8,776,515

 

 

 

8,849,338

 

 

 

2.4

%

Nigeria

 

Helios Maritime I (15), (17)

 

Water Transportation

 

Marine Logistics Provider

 

12.08%

 

 

 

0.8

%

 

9/16/2020

 

 

12,762,670

 

 

100%

 

 

 

12,753,503

 

 

 

11,084,262

 

 

 

3.1

%

Romania

 

Other Investments (8)

 

Food Products

 

Bread Manufacturer

 

8.00% Cash/5.00% PIK

 

 

 

2.5

%

 

7/18/2021

 

 

1,739,676

 

 

25%

 

 

 

1,718,120

 

 

 

1,718,120

 

 

 

0.5

%

Uganda

 

Other Investments (7)

 

Farm Products

 

Grain Processor C

 

14.50%

 

 

 

0.0

%

 

4/30/2024

 

 

6,850,000

 

 

100%

 

 

 

6,850,000

 

 

 

6,863,583

 

 

 

1.9

%

Zambia

 

Other Investments (5)

 

Soap, Detergents, and Cleaning

 

FMCG Manufacturer

 

12.00%

 

 

 

0.0

%

 

8/27/2023

 

 

2,786,544

 

 

26%

 

 

 

2,786,544

 

 

 

2,786,544

 

 

 

0.8

%

Total Senior Secured Term Loan Participations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

164,773,282

 

 

 

159,795,580

 

 

 

44.3

%

Senior Secured Trade Finance Participations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Argentina

 

Compania Argentina de Granos S.A. (17), (18)

 

Agricultural Products

 

Agriculture Distributor

 

10.45%

 

 

 

0.0

%

 

6/30/2018

 

 

12,500,000

 

 

83%

 

 

 

12,500,000

 

 

 

9,839,958

 

 

 

2.7

%

Argentina

 

Sancor Cooperativas Unidas Ltda (17), (18)

 

Consumer Products

 

Dairy Co-Operative

 

10.67%

 

 

 

0.0

%

 

7/29/2019

 

 

6,000,000

 

 

22%

 

 

 

6,000,000

 

 

 

4,719,383

 

 

 

1.3

%

Argentina

 

Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay (17), (18)

 

Meat, Poultry & Fish

 

Beef Exporter

 

11.50%

 

 

 

0.0

%

 

8/31/2017

 

 

9,000,000

 

 

28%

 

 

 

9,000,000

 

 

 

6,361,679

 

 

 

1.8

%

5


Investment Type / Country

 

Portfolio Company

 

Sector

 

Description

 

Interest

 

 

Fees (2)

 

 

Maturity (3)

 

Principal

Amount

 

 

Participation % (4)

 

 

Amortized Cost

 

 

Fair Value

 

 

% of Net Assets

 

Argentina

 

Algodonera Avellaneda S.A. (17), (18)

 

Fats and Oils

 

Oilseed Distributor

 

9.00%

 

 

 

0.0

%

 

8/31/2017

 

 

6,000,000

 

 

27%

 

 

 

6,000,000

 

 

 

3,398,558

 

 

 

0.9

%

Cameroon

 

Producam SA (17)

 

Chocolate and Cocoa Products

 

Cocoa & Coffee Exporter

 

16.42%

 

 

 

0.0

%

 

8/31/2019

 

 

10,413,683

 

 

72%

 

 

 

10,413,683

 

 

 

9,192,637

 

 

 

2.5

%

Chile

 

Functional Products Trading S.A. (17), (18)

 

Farm Products

 

Chia Seed Exporter

 

10.90%

 

 

 

0.0

%

 

3/4/2018

 

 

1,326,687

 

 

100%

 

 

 

1,326,687

 

 

 

1,269,586

 

 

 

0.4

%

Ecuador

 

Other Investment (25)

 

Commercial Fishing

 

Fish Processor & Exporter

 

9.00%

 

 

 

0.0

%

 

6/19/2019

 

 

35,838

 

 

3%

 

 

 

35,838

 

 

 

35,838

 

 

 

0.0

%

Guatemala

 

Procesos Fabriles S.A. (17), (18)

 

Farm Products

 

Sesame Seed Exporter

 

12.00%

 

 

 

0.0

%

 

3/31/2016

 

 

881,800

 

 

24%

 

 

 

881,800

 

 

 

10,504

 

 

 

0.0

%

Hong Kong

 

Triton Metallics Pte Ltd.  (17), (26)

 

Coal and Other Minerals and Ores

 

Non-Ferrous Metal Trader

 

11.50%

 

 

 

0.0

%

 

5/4/2020

 

 

16,456,270

 

 

N/A

 

 

 

16,456,270

 

 

 

14,899,927

 

 

 

4.1

%

Hong Kong

 

Conplex International Ltd. (17), (26)

 

Telephone and Telegraph Apparatus

 

Mobile Phone Distributor

 

12.00%

 

 

 

0.0

%

 

4/30/2020

 

 

9,500,000

 

 

26%

 

 

 

9,500,000

 

 

 

7,868,028

 

 

 

2.2

%

Mauritius

 

Other Investments (9), (26)

 

Groceries and Related Products

 

Vanilla Exporter

 

12.02%

 

 

 

0.0

%

 

5/8/2020

 

 

468,756

 

 

2%

 

 

 

468,756

 

 

 

468,756

 

 

 

0.1

%

Morocco

 

Mac Z Group SARL (17), (18)

 

Secondary Nonferrous Metals

 

Scrap Metal Recycler

 

11.00%

 

 

 

0.0

%

 

7/31/2018

 

 

7,349,626

 

 

73%

 

 

 

7,349,626

 

 

 

7,530,616

 

 

 

2.1

%

Nigeria

 

Other Investments (9), (26)

 

Farm Products

 

Cocoa Trader III

 

9.00%

 

 

 

0.0

%

 

4/30/2020

 

 

675,256

 

 

25%

 

 

 

675,256

 

 

 

675,256

 

 

 

0.2

%

Nigeria

 

Other Investments (9), (26)

 

Farm Products

 

Cocoa Trader II

 

9.00%

 

 

 

0.0

%

 

4/30/2020

 

 

838,967

 

 

14%

 

 

 

838,967

 

 

 

838,967

 

 

 

0.2

%

South Africa

 

Applewood Trading 199 Pty, Ltd.(17), (18)

 

Food Products

 

Fruit & Nut Distributor

 

10.00%

 

 

 

0.0

%

 

5/22/2015

 

 

785,806

 

 

19%

 

 

 

785,806

 

 

 

497,462

 

 

 

0.1

%

United Arab Emirates

 

Global Pharma Intelligence Sarl (17), (18)

 

Drugs, Proprietaries, and Sundries

 

Pharmaceuticals Distributor

 

14.60%

 

 

 

0.0

%

 

6/30/2018

 

 

803,254

 

 

60%

 

 

 

803,254

 

 

 

803,254

 

 

 

0.2

%

Total Senior Secured Trade Finance Participations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83,035,943

 

 

 

68,410,409

 

 

 

18.8

%

Short Term Investments (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

IIG TOF B.V. (17), (18), (19)

 

Financial services

 

Receivable from IIG TOF B.V.

 

8.75%

 

 

 

0.0

%

 

N/A

 

 

6,000,000

 

 

N/A

 

 

 

6,000,000

 

 

 

3,758,063

 

 

 

1.0

%

Equity Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

Blue Arrow Biojet Holdings, LLC

 

Refuse Systems

 

Waste to Fuels Processor

 

N/A

 

 

N/A

 

 

N/A

 

N/A

 

 

N/A

 

 

 

-

 

 

 

1,080,222

 

 

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

348,119,393

 

 

$

327,080,310

 

 

 

 

 

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.

5 

Principal and interest paid monthly.

6 

Principal and interest paid quarterly.

7 

Monthly interest only payment. Principal due at maturity.

8 

Semi-annual interest only payment. Principal due at maturity.

9 

Principal and interest paid at maturity.  

10

Two-thirds and one-third of the principal and accrued interest to be paid on the 36th and 42nd months after original drawdown date of 8/10/2017, respectively.

11

Cash interest paid monthly. Principal, including PIK interest, to be repaid in equal monthly installments starting in October 2020.

12

Principal and interest paid annually. The maturity date is expected to be extended in connection with a restructure of the loan.  Refer to Note 3 for additional information.  

13

In October 2017, this investment was refinanced from a trade finance participation to a term loan participation and the maturity dates were extended to 8/31/2022.  

14

Quarterly interest payments. Principal payments of 30% of total principal balance disbursed to be repaid on 6/30/2020 and 6/30/2021, with the remaining principal to be paid at maturity.

15

Interest accrues at a variable rate of one-month London Interbank Offered Rate (“Libor”) + 10.5%, which is paid currently, and also includes 4.68% of deferred interest due at maturity.

16

In connection with a restructure of the underlying facilities, all maturity dates were extended to 8/15/2021. This investment was removed from the Watch List on April 1, 2019.

17

Watch List investment. Refer to Note 3 for additional information.  

18

Investment on non-accrual status.

19

This investment was originally classified as an investment in a credit facility originated by IIG Trade Opportunities Fund B.V. (“IIG TOF B.V.”), a fund advised by The International Investment Group L.L.C. (“IIG”). During the third quarter of 2018, as part of its quarterly verification process, the Company learned new information concerning this investment, which resulted in the Company reclassifying it from senior secured trade finance participations to short term investments. Please see Note 3 for additional information.

20

Loan is denominated in euro currency with a principal amount of 6,200,000 euro, however the Company’s participation is denominated in US dollars.  The quarterly interest payments are paid at the current exchange rate and subject to foreign currency fluctuations. The fair value includes an investment premium of $91,200.

21

Interest includes a stated coupon rate plus additional contingent interest payments based on a percentage of EBITDA after a minimum threshold has been achieved by the borrower.

22

Interest paid quarterly. Principal to be repaid in four equal quarterly installments starting in September 2020. 

23

Interest paid quarterly. Principal to be repaid in two equal quarterly installments starting in September 2020.

24

Interest paid quarterly. Principal to be repaid in five equal quarterly installments starting in March 2020.

25

IIG was the sub-advisor for this investment, See Note 3 for additional information about IIG.

26

The Company is currently working on extending the maturity dates of these investments. These extensions are anticipated to be finalized during the second quarter of 2020.

27

Quarterly interest payments. Principal to start amortizing 15 months from initial utilization date (IUD) as follows: 4.5% of loan balance quarterly until IUD + 27 months, then 6.5% of loan balance quarterly until IUD + 48 months, thereafter 7.5% of loan balance quarterly until maturity.

6


TriLinc Global Impact Fund, LLC

Consolidated Schedule of Investments

December 31, 2019

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 (12), (17)

 

Agricultural Products

 

Sugar Producer

 

12.43%

 

 

 

0.0

%

 

12/15/2020

 

$

2,851,296

 

 

N/A

 

 

$

2,851,296

 

 

$

2,577,164

 

 

 

0.7

%

Chile

 

Other Investments (5)

 

Electric Services

 

LED Lighting Service Provider

 

11.00%

 

 

 

0.0

%

 

6/6/2021

 

 

1,456,161

 

 

N/A

 

 

 

1,383,269

 

 

 

1,383,269

 

 

 

0.4

%

Colombia

 

Other Investments (5)

 

Personal Credit Institutions

 

Consumer Lender

 

11.25%

 

 

 

0.0

%

 

8/1/2021

 

 

3,603,592

 

 

N/A

 

 

 

3,603,592

 

 

 

3,603,592

 

 

 

1.0

%

Hong Kong

 

Other Investments (22)

 

Secondary Nonferrous Metals

 

Minor Metals Resource Trader

 

12.00%

 

 

 

0.0

%

 

6/22/2021

 

 

10,000,000

 

 

N/A

 

 

 

10,000,000

 

 

 

10,000,000

 

 

 

2.7

%

Hong Kong

 

Other Investments (23)

 

Coal and Other Minerals and Ores

 

Resource Trader

 

11.50%

 

 

 

0.0

%

 

12/28/2020

 

 

15,891,820

 

 

N/A

 

 

 

15,891,820

 

 

 

15,891,820

 

 

 

4.3

%

Malaysia

 

Other Investments (24)

 

Chemicals and Allied Products

 

Wholesale Distributor

 

12.00%

 

 

 

0.0

%

 

3/31/2021

 

 

15,000,000

 

 

N/A

 

 

 

15,000,000

 

 

 

15,000,000

 

 

 

4.1

%

Mexico

 

Blue Arrow Biojet Holdings, LLC (9)

 

Refuse Systems

 

Waste to Fuels Processor

 

14.50% PIK

 

 

 

0.0

%

 

7/27/2021

 

 

24,685,841

 

 

N/A

 

 

 

24,685,841

 

 

 

24,685,841

 

 

 

6.7

%

New Zealand

 

Other Investments (10)

 

Logging

 

Sustainable Timber Exporter

 

11.50%

 

 

 

0.0

%

 

2/11/2021

 

 

5,612,436

 

 

N/A

 

 

 

5,612,436

 

 

 

5,612,436

 

 

 

1.5

%

Peru

 

Kinder Investments, Ltd. (16)

 

Consumer Products

 

Diaper Manufacturer II

 

10.00%

 

 

 

0.0

%

 

8/15/2021

 

 

4,599,086

 

 

N/A

 

 

 

4,599,086

 

 

 

4,599,086

 

 

 

1.2

%

Total Senior Secured Term Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83,627,340

 

 

 

83,353,208

 

 

 

22.6

%

Senior Secured Term Loan Participations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Botswana

 

Other Investments (7)

 

Short-Term Business Credit

 

SME Financier

 

11.67%

 

 

 

0.0

%

 

8/18/2021

 

 

4,740,000

 

 

47%

 

 

 

4,740,000

 

 

 

4,740,000

 

 

 

1.3

%

Brazil

 

Other Investments (7), (21)

 

Programming and Data Processing

 

IT Service Provider

 

10.00% Cash/1.50% PIK

 

 

 

0.0

%

 

11/24/2022

 

 

17,644,892

 

 

75%

 

 

 

17,644,892

 

 

 

17,740,330

 

 

 

4.8

%

Brazil

 

Other Investments (6), (21)

 

Boatbuilding and Repairing

 

Ship Maintenance & Repair Service Provider

 

8.00% Cash/4.00% PIK

 

 

 

0.0

%

 

12/7/2023

 

 

5,741,741

 

 

42%

 

 

 

5,669,936

 

 

 

5,695,069

 

 

 

1.5

%

Cabo Verde

 

Other Investments (6)

 

Hotels and Motels

 

Hospitality Service Provider

 

10.00% Cash/4.75% PIK

 

 

 

0.0

%

 

8/21/2021

 

 

12,846,584

 

 

88%

 

 

 

12,846,584

 

 

 

12,846,584

 

 

 

3.5

%

Colombia

 

Azteca Comunicaciones Colombia S.A.S. (11), (21)

 

Telephone Communications

 

Fiber Optics Network Provider

 

8.95% Cash/4.00% PIK

 

 

 

0.0

%

 

10/15/2023

 

 

19,807,750

 

 

76%

 

 

 

19,659,665

 

 

 

19,875,473

 

 

 

5.4

%

Croatia

 

Other Investments (8), (20)

 

Department Stores

 

Mall Operator

 

7.00% Cash/6.00% PIK

 

 

 

0.0

%

 

1/23/2021

 

 

8,519,535

 

 

5%

 

 

 

8,519,535

 

 

 

8,638,109

 

 

 

2.3

%

Ghana

 

Other Investments (6)

 

Petroleum and Petroleum Products

 

Tank Farm Operator

 

12.00%

 

 

 

0.0

%

 

8/10/2021

 

 

15,500,000

 

 

76%

 

 

 

15,500,000

 

 

 

15,500,000

 

 

 

4.2

%

Ghana

 

Other Investments (13)

 

Electric Services

 

Power Producer

 

12.46%

 

 

 

0.0

%

 

11/12/2022

 

 

15,000,000

 

 

49%

 

 

 

15,000,000

 

 

 

15,000,000

 

 

 

4.1

%

Jersey

 

Africell Holding Limited (28)

 

Telephone Communications

 

Mobile Network Operator

 

12.35%

 

 

 

3.0

%

 

3/28/2023

 

 

17,290,000

 

 

16%

 

 

 

16,919,500

 

 

 

16,919,500

 

 

 

4.6

%

Kenya

 

Other Investments (6)

 

Freight Transportation Arrangement

 

Freight and Cargo Transporter

 

9.88% Cash/4.00% PIK

 

 

 

0.0

%

 

3/31/2023

 

 

13,505,035

 

 

42%

 

 

 

13,505,035

 

 

 

13,505,035

 

 

 

3.7

%

Namibia

 

Other Investments (14)

 

Land Subdividers and Developers

 

Property Developer

 

8.50% Cash/4.00% PIK

 

 

 

0.0

%

 

8/15/2021

 

 

16,834,571

 

 

100%

 

 

 

16,781,000

 

 

 

16,781,000

 

 

 

4.5

%

Netherlands

 

Other Investments (9)

 

Motor Vehicle Parts and Accessories

 

Wheel Manufacturer

 

15.00%

 

 

 

0.0

%

 

8/20/2021

 

 

8,275,000

 

 

44%

 

 

 

8,275,000

 

 

 

8,731,936

 

 

 

2.4

%

Nigeria

 

Other Investments (15)

 

Water Transportation

 

Marine Logistics Provider

 

12.94%

 

 

 

0.8

%

 

9/16/2020

 

 

12,762,670

 

 

100%

 

 

 

12,748,503

 

 

 

12,748,503

 

 

 

3.4

%

Romania

 

Other Investments (8)

 

Food Products

 

Bread Manufacturer

 

8.00% Cash/5.00% PIK

 

 

 

2.5

%

 

7/18/2021

 

 

2,059,785

 

 

27%

 

 

 

2,034,188

 

 

 

2,034,188

 

 

 

0.6

%

Uganda

 

Other Investments (7)

 

Farm Products

 

Grain Processor C

 

14.50%

 

 

 

0.0

%

 

4/30/2024

 

 

6,850,000

 

 

100%

 

 

 

6,850,000

 

 

 

6,850,000

 

 

 

1.9

%

Zambia

 

Other Investments (5)

 

Soap, Detergents, and Cleaning

 

FMCG Manufacturer

 

12.23%

 

 

 

0.0

%

 

8/27/2023

 

 

2,894,698

 

 

25%

 

 

 

2,894,698

 

 

 

2,894,698

 

 

 

0.8

%

Total Senior Secured Term Loan Participations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

179,588,536

 

 

 

180,500,425

 

 

 

49.0

%

Senior Secured Trade Finance Participations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Argentina

 

Compania Argentina de Granos S.A. (17), (18)

 

Agricultural Products

 

Agriculture Distributor

 

10.45%

 

 

 

0.0

%

 

6/30/2018

 

 

12,500,000

 

 

83%

 

 

 

12,500,000

 

 

 

9,839,958

 

 

 

2.7

%

Argentina

 

Sancor Cooperativas Unidas Ltda (17), (18)

 

Consumer Products

 

Dairy Co-Operative

 

10.67%

 

 

 

0.0

%

 

7/29/2019

 

 

6,000,000

 

 

22%

 

 

 

6,000,000

 

 

 

4,719,383

 

 

 

1.3

%

Argentina

 

Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay (17), (18)

 

Meat, Poultry & Fish

 

Beef Exporter

 

11.50%

 

 

 

0.0

%

 

8/31/2017

 

 

9,000,000

 

 

28%

 

 

 

9,000,000

 

 

 

6,240,961

 

 

 

1.7

%

Argentina

 

Algodonera Avellaneda S.A. (17), (18)

 

Fats and Oils

 

Oilseed Distributor

 

9.00%

 

 

 

0.0

%

 

8/31/2017

 

 

6,000,000

 

 

27%

 

 

 

6,000,000

 

 

 

3,398,558

 

 

 

0.9

%

Cameroon

 

Producam SA (17)

 

Chocolate and Cocoa Products

 

Cocoa & Coffee Exporter

 

16.42%

 

 

 

0.0

%

 

8/31/2019

 

 

10,413,683

 

 

72%

 

 

 

10,413,683

 

 

 

9,687,887

 

 

 

2.6

%

7


Investment Type / Country

 

Portfolio Company

 

Sector

 

Description

 

Interest

 

 

Fees (2)

 

 

Maturity (3)

 

Principal

Amount

 

 

Participation % (4)

 

 

Amortized Cost

 

 

Fair Value

 

 

% of Net Assets

 

Chile

 

Functional Products Trading S.A. (17), (18)

 

Farm Products

 

Chia Seed Exporter

 

10.90%

 

 

 

0.0

%

 

3/4/2018

 

 

1,326,687

 

 

100%

 

 

 

1,326,687

 

 

 

1,269,586

 

 

 

0.3

%

Ecuador

 

Other Investments (7), (25)

 

Commercial Fishing

 

Fish Processor & Exporter

 

9.00%

 

 

 

0.0

%

 

6/19/2019

 

 

35,838

 

 

3%

 

 

 

35,838

 

 

 

35,838

 

 

 

0.0

%

Guatemala

 

Procesos Fabriles S.A. (17), (18)

 

Farm Products

 

Sesame Seed Exporter

 

12.00%

 

 

 

0.0

%

 

3/31/2016

 

 

881,800

 

 

24%

 

 

 

881,800

 

 

 

10,504

 

 

 

0.0

%

Hong Kong

 

Other Investments (9)

 

Coal and Other Minerals and Ores

 

Non-Ferrous Metal Trader

 

11.50%

 

 

 

0.0

%

 

5/4/2020

 

 

16,456,270

 

 

N/A

 

 

 

16,456,270

 

 

 

16,456,270

 

 

 

4.5

%

Hong Kong

 

Conplex International Ltd. (17)

 

Telephone and Telegraph Apparatus

 

Mobile Phone Distributor

 

12.00%

 

 

 

0.0

%

 

3/31/2020

 

 

9,500,000

 

 

26%

 

 

 

9,500,000

 

 

 

8,840,048

 

 

 

2.4

%

Mauritius

 

Other Investments (9)

 

Groceries and Related Products

 

Vanilla Exporter

 

12.20%

 

 

 

0.0

%

 

5/8/2020

 

 

468,756

 

 

2%

 

 

 

468,756

 

 

 

468,756

 

 

 

0.1

%

Morocco

 

Mac Z Group SARL (17), (18)

 

Secondary Nonferrous Metals

 

Scrap Metal Recycler

 

11.00%

 

 

 

0.0

%

 

7/31/2018

 

 

7,349,626

 

 

73%

 

 

 

7,349,626

 

 

 

7,530,616

 

 

 

2.0

%

Nigeria

 

Other Investments (9), (27)

 

Farm Products

 

Cocoa Trader III

 

9.00%

 

 

 

0.0

%

 

4/30/2020

 

 

675,256

 

 

25%

 

 

 

675,256

 

 

 

675,256

 

 

 

0.2

%

Nigeria

 

Other Investments (9), (27)

 

Farm Products

 

Cocoa Trader II

 

9.00%

 

 

 

0.0

%

 

4/30/2020

 

 

838,967

 

 

14%

 

 

 

838,967

 

 

 

838,967

 

 

 

0.2

%

South Africa

 

Applewood Trading 199 Pty, Ltd.(17), (18)

 

Food Products

 

Fruit & Nut Distributor

 

10.00%

 

 

 

0.0

%

 

5/22/2015

 

 

785,806

 

 

19%

 

 

 

785,806

 

 

 

690,616

 

 

 

0.2

%

South Africa

 

Other Investments (9)

 

Communications Equipment

 

Electronics Assembler

 

12.00%

 

 

 

0.0

%

 

2/14/2020

 

 

100,000

 

 

1%

 

 

 

100,000

 

 

 

100,000

 

 

 

0.0

%

United Arab Emirates

 

Global Pharma Intelligence Sarl (17), (18)

 

Drugs, Proprietaries, and Sundries

 

Pharmaceuticals Distributor

 

14.60%

 

 

 

0.0

%

 

6/30/2018

 

 

803,254

 

 

60%

 

 

 

803,254

 

 

 

803,254

 

 

 

0.2

%

Total Senior Secured Trade Finance Participations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83,135,943

 

 

 

71,606,458

 

 

 

19.3

%

Short Term Investments (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

IIG TOF B.V. (17), (18), (19)

 

Financial services

 

Receivable from IIG TOF B.V.

 

8.75%

 

 

 

0.0

%

 

N/A

 

 

6,000,000

 

 

N/A

 

 

 

6,000,000

 

 

 

3,758,063

 

 

 

1.0

%

Equity Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

Blue Arrow Biojet Holdings, LLC

 

Refuse Systems

 

Waste to Fuels Processor

 

N/A

 

 

N/A

 

 

N/A

 

N/A

 

 

N/A

 

 

 

-

 

 

 

1,080,222

 

 

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

352,351,819

 

 

$

340,298,376

 

 

 

 

 

 

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.

5 

Principal and interest paid monthly.

6 

Principal and interest paid quarterly.

7 

Monthly interest only payment. Principal due at maturity.

8 

Semi-annual interest only payment. Principal due at maturity.

9 

Principal and interest paid at maturity.  

10

Two-thirds and one-third of the principal and accrued interest to be paid on the 36th and 42nd months after original drawdown date of 8/10/2017, respectively. Subsequent to 9/30/2019, $1.8 million was received as partial repayment.

11

Cash interest paid monthly. Principal, including PIK interest, to be repaid in equal monthly installments starting in October 2020.  

12

Principal and interest paid annually. The maturity date was extended to 2/28/2021 in connection with a restructure of the loan.  Refer to Note 3 for additional information.  

13

Semi-annual interest payments. Semi-annual principal payment of $1.07 million starting January 31, 2021 with remaining balance due at maturity.

14

Quarterly interest payments. Principal payments of 30% of total principal balance disbursed to be repaid on 6/30/2020 and 6/30/2021, with the remaining principal to be paid at maturity.

15

Interest accrues at a variable rate of one-month Libor  + 10.5%, which is paid currently, and also includes 4.68% of deferred interest due at maturity.

16

In connection with a restructure of the underlying facilities, all maturity dates were extended to 8/15/21. This investment was removed from the Watch List on April 1, 2019.

17

Watch List investment. Refer to Note 3 for additional information.  

18

Investment on non-accrual status.

19

This investment was originally classified as an investment in a credit facility originated by IIG TOF B.V., a fund advised IIG. During the third quarter of 2018, as part of its quarterly verification process, the Company learned new information concerning this investment, which resulted in the Company reclassifying it from senior secured trade finance participations to short term investments. Please see Note 3 for additional information.

20

Loan is denominated in euro currency with a principal amount of 6,200,000 euro, however the Company’s participation is denominated in US dollars.  The quarterly interest payments are paid at the current exchange rate and subject to foreign currency fluctuations. The fair value includes an investment premium of $228,027.

21

Cash interest paid monthly. Principal, including PIK interest, to be repaid in equal monthly installments starting in October 2020.   

22

Interest paid quarterly. Principal to be repaid in four equal quarterly installments starting in September 2020.

23

Interest paid quarterly. Principal to be repaid in four equal quarterly installments starting in March 2020.

24

Interest paid quarterly. Principal to be repaid in five equal quarterly installments starting in March 2020.

25

During the third quarter 2018, the maturity date of this investment was extended to 6/19/2019.

26

The maturity dates of these investments were previously extended to 1/2/2019 to 2/14/2019. During the first quarter 2019, they were further extended to December 2019 to February 2020.

27

The Company extended the maturity dates of these investments during the fourth quarter of 2019 to 4/30/2020.

28

Quarterly interest payments. Principal to start amortizing 15 months from initial utilization date (IUD) as follows: 4.5% of loan balance quarterly until IUD + 27 months, then 6.5% of loan balance quarterly until IUD + 48 months, thereafter 7.5% of loan balance quarterly until maturity.                      

 

8


TRILINC GLOBAL IMPACT FUND, LLC

Notes to Consolidated Financial Statements

March 31, 2020

(Unaudited)

Note 1. Organization and Operations of the Company

TriLinc Global Impact Fund, LLC (the “Company”) was organized as a Delaware limited liability company on April 30, 2012 and formally commenced operations on June 11, 2013. The Company makes impact investments in Small and Medium Enterprises, known as SMEs, which the Company defines as those businesses having less than 500 employees, primarily in developing economies that provide the opportunity to achieve both competitive financial returns and positive measurable impact. The Company uses the proceeds raised from the issuance of units to invest in SMEs through local market sub-advisors in a diversified portfolio of financial assets, including direct loans, convertible debt instruments, trade finance, structured credit and preferred and common equity investments. To a lesser extent, the Company may also make impact investments in companies that may not meet our technical definition of SMEs due to a larger number of employees but that also provide the opportunity to achieve both competitive financial returns and positive measurable impact. 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. Until July 2019, the Sponsor owned 85% of the units of the Advisor and Strategic Capital Advisory Services, LLC (“SCAS”) owned 15% of the Advisor, and was considered an affiliate of the Company. The Sponsor, the Advisor and SCAS are Delaware limited liability companies. In July 2019, the Sponsor acquired SCAS’ 15% ownership interest in the Advisor. As a result, the Sponsor now owns 100% of the Advisor and SCAS is no longer considered to be an affiliate of the Company.

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 offering terminated on March 31, 2017. The Company continues to offer and sell units pursuant to its Distribution Reinvestment Plan (“DRP”). Through the termination of the primary offering, the Company raised approximately $361,776,000 in gross proceeds, including approximately $13,338,000 raised through the DRP. For the period from April 1, 2017 to March 31, 2020, the Company raised an additional $90,633,000 pursuant to a private placement and $30,607,000 pursuant to the DRP for total gross proceeds of $483,016,000 as of March 31, 2020.

Although the Company was organized and intends to conduct its business in a manner so that it is not required to register as an investment company under the Investment Company Act of 1940, as amended, the consolidated financial statements are prepared using the specialized accounting principles of the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies. Overall, the Company’s management believes the use of investment company accounting makes the Company’s financial statements more useful to investors and other financial statement users since it allows a more appropriate basis of comparison to other entities with similar objectives.

To assist the Company in achieving its investment objective, the Company makes investments via wholly owned subsidiaries (each a “Subsidiary” and collectively, the “Subsidiaries”), all of which are Cayman Islands exempted companies.  The Subsidiaries own all of the Company’s investments. As of March 31, 2020, 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 – African Trade Finance III, Ltd.

 

TriLinc Global Impact Fund – Europe, Ltd.

 

TriLinc Global Impact Fund – Cayman, Ltd.

9


Through March 31, 2020, the Company has made, through its Subsidiaries, loans in a number of countries located in South America, Asia, Africa, and Europe.

COVID-19

There is an ongoing COVID-19 pandemic (more commonly referred to as the Coronavirus), which continues to adversely impact many industries and businesses directly or indirectly. Adverse impacts include disrupted global travel and supply chains, which adversely impact global commercial activity.  Many businesses across the globe, first in Asia, then in Europe, and now in the United States, have seen a downturn in production and productivity due to the suspension of business and temporary closure of offices and factories in an attempt to curb the spread of the Coronavirus. Any of these adverse developments could have a material adverse effect on our business, financial condition and results of operations. In addition, the extent of the impact of COVID-19 on the Company borrowers’ business, financial condition and results of operations may result in their inability to make required payments in the near term which could impact the fair value of the Company’s investments. Although the Coronavirus has created material uncertainty and economic disruption, due to the rapidly evolving nature of the situation, we cannot predict the ultimate impact it will have on us. The Company is managing the situation through active engagement with its borrowers and is analyzing the potential effects COVID-19 may have on the portfolio or any potential capital deployments. Additionally, our Advisor has implemented its business continuity plan and additional procedures designed to protect against the introduction of the coronavirus to the workforce, including permitting and encouraging employees to work remotely, temporarily ceasing travel and significantly enhanced office sterilization procedures to minimize the probability of contagion.

As of the date of this report, with respect to current and future payment performance, 18.7% of investments (based on the fair value of the investments as of March 31, 2020), are known to have been significantly impacted, including material losses to revenues, by COVID-19 resulting in the need to restructure or extend payments associated with the aforementioned investments.

While many of the Company’s borrowers' businesses have experienced some disruption related to COVID-19, degrees of effect have varied to-date.  As indicated under "-Watch List Investments" below, the borrowers with respect to three of the four investments  added to the Watch List for the three months ended March 31, 2020 have not made required payments in part due to adverse impacts they have experienced related to the COVID-19 pandemic. Where appropriate, the Company and/or the Company’s sub-advisors are working with borrowers to restructure facilities and may restructure additional facilities to provide relief needed by certain borrowers, without necessarily providing concessions that are out of market. In the case of one investment, where efforts to reach an appropriate risk-adjusted restructuring have been unsuccessful, the Company sub-advisor issued a notice of default and acceleration notice, including the initiation of legal proceedings to recover amounts due.

Due to the disruptions associated with COVID-19, the Company can provide no assurances that it will be able to continue to collect interest and principal payments at levels comparable to those prior to the pandemic. Further, the Company can provide no assurances that it will be able to recover all past due amounts from delinquent borrowers. The economic uncertainty and disruption caused by the pandemic is expected to be prolonged and the Company may see further defaults and additional investments may be added to the Watch List in subsequent quarters.  The adverse impact of COVID-19 was a significant contributor to the $0.22 decline in the Company’s NAV per unit for as of March 31, 2020, as compared to the Company’s NAV per unit as of December 31, 2019.

In addition, the Company has seen, and expect to continue to see, a slow down in transaction volume due to the impact of the pandemic, as smaller SMEs and those in industries most affected by COVID-19 (travel and hospitality, retail sales, etc.) may no longer be in a position to appropriately add debt capital.  Transaction volumes may also be affected by restrictions on travel and other shelter in place orders, making it more difficult to conduct in-person visits with potential borrowers. Additionally, the Company may hold higher levels of cash than before the pandemic to ensure it has sufficient cash available to meet its cash obligations. The combination of a potential slower pace of deployment with higher cash balances may further reduce cash flow generated to cover the Company’s distributions to its unitholders and/or cause the Company to further reduce its NAV in future periods.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company has not sought relief under the CARES Act and does not intend to apply to receive any funds under the CARES Act. If the Company were to seek relief under the CARES Act, there is no assurance the Company is eligible for these funds or will be able to obtain them. While the Company continues to evaluate the impact of CARES Act, the Company does not anticipate these tax law changes and benefits will have a material financial impact.

 

 

10


Note 2. Significant Accounting Policies

Basis of Presentation

The Company’s financial information is prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company follows the accounting and reporting guidance in the FASB ASC Topic 946 — Financial Services, Investment Companies (“ASC 946”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results may differ from these estimates. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business, the businesses of the Company's borrowers and the global markets generally. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including fair value measurements, and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

The interim consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP is not required for interim reporting purposes and has been omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 30, 2020.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that ultimately may be achieved for the full year ending December 31, 2020.

The accompanying consolidated financial statements include the accounts of the Company and its Subsidiaries, which were established to hold certain investments of the Company. The Company owns 100% of each Subsidiary and, as such, the Subsidiaries are consolidated into the Company’s consolidated financial statements. Transactions between Subsidiaries, to the extent they occur, are eliminated in consolidation. The consolidated financial statements reflect all adjustments, consisting solely of normal recurring accruals, that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. These financial statements are presented in United States (“U.S.”) dollars, which is the functional and reporting currency of the Company and all its subsidiaries.

Cash

Cash consists of demand deposits at a financial institution located in the U.S. Such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Company considers the credit risk of this financial institution to be remote and has not experienced and does not expect to experience any losses in any such accounts.

Revenue Recognition

The Company records interest income on an accrual basis to the extent that the Company expects to collect such amounts. The Company does not accrue as a receivable interest on loans for accounting purposes if there is reason to doubt the ability to collect such interest. Structuring, upfront and similar fees are recorded as a discount on investments purchased and are accreted into interest income, on a straight line basis, which the Company has determined not to be materially different from the effective yield method.

The Company records prepayment fees for loans and debt securities paid back to the Company prior to the maturity date as income upon receipt.

The Company generally places loans on non-accrual status when principal and interest are past due 90 days or more or when there is a reasonable doubt that principal or interest will be collected. If, however, management believes the principal and interest will be collected, a loan may be left on accrual status during the period the Company is pursuing repayment of the loan. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment of the financial condition of the borrower. Non-accrual loans are generally restored to accrual status when past due principal and interest is paid and, in the Company’s management’s judgment, is likely to remain current over the remainder of the term. At March 31, 2020, ten portfolio companies were on non-accrual status with an aggregate fair value of $38,189,063 or 11.7% of the fair value of the Company’s total investments. At December 31, 2019, ten portfolio companies were on non-accrual status with an aggregate fair value of $38,261,499 or 11.2% of the fair value of the Company’s total investments. Interest income not recorded relative to the original terms of the loans to the companies on non-accrual status amounted to approximately $1,355,702 and $1,115,283, respectively for the three months ended March 31, 2020 and 2019.

11


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, market or cost approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. The information may also include pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. Certain investments may be valued based upon a collateral approach, which uses estimated value of underlying collateral and include adjustments deemed necessary for estimates of costs to obtain control and liquidate available collateral. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

The inputs used in the determination of fair value may require significant judgment or estimation.

Investments for which market quotations are readily available are valued at those quotations. Most of the Company’s investments are loans to private companies, which are not actively traded in any market and for which quotations are not available. For those investments for which market quotations are not readily available, or when such market quotations are deemed by the Advisor not to represent fair value, the Company’s board of managers has approved a multi-step valuation process to be followed each fiscal quarter, as described below:

 

1.

Each investment is valued by the Advisor in collaboration with the relevant sub-advisor;

 

2.

For all investments with a stated maturity of greater than 12 months, the Company has engaged a third-party independent valuation firm to perform certain limited procedures that the Company identified and requested the independent valuation firm perform a review on the reasonableness of the Company’s internal estimates of fair value on each asset on a quarterly rotating basis, with each of such investments being reviewed at least annually. In addition, the Company engaged an independent valuation firm to perform certain limited procedures that the Company identified and requested the independent valuation firm to perform to provide an estimate of the range of fair value of material investments on the Watch List. The analysis performed by the independent valuation firm was based upon data and assumptions provided to it by the Company and received from third party sources, which the independent valuation firm relied upon as being accurate without independent verification. The results of the analyses performed by the independent valuation firm are among the factors taken into consideration by the Company and its management in making its determination with respect to the fair value of such investments, but are not determinative. The Company and its management are solely and ultimately responsible for determining the fair value of the Company’s investments in good faith;

 

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.

12


Fixed income investments are typically valued utilizing a market approach, income approach, collateral based approach, or a combination of these approaches (and any others, as appropriate). The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including the sale of a business) and is used less frequently due to the private nature of the Company’s investments. The income approach uses valuation techniques to convert future amounts (for example, interest and principal payments) to a single present value amount (Discounted Cash Flow or “DCF”) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. For Watch List investments, the Company may use a collateral based approach (also known as a liquidation or net recovery 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 by the difference between the net proceeds from the repayment or sale on investments and the amortized cost basis of the investment including unamortized upfront fees and prepayment penalties. Realized gains or losses on the disposition of an investment are calculated using the specific identification method, utilizing the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering any prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Payment-in-Kind Interest

The Company has investments that contain a payment-in-kind, or PIK, interest provision. For loans with contractual PIK interest, any interest will be added to the principal balance of such investments and be recorded as income, if the valuation indicates that such interest is collectible. For the three months ended March 31, 2020 and 2019, the Company earned and capitalized PIK interest of $2,032,823 and $1,669,477, respectively.

Distribution and Ongoing Dealer Manager and Services 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

13


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 March 31, 2020, the estimated unpaid distribution fees for Class C units amounted to $607,000, the unpaid dealer manager fees for Class I units amounted to $28,000 and the unpaid dealer manager and service fees for Class W units amounted to $2,000.

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 the ASC 740, Income Taxes. This guidance requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position.

As of March 31, 2020, no tax liability for uncertain tax provision had been recognized in the accompanying financial statements nor did the Company recognize any interest and penalties related to unrecognized tax benefits. The earliest year that the Company’s income tax returns are subject to examination is the period ended December 31, 2016.

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 March 31, 2020, the Company has six classes of units: Class A units, Class C units, Class I units, Class W units, Class Y 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 March 31, 2020, under GAAP, the Company has recorded a liability in the amount of $637,000 for the estimated future amount of Class C unit distribution fees, Class I unit dealer manager fees, Class W unit ongoing dealer manager fees and Class W unit service fees payable.

The Company 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 March 31, 2020, each of the Class A, Class C, Class I, Class W, Class Y and Class Z units have the same net asset value per unit of $7.804, which is different than the net asset value per unit of $7.79 (on an aggregate basis for all unit classes) as shown in Note 10 – Financial Highlights. This net asset value per unit reflects a decrease of $0.220 per unit from the net asset value per unit of $8.024 as of December 31, 2019. The decrease in net asset value per unit was primarily due to the Company having recorded approximately $8.7 million in unrealized depreciation on its investments during the three months ended March 31, 2020.

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

14


number of members’ units and members’ unit equivalents outstanding during the period. The Company did not have any potentially dilutive units outstanding at March 31, 2020 and 2019.

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 are reimbursable to the Sponsor to the extent the aggregate of selling commissions, dealer manager fees and other organization and offering costs do not exceed 15.0% of the gross offering proceeds (the “O&O Reimbursement Limit”) raised from the Offering and will be accrued and payable by the Company only to the extent that such costs do not exceed the O&O Reimbursement Limit. These expense reimbursements are subject to regulatory caps and approval by the Company’s board of managers. Reimbursements to the Sponsor are included as a reduction to net assets on the Consolidated Statement of Changes in Net Assets. Based on the proceeds raised in the Offering at the end of the primary offering, the organization and offering expenses were equal to 4.7% of the gross proceeds.  As a result of the termination of the primary offering, effective March 31, 2017, the Company no longer pays the dealer manager selling commissions and dealer manager fees under a dealer manager agreement relating to the Offering. The Company will continue to incur certain organization and offering costs associated with the DRP and ongoing distribution fees on Class C units. In addition, the Sponsor has and may continue to incur organization and offering costs on behalf of the Company in connection with private placements of the Company’s units and the Company will pay selling commissions, dealer manager fees and ongoing distribution, dealer manager, and service fees to the dealer manager for certain sales pursuant to private placements.  As of March 31, 2020, the Sponsor has incurred approximately $596,000 in organization and offering costs on behalf of the Company related to private placements of the Company’s units.  Through March 31, 2020, the Company has reimbursed an aggregate amount of $87,159 of the organization and offering costs incurred relating to such private placements and is under no obligation to reimburse the Sponsor for the remainder.      

Operating Expense Responsibility Agreement

On March 26, 2018, the Company, Advisor and the Sponsor entered into an Amended and Restated Operating Expense Responsibility Agreement (“Responsibility Agreement”) originally effective as of June 11, 2013 and covering expenses through December 31, 2017. Since the inception of the Company through December 31, 2017, pursuant to the terms of the Responsibility Agreement, the Sponsor paid approximately $12,420,600 of operating expenses, asset management fees, and incentive fees on behalf of the Company and will reimburse to the Company an additional $4,240,200 of expenses, which have been paid by the Company as of December 31, 2017.

The Sponsor will only be entitled to reimbursement of the cumulative expenses it has incurred on the Company’s behalf to the extent the Company’s investment income in any quarter, as reflected on the statement of operations, exceeds the sum of (a) total distributions to unitholders incurred during the quarter and (b) the Company’s expenses as reflected on the statement of operations for the same quarter (the “Reimbursement Hurdle”). If the Sponsor is entitled to receive reimbursement for any given quarter because the Company’s investment income exceeds the Reimbursement Hurdle for such quarter, the Company will apply the excess amount (the “Excess Amount”) as follows: (i) first, the Company will reimburse the Sponsor for all expenses, other than asset management fees and incentive fees, that the Sponsor previously paid on the Company’s behalf, which will generally consist of operating expenses (the “Previously Paid Operating Expenses”) until all Previously Paid Operating Expenses incurred to date have been reimbursed; and (ii) second, the Company will apply 50% of the Excess Amount remaining after the payment of Previously Paid Operating Expenses to reimburse the Sponsor for the asset management fees and incentive fees that the Sponsor has agreed to pay on the Company’s behalf until all such asset management fees and incentive fees accrued to date have been reimbursed.

The Company did not meet the Reimbursement Hurdle for the quarters ended March 31, 2020 and 2019. Therefore, none of the expenses of the Company covered by the Responsibility Agreement have been recorded as expenses of the Company for the quarters ended March 31, 2020 and 2019. As of March 31, 2020, there is a remaining aggregate balance of approximately $16,273,800 in expenses covered by the Responsibility Agreement which are not yet reimbursable to the Sponsor and have not been recorded by the Company. In accordance with ASC 450, Contingencies, such expenses will be accrued and payable by the Company in the period that they become both probable and estimable.  The Sponsor may demand the reimbursement of cumulative Company expenses covered by the Responsibility Agreement to the extent the Company exceeds the Reimbursement Hurdle during any quarter.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces an approach based on expected losses to estimate credit losses for financial instruments measured at amortized cost. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. The guidance requires companies to apply the requirements in the year of adoption through cumulative adjustment with some aspects of the update requiring a prospective transition approach. The Company believes that the adoption of ASU 2016-13 will not have a material impact on its consolidated financial statements.

15


In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. This update removes the disclosure requirements for the amounts of and the reasons for transfers between Level 1 and Level 2 and disclosure of the policy for timing of transfers between levels. This update also removes disclosure requirements for the valuation processes for Level 3 fair value measurements. Additionally, this update adds disclosure requirements for the changes in unrealized gains and losses for recurring Level 3 fair value measurements and quantitative information for certain unobservable inputs in Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. The Company adopted this guidance effective January 1, 2020, which did not have a material impact on its consolidated financial statements.

 

Risk Factors

As an externally-managed company, the Company is largely dependent on the efforts of the Advisor, the sub-advisors and other service providers and has been dependent on the Sponsor for financial support in prior periods.

The Company’s sub-advisors are responsible for locating, performing due diligence and closing on suitable acquisitions based on their access to local markets, local market knowledge for quality deal flow and extensive local private credit experience. However, because the sub-advisors are separate companies from the Advisor, the Company is subject to the risk that one or more of its sub-advisors will be ineffective or materially underperform. The Company’s ability to achieve its investment objectives and to pay distributions to unitholders will be dependent upon the performance of its sub-advisors in the identification, performance of due diligence on and acquisition of investments, the determination of any financing arrangements, and the management of the Company’s projects and assets. The Company is subject to the risk that the Company’s sub-advisors may fail to perform according to the Company’s expectations, or the due diligence conducted by the sub-advisors may fail to reveal all material risks of the Company’s investments, which could result in the Company being materially adversely affected.

The Company is subject to financial market risks, including changes in interest rates. Global economies and capital markets can and have experienced significant volatility, which has increased the risks associated with investments in collateralized private debt instruments. Investment in the Company carries risk and there are no guarantees that the Company’s investment objectives will be achieved. The Company relies on the ability of the Advisor and the ability of the sub-advisors’ investment professionals to obtain adequate information to evaluate the potential returns from these investments, which primarily are made in, with or through private companies. If the Company is unable to uncover all material information about these companies or is provided incorrect or inadequate information about these companies from the Company’s subadvisors, the Company may not make a fully informed investment decision, and the Company may lose money on its investments. As described further in “Note 3—Investments—Watch List Investments,” IIG was the sub-advisor with respect to seven of the 17 investments that we have deemed Watch List investments, which are investments with respect to which we have determined there have been significant changes in the credit and collection risk of the investment.  As described in Note 3, IIG has failed to provide us with complete and accurate information with respect to our investments for which IIG was the sub-advisor, has misapplied $6 million that we invested in 2017 and our funds that were misapplied have not been returned to us. IIG’s acts and omissions have negatively affected the value of certain of our investments, which could adversely affect returns to our unitholders.

The Company’s investments consist of loans, loan participations and trade finance participations that are illiquid and non-traded, making purchase or sale of such financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.

The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral securing the loan and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as the Company’s borrowers, and those for which market yields are observable increase materially. The majority of the Company’s investments are in the form of participation interests, in financing facilities originated by one of the Company’s sub-advisors.  Accordingly, the Company’s counterparty for investments in participation interests generally will be the respective sub-advisor or its affiliate.  The Company will not have a contract with the underlying borrower and therefore, in the event of default, will not have the ability to directly seek recovery against the collateral and instead will have to seek recovery through the Company’s sub-advisor counterparty, which increases the risk of full recovery. These risks may be further exacerbated by the adverse impact the COVID-19 pandemic has had and is expected to continue to have on the business of our borrowers. In addition, as of March 31, 2020 and December 31, 2019, 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 us to higher risks, including an increased risk of potential loss because PIK interest results in an increase in the size of the outstanding loan balance. The Company may also be exposed to the risk that it may be more difficult to value the investments because the continuing

16


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 March 31, 2020, the Company’s largest loan by value was $25,600,588 or 7.8% of total investments and provides for PIK interest, with principal and interest due at maturity. The Company’s 5 largest loans by value comprised 29.2% of the Company’s portfolio at March 31, 2020. Participation in loans amounted to 69.8% of the Company’s total portfolio at March 31, 2020.

 

Note 3. Investments

As of March 31, 2020, the Company’s investments consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

Percentage

 

 

 

Amortized Cost

 

 

Fair Value

 

 

of Total Investments

 

Senior secured term loans

 

$

94,310,168

 

 

$

94,036,036

 

 

 

28.8

%

Senior secured term loan participations

 

 

164,773,282

 

 

 

159,795,580

 

 

 

48.9

%

Senior secured trade finance participations

 

 

83,035,943

 

 

 

68,410,409

 

 

 

20.9

%

Other investments

 

 

6,000,000

 

 

 

3,758,063

 

 

 

1.1

%

Equity warrants

 

 

-

 

 

 

1,080,222

 

 

 

0.3

%

Total investments

 

$

348,119,393

 

 

$

327,080,310

 

 

 

100.0

%

 

As of December 31, 2019, the Company’s investments consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

Percentage

 

 

 

Amortized Cost

 

 

Fair Value

 

 

of Total Investments

 

Senior secured term loans

 

$

83,627,340

 

 

$

83,353,208

 

 

 

24.5

%

Senior secured term loan participations

 

 

179,588,536

 

 

 

180,500,425

 

 

 

53.0

%

Senior secured trade finance participations

 

 

83,135,943

 

 

 

71,606,458

 

 

 

21.0

%

Short term investments

 

 

6,000,000

 

 

 

3,758,063

 

 

 

1.1

%

Equity warrants

 

 

-

 

 

 

1,080,222

 

 

 

0.3

%

Total investments

 

$

352,351,819

 

 

$

340,298,376

 

 

 

100.0

%

 

Participations

The majority of the Company’s investments are in the form of participation interests (“Participations”). Participations are interests in financing facilities originated by one of the Company’s sub-advisors. Participations may be interests in one specific loan or trade finance transaction, several loans or trade finance transactions under a facility, or may be interests in an entire facility.  The Company’s rights under Participations include, without limitation, all corresponding rights in payments, collateral, guaranties, and any other security interests obtained by the respective sub-advisor in the underlying financing facilities.

Interest Receivable

Depending on the specific terms of the Company’s investments, interest earned by the Company is payable either monthly, quarterly, or, in the case of most trade finance investments, at maturity.  As such, some of the Company’s trade finance investments have up to a year of accrued interest receivable as of March 31, 2020.  In addition, certain of the Company’s investments in term loans accrue deferred interest, which is not payable until the maturity of the loans.  Accrued deferred interest included in the interest receivable balance as of March 31, 2020 and December 31, 2019 amounted to $3,033,867 and $2,796,466, respectively. The Company’s interest receivable balances at March 31, 2020 and December 31, 2019 are recorded at the amounts that the Company expects to collect.

17


 

Trade Finance

 

Trade finance encompasses a variety of lending structures that support the export, import or sale of goods between producers and buyers in various countries and across various jurisdictions. The strategy is most prevalent in the financing of commodities. The Company’s Participations in trade finance positions typically fall into two broad categories: pre-export financing and receivable/inventory financing. Pre-export financing represents advances to borrowers based on proven orders from buyers. Receivable/inventory financing represents advances on borrowers’ eligible receivable and inventory balances. For trade finance, the structure and terms of the facility underlying the Company’s Participations vary according to the nature of the transaction being financed. The structure can take the form of a revolver with multiple draw requests and maturity of up to one year based on collateral and performance requirements. The structure can also be specific to the individual transaction being financed, which typically have shorter durations of 60 – 180 days. With respect to underwriting, particular consideration is given to the following:

 

nature of the goods or transaction being financed,

 

the terms associated with the sale and repayment of the goods,

 

the execution risk associated with producing, storing and shipment of the goods,

 

the financial and performance profile of both the borrower and end buyer(s),

 

the underlying advance rate and subsequent Loan to Value (“LTV”) associated with lending against the goods that serve to secure the facility or transaction,

 

collateral and financial controls (collection accounts and inventory possession),

 

third party inspections and insurance, and

 

the region, country or jurisdiction in which the financing is being completed.

 

Collateral varies by transaction, but is typically raw or finished goods inventory, and/or receivables.  In the case of pre-export finance, the transaction is secured by purchase orders from buyers or offtake contracts, which are agreements between a buyer and seller to purchase/sell a future product.

 

Terms depend on the nature of the facility or transaction being financed. As such, they depend on the credit profile of the underlying financing, as well as the speed and detail associated with the request for financing. Interest can be paid as often as monthly or quarterly on revolving facilities (one year in duration) or at maturity when dealing with specific transactions with shorter duration, which is the case for the majority of the Company’s trade finance positions. At times, settlement can be delayed due to documentation, shipment, transportation or port clearing issues, delays associated with the end buyer or off-taker assuming possession, possible changes to contract or offtake terms, and the aggregation of settlement of multiple individual transactions. Conversely, at times payments are made ahead of schedule, as transactions either clear faster than expected, borrowers decide to prepay or pay down ahead of schedule, counterparties clear multiple individual transactions in one settlement, or less expensive financing is secured by the borrower.

 

On occasion, the Company may receive notice from the respective sub-advisor that a borrower or counterparty to a financing facility underlying one of the Company’s Participations intends to pay ahead of schedule or in one lump sum (settling multiple draw requests all at once). Depending on timing and the ability to redeploy these funds, combined with projected inflows of fund capital, these outsize payments can negatively impact the Company’s performance. In these situations, the credit profile of the borrower, and the transaction in general, is reviewed with the sub-advisor and a request may be made to either stagger payments, where at all possible, or request that payment only be made at the end of that specific financial quarter. These requests or accommodations, which happen very rarely, will only be made where the Company has strong comfort in and around the credit profile of the transaction or borrower.

 

Short Term Investments

 

Short term investments are defined by the Company as investments that generally meet the standard underwriting guidelines for trade finance and term loan transactions and that also have the following characteristics: (1) maturity of less than one year, (2) loans to borrowers to whom, at the time of funding, the Company does not expect to re-lend. Impact data is not tracked for short term investments.

 

Warrants

 

Certain investments, including loans and participations, may carry equity warrants, which allow the Company to buy shares of the portfolio company at a given price, which the Company may exercise at its discretion during the life of the portfolio company. The Company’s goal is to ultimately dispose of such equity interests and realize gains upon the disposition of such interests. However, these warrants and equity interests are generally illiquid and it may be difficult for the Company to dispose of them. In addition, the Company expects that any warrants or other return enhancements received when the Company makes or invests in loans may require several years to appreciate in value and may not appreciate at all.

 

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-

18


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). As of March 31, 2020 and December 31, 2019, respectively, the Company had 17 and 13 Watch List investments.

Investments through The International Investment Group L.L.C. (“IIG”) as the Sub-Advisor

The Company previously entered into a sub-advisory arrangement with IIG through the Company’s Advisor, however, the Company has determined not to make any further investments with IIG as the sub-advisor.  IIG was the sub-advisor with respect to seven of the 17 investments that the Company has deemed Watch List investments.  The Company is aware that IIG has substantially wound down its business. Further, the Company has learned that IIG Trade Opportunities Fund N.V. (“IIG TOF N.V.”), a fund that was advised by IIG from whom the Company purchased certain Participations as described below, has been placed into bankruptcy proceedings in Curacao involuntarily by certain of its equity investors. In addition, on December 11, 2019, a subsidiary of the Company filed an application in Amsterdam District Court to declare IIG Trade Opportunities Fund B.V. (“IIG TOF B.V.”), a subsidiary of IIG TOF N.V that also was advised by IIG and from whom the Company purchased certain participations as described below, bankrupt. On January 21, 2020, the Amsterdam District Court declared IIG TOF B.V. bankrupt and appointed a Dutch law firm as liquidator. The Company determined not to engage in any new business with IIG due in part to IIG’s failure to provide the Company with complete and accurate information with respect to its investments for which IIG was the sub-advisor, the misapplication of $6 million that the Company had invested in 2017 and the failure to return the Company’s funds that were misapplied by IIG.  The Company has not received any material updated information from IIG concerning the investments for which IIG was the sub-advisor since the first quarter of 2019, despite IIG being contractually obligated to provide the Company with updated information.  Accordingly, the summaries of the investments for which IIG was the sub-advisor may not be up-to-date or complete. The Company has updated the summaries to the best of its knowledge and has requested updated and accurate reporting with respect to each investment from IIG, but IIG has not provided the information to the Company. Please see Note 5 – Contingences for a description of an arbitration proceeding the Company has filed against IIG.  

IIG was the sub-advisor for the following Watch List Investments as of March 31, 2020:

 

Portfolio Company

 

Principal balance

 

 

Fair value

 

 

Accrued interest

 

 

Valuation technique

Procesos Fabriles S.A.

 

$

881,800

 

 

$

10,504

 

 

$

 

 

Collateral based approach

Algodonera Avellaneda S.A.

 

 

6,000,000

 

 

 

3,398,558

 

 

 

778,500

 

 

Income approach

IIG TOF B.V. receivable

 

 

6,000,000

 

 

 

3,758,063

 

 

 

572,000

 

 

Income approach

Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay .

 

 

9,000,000

 

 

 

6,361,679

 

 

 

264,500

 

 

Income approach

Compania Argentina de Granos S.A.

 

 

12,500,000

 

 

 

9,839,958

 

 

 

 

 

Income approach

Sancor Cooperativas Unidas Ltda

 

 

6,000,000

 

 

 

4,719,383

 

 

 

442,805

 

 

Hybrid income/collateral based approach

Functional Products Trading S.A.

 

 

1,326,687

 

 

 

1,269,586

 

 

 

220,882

 

 

Income approach

Total

 

$

41,708,487

 

 

$

29,357,731

 

 

$

2,278,687

 

 

 

 

Procesos Fabriles S.A.

 

In October 2015, the Company purchased a Participation in a trade finance facility originated by IIG TOF N.V., a fund advised by the Company’s sub-advisor, IIG, with Procesos Fabriles S.A. (“Profasa”), as the borrower. Profasa is located in Guatemala. The Participation had a maturity date of March 31, 2016. As reported in previous filings, in 2016, due to the loss of a major customer, Profasa was unable to repay the facility on the stated maturity date.

As Profasa’s financial position deteriorated, in 2017, IIG determined that a restructuring of Profasa’s business was required and, as such, IIG started taking control of Profasa’s operations.  Based on information provided by IIG in 2018, the Company’s existing Participation in this trade finance facility is near the final stages of being restructured to a Participation in a term loan. The Company is currently in discussions with IIG regarding a potential assignment of the Company’s portion of the underlying trade finance facility.    

 

As of the date of this filing, completion of restructuring is unlikely, and, as such, the Company has valued this investment utilizing the collateral based approach, in accordance with its valuation policy. The fair value reflects a significant discount based upon the Company’s belief that liquidation of collateral will ultimately be required, complicated by the bankruptcy proceedings and the Company’s ongoing legal dispute with IIG. The Company has placed this position on non-accrual as of July 1, 2017 and interest not recorded relative to the original terms of this participation for the three months ended March 31, 2020 and 2019 amounted to $27,530 and $27,227, respectively.

 

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Algodonera Avellaneda S.A.

In March 2017, the Company purchased a Participation in a trade finance facility originated by IIG Trade Opportunities Fund B.V. (“IIG TOF B.V.”), a subsidiary of IIG TOF N.V that was advised by IIG, with Algodonera Avellaneda S.A. (“Algodonera”) as the borrower, and a corporate guarantee by Vicentin S.A.I.C. (“Vicentin”), an Argentine-based company that, through its subsidiaries, operates as an agro industrial company that manufactures and exports cereals and oilseeds, cotton textiles, biodiesel, concentrated grape juice, agrichemicals, feed lots and wines.    

 

As noted above, the Company purchased a Participation in a trade finance facility originated by IIG with Algodonera as the borrower in March 2017. The Company purchased the Participation from IIG 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. The commercial court has jurisdiction over commercial claims and disputes of this type. After IIG filed its claims in the commercial court, the court ruled that IIG’s claims were valid and enjoined Vicentin’s cash accounts to allow for recovery by IIG. Once sufficient cash had been secured, the court allowed Vicentin to replace the enjoined cash accounts with a payment guarantee from Zurich Insurance Group with a 100% LTV, including accrued interest. Thereafter, the commercial court issued its final judgment, ordering Algodonera and Vicentin to pay $22.4 million, plus interest, to IIG, which includes the amount owed pursuant to the trade finance facility described above in which the Company purchased the Participation. Shortly thereafter, the criminal court in Santa Fe, Argentina issued a letter to the commercial court in Buenos Aires, Argentina ordering the suspension of the commercial court proceedings, but the commercial court rejected the suspension. Algodonera and Vicentin appealed the commercial court’s rejection of the suspension and submitted an additional letter from the criminal court providing the reasons for the criminal court’s suspension request, which included allegations of fraud by IIG.  The commercial court rejected the suspension a second time and Algodonera and Vicentin appealed to the court of appeals.  In March 2019, the court of appeals ruled in favor of the criminal court and countermanded the commercial court’s rejection of the suspension, with proceedings set to continue in the criminal court.

 

The Company learned on July 31, 2018 that IIG had failed to disclose to the Company that the Algodonera trade finance facility was subject to a subrogation agreement, which potentially would permit Algodonera to transfer all or a portion of its IIG debt outstanding to two other companies (specifically, Nacadie (defined below) and FRIAR (defined below)).  The Company also learned on July 31, 2018 that the court proceedings involving IIG, Algodonera and Vicentin also included a legal dispute over the ability of Algodonera to enforce its rights under the subrogation agreement, as IIG argued that Algodonera’s default under its trade finance facility with IIG prevents Algodonera from being eligible to transfer its debt under its facility with IIG to Nacadie and FRIAR under the subrogation agreement. IIG had not disclosed this additional dispute and subrogation agreement to the Company. 

 

The Company has been informed by IIG’s legal counsel that the commercial court proceedings have been terminated due to the parties having reached a settlement.  The Company has also been told by IIG’s legal counsel that the settlement proceeds have been placed in an escrow account, however, the Company has not received a copy of the settlement agreement, does not know the amount received in the settlement, and does not know when or if it will receive any of the settlement proceeds.  Accordingly, the Company does not know with certainty any amount that it may receive from the settlement.

 

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Given that a settlement has been reached, as described above, the Company has applied a discount to the fair value to account for the inherent uncertainty regarding the amounts that may be recoverable by the Company from the settlement. Taking the factors described above into consideration, the Company believes, that as of March 31, 2020, the most appropriate valuation method is the income approach. The Company has placed this investment on non-accrual status effective January 1, 2019 and interest not recorded relative to the original terms of this participation for the three months ended March 31, 2020 and 2019 amounted to $136,500 and $135,000, respectively.

 

IIG Trade Opportunities Fund B.V. Receivable

 

In March 2017, the Company purchased a Participation in 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.  Loan documents provided to the Company by IIG indicate that Vicentin is guarantor of the payments to be made by Nacadie under the facility. Nacadie is an Uruguay-based company focused on trading of the “soy bean complex” (soybeans, soybean meals, and oils) originating from Argentina, Paraguay and Uruguay. The Company received three interest payments under this Participation in March 2017 and has not received any other payments of principal or interest.  Given that the loan documents state that Vicentin had guaranteed the payments due under both the Algodonera and Nacadie trade finance facilities, the Company erroneously believed that IIG had made filings in the commercial court in Buenos Aires, Argentina related to the Nacadie trade finance facility, similar to the filings IIG made with respect to the Algodonera facility.  In July 2018, IIG informed the Company that the Nacadie trade finance facility was not included in its commercial court filings referenced above under “—Algodonera Avellaneda S.A.” IIG also informed the Company that it had not called a default on Nacadie for nonpayment under the facility. Given this new information, in order to re-confirm the details of its Participation in the Nacadie trade finance facility and the status of the facility, the Company requested original versions of all documents related to its Participation in the facility, including original versions of the underlying facility agreements and bank statements showing the Company’s investment in the facility. The Company had previously been provided by IIG with copies of documents related to its Participation and the underlying facility.  During the third quarter of 2018, IIG informed the Company that although it had reviewed its books and records, it could not locate all of the original documents requested by the Company.  In connection with its 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.  IIG has not yet repaid the Company for this Participation as of the date of this Quarterly Report on Form 10-Q.  

 

Given that this investment is no longer classified as a Participation in a trade finance facility, but rather as a receivable from IIG TOF B.V and taking the factors described above into consideration, the Company believes, that as of March 31, 2020, the most appropriate valuation method is the income approach.  Although a senior executive at IIG agreed in conversations with the Company’s senior management to repay the Company for this investment in an amount equal to the outstanding principal and accrued interest (calculated in accordance with the terms of the Nacadie Participation in which the Company originally invested), the Company has not received a written agreement from IIG to this effect.  As noted above, the Company has filed an arbitration proceeding against IIG asserting multiple claims, including claims related to IIG’s failure to repay the Company for this participation. The Company has applied a discount to the fair value based on the uncertainty created by the risk that IIG will not honor its agreement to repay the Company, which risk is enhanced by the fact that IIG has substantially wound down its business, as well as the uncertainty of the ultimate resolution of the Company’s legal dispute with IIG. The Company placed this receivable on non-accrual status, effective July 1, 2018 and interest not recorded relative to the original terms of this investment amounted to approximately $132,708 and $131,250 for the three months ended March 31, 2020 and 2019, respectively.  

 

Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay

 

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. The commercial court has jurisdiction over commercial claims and disputes of this type. During January 2018 the court granted IIG’s motion to freeze FRIAR’s accounts. At that time, IIG informed the Company that it was also in the process of securing additional collateral to cover the full balance outstanding, including accrued interest and penalties. In August 2018, the Company confirmed that FRIAR continues to operate and is a going concern.

 

21


As noted above, the Company learned on July 31, 2018 that IIG had failed to disclose to the Company that the Algodonera trade finance facility was subject to a subrogation agreement, which potentially would permit Algodonera to transfer all or a portion of its IIG debt outstanding to FRIAR and Nacadie.  Also as described above, the Company learned on July 31, 2018 that IIG and Algodonera were in a legal dispute over the ability of Algodonera to enforce its rights under the subrogation agreement, as IIG has argued that Algodonera’s default under its trade finance facility with IIG prevents Algodonera from being eligible to transfer its debt under its facility with IIG to FRIAR and Nacadie under the subrogation agreement.  Additionally, on July 31, 2018, the Company learned new information with regard to a put option that could potentially allow FRIAR to settle its outstanding debt to IIG with shares of FRIAR.  In addition to settling FRIAR’s debt to IIG, the put option could potentially permit FRIAR to subrogate Algodonera’s and Nacadie’s debt to IIG. As with the subrogation agreement discussed above, the Company has learned that IIG disputed the enforceability of the put option in court. The criminal court in Santa Fe, Argentina issued a letter to the commercial court in Buenos Aires, Argentina ordering the suspension of the commercial court proceedings, but the commercial court rejected the suspension. FRIAR appealed the commercial court’s rejection of the suspension and submitted an additional letter from the criminal court providing the reasons for the criminal court’s suspension request, which include allegations of fraud by IIG.  In April 2019, the court of appeals ruled in favor of the criminal court and countermanded the commercial court’s rejection of the suspension, with proceedings set to continue in the criminal court.

 

Starting with the quarter ended June 30, 2018, the Company believed that the most appropriate valuation method was a combination of the collateral based approach and the income approach. The Company continued to utilize the collateral based approach due to IIG’s communications with the Company in 2018 that it was continuing to rely on the court proceedings to secure repayment, but determined to also utilize the income approach because the parties have reached a settlement as described above.

 

Although IIG expressed to the Company in the third quarter of 2018 its belief that it will prevail in the court proceedings, a settlement has been reached among the parties as described above; therefore, the Company has applied a discount to the fair value to account for the inherent uncertainty regarding the amount that may be recoverable by the Company from the settlement. The Company determined that the most appropriate method to calculate the fair value of this investment as of March 31, 2020 is the income approach. The Company placed the Participation on non-accrual status effective January 1, 2018 and interest not recorded relative to the original terms of this participation for the three months ended March 31, 2020 and 2019 amounted to $261,625 and $258,750, respectively.

 

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 is 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 other CAGSA lenders and had sent warning letters to CAGSA in order to protect its rights under the credit facility. Additionally, IIG 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. As noted above, IIG has substantially wound down its business, which could put the finalization of a settlement at risk, if the settlement has not already been finalized. As of the date of this report, the Company does not know if the preliminary settlement has been finalized and details of the terms of the preliminary settlement were not available.

 

As a short-term trade finance facility, CAGSA was valued utilizing the income approach for the quarter ended March 31, 2018. However, given the uncertainty as to the ability of CAGSA to provide future sufficient cash flows in order to meet its debt obligations, as well as the financial impact of a potential restructuring, the Company decided that starting with the quarter ended June 30, 2018, the collateral based approach was a more appropriate valuation method.  With the announcement that CAGSA had reached a preliminary settlement with its creditors, as of March 31, 2019, the Company further modified the valuation approach for this investment to the income approach. The Company has estimated the fair value of the principal amount of this investment as of March 31, 2020 based on the income approach, discounted to reflect the uncertainty related to CAGSA’s potential restructuring (including the risk that the restructuring may not be completed, given that IIG has substantially wound down its business) and the ultimate resolution of the Company’s ongoing legal dispute with IIG. Based on the information available to the Company and according to its valuation policies, the Company placed CAGSA on non-accrual status, effective July 1, 2018 and interest not recorded relative to the original terms of this investment amounted to approximately $330,191 and $326,563, respectively for the three months ended March 31, 2020 and 2019.

 

 

Sancor Cooperativas Unidas Limitada

 

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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.  Sancor has been in ongoing negotiations to reorganize itself, including with multiple potential buyers. IIG worked with Sancor to restructure the existing loan and has extended the maturity to July 29, 2019, with an annual renewal option.  Although IIG has not provided the Company with updated information requested by the Company with respect to the Company’s investment in this facility in connection with the Company’s preparation of this report, the Company believes, based on reports in the media, that Sancor will be sold.  In February 2019, Sancor announced the completion of a partial sale of assets, which allowed it to make some payments to creditors but the Company has not received any payment since that announcement. Due to the uncertainty associated with the timing and final terms of a full asset sale, which is further made uncertain due to IIG having substantially wound down its business, the Company believes the most appropriate valuation method continues to be a hybrid of the income approach and the collateral based approach as of March 31, 2020, based upon the value of the Company’s pledged collateral, discounted for the uncertainty around the expected timing and value of a potential sale and the uncertainty regarding the ultimate resolution of the Company’s ongoing legal dispute with IIG. The Company placed Sancor on non-accrual status effective October 1, 2019 and interest not recorded relative to the original terms of this investment amounted to approximately $161,829 for the three months ended March 31, 2020.

 

Functional Products Trading S.A.

 

Between June and September 2016, the Company purchased two Participations in a trade finance facility originated by IIG TOF N.V., with Functional Products Trading S.A. (“Functional”), a Chilean company that exports chia seeds to United States and European off-takers.  While the original maturity date of this Participation was December 11, 2016, the maturity was extended to March 4, 2018. In 2017, Functional experienced operational losses due to volatile prices for raw chia seeds and its byproducts, with sales declining by 57% from 2016. As a result, Functional was unable to make the principal payment as planned and developed a full restructuring plan (selling an office building and entering into a lease back agreement) with its current lenders, including IIG, to provide more cash flow flexibility, become current on all interest payments and improve its capital structure, in order to support Functional’s growth initiatives.

IIG informed the Company in a prior period that it was working with Functional on restructuring the facility, but it is uncertain when or if this will happen given the bankruptcy proceedings against IIG TOF N.V. in Curacao and given that IIG has substantially wound down its business. As of March 31, 2020, the Company has estimated the fair value based on the income approach, discounted to present value using an appropriate yield to maturity, assuming the facility is restructured in the manner in which IIG previously informed the Company it expected the loan to be restructured.  The appropriate yield to maturity increased to reflect uncertainty around the timing and completion of the restructuring, given the bankruptcy proceeding and IIG having substantially wound down its business. The Company placed Functional on non-accrual status, effective July 1, 2019 and interest not recorded relative to the original terms of this investment amounted to approximately $36,554 for the three months ended March 31, 2020.

 

Investments through other sub-advisors

 

Usivale Industria E Comercio, Ltda.  

 

As of March 31, 2020, the Company’s investment in Usivale Industria E Comercio, Ltda. (“Usivale”), a sugar processing company located in Brazil, is comprised of two senior secured term loans for an aggregate loan amount of $2,851,296 and total accrued interest of $465,770.  As reported in previous filings, Usivale exited judicial recovery on October 7, 2016 and resumed normal operations.  Subsequently, the Company began receiving principal and interest payments from Usivale as scheduled. During an on-site visit with Usivale’s management in September 2017, Usivale indicated its intention to pay the 2017 principal and interest payment on time and in full, assuming relatively steady sugar prices.  Post-site visit, sugar prices again compressed significantly, which caused added pressure on the cash flow of the business. Sugar price pressure continued through 2018. The 2017 annual interest payment was received in full and the 2018 annual interest payment was received in March 2019, though principal payment was not made on schedule. The Company is currently working with Usivale’s management to optimize their financial performance in response to volatile sugar prices to better facilitate principal repayment, including engaging industry and financial consultants to that effect. As part of that effort, the Company and Usivale executed a standstill agreement for principal repayment until December 2019.

 

As of March 31, 2020, the Company has estimated the fair value of the principal amount of the Usivale loans at $2,577,164, which is based on the income approach, accounting for expected principal and interest payments discounted by the loan’s yield to maturity, which includes uncertainty related to continued volatility in sugar prices.

                 

Applewood Trading 199 Pty, Ltd.

 

In January 2015, the Company purchased a $1,250,000 Participation in a trade finance facility originated by Barak Fund SPC Ltd., a fund advised by the Company’s sub-advisor, Barak Fund Management Ltd. (“Barak”), with Applewood Trading 199 Pty, Ltd. (“Cape Nut”), as the borrower.  Cape Nut is located in Cape Town, South Africa.  As of March 31, 2020, the total balance outstanding under the Participation amounts to $785,806. Cape Nut’s trade finance facility has a stated maturity date of May 22, 2015, which Barak agreed to extend in October 2014 and the Company subsequently agreed to an extension of the maturity date for its Participation. The Company and Barak are working with Cape Nut to establish an appropriate repayment schedule. Cape Nut made

23


partial principal payments during 2015, 2016 and 2017. Accordingly, the Company placed this Participation on non-accrual status effective February 1, 2016 and interest not recorded relative to the original terms of this Participation amounted to approximately $34,761 and $34,379, respectively, for the three months ended March 31, 2020 and 2019.

 

As reported in previous filings, due to Cape Nut’s cash flow difficulties and operating losses, in 2016, the Company’s sub-advisor, Barak, facilitated a strategic sale of Cape Nut, which closed in June 2016, resulting in Barak owning 50% of Cape Nut. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Cape Nut to be $497,462 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Cape Nut’s financial performance.

 

Mac Z Group SARL

 

Between July 2016 and April 2017, the Company purchased nine Participations totaling $9,000,000 in a trade finance facility originated by Scipion Active Trading Fund, a fund advised by the Company’s sub-advisor, Scipion Capital, Ltd. (“Scipion”), with Mac Z Group SARL (“Mac Z”), a scrap metal recycler, as the borrower.  Mac Z is located in Morocco. As of March 31, 2020, the outstanding principal balance on this Participation was $7,349,626 with no accrued interest. The primary collateral securing this Participation was 1,970 tons of copper scrap.  In late October 2017, Scipion’s designated collateral manager for Mac Z notified Scipion of an investigation into a 1,820 ton, approximately $13.3 million, shortage of copper scrap inventory physically held in the warehouse. The copper scrap is pledged to the Company and serves as the primary collateral for this Participation. The missing inventory led the Company to place Mac Z on the Watch List and on non-accrual status.

 

In addition to conducting its investigation, Scipion issued an event of default and has taken steps to enforce the corporate guarantee, personal guarantee and relevant pledges made for the benefit of Scipion with respect to the facility, which include two insurance policies. Scipion has placed a blocking notice on all of Mac Z’s bank accounts and has requested a freeze order from the Moroccan local courts on the physical assets of the company. Since the initial discovery and actions, Mac Z sold remaining inventory and the Company was paid interest of approximately $330,000 in January 2018 and $292,000 during the first week April 2018.  Mortgages against two unencumbered parcels of land ($5.9 million estimated value) are in the process of being finalized in favor of Scipion under this facility. 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 filed a claim against the collateral manager under its professional indemnity insurance policy, which covers up to $40 million in losses.

 

Based on these developments, the Company believes there is sufficient collateral available to cover both the outstanding principal balance and the accrued interest. The Company placed this Participation on non-accrual status effective October 1, 2017 and interest not recorded relative to the original terms of this Participation for the three months ended March 31, 2020 and 2019 amounted to $204,361 and $202,115, respectively. The Company believes, that as of March 31, 2020, the most appropriate valuation method is the income approach and the Company has determined the fair value of the principal amount of this investment to be $7,530,616, accounting for existing inventory and the current claim against the collateral manager’s insurance, discounted for the time expected for collection and uncertainty related to the judicial process.

 

Global Pharma Intelligence Sarl

In July 2017, the Company purchased one Participation in a trade finance facility originated by Scipion Active Trading Fund, a fund advised by the Company’s sub-advisor, Scipion, with Global Pharma Intelligence Sarl (“GPI”), an international pharmaceutical materials supplier with primary operations in Dubai, as the borrower.  As of March 31, 2020, the outstanding principal balance on this Participation was $803,254 and interest had been paid in full through August 10, 2018. The accrued interest balance as of March 31, 2020 is $134,215. Repayment on the Participation has been slower than originally anticipated due to operational delays within the underlying trade. GPI had been actively working with its buyer to resolve the operational delays, but the buyer has since experienced financial challenges making payment of the outstanding invoice unlikely. As such, focus has primarily shifted to pursuing a claim under GPI’s credit insurance policy which covers full outstanding principal and interest of the loan. Recovery through the insurance policy is expected to take place in the coming quarters. Due to the reliance on the cash flow from the insurance policy, the Company believes the most appropriate valuation method is the income approach and has determined the fair value of the principal amount of this investment to be $803,254, as of March 31, 2020, based upon the value of the Company’s pledged collateral and insurance policy in place, discounted for the uncertainty around the expected timing of repayment. The Company placed GPI on non-accrual status effective October 1, 2019 and interest not recorded relative to the original terms of this investment amounted to approximately $29,644 for the three months ended March 31, 2020.

Producam SA

Between March 2018 and June 2018, the Company purchased three Participations totaling $15,986,369 in a trade finance facility originated by the Company’s sub-advisor, AMC Trade Finance Limited (“AMC”), with Producam SA (“Producam”), a Cameroon based cocoa and coffee exporter, as the borrower.  As of March 31, 2020, the aggregate outstanding principal balance of these Participations was $10,413,683 and accrued interest amounted to $2,835,275. Repayment on these Participations has been slower than originally anticipated due to short run cash flow pressure on Producam. 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 and the restructuring process is expected to be finalized in the coming quarters.  Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value

24


of the principal amount of its investment in Producam to be $9,192,637 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Producam’s financial performance.

Conplex International Ltd.

Between November 2018 and May 2019, the Company purchased three Participations totaling $9,500,000 in a trade finance facility originated by the Company’s sub-advisor, TransAsia Private Capital Ltd. (“TransAsia”), with Conplex International Ltd. (“Conplex”), a Hong Kong based international open market distributor and wholesaler of electronics products, as the borrower. As of March 31, 2020, the aggregate outstanding principal balance of these Participations was $9,500,000 and accrued interest amounted to $788,528.  Repayment on these positions has been slower than originally anticipated due to short term cash flow pressure on Conplex. TransAsia informed the Company that the borrower had a large portion of receivables overdue from a large off-taker. TransAsia then began working with the borrower to restructure the facility and the restructuring process is expected to be finalized in the coming quarters. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Conplex to be $7,868,028 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Conplex’s financial performance.

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 originated by the Company’s sub-advisor, TransAsia. Triton is a Singapore based diversified commodities trading company.  As of March 31, 2020 the aggregate outstanding principal balance of the investment was $16,456,270 and accrued interest amounted to $783,273. TransAsia informed the Company 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 the restructuring process is expected to be finalized in the coming quarters.  Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Triton to be $14,899,927 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Triton’s financial performance.

Helios Maritime I

Between July 2015 and December 2017, the Company purchased six Participations totaling $15,300,000 in a term loan facility originated by the Company’s sub-advisor, Helios Investment Partners, LLP (“Helios”), with Helios Maritime I (“Helios Maritime”), a company setup for the purposes of on-lending to Starz Investment Company, Ltd. (“Starzs”), a Nigerian shipping and logistics company for the purpose of acquiring a handling tug vessel. As of March 31, 2020, the aggregate outstanding principal balance of these Participations was $12,762,670 and total accrued interest amounted to $3,929,745, which included $2,527,015 of interest which is deferred and payable at maturity of the loan.  Repayment on these positions has been slower than originally anticipated due to delays in acquiring a long-term contract, which has been further prolonged based on challenges presented by the COVID-19 pandemic and the recent decline in oil prices. Helios is actively working with the borrower to restructure the facility which is expected to be finalized in the coming quarters. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Helios Maritime to be $11,084,262 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Helios Maritime’s financial performance.

TRG Cape Verde Holdings Ltd

In May 2016, the Company purchased a $17,000,000 Participation in a term loan facility originated by the Company’s sub-advisor, Helios, with TRG Cape Verde Holdings Ltd (“TRG Cape Verde”), an owner and developer of resorts based in Cabo Verde. As of March 31, 2020, the aggregate outstanding principal balance of this Participation was $13,002,528 and accrued interest amounted to $897,607.  Repayment on this position has been slower than originally anticipated due to regulatory changes in TRG Cape Verde’s fundraising model, along with further challenges associated with little to no occupancy at its resort properties due to the ongoing COVID-19 pandemic. Helios is actively working with the borrower and its financial advisor to restructure the facility which is expected to be finalized in the coming quarters. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in TRG Cape Verde to be $11,354,899 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in TRG Cape Verde’s financial performance.

Trustco Group Holdings Ltd

In January 2017, the Company purchased a Participation of $15,000,000 in a term loan facility originated by the Company’s sub-advisor, Helios, 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. As of March 31, 2020, the aggregate outstanding principal balance of this Participation was $17,006,658 and accrued interest amounted to $999,302.  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 subsequent to quarter end. 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. Based on the information available to

25


the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Trustco to be $14,695,323 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in legal proceedings and Trustco’s financial performance.

The industry composition of the Company’s portfolio, at fair value as of March 31, 2020 and December 31, 2019, was as follows:

 

 

 

As of  March 31, 2020

 

 

As of December 31, 2019

 

 

 

Fair

 

 

Percentage

 

 

Fair

 

 

Percentage

 

Industry

 

Value

 

 

of Total

 

 

Value

 

 

of Total

 

Agricultural Products

 

$

12,417,122

 

 

 

3.8

%

 

$

12,417,122

 

 

 

3.6

%

Boatbuilding and Repairing

 

 

5,775,774

 

 

 

1.8

%

 

 

5,695,069

 

 

 

1.7

%

Chemicals and Allied Products

 

 

15,000,000

 

 

 

4.6

%

 

 

15,000,000

 

 

 

4.4

%

Chocolate and Cocoa Products

 

 

9,192,637

 

 

 

2.8

%

 

 

9,687,887

 

 

 

2.8

%

Coal and Other Minerals and Ores

 

 

30,791,747

 

 

 

9.4

%

 

 

32,348,090

 

 

 

9.5

%

Commercial Fishing

 

 

35,838

 

 

 

0.0

%

 

 

35,838

 

 

 

0.0

%

Communications Equipment

 

 

 

 

 

 

 

 

100,000

 

 

 

0.0

%

Consumer Products

 

 

9,318,469

 

 

 

2.8

%

 

 

9,318,469

 

 

 

2.7

%

Corrugated and solid fiber boxes

 

 

10,000,000

 

 

 

3.1

%

 

 

 

 

 

 

Department Stores

 

 

8,726,737

 

 

 

2.7

%

 

 

8,638,109

 

 

 

2.5

%

Drugs, Proprietaries, and Sundries

 

 

803,254

 

 

 

0.2

%

 

 

803,254

 

 

 

0.2

%

Electric Services

 

 

1,395,953

 

 

 

0.4

%

 

 

16,383,269

 

 

 

4.8

%

Farm Products

 

 

9,657,896

 

 

 

3.0

%

 

 

9,644,313

 

 

 

2.8

%

Fats and Oils

 

 

3,398,558

 

 

 

1.0

%

 

 

3,398,558

 

 

 

1.0

%

Financial services

 

 

3,758,063

 

 

 

1.1

%

 

 

3,758,063

 

 

 

1.1

%

Freight Transportation Arrangement

 

 

13,641,586

 

 

 

4.2

%

 

 

13,505,035

 

 

 

4.0

%

Food Products

 

 

2,215,582

 

 

 

0.7

%

 

 

2,724,804

 

 

 

0.8

%

Groceries and Related Products

 

 

468,756

 

 

 

0.1

%

 

 

468,756

 

 

 

0.1

%

Hotels and Motels

 

 

11,354,899

 

 

 

3.5

%

 

 

12,846,584

 

 

 

3.8

%

Land Subdividers and Developers

 

 

14,695,323

 

 

 

4.5

%

 

 

16,781,000

 

 

 

4.9

%

Logging

 

 

5,797,622

 

 

 

1.8

%

 

 

5,612,436

 

 

 

1.6

%

Meat, Poultry & Fish

 

 

6,361,679

 

 

 

1.9

%

 

 

6,240,961

 

 

 

1.8

%

Motor Vehicle Parts and Accessories

 

 

8,849,338

 

 

 

2.7

%

 

 

8,731,936

 

 

 

2.6

%

Personal Credit Institutions

 

 

3,173,803

 

 

 

1.0

%

 

 

3,603,592

 

 

 

1.1

%

Petroleum and Petroleum Products

 

 

15,500,000

 

 

 

4.7

%

 

 

15,500,000

 

 

 

4.6

%

Programming and Data Processing

 

 

17,852,490

 

 

 

5.5

%

 

 

17,740,330

 

 

 

5.2

%

Refuse Systems

 

 

26,680,810

 

 

 

8.2

%

 

 

25,766,063

 

 

 

7.6

%

Secondary Nonferrous Metals

 

 

17,530,616

 

 

 

5.4

%

 

 

17,530,616

 

 

 

5.2

%

Short-Term Business Credit

 

 

4,740,000

 

 

 

1.4

%

 

 

4,740,000

 

 

 

1.4

%

Soap, Detergents, and Cleaning

 

 

2,786,544

 

 

 

0.9

%

 

 

2,894,698

 

 

 

0.9

%

Telephone and Telegraph Apparatus

 

 

7,868,028

 

 

 

2.4

%

 

 

8,840,048

 

 

 

2.6

%

Telephone Communications

 

 

36,206,924

 

 

 

11.1

%

 

 

36,794,973

 

 

 

10.8

%

Water Transportation

 

 

11,084,262

 

 

 

3.4

%

 

 

12,748,503

 

 

 

3.7

%

Total

 

$

327,080,310

 

 

 

100.0

%

 

$

340,298,376

 

 

 

100.0

%

26


 

The table below shows the portfolio composition by geographic classification at fair value as of March 31, 2020 and December 31, 2019:

 

 

 

As of  March 31, 2020

 

 

As of December 31, 2019

 

 

 

Fair

 

 

Percentage

 

 

Fair

 

 

Percentage

 

Country

 

Value

 

 

of Total

 

 

Value

 

 

of Total

 

Argentina (1)

 

$

24,319,578

 

 

 

7.4

%

 

$

24,198,860

 

 

 

7.1

%

Botswana

 

 

4,740,000

 

 

 

1.5

%

 

 

4,740,000

 

 

 

1.4

%

Brazil

 

 

26,205,428

 

 

 

8.0

%

 

 

26,012,563

 

 

 

7.6

%

Cabo Verde

 

 

11,354,899

 

 

 

3.5

%

 

 

12,846,584

 

 

 

3.8

%

Cameroon

 

 

9,192,637

 

 

 

2.8

%

 

 

9,687,887

 

 

 

2.9

%

Chile

 

 

2,665,539

 

 

 

0.8

%

 

 

2,652,855

 

 

 

0.8

%

Colombia

 

 

23,287,727

 

 

 

7.1

%

 

 

23,479,065

 

 

 

6.9

%

Croatia

 

 

8,726,737

 

 

 

2.7

%

 

 

8,638,109

 

 

 

2.5

%

Ecuador

 

 

10,035,838

 

 

 

3.1

%

 

 

35,838

 

 

 

0.0

%

Ghana

 

 

15,500,000

 

 

 

4.7

%

 

 

30,500,000

 

 

 

9.0

%

Guatemala

 

 

10,504

 

 

 

0.0

%

 

 

10,504

 

 

 

0.0

%

Hong Kong

 

 

48,659,775

 

 

 

14.9

%

 

 

51,188,138

 

 

 

15.0

%

Jersey

 

 

16,093,000

 

 

 

4.9

%

 

 

16,919,500

 

 

 

5.0

%

Kenya

 

 

13,641,586

 

 

 

4.2

%

 

 

13,505,035

 

 

 

4.0

%

Malaysia

 

 

15,000,000

 

 

 

4.6

%

 

 

15,000,000

 

 

 

4.4

%

Mauritius

 

 

468,756

 

 

 

0.1

%

 

 

468,756

 

 

 

0.1

%

Mexico

 

 

26,680,810

 

 

 

8.2

%

 

 

25,766,063

 

 

 

7.6

%

Morocco

 

 

7,530,616

 

 

 

2.3

%

 

 

7,530,616

 

 

 

2.2

%

Namibia

 

 

14,695,323

 

 

 

4.5

%

 

 

16,781,000

 

 

 

4.9

%

Netherlands

 

 

8,849,338

 

 

 

2.7

%

 

 

8,731,936

 

 

 

2.6

%

New Zealand

 

 

5,797,622

 

 

 

1.8

%

 

 

5,612,436

 

 

 

1.7

%

Nigeria

 

 

12,598,485

 

 

 

3.9

%

 

 

14,262,726

 

 

 

4.2

%

Peru

 

 

4,599,086

 

 

 

1.4

%

 

 

4,599,086

 

 

 

1.4

%

Romania

 

 

1,718,120

 

 

 

0.5

%

 

 

2,034,188

 

 

 

0.6

%

South Africa

 

 

497,462

 

 

 

0.2

%

 

 

790,616

 

 

 

0.2

%

United Arab Emirates

 

 

803,254

 

 

 

0.3

%

 

 

803,254

 

 

 

0.2

%

Uganda

 

 

6,863,583

 

 

 

2.1

%

 

 

6,850,000

 

 

 

2.0

%

Zambia

 

 

2,786,544

 

 

 

0.9

%

 

 

2,894,698

 

 

 

0.9

%

N/A

 

 

3,758,063

 

 

 

1.2

%

 

 

3,758,063

 

 

 

1.1

%

Total

 

$

327,080,310

 

 

 

100.0

%

 

$

340,298,376

 

 

 

100.0

%

 

(1) All of the Company’s investments in Argentina are Participations in trade finance facilities originated by IIG TOF B.V., a subsidiary of a fund advised by the Company’s sub-advisor, IIG. See Note 3 “Watch List Investments” for further information.

 

Note 4. Fair Value Measurements

The following table summarizes the valuation of the Company’s investments by the fair value hierarchy levels required under ASC 820 as of March 31, 2020:

 

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Senior secured term loans

 

$

94,036,036

 

 

$

 

 

$

 

 

$

94,036,036

 

Senior secured term loan participations

 

 

159,795,580

 

 

 

 

 

 

 

 

 

159,795,580

 

Senior secured trade finance participations

 

 

68,410,409

 

 

 

 

 

 

 

 

 

68,410,409

 

Other investments

 

 

3,758,063

 

 

 

 

 

 

 

 

 

3,758,063

 

Equity warrants

 

 

1,080,222

 

 

 

 

 

 

 

 

 

1,080,222

 

Total

 

$

327,080,310

 

 

$

 

 

$

 

 

$

327,080,310

 

27


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, 2019:

 

 

 

Fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Senior secured term loan

 

$

83,353,208

 

 

$

 

 

$

 

 

$

83,353,208

 

Senior secured term loan participations

 

 

180,500,425

 

 

 

 

 

 

 

 

 

 

 

180,500,425

 

Senior secured trade finance participations

 

 

71,606,458

 

 

 

 

 

 

 

 

 

71,606,458

 

Short term investments

 

 

3,758,063

 

 

 

 

 

 

 

 

 

 

 

3,758,063

 

Equity warrants

 

 

1,080,222

 

 

 

 

 

 

 

 

 

 

 

1,080,222

 

Total

 

$

340,298,376

 

 

$

 

 

$

 

 

$

340,298,376

 

The following is a reconciliation of activity for the three months ended March 31, 2020, of investments classified as Level 3: 

 

 

 

Fair Value at December 31, 2019

 

 

Purchases

 

 

Maturities or Prepayments

 

 

Accretion of discounts / Payment-in-kind interest

 

 

Net change in unrealized appreciation (depreciation)

 

 

Fair Value at March 31, 2020

 

Senior secured term loans

 

$

83,353,208

 

 

$

10,000,000

 

 

$

(417,105

)

 

$

1,099,933

 

 

$

 

 

$

94,036,036

 

Senior secured term loan participations

 

 

180,500,425

 

 

 

-

 

 

 

(16,322,267

)

 

 

1,186,890

 

 

 

(5,569,468

)

 

 

159,795,580

 

Senior secured trade finance participations

 

 

71,606,458

 

 

 

7,000,000

 

 

 

(7,100,000

)

 

 

13,201

 

 

 

(3,109,250

)

 

 

68,410,409

 

Short term and other investments

 

 

3,758,063

 

 

 

4,000,000

 

 

 

(4,000,000

)

 

 

 

 

 

 

 

 

 

3,758,063

 

Equity warrants

 

 

1,080,222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,080,222

 

Total

 

$

340,298,376

 

 

$

21,000,000

 

 

$

(27,839,372

)

 

$

2,300,024

 

 

$

(8,678,718

)

 

$

327,080,310

 

There were no realized gains or losses for any of the Company’s investments classified as Level 3 during the three months ended March 31, 2020 and 2019. Net unrealized depreciation for the three months ended March 31, 2020 and 2019 reported in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets still held at period end were $8,678,718 and $2,147,016, respectively. These unrealized losses were primarily driven by macro events including the uncertainty created by the recent COVID-19 pandemic and its impact on the future cash flows generated by our investments as well as the ultimate realization of the underlying collateral.

As of March 31, 2020, 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 March 31, 2020:

 

 

 

Fair value

 

 

Valuation technique

 

Unobservable input

 

Range (weighted average)

 

Senior secured trade finance participations (2)

 

$

67,596,651

 

 

Income approach (DCF)

 

Market yield

 

9.0% - 16.8% (12.7%)

 

Senior secured trade finance participations (1)

 

$

813,758

 

 

Collateral based approach

 

Value of collateral (collateral coverage)

 

1.0x - 1.1x

 

Senior secured term loans

 

$

94,036,036

 

 

Income approach (DCF)

 

Market yield

 

10.0% - 14.5% (12.4%)

 

Senior secured term loan participations

 

$

159,795,580

 

 

Income approach  (DCF)

 

Market yield

 

11.0% - 15.9% (13.0%)

 

Other investments (3)

 

$

3,758,063

 

 

Hybrid income/collateral based approach

 

Market yield / value of collateral

 

8.75%

$0 - $6.0 million

 

Equity warrants

 

$

1,080,222

 

 

Option Pricing Method

 

Estimated company value

 

N/A

 

 

 

(1)

Collateral based approach used for the following watch list investments: Profasa and GPI. See Note 3 “Watch List Investments” for further information.

 

(2)

The Company used the income approach for Algodonera, FRIAR, CAGSA, and Functional and a hybrid of the collateral based approach and the income approach for Sancor and Mac Z, using additional unobservable inputs including recovery rates ranging from 15% to 30%, after considering potential and ongoing litigation and expected collection period ranging from 2 to 3 years. See Note 3 “Watch List Investments” for further information.

 

(3)

Receivable from IIG TOF B.V. using additional discount rate of 20%.

28


As of December 31, 2019 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, 2019:

 

 

 

Fair value

 

 

Valuation technique

 

Unobservable input

 

Range (weighted average)

 

Senior secured trade finance participations (2)

 

$

70,792,700

 

 

Income approach (DCF)

 

Market yield

 

9.0% - 16.8% (12.7%)

 

Senior secured trade finance participations (1)

 

$

813,758

 

 

Collateral based approach

 

Value of collateral (collateral coverage)

 

1.0x - 1.1x

 

Senior secured term loans

 

$

83,353,208

 

 

Income approach (DCF)

 

Market yield

 

10.0% - 14.5% (12.4%)

 

Senior secured term loan participations

 

$

180,500,425

 

 

Income approach  (DCF)

 

Market yield

 

11.0% - 15.9% (13.0%)

 

Other investments (3)

 

$

3,758,063

 

 

Hybrid income/collateral based approach

 

Market yield / value of collateral

 

8.75%

 

Equity warrants

 

$

1,080,222

 

 

Option Pricing Method

 

Estimated company value

 

N/A

 

 

 

(1)

 Collateral based approach used for the following watch list investments: Profasa and GPI. See Note 3 “Watch List Investments” for further information.

 

(2)

The Company used the income approach for Algodonera, FRIAR, CAGSA, and Functional and a hybrid of the collateral based approach and the income approach for Sancor and Mac Z, using additional unobservable inputs including recovery rates ranging from 15% to 30%, after considering potential and ongoing litigation and expected collection period ranging from 2 to 3 years. See Note 3 “Watch List Investments” for further information.

 

(3)

Receivable from IIG TOF B.V. using additional discount rate of 20%.

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

Litigation

On April 18, 2019, the Company, through its wholly-owned subsidiary, commenced an arbitration proceeding against IIG and IIG TOF B.V., asserting claims for breach of contract, breach of fiduciary duty, conversion and unjust enrichment. These claims were related to IIG’s failure to repay the Company for certain Participations. There can be no assurance as to when or if the Company will obtain a judgment in its arbitration against IIG and IIG TOF B.V.

Agreements

Advisory Agreement

The current term of the Advisory Agreement between the Company and the Advisor, (the “Advisory Agreement”) ends on February 25, 2021.

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.

29


If certain financial goals are reached by the Company, the Company is required to pay the Advisor an incentive fee that is comprised of two parts: (i) a subordinated fee on net investment income and (ii) an incentive fee on capital gains. The subordinated incentive fee on income is calculated and payable quarterly in arrears and is based upon the Company’s pre-incentive fee net investment income for the immediately preceding quarter. No subordinated incentive fee is earned by the Advisor in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the quarterly preferred return rate of 1.50% (6.00% annualized) (the “Preferred Return”). In any quarter, all of the Company’s pre-incentive fee net investment income, if any, that exceeds the quarterly Preferred Return, but is less than or equal to 1.875% (7.50% annualized) at the end of the immediately preceding fiscal quarter, is payable to the Advisor. For any quarter in which the Company’s pre-incentive fee net investment income exceeds 1.875% on its net assets at the end of the immediately preceding fiscal quarter, the subordinated incentive fee on income equals 20% of the amount of the Company’s pre-incentive fee net investment income.

An incentive fee on capital gains will be earned on investments sold and shall be determined and payable to the Advisor in arrears as of the end of each calendar year. The incentive fee on capital gains is equal to 20% of the Company’s realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees on capital gains. The Company had no capital gains and therefore did not accrue an incentive fee on capital gains for the three months ended March 31, 2020 and 2019.

Transactions

For the three months ended March 31, 2020 and 2019, the Advisor earned $1,846,556, and $1,959,123, respectively, in asset management fees and $851,111 and $1,458,513, respectively, in incentive fees.

As of March 31, 2020 and December 31, 2019, due from affiliates on the Consolidated Statement of Assets and Liabilities in the amount of $4,240,231, was due from the Sponsor pursuant to the Responsibility Agreement for operating expenses which were paid by the Company, but, under the terms of the Responsibility Agreement, are the responsibility of the Sponsor. The Sponsor anticipates paying this receivable in the due course of business.

 

Note 6. Organization and Offering Costs

As of March 31, 2020, the Sponsor has paid approximately $17,522,000 of offering costs and $236,000 of organization costs relating to the Offering, all of which were paid directly by the Sponsor on behalf of the Company, and were reimbursed to the Sponsor as disclosed in Note 2 of the consolidated financial statements. Such amounts include approximately $0 and $12,000 of offering costs, which were incurred by the Sponsor during the three months ended March 31, 2020 and 2019, respectively. During the three months ended March 31, 2020 and 2019, the Company did not make any reimbursement of offering costs to the Sponsor. Such offering costs reimbursed by the Company have been recognized against the proceeds from the issuance of units.

From the commencement of the Company’s operations through March 31, 2020, the Company has reimbursed the Sponsor a total of $17,237,807 of offering and organization costs and there is a remaining balance of approximately $520,600 of offering costs that have not yet been reimbursed to the Sponsor as of March 31, 2020.  

For the three months ended March 31, 2020 and 2019, we paid SC Distributors, the dealer manager for certain of our offerings, $121,628 and $132,849, respectively in ongoing distributions fees, dealer manager fees and service fees.

 

Note 7. Notes Payable

The Company notes payable consist of the following:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Outstanding Balance

 

 

Outstanding Balance

 

Christian Super promissory note

 

$

5,000,000

 

 

$

5,000,000

 

Total notes payable

 

$

5,000,000

 

 

$

5,000,000

 

 

Christian Super Promissory Notes

On August 7, 2017, TGIFC issued $5 million in the first of a Series 1 Senior Secured Promissory Notes private offering (the “CS Note”) to State Street Australia Ltd ACF Christian Super (“Christian Super”). The CS Note was issued pursuant to a private offering targeting $25 million in the aggregate amount.     

The CS Note had an interest rate of 4.0% per annum plus one-year LIBOR  and interest was payable quarterly in arrears within 15 days after the end of each calendar quarter. . The entire principal balance under the CS Note (and any unpaid interest) was due in one balloon payment on August 7, 2021, which is the fourth anniversary of the issuance date. The principal balance of the CS Note may be prepaid prior to the maturity date without premium or penalty.

30


In September 2019, the Company repaid the entire principal amount of $5 million that was due under the CS Note.

On December 18, 2018, TGIFC issued $5 million of Series 2 Senior Secured Promissory Notes (“Series 2 Note”) to Christian Super pursuant to the CS Notes private offering. The Series 2 Note has an interest rate of 3.5% per annum plus one-year LIBOR (3.05% as of March 31, 2020) and interest is payable quarterly in arrears within 15 days after the end of each calendar quarter. The interest rate may not exceed the maximum rate of non-usurious interest permitted by applicable law, with excess interest to be applied to the principal amount of the CS Note. The entire principal balance under the Series 2 Note (and any unpaid interest) is due in one balloon payment on December 18, 2021, which is the fourth anniversary of the issuance date. The principal balance of the CS Note may be prepaid prior to the maturity date without premium or penalty.

TGIFC’s obligation under the CS Note is secured by an equitable mortgage pursuant to the Equitable Mortgage Over Shares by and between TGIFC and the Noteholders, dated as of August 7, 2017 (the “CS Equitable Mortgage”), granting the holder of the CS Note a mortgage over 10 shares out of a total of 32.11 of the issued and outstanding shares of the Subsidiaries. While the collateral initially pledged under the CS Equitable Mortgage greatly exceeds the amount funded under the CS Note based on the current net asset value of the Company’s investments held by the Subsidiaries, the Company may issue more shares of the Subsidiaries to secure further financing obligations as long as the pro rata value of TGIFC shares (based on the aggregate net asset value of the investments held by the Subsidiaries) is equal to at least the outstanding amount due and payable under the CS Note.  The CS Note and the CS Equitable Mortgage contain representations, warranties and covenants customary for financing and mortgage arrangements of this type. As of March 31, 2020, the Company was in full compliance with all such representations, warranties and covenants.

For the three months ended March 31, 2020 and 2019, the Company recognized $68,537 and $599,949, respectively, in interest expense. Due to the variable rate structure of these borrowings, the carrying basis of these debt obligations is considered to approximate their fair value.

The principal payments due on borrowings for each of the next five years ending December 31 and thereafter, are as follows:

 

Year ending December 31:

 

Principal payments

 

2020

 

$

 

2021

 

 

5,000,000

 

Thereafter

 

 

-

 

 

 

$

5,000,000

 

 

Note 8. Unit Capital

As of March 31, 2020, 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 March 31, 2020, the Company recorded a liability in the aggregate amount of $637,000 for the estimated future amount of ongoing distribution fees, dealer manager fees and service fees payable. The estimated liability as of March 31, 2020 is calculated based on a net asset value per Class C, Class I and Class W units of $8.024 with a distribution fee of 0.8% for Class C units, an ongoing dealer manager fee of 0.5% for Class I units, and ongoing aggregate dealer and service fees of 0.75% for Class W units, per annum applied to the net asset value, during the expected period that Class C, Class W and Class I units remain outstanding, and discounted using an annual rate of 4%. All units participate in the income and expenses of the Company on a pro-rata basis based on the number of units outstanding. The following table is a summary of unit activity during the three months ended March 31, 2020:

 

 

 

Units

 

 

 

 

 

 

 

 

 

 

Units

 

 

 

Outstanding

 

 

 

 

 

 

Units

 

 

Outstanding

 

 

 

as of

 

 

Units Issued

 

 

Repurchased

 

 

as of

 

 

 

December 31,

 

 

During

 

 

During

 

 

March 31,

 

 

 

2019

 

 

the Period

 

 

the Period

 

 

2020

 

Class A units

 

 

17,861,312

 

 

 

130,390

 

 

 

(110,998

)

 

 

17,880,704

 

Class C units

 

 

8,067,787

 

 

 

5,964

 

 

 

(43,020

)

 

 

8,030,731

 

Class I units

 

 

10,468,162

 

 

 

149,931

 

 

 

(132,830

)

 

 

10,485,263

 

Class W units

 

 

24,555

 

 

 

790

 

 

 

-

 

 

 

25,345

 

Class Y units

 

 

1,297,897

 

 

 

274,522

 

 

 

(796

)

 

 

1,571,623

 

Class Z units

 

 

8,423,851

 

 

 

-

 

 

 

-

 

 

 

8,423,851

 

Total

 

 

46,143,564

 

 

 

561,597

 

 

 

(287,644

)

 

 

46,417,517

 

 

31


The total of 561,597 units issued during the three months ended March 31, 2020 included 286,586 units issued under the DRP at a value of $2,309,948 and 274,522 units sold pursuant to our private placement for aggregate gross proceeds of $2,225,000.

Beginning June 11, 2014, the Company commenced a unit repurchase program pursuant to which the Company may conduct quarterly unit repurchases of up to 5% of the weighted average number of outstanding units in any 12-month period to allow the Company’s unitholders, who have held units for a minimum of one year, to sell their units back to the Company at a price equal to the most recently determined net asset value per unit for each class of units, as most recently disclosed by the Company in a public filing with the SEC at the time of repurchase. Repurchases for the first quarter of 2020 have been made at a price equal to $8.024 per units, which was the net asset value per unit of each class as of December 31, 2019, the most recently disclosed net asset value at the time of repurchase.

The unit repurchase program includes numerous restrictions, including a one-year holding period, that limit the ability of the Company’s unitholders to sell their units. Unless the Company’s board of managers determines otherwise, the Company will limit the number of units to be repurchased during any calendar year to the number of units that can be repurchased with the proceeds the Company receives from the sale of units under the Company’s DRP. At the sole discretion of the Company’s board of managers, the Company may also use cash on hand, cash available from borrowings and cash from the repayment or liquidation of investments as of the end of the applicable quarter to repurchase units.

During the three months ended March 31, 2020, the Company received repurchase requests for a total of 287,644 units at a weighted average repurchase price per unit of $8.027 for an aggregate repurchase price of $2,308,859. As of March 31, 2020, $2,260,514 of these repurchase requests were pending processing and were completed by the Company in April 2020.

 

Note 9. Distributions

Since July 2013, the Company has paid monthly distributions for all classes of units. The following table summarizes the distributions paid for the three months ended March 31, 2020:

 

 

 

 

 

Daily Rate

 

 

Cash

 

 

Distributions

 

 

Total

 

Month ended

 

Date Declared

 

Per Unit

 

 

Distributions

 

 

Reinvested

 

 

Declared

 

January 31, 2020

 

January 15, 2020

 

$

0.00168675

 

 

$

1,610,076

 

 

$

793,883

 

 

$

2,403,959

 

February 29, 2020

 

February 14, 2020

 

$

0.00168675

 

 

 

1,513,649

 

 

 

743,093

 

 

 

2,256,742

 

March 31, 2020

 

March 15, 2020

 

$

0.00168675

 

 

 

1,648,333

 

 

 

772,972

 

 

 

2,421,305

 

Total for 2020

 

 

 

 

 

 

 

$

4,772,058

 

 

$

2,309,948

 

 

$

7,082,006

 

 

 

Note 10. Financial Highlights

The following is a schedule of financial highlights of the Company for the three months ended March 31, 2020 and 2019:

 

 

Three months ended

 

 

March 31,

 

 

March 31,

 

 

2020

 

 

2019

 

Per unit data (1):

 

 

 

 

 

 

 

Net asset value at beginning of period

$

8.01

 

 

$

8.20

 

Net investment income

$

0.12

 

 

$

0.13

 

Net change in unrealized depreciation on investments

$

(0.19

)

 

$

(0.05

)

Net (decrease) increase in net assets resulting from operations

$

(0.07

)

 

$

0.08

 

Distributions

$

(0.15

)

 

$

(0.15

)

Net change in accrued distribution and other fees

$

0.00

 

 

$

0.01

 

Net decrease in net assets

$

(0.22

)

 

$

(0.05

)

Net asset value at end of period (2)

$

7.79

 

 

$

8.14

 

Total return based on net asset value (3)

 

-0.84

%

 

 

1.03

%

Net assets at end of period

$

361,613,459

 

 

$

355,656,886

 

Units Outstanding at end of period

 

46,417,517

 

 

 

43,714,252

 

Ratio/Supplemental data (annualized) (3):

 

 

 

 

 

 

 

Ratio of net investment income to average net assets

 

6.08

%

 

 

6.61

%

Ratio of net operating expenses to average net assets

 

4.89

%

 

 

6.19

%

 

1

The per unit data was derived by using the weighted average units outstanding during the three months ended March 31, 2020 and 2019 which were 46,381,431 and 44,019,402, respectively.

32


2

For financial statement reporting purposes under GAAP, as of March 31, 2020 and 2019, the Company recorded a liability in the amount of $637,000 and $1,046,000, 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.

 

Note 11. Subsequent Events

The Company’s management has evaluated subsequent events through 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 months ended March 31, 2020, except as discussed below.

Distributions

With the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from April 1 through April 30, 2020. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00168675 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 cash distributions for April totaled $1,534,416. With respect to unitholders participating in the Distribution Reinvestment Plan, $769,369 of the distributions for April were reinvested in units.

The Company’s board of managers has authorized the declaration of distributions for May 2020. The May distributions will be calculated based on unitholders of record for each day in an amount equal to $0.00168675 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). These distributions will be paid in cash on or about June 1, 2020 or reinvested in units, for those unitholders participating in the Distribution Reinvestment Plan.

Investments

Subsequent to March 31, 2020 through May 14, 2020, the Company funded approximately $3.3 million in new investments and received proceeds from repayment of investments of approximately $0.9 million.

 

Amendment to Distribution Reinvestment Plan

 

On May 14, 2020, the Company's board of managers approved an amendment to the Company's Distribution Reinvestment Plan to allow holders of all classes of units other than Class Z units to participate, including holders who purchased units in the Company’s private placements.

 

Impact of COVID-19

There is an ongoing COVID-19 pandemic (more commonly referred to as the Coronavirus pandemic), which continues to adversely impact many industries and businesses directly or indirectly. Adverse impacts include disrupted global travel and supply chains, which adversely impact global commercial activity.  Many businesses across the globe, first in Asia, then in Europe, and now in the United States, have seen a downturn in production and productivity due to the suspension of business and temporary closure of offices and factories in an attempt to curb the spread of the Coronavirus. Any of these adverse developments could have a material adverse effect on the Company’s business, financial condition and results of operations. In addition, the extent of the impact of the COVID-19 pandemic on the business, financial condition and results of operations of the Company’s borrowers may result in their inability to make required payments in the near term which could impact the fair value of the Company’s investments. Although the Coronavirus has created material uncertainty and economic disruption, due to the rapidly evolving nature of the situation, the Company cannot predict the ultimate impact the Coronavirus will have on the Company. The Company is managing the situation through active engagement with its borrowers and is analyzing the potential effects COVID-19 may have on the portfolio or any potential capital deployments. Additionally, the Advisor has implemented its business continuity plan and additional procedures designed to protect against the introduction of the Coronavirus to the workforce, including permitting and encouraging employees to

33


work remotely, temporarily ceasing travel and significantly enhanced office sterilization procedures to minimize the probability of contagion.

As of the date of this report, some of the Company’s investments are known to have been significantly impacted, including material losses to revenues, by COVID-19 resulting in the need to restructure or extend payments associated with those investments. While many of the Company’s borrowers' businesses have experienced some disruption related to COVID-19, degrees of effect have varied to-date.  Where appropriate, the Company and/or its sub-advisors are working with borrowers to restructure facilities and may restructure additional facilities to provide relief needed by certain borrowers, without necessarily providing concessions that are out of market.

Due to the disruptions associated with COVID-19, the Company can provide no assurances that it will be able to continue to collect interest and principal payments at levels comparable to those prior to the pandemic. Further, the Company can provide no assurances that it will be able to recover all past due amounts from delinquent borrowers. The economic uncertainty and disruption caused by the pandemic are expected to be prolonged and the Company may see further defaults and additional investments may be added to the Watch List in subsequent quarters.  In addition, the Company have seen, and expect to continue to see, a slowdown in transaction volume due to the impact of the pandemic, as smaller SMEs and those in industries most affected by COVID-19 (travel and hospitality and retail sales, among others) may no longer be in a position to appropriately add debt capital.  Transaction volumes may also be affected by restrictions on travel and other shelter in place orders, making it more difficult to conduct in-person visits with potential borrowers. Additionally, the Company may hold higher levels of cash than before the pandemic to ensure it has sufficient cash available to meet its cash obligations. The combination of a potential slower pace of deployment with higher cash balances may further reduce cash flow generated to cover the Company’s distributions to its unitholders and/or cause the Company to further reduce its NAV in future periods.

 

34


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 impact of the COVID-19 pandemic and actions taken to prevent its spread on our business, results of operations, financial condition, liquidity and net asset value per unit;

 

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;

 

our ongoing litigation;

 

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.

35


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 Distribution Reinvestment Plan. SC Distributors, LLC was the dealer manager for the Offering. 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 Distribution Reinvestment Plan.

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 Distribution Reinvestment Plan to the investors who have purchased units in the Offering. Units issued pursuant to our Distribution Reinvestment Plan 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. On May 14, 2020, our board of managers approved an amendment to our Distribution Reinvestment Plan 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.

From time to time we opportunistically seek to raise capital through sales of our common units in private placements that are exempt from registration under the Securities Act, as amended (the “Securities Act”). For example, we currently are seeking to raise up to $100,000,000 in a continuous private offering of our Class Y and Class Z units that will expire on December 31, 2020, unless terminated earlier by us. To date, we have made no sales under this continuous offering.

For the three months ended March 31, 2020, we issued 286,586 of our units pursuant to our Distribution Reinvestment Plan for gross proceeds of approximately $2,310,000. In addition, for the three months ended March 31, 2020, we issued 274,522 of our units for gross proceeds of approximately $2,225,000 pursuant to our ongoing private placement described above. As of March 31, 2020, $44.4 million in units remained available for sale pursuant to the Distribution Reinvestment Plan.

From our inception to March 31, 2020, we have issued an aggregate of 52,051,050 of our units, including 5,073,056 units issued under our Distribution Reinvestment Plan, for gross proceeds of approximately $483,016,000 including approximately $43,945,000 reinvested under our Distribution Reinvestment Plan (before dealer manager fees of approximately $4,800,000 and selling commissions of $16,862,000, for net proceeds of $461,354,000).

 

 

36


Impact of COVID-19

There is an ongoing COVID-19 pandemic (more commonly referred to as the Coronavirus), which continues to adversely impact many industries and businesses directly or indirectly. Adverse impacts include disrupted global travel and supply chains, which adversely impact global commercial activity.  Many businesses across the globe, first in Asia, then in Europe, and now in the United States, have seen a downturn in production and productivity due to the suspension of business and temporary closure of offices and factories in an attempt to curb the spread of the Coronavirus. Any of these adverse developments could have a material adverse effect on our business, financial condition and results of operations. In addition, the extent of the impact of COVID-19 on the business, financial condition and results of operations of our borrowers may result in their inability to make required payments in the near term which could impact the fair value of our investments. Although the Coronavirus has created material uncertainty and economic disruption, due to the rapidly evolving nature of the situation, we cannot predict the ultimate impact it will have on us. We are managing the situation through active engagement with our borrowers and are analyzing the potential effects COVID-19 may have on the portfolio or any potential capital deployments. Additionally, our Advisor has implemented its business continuity plan and additional procedures designed to protect against the introduction of the Coronavirus to the workforce, including permitting and encouraging employees to work remotely, temporarily ceasing travel and significantly enhanced office sterilization procedures to minimize the probability of contagion.

As of the date of this report, with respect to current and future payment performance, 18.7% of investments (based on the fair value of the investments as of March 31, 2020, are known to have been significantly impacted, including material losses to revenues, by COVID-19 resulting in the need to restructure or extend payments associated with the aforementioned investments.

While many of our borrowers' businesses have experienced some disruption related to COVID-19, degrees of effect have varied to-date.  As indicated under "-Watch List Investments" below, the borrowers with respect to three of the four investments we added to the Watch List for the three months ended March 31, 2020 have not made required payments in part due to adverse impacts they have experienced related to the COVID-19 pandemic. Where appropriate, we and/or our sub-advisors are working with borrowers to restructure facilities and may restructure additional facilities to provide relief needed by certain borrowers, without necessarily providing concessions that are out of market. In the case of one investment, where efforts to reach an appropriate risk-adjusted restructuring have been unsuccessful, our sub-advisor issued a notice of default and acceleration notice, including the initiation of legal proceedings to recover amounts due.

Due to the disruptions associated with COVID-19, we can provide no assurances that we will be able to continue to collect interest and principal payments at levels comparable to those prior to the pandemic. Further, we can provide no assurances that we will be able to recover all past due amounts from delinquent borrowers. The economic uncertainty and disruption caused by the pandemic are expected to be prolonged and we may see further defaults and additional investments may be added to the Watch List in subsequent quarters.  The adverse impact of COVID-19 was a significant contributor to the $0.22 decline in our NAV per unit as of March 31, 2020, as compared to our NAV per unit as of December 31, 2019.

In addition, we have seen, and expect to continue to see, a slow down in transaction volume due to the impact of the pandemic, as smaller SMEs and those in industries most affected by COVID-19 (travel and hospitality, retail sales, etc.) may no longer be in a position to appropriately add debt capital.  Transaction volumes may also be affected by restrictions on travel and other shelter in place orders, making it more difficult to conduct in-person visits with potential borrowers. Additionally, we may hold higher levels of cash than before the pandemic to ensure we have sufficient cash available to meet our cash obligations. The combination of a potential slower pace of deployment with higher cash balances may further reduce cash flow generated to cover our distributions to our unitholders and/or cause us to further reduce our NAV in future periods.

 

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

37


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 March 31, 2020, more than a majority of our investments were in the form of participations and we expect that future investments will continue to be primarily 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 participations generally will be the respective sub-advisor or its affiliate that originates the loan in which we are participating.  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.

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. 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.

From our inception through December 31, 2017, under the terms of the Expense Responsibility Agreement, our Sponsor assumed substantially all our operating expenses. Our Sponsor has not assumed any of our operating expenses subsequent to December 31, 2017. As of December 31, 2017, the Sponsor had agreed to pay a cumulative total of approximately $16.7 million of operating expenses, of which $16.3 million have not been reimbursed to the Sponsor as of March 31, 2020.

Portfolio and Investment Activity

During the three months ended March 31, 2020, we invested approximately $21.0 million across four separate portfolio companies, including one new borrower. Our investments consisted of senior secured trade finance participations, senior secured term loan participations, senior secured term loans, short term notes, and equity warrants. Additionally, we received proceeds from repayments of investment principal of approximately $27.8 million.

38


At March 31, 2020 and December 31, 2018, the Company’s investment portfolio included 43 and 47 companies, respectively, and the fair value of our portfolio was comprised of the following:

 

 

 

As of March 31, 2020

 

 

As of December 31, 2019

 

 

 

Investments

 

 

Percentage of

 

 

Investments

 

 

Percentage of

 

 

 

at Fair Value

 

 

Total Investments

 

 

at Fair Value

 

 

Total Investments

 

Senior secured term loans

 

$

94,036,036

 

 

 

28.8

%

 

$

83,353,208

 

 

 

24.5

%

Senior secured term loan participations

 

 

159,795,580

 

 

 

49.0

%

 

 

180,500,425

 

 

 

53.0

%

Senior secured trade finance participations

 

 

68,410,409

 

 

 

20.9

%

 

 

71,606,458

 

 

 

21.0

%

Short term and other investments *

 

 

3,758,063

 

 

 

1.1

%

 

 

3,758,063

 

 

 

1.1

%

Equity warrants

 

 

1,080,222

 

 

 

0.3

%

 

 

1,080,222

 

 

 

0.3

%

Total investments

 

$

327,080,310

 

 

 

100.0

%

 

$

340,298,376

 

 

 

100.0

%

 

*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.

As of March 31, 2020, the weighted average yields, based upon the cost of our portfolio, on trade finance participations, term loan participations, senior secured term loans, and short term investments were 11.7%, 12.7%, 12.4%, and 8.8%, respectively, for a weighted average yield on investments of approximately 12.3% on our total portfolio.  

As of March 31, 2019, the weighted average yields, based upon the cost of our portfolio, on trade finance participations, term loan participations, senior secured term loans, and short term investments were 11.5%, 13.2%, 12.3%, and 9.9%, respectively, for a weighted average yield on investments of approximately 12.5% on our total portfolio.

39


As of March 31, 2020, 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

 

Sugar Producer

 

Agricultural Products

 

Sustainable Agriculture & Agroprocessing

 

Brazil

 

12.43%

 

 

12/15/2020

(2)

$

2,851,296

 

 

$

2,577,164

 

LED Lighting Service Provider

 

Electric Services

 

Technological Innovation

 

Chile

 

11.00%

 

 

6/6/2021

 

 

1,456,161

 

 

 

1,395,953

 

Minor Metals Resource Trader

 

Secondary Nonferrous Metals

 

Responsible Metals Distribution

 

Hong Kong

 

12.00%

 

 

6/22/2021

 

 

10,000,000

 

 

 

10,000,000

 

Consumer Lender

 

Personal Credit Institutions

 

Inclusive Finance

 

Colombia

 

11.25%

 

 

8/1/2021

 

 

3,173,803

 

 

 

3,173,803

 

Sustainable Packaging Manufacturer

 

Corrugated and solid fiber boxes

 

Recycling

 

Ecuador

 

11.19%

 

 

6/21/2025

 

 

10,000,000

 

 

 

10,000,000

 

Resource Trader

 

Coal and Other Minerals and Ores

 

Responsible Natural Resources Distribution

 

Hong Kong

 

11.50%

 

 

12/28/2020

 

 

15,891,820

 

 

 

15,891,820

 

Wholesale Distributor

 

Chemicals and Allied Products

 

Responsible Industrial Goods Distribution

 

Malaysia

 

12.00%

 

 

3/31/2021

 

 

15,000,000

 

 

 

15,000,000

 

Waste to Fuels Processor

 

Refuse Systems

 

Recycling

 

Mexico

 

14.50% PIK

 

 

7/27/2021

(3)

 

25,600,588

 

 

 

26,680,810

 

Sustainable Timber Exporter

 

Logging

 

Sustainable Forestry

 

New Zealand

 

11.50%

 

 

2/11/2021

 

 

5,797,622

 

 

 

5,797,622

 

Diaper Manufacturer II

 

Consumer Products

 

Responsible Consumer Goods Production

 

Peru

 

10.00%

 

 

8/15/2021

(2)

 

4,599,086

 

 

 

4,599,086

 

SME Financier

 

Short-Term Business Credit

 

Inclusive Finance

 

Botswana

 

11.67%

 

 

8/18/2021

 

 

4,740,000

 

 

 

4,740,000

 

IT Service Provider

 

Programming and Data Processing

 

Access to Technology

 

Brazil

 

10.00% Cash/1.50% PIK

 

 

11/24/2022

 

 

17,711,880

 

 

 

17,852,490

 

Ship Maintenance & Repair Service Provider

 

Boatbuilding and Repairing

 

Infrastructure Development

 

Brazil

 

8.00% Cash/4.00% PIK

 

 

12/7/2023

 

 

5,799,797

 

 

 

5,775,774

 

Hospitality Service Provider

 

Hotels and Motels

 

Infrastructure Development

 

Cabo Verde

 

10.00% Cash/4.75% PIK

 

 

8/21/2021

 

 

13,002,528

 

 

 

11,354,899

 

Fiber Optics Network Provider

 

Telephone Communications

 

Access to Technology

 

Colombia

 

8.95% Cash/4.00% PIK

 

 

10/15/2023

 

 

20,008,704

 

 

 

20,113,924

 

Mall Operator

 

Department Stores

 

Infrastructure Development

 

Croatia

 

7.00% Cash/6.00% PIK

 

 

1/23/2021

 

 

8,635,527

 

 

 

8,726,737

 

Tank Farm Operator

 

Petroleum and Petroleum Products

 

Responsible Fuel Storage

 

Ghana

 

12.00%

 

 

8/10/2021

 

 

15,500,000

 

 

 

15,500,000

 

Mobile Network Operator

 

Telephone Communications

 

Access to Technology

 

Jersey

 

12.35%

 

 

3/28/2023

 

 

16,435,000

 

 

 

16,093,000

 

Freight and Cargo Transporter

 

Freight Transportation Arrangement

 

Responsible Logistics Management

 

Kenya

 

9.88% Cash/4.00% PIK

 

 

3/31/2023

 

 

13,641,586

 

 

 

13,641,586

 

Property Developer

 

Land Subdividers and Developers

 

Infrastructure Development

 

Namibia

 

8.50% Cash/4.00% PIK

 

 

8/15/2021

 

 

17,006,658

 

 

 

14,695,323

 

Wheel Manufacturer

 

Motor Vehicle Parts and Accessories

 

Responsible Consumer Goods Production

 

Netherlands

 

15.00%

 

 

8/20/2021

 

 

8,776,515

 

 

 

8,849,338

 

Marine Logistics Provider

 

Water Transportation

 

Responsible Logistics Management

 

Nigeria

 

12.08%

 

 

9/16/2020

 

 

12,753,503

 

 

 

11,084,262

 

Bread Manufacturer

 

Food Products

 

Responsible Consumer Goods Production

 

Romania

 

8.00% Cash/5.00% PIK

 

 

7/18/2021

 

 

1,739,676

 

 

 

1,718,120

 

Grain Processor C

 

Farm Products

 

Sustainable Agriculture & Agroprocessing

 

Uganda

 

14.50%

 

 

4/30/2024

 

 

6,850,000

 

 

 

6,863,583

 

FMCG Manufacturer

 

Soap, Detergents, and Cleaning

 

Responsible Consumer Goods Production

 

Zambia

 

12.23%

 

 

8/27/2023

 

 

2,786,544

 

 

 

2,786,544

 

Agriculture Distributor

 

Agricultural Products

 

Sustainable Agriculture & Agroprocessing

 

Argentina

 

10.45%

 

 

6/30/2018

(2)

 

12,500,000

 

 

 

9,839,958

 

Dairy Co-Operative

 

Consumer Products

 

Sustainable Dairy Production

 

Argentina

 

10.67%

 

 

7/29/2019

(2)

 

6,000,000

 

 

 

4,719,383

 

Beef Exporter

 

Meat, Poultry & Fish

 

Sustainable Agriculture & Agroprocessing

 

Argentina

 

11.50%

 

 

8/31/2017

(2)

 

9,000,000

 

 

 

6,361,679

 

Oilseed Distributor

 

Fats and Oils

 

Sustainable Agriculture & Agroprocessing

 

Argentina

 

9.00%

 

 

8/31/2017

(2)

 

6,000,000

 

 

 

3,398,558

 

Cocoa & Coffee Exporter

 

Chocolate and Cocoa Products

 

Sustainable Agriculture & Agroprocessing

 

Cameroon

 

16.42%

 

 

8/31/2019

(2)

 

10,413,683

 

 

 

9,192,637

 

Chia Seed Exporter

 

Farm Products

 

Sustainable Agriculture & Agroprocessing

 

Chile

 

10.90%

 

 

3/4/2018

(2)

 

1,326,687

 

 

 

1,269,586

 

40


Fish Processor & Exporter

 

Commercial Fishing

 

Sustainable Aquaculture & Processing

 

Ecuador

 

9.00%

 

 

6/19/2019

(4)

 

35,838

 

 

 

35,838

 

Sesame Seed Exporter

 

Farm Products

 

Sustainable Agriculture & Agroprocessing

 

Guatemala

 

12.00%

 

 

3/31/2016

(2)

 

881,800

 

 

 

10,504

 

Non-Ferrous Metal Trader

 

Coal and Other Minerals and Ores

 

Responsible Metals Distribution

 

Hong Kong

 

11.50%

 

 

5/4/2020

 

 

16,456,270

 

 

 

14,899,927

 

Mobile Phone Distributor

 

Telephone and Telegraph Apparatus

 

Access to Technology

 

Hong Kong

 

12.00%

 

 

3/31/2020

(2)

 

9,500,000

 

 

 

7,868,028

 

Vanilla Exporter

 

Groceries and Related Products

 

Sustainable Agriculture & Agroprocessing

 

Mauritius

 

12.02%

 

 

5/8/2020

 

 

468,756

 

 

 

468,756

 

Scrap Metal Recycler

 

Secondary Nonferrous Metals

 

Recycling

 

Morocco

 

11.00%

 

 

7/31/2018

(2)

 

7,349,626

 

 

 

7,530,616

 

Cocoa Trader III

 

Farm Products

 

Sustainable Agriculture & Agroprocessing

 

Nigeria

 

9.00%

 

 

4/30/2020

 

 

675,256

 

 

 

675,256

 

Cocoa Trader II

 

Farm Products

 

Sustainable Agriculture & Agroprocessing

 

Nigeria

 

9.00%

 

 

4/30/2020

 

 

838,967

 

 

 

838,967

 

Fruit & Nut Distributor

 

Food Products

 

Sustainable Agriculture & Agroprocessing

 

South Africa

 

10.00%

 

 

5/22/2015

(2)

 

785,806

 

 

 

497,462

 

Pharmaceuticals Distributor

 

Drugs, Proprietaries, and Sundries

 

Access to Healthcare and Pharmaceuticals

 

United Arab Emirates

 

14.60%

 

 

6/30/2018

(2)

 

803,254

 

 

 

803,254

 

Receivable from IIG TOF B.V.

 

Financial services

 

Other

 

N/A

 

8.75%

 

 

N/A

(2)

 

6,000,000

 

 

 

3,758,063

 

Total Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

327,080,310

 

 

 

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

Refer to the Consolidated Schedule of Investments for further information about the status of this investment.

 

As of March 31, 2020, the composition our investments based on the Company created industry classification was as follows:

 

Industry Classification

 

Value

 

 

of Total

 

Access to Healthcare and Pharmaceuticals

 

$

803,254

 

 

 

0.2

%

Access to Technology

 

 

61,927,442

 

 

 

18.9

%

Inclusive Finance

 

 

7,913,803

 

 

 

2.4

%

Infrastructure Development

 

 

40,552,733

 

 

 

12.4

%

Recycling

 

 

44,211,426

 

 

 

13.5

%

Responsible Consumer Goods Production

 

 

17,953,088

 

 

 

5.5

%

Responsible Fuel Storage

 

 

15,500,000

 

 

 

4.7

%

Responsible Industrial Goods Distribution

 

 

15,000,000

 

 

 

4.6

%

Responsible Logistics Management

 

 

24,725,848

 

 

 

7.6

%

Responsible Metals Distribution

 

 

24,899,927

 

 

 

7.6

%

Responsible Natural Resources Distribution

 

 

15,891,820

 

 

 

4.9

%

Sustainable Agriculture & Agroprocessing

 

 

41,994,110

 

 

 

12.9

%

Sustainable Aquaculture & Processing

 

 

35,838

 

 

 

0.0

%

Sustainable Dairy Production

 

 

4,719,383

 

 

 

1.5

%

Sustainable Forestry

 

 

5,797,622

 

 

 

1.8

%

Technological Innovation

 

 

1,395,953

 

 

 

0.4

%

Other

 

 

3,758,063

 

 

 

1.1

%

Total

 

$

327,080,310

 

 

 

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

 

41


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 aggregate of all outstanding principal balances on our investments and our cash balances on the date of investment.  As of March 31, 2020, the Company was 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). As of March 31, 2020 and December 31, 2019, the Company had 17 and 13 Watch List investments, respectively.

Investments through The International Investment Group L.L.C. (“IIG”) as the Sub-Advisor

The Company previously entered into a sub-advisory arrangement with IIG through the Company’s Advisor, however, the Company has determined not to make any further investments with IIG as the sub-advisor.  IIG was the sub-advisor with respect to seven of the 17 investments that the Company has deemed Watch List investments. The Company is aware that IIG has substantially wound down its business. Further, the Company has learned that IIG Trade Opportunities Fund N.V. (“IIG TOF N.V.”), a fund that was advised by IIG from whom the Company purchased certain Participations as described below, has been placed into bankruptcy proceedings in Curacao involuntarily by certain of its equity investors. In addition, on December 11, 2019, a subsidiary of the Company filed an application in Amsterdam District Court to declare IIG Trade Opportunities Fund B.V. (“IIG TOF B.V.”), a subsidiary of IIG TOF N.V that also was advised by IIG and from whom the Company purchased certain participations as described below, bankrupt. On January 21, 2020, the Amsterdam District Court declared IIG TOF B.V. bankrupt and appointed a Dutch law firm as liquidator. The Company determined not to engage in any new business with IIG due in part to IIG’s failure to provide the Company with complete and accurate information with respect to its investments for which IIG was the sub-advisor, the misapplication of $6 million that the Company had invested in 2017 and the failure to return the Company’s funds that were misapplied by IIG.  The Company has not received any material updated information from IIG concerning the investments for which IIG was the sub-advisor since the first quarter of 2019, despite IIG being contractually obligated to provide the Company with updated information.  Accordingly, the summaries of the investments for which IIG was the sub-advisor may not be up-to-date or complete. The Company has updated the summaries to the best of its knowledge and has requested updated and accurate reporting with respect to each investment from IIG, but IIG has not provided the information to the Company. Please see Note 5 – Contingences for a description of an arbitration proceeding the Company has filed against IIG

 

 

IIG was the sub-advisor for the following Watch List Investments as of March 31, 2020:

 

Portfolio Company

 

Principal balance

 

 

Fair value

 

 

Accrued interest

 

 

Valuation technique

Procesos Fabriles S.A.

 

$

881,800

 

 

$

10,504

 

 

$

 

 

Collateral based approach

Algodonera Avellaneda S.A.

 

 

6,000,000

 

 

 

3,398,558

 

 

 

778,500

 

 

Income approach

IIG TOF B.V. receivable

 

 

6,000,000

 

 

 

3,758,063

 

 

 

572,000

 

 

Income approach

Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay

 

 

9,000,000

 

 

 

6,361,679

 

 

 

264,500

 

 

Income approach

Compania Argentina de Granos S.A.

 

 

12,500,000

 

 

 

9,839,958

 

 

 

 

 

Income approach

Sancor Cooperativas Unidas Ltda

 

 

6,000,000

 

 

 

4,719,383

 

 

 

442,805

 

 

Hybrid income/collateral based approach

Functional Products Trading S.A.

 

 

1,326,687

 

 

 

1,269,586

 

 

 

220,882

 

 

Income approach

Total

 

$

41,708,487

 

 

$

29,357,731

 

 

$

2,278,687

 

 

 

 

Procesos Fabriles S.A.

 

In October 2015, the Company purchased a Participation in a trade finance facility originated by IIG TOF N.V., a fund advised by the Company’s sub-advisor, IIG, with Procesos Fabriles S.A. (“Profasa”), as the borrower. Profasa is located in Guatemala. The Participation had a maturity date of March 31, 2016. As reported in previous filings, in 2016, due to the loss of a major customer, Profasa was unable to repay the facility on the stated maturity date.

 

42


As Profasa’s financial position deteriorated, in 2017, IIG determined that a restructuring of Profasa’s business was required and, as such, IIG started taking control of Profasa’s operations.  Based on information provided by IIG in 2018, the Company’s existing Participation in this trade finance facility is near the final stages of being restructured to a Participation in a term loan. The Company is currently in discussions with IIG regarding a potential assignment of the Company’s portion of the underlying trade finance facility.    

 

As of the date of this filing, completion of restructuring is unlikely, and, as such, the Company has valued this investment utilizing the collateral based approach, in accordance with its valuation policy. The fair value reflects a significant discount based upon the Company’s belief that liquidation of collateral will ultimately be required, complicated by the bankruptcy proceedings and the Company’s ongoing legal dispute with IIG. The Company has placed this position on non-accrual as of July 1, 2017 and interest not recorded relative to the original terms of this participation for the three months ended March 31, 2020 and 2019 amounted to $27,530 and $27,227, respectively.

 

Algodonera Avellaneda S.A.

 

In March 2017, the Company purchased a Participation in a trade finance facility originated by IIG Trade Opportunities Fund B.V. (“IIG TOF B.V.”), a subsidiary of IIG TOF N.V that was advised by IIG, with Algodonera Avellaneda S.A. (“Algodonera”) as the borrower, and a corporate guarantee by Vicentin S.A.I.C. (“Vicentin”), an Argentine-based company that, through its subsidiaries, operates as an agro industrial company that manufactures and exports cereals and oilseeds, cotton textiles, biodiesel, concentrated grape juice, agrichemicals, feed lots and wines.    

 

As noted above, the Company purchased a Participation in a trade finance facility originated by IIG with Algodonera as the borrower in March 2017. The Company purchased the Participation from IIG 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. The commercial court has jurisdiction over commercial claims and disputes of this type. After IIG filed its claims in the commercial court, the court ruled that IIG’s claims were valid and enjoined Vicentin’s cash accounts to allow for recovery by IIG. Once sufficient cash had been secured, the court allowed Vicentin to replace the enjoined cash accounts with a payment guarantee from Zurich Insurance Group with a 100% LTV, including accrued interest. Thereafter, the commercial court issued its final judgment, ordering Algodonera and Vicentin to pay $22.4 million, plus interest, to IIG, which includes the amount owed pursuant to the trade finance facility described above in which the Company purchased the Participation. Shortly thereafter, the criminal court in Santa Fe, Argentina issued a letter to the commercial court in Buenos Aires, Argentina ordering the suspension of the commercial court proceedings, but the commercial court rejected the suspension. Algodonera and Vicentin appealed the commercial court’s rejection of the suspension and submitted an additional letter from the criminal court providing the reasons for the criminal court’s suspension request, which included allegations of fraud by IIG.  The commercial court rejected the suspension a second time and Algodonera and Vicentin appealed to the court of appeals.  In March 2019, the court of appeals ruled in favor of the criminal court and countermanded the commercial court’s rejection of the suspension, with proceedings set to continue in the criminal court.

 

The Company learned on July 31, 2018 that IIG had failed to disclose to the Company that the Algodonera trade finance facility was subject to a subrogation agreement, which potentially would permit Algodonera to transfer all or a portion of its IIG debt outstanding to two other companies (specifically, Nacadie (defined below) and FRIAR (defined below)).  The Company also learned on July 31, 2018 that the court proceedings involving IIG, Algodonera and Vicentin also included a legal dispute over the ability of Algodonera to enforce its rights under the subrogation agreement, as IIG argued that Algodonera’s default under its trade finance facility with IIG prevents Algodonera from being eligible to transfer its debt under its facility with IIG to Nacadie and FRIAR under the subrogation agreement. IIG had not disclosed this additional dispute and subrogation agreement to the Company. 

 

The Company has been informed by IIG’s legal counsel that the commercial court proceedings have been terminated due to the parties having reached a settlement.  The Company has also been told by IIG’s legal counsel that the settlement proceeds have been placed in an escrow account, however, the Company has not received a copy of the settlement agreement, does not know the amount received in the settlement, and does not know when or if it will receive any of the settlement proceeds.  Accordingly, the Company does not know with certainty any amount that it may receive from the settlement.

 

Given that a settlement has been reached, as described above, the Company has applied a discount to the fair value to account for the inherent uncertainty regarding the amounts that may be recoverable by the Company from the settlement. Taking the factors described above into consideration, the Company believes, that as of March 31, 2020, the most appropriate valuation method is the income approach. The Company has placed this investment on non-accrual status effective January 1, 2019 and interest not recorded relative to the original terms of this participation for the three months ended March 31, 2020 and 2019 amounted to $136,500 and $135,000, respectively.

 

43


IIG Trade Opportunities Fund B.V. Receivable

 

In March 2017, the Company purchased a Participation in 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.  Loan documents provided to the Company by IIG indicate that Vicentin is guarantor of the payments to be made by Nacadie under the facility. Nacadie is an Uruguay-based company focused on trading of the “soy bean complex” (soybeans, soybean meals, and oils) originating from Argentina, Paraguay and Uruguay. The Company received three interest payments under this Participation in March 2017 and has not received any other payments of principal or interest.  Given that the loan documents state that Vicentin had guaranteed the payments due under both the Algodonera and Nacadie trade finance facilities, the Company erroneously believed that IIG had made filings in the commercial court in Buenos Aires, Argentina related to the Nacadie trade finance facility, similar to the filings IIG made with respect to the Algodonera facility.  In July 2018, IIG informed the Company that the Nacadie trade finance facility was not included in its commercial court filings referenced above under “—Algodonera Avellaneda S.A.” IIG also informed the Company that it had not called a default on Nacadie for nonpayment under the facility. Given this new information, in order to re-confirm the details of its Participation in the Nacadie trade finance facility and the status of the facility, the Company requested original versions of all documents related to its Participation in the facility, including original versions of the underlying facility agreements and bank statements showing the Company’s investment in the facility. The Company had previously been provided by IIG with copies of documents related to its Participation and the underlying facility.  During the third quarter of 2018, IIG informed the Company that although it had reviewed its books and records, it could not locate all of the original documents requested by the Company.  In connection with its 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.  IIG has not yet repaid the Company for this Participation as of the date of this Quarterly Report on Form 10-Q.  

 

Given that this investment is no longer classified as a Participation in a trade finance facility, but rather as a receivable from IIG TOF B.V and taking the factors described above into consideration, the Company believes, that as of March 31, 2020, the most appropriate valuation method is the income approach.  Although a senior executive at IIG agreed in conversations with the Company’s senior management to repay the Company for this investment in an amount equal to the outstanding principal and accrued interest (calculated in accordance with the terms of the Nacadie Participation in which the Company originally invested), the Company has not received a written agreement from IIG to this effect.  As noted above, the Company has filed an arbitration proceeding against IIG asserting multiple claims, including claims related to IIG’s failure to repay the Company for this participation. The Company has applied a discount to the fair value based on the uncertainty created by the risk that IIG will not honor its agreement to repay the Company, which risk is enhanced by the fact that IIG has substantially wound down its business, as well as the uncertainty of the ultimate resolution of the Company’s legal dispute with IIG. The Company placed this receivable on non-accrual status, effective July 1, 2018 and interest not recorded relative to the original terms of this investment amounted to approximately $132,708 and $131,250 for the three months ended March 31, 2020 and 2019, respectively.  

 

Frigorifico Regional Industrias Alimentarias, S.A., Sucursal Uruguay

 

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. The commercial court has jurisdiction over commercial claims and disputes of this type. During January 2018 the court granted IIG’s motion to freeze FRIAR’s accounts. At that time, IIG informed the Company that it was also in the process of securing additional collateral to cover the full balance outstanding, including accrued interest and penalties. In August 2018, the Company confirmed that FRIAR continues to operate and is a going concern.

 

As noted above, the Company learned on July 31, 2018 that IIG had failed to disclose to the Company that the Algodonera trade finance facility was subject to a subrogation agreement, which potentially would permit Algodonera to transfer all or a portion of its IIG debt outstanding to FRIAR and Nacadie.  Also as described above, the Company learned on July 31, 2018 that IIG and Algodonera were in a legal dispute over the ability of Algodonera to enforce its rights under the subrogation agreement, as IIG has argued that Algodonera’s default under its trade finance facility with IIG prevents Algodonera from being eligible to transfer its debt under its facility with IIG to FRIAR and Nacadie under the subrogation agreement.  Additionally, on July 31, 2018, the Company learned new information with regard to a put option that could potentially allow FRIAR to settle its outstanding debt to IIG with shares of FRIAR.  In addition to settling FRIAR’s debt to IIG, the put option could potentially permit FRIAR to subrogate Algodonera’s and Nacadie’s debt to IIG. As with the subrogation agreement discussed above, the Company has learned that IIG disputed the enforceability of the put option in court. The criminal court in Santa Fe, Argentina issued a letter to the commercial court in Buenos Aires, Argentina ordering the suspension of the commercial court proceedings, but the commercial court rejected the suspension. FRIAR appealed the commercial court’s rejection of the suspension and submitted an additional letter from the criminal court providing the reasons for the criminal court’s suspension request, which include allegations of fraud by IIG.  In April 2019, the

44


court of appeals ruled in favor of the criminal court and countermanded the commercial court’s rejection of the suspension, with proceedings set to continue in the criminal court.

 

Starting with the quarter ended June 30, 2018, the Company believed that the most appropriate valuation method was a combination of the collateral based approach and the income approach. The Company continued to utilize the collateral based approach due to IIG’s communications with the Company in 2018 that it was continuing to rely on the court proceedings to secure repayment, but determined to also utilize the income approach because the parties have reached a settlement as described above.

 

Although IIG expressed to the Company in the third quarter of 2018 its belief that it will prevail in the court proceedings, a settlement has been reached among the parties as described above; therefore, the Company has applied a discount to the fair value to account for the inherent uncertainty regarding the amount that may be recoverable by the Company from the settlement. The Company determined that the most appropriate method to calculate the fair value of this investment as of March 31, 2020 is the income approach. The Company placed the Participation on non-accrual status effective January 1, 2018 and interest not recorded relative to the original terms of this participation for the three months ended March 31, 2020 and 2019 amounted to $261,625 and $258,750, respectively.

 

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 is 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 other CAGSA lenders and had sent warning letters to CAGSA in order to protect its rights under the credit facility. Additionally, IIG 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. As noted above, IIG has substantially wound down its business, which could put the finalization of a settlement at risk, if the settlement has not already been finalized. As of the date of this report, the Company does not know if the preliminary settlement has been finalized and details of the terms of the preliminary settlement were not available.

 

As a short-term trade finance facility, CAGSA was valued utilizing the income approach for the quarter ended March 31, 2018. However, given the uncertainty as to the ability of CAGSA to provide future sufficient cash flows in order to meet its debt obligations, as well as the financial impact of a potential restructuring, the Company decided that starting with the quarter ended June 30, 2018, the collateral based approach was a more appropriate valuation method.  With the announcement that CAGSA had reached a preliminary settlement with its creditors, as of March 31, 2019, the Company further modified the valuation approach for this investment to the income approach. The Company has estimated the fair value of the principal amount of this investment as of March 31, 2020 based on the income approach, discounted to reflect the uncertainty related to CAGSA’s potential restructuring (including the risk that the restructuring may not be completed, given that IIG has substantially wound down its business) and the ultimate resolution of the Company’s ongoing legal dispute with IIG. Based on the information available to the Company and according to its valuation policies, the Company placed CAGSA on non-accrual status, effective July 1, 2018 and interest not recorded relative to the original terms of this investment amounted to approximately $330,191 and $326,563, respectively for the three months ended March 31, 2020 and 2019.

 

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.  Sancor has been in ongoing negotiations to reorganize itself, including with multiple potential buyers. IIG worked with Sancor to restructure the existing loan and has extended the maturity to July 29, 2019, with an annual renewal option.  Although IIG has not provided the Company with updated information requested by the Company with respect to the Company’s investment in this facility in connection with the Company’s preparation of this report, the Company believes, based on reports in the media, that Sancor will be sold.  In February 2019, Sancor announced the completion of a partial sale of assets, which allowed it to make some payments to creditors but the Company has not received any payment since that announcement. Due to the uncertainty associated with the timing and final terms of a full asset sale, which is further made uncertain due to IIG having substantially wound down its business, the Company believes the most appropriate valuation method continues to be a hybrid of the income approach and the collateral based approach as of March 31, 2020, based upon the value of the Company’s pledged collateral, discounted for the uncertainty around the expected timing and value of a potential sale and the uncertainty regarding the ultimate resolution of the Company’s ongoing legal dispute with IIG. The Company placed Sancor on non-accrual status effective October 1, 2019 and interest not recorded relative to the original terms of this investment amounted to approximately $161,829 for the three months ended March 31, 2020.

45


 

Functional Products Trading S.A.

 

Between June and September 2016, the Company purchased two Participations in a trade finance facility originated by IIG TOF N.V., with Functional Products Trading S.A. (“Functional”), a Chilean company that exports chia seeds to United States and European off-takers.  While the original maturity date of this Participation was December 11, 2016, the maturity was extended to March 4, 2018. In 2017, Functional experienced operational losses due to volatile prices for raw chia seeds and its byproducts, with sales declining by 57% from 2016. As a result, Functional was unable to make the principal payment as planned and developed a full restructuring plan (selling an office building and entering into a lease back agreement) with its current lenders, including IIG, to provide more cash flow flexibility, become current on all interest payments and improve its capital structure, in order to support Functional’s growth initiatives.

IIG informed the Company in a prior period that it was working with Functional on restructuring the facility, but it is uncertain when or if this will happen given the bankruptcy proceedings against IIG TOF N.V. in Curacao and given that IIG has substantially wound down its business. As of March 31, 2020, the Company has estimated the fair value based on the income approach, discounted to present value using an appropriate yield to maturity, assuming the facility is restructured in the manner in which IIG previously informed the Company it expected the loan to be restructured.  The appropriate yield to maturity increased to reflect uncertainty around the timing and completion of the restructuring, given the bankruptcy proceeding and IIG having substantially wound down its business. The Company placed Functional on non-accrual status, effective July 1, 2019 and interest not recorded relative to the original terms of this investment amounted to approximately $36,554 for the three months ended March 31, 2020.

 

Investments through other sub-advisors

 

Usivale Industria E Comercio, Ltda.  

 

As of March 31, 2020, the Company’s investment in Usivale Industria E Comercio, Ltda. (“Usivale”), a sugar processing company located in Brazil, is comprised of two senior secured term loans for an aggregate loan amount of $2,851,296 and total accrued interest of $465,770.  As reported in previous filings, Usivale exited judicial recovery on October 7, 2016 and resumed normal operations.  Subsequently, the Company began receiving principal and interest payments from Usivale as scheduled. During an on-site visit with Usivale’s management in September 2017, Usivale indicated its intention to pay the 2017 principal and interest payment on time and in full, assuming relatively steady sugar prices.  Post-site visit, sugar prices again compressed significantly, which caused added pressure on the cash flow of the business. Sugar price pressure continued through 2018. The 2017 annual interest payment was received in full and the 2018 annual interest payment was received in March 2019, though principal payment was not made on schedule. The Company is currently working with Usivale’s management to optimize their financial performance in response to volatile sugar prices to better facilitate principal repayment, including engaging industry and financial consultants to that effect. As part of that effort, the Company and Usivale executed a standstill agreement for principal repayment until December 2019.

 

As of March 31, 2020, the Company has estimated the fair value of the principal amount of the Usivale loans at $2,577,164, which is based on the income approach, accounting for expected principal and interest payments discounted by the loan’s yield to maturity, which includes uncertainty related to continued volatility in sugar prices.

 

Applewood Trading 199 Pty, Ltd.

 

In January 2015, the Company purchased a $1,250,000 Participation in a trade finance facility originated by Barak Fund SPC Ltd., a fund advised by the Company’s sub-advisor, Barak Fund Management Ltd. (“Barak”), with Applewood Trading 199 Pty, Ltd. (“Cape Nut”), as the borrower.  Cape Nut is located in Cape Town, South Africa.  As of March 31, 2020, the total balance outstanding under the Participation amounts to $785,806. Cape Nut’s trade finance facility has a stated maturity date of May 22, 2015, which Barak agreed to extend in October 2014 and the Company subsequently agreed to an extension of the maturity date for its Participation. The Company and Barak are working with Cape Nut to establish an appropriate repayment schedule. Cape Nut made partial principal payments during 2015, 2016 and 2017. Accordingly, the Company placed this Participation on non-accrual status effective February 1, 2016 and interest not recorded relative to the original terms of this Participation amounted to approximately $34,761 and $34,379, respectively, for the three months ended March 31, 2020 and 2019.

 

As reported in previous filings, due to Cape Nut’s cash flow difficulties and operating losses, in 2016, the Company’s sub-advisor, Barak, facilitated a strategic sale of Cape Nut, which closed in June 2016, resulting in Barak owning 50% of Cape Nut. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Cape Nut to be $497,462 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Cape Nut’s financial performance.

 

46


Mac Z Group SARL

 

Between July 2016 and April 2017, the Company purchased nine Participations totaling $9,000,000 in a trade finance facility originated by Scipion Active Trading Fund, a fund advised by the Company’s sub-advisor, Scipion Capital, Ltd. (“Scipion”), with Mac Z Group SARL (“Mac Z”), a scrap metal recycler, as the borrower.  Mac Z is located in Morocco. As of March 31, 2020, the outstanding principal balance on this Participation was $7,349,626 with no accrued interest. The primary collateral securing this Participation was 1,970 tons of copper scrap.  In late October 2017, Scipion’s designated collateral manager for Mac Z notified Scipion of an investigation into a 1,820 ton, approximately $13.3 million, shortage of copper scrap inventory physically held in the warehouse. The copper scrap is pledged to the Company and serves as the primary collateral for this Participation. The missing inventory led the Company to place Mac Z on the Watch List and on non-accrual status.

 

In addition to conducting its investigation, Scipion issued an event of default and has taken steps to enforce the corporate guarantee, personal guarantee and relevant pledges made for the benefit of Scipion with respect to the facility, which include two insurance policies. Scipion has placed a blocking notice on all of Mac Z’s bank accounts and has requested a freeze order from the Moroccan local courts on the physical assets of the company. Since the initial discovery and actions, Mac Z sold remaining inventory and the Company was paid interest of approximately $330,000 in January 2018 and $292,000 during the first week April 2018.  Mortgages against two unencumbered parcels of land ($5.9 million estimated value) are in the process of being finalized in favor of Scipion under this facility. 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 filed a claim against the collateral manager under its professional indemnity insurance policy, which covers up to $40 million in losses.

 

Based on these developments, the Company believes there is sufficient collateral available to cover both the outstanding principal balance and the accrued interest. The Company placed this Participation on non-accrual status effective October 1, 2017 and interest not recorded relative to the original terms of this Participation for the three months ended March 31, 2020 and 2019 amounted to $204,361 and $202,115, respectively. The Company believes, that as of March 31, 2020, the most appropriate valuation method is the income approach and the Company has determined the fair value of the principal amount of this investment to be $7,530,616, accounting for existing inventory and the current claim against the collateral manager’s insurance, discounted for the time expected for collection and uncertainty related to the judicial process.

 

Global Pharma Intelligence Sarl

In July 2017, the Company purchased one Participation in a trade finance facility originated by Scipion Active Trading Fund, a fund advised by the Company’s sub-advisor, Scipion, with Global Pharma Intelligence Sarl (“GPI”), an international pharmaceutical materials supplier with primary operations in Dubai, as the borrower.  As of March 31, 2020, the outstanding principal balance on this Participation was $803,254 and interest had been paid in full through August 10, 2018. The accrued interest balance as of March 31, 2020 is $134,215. Repayment on the Participation has been slower than originally anticipated due to operational delays within the underlying trade. GPI had been actively working with its buyer to resolve the operational delays, but the buyer has since experienced financial challenges making payment of the outstanding invoice unlikely. As such, focus has primarily shifted to pursuing a claim under GPI’s credit insurance policy which covers full outstanding principal and interest of the loan. Recovery through the insurance policy is expected to take place in the coming quarters. Due to the reliance on the cash flow from the insurance policy, the Company believes the most appropriate valuation method is the income approach and has determined the fair value of the principal amount of this investment to be $803,254, as of March 31, 2020, based upon the value of the Company’s pledged collateral and insurance policy in place, discounted for the uncertainty around the expected timing of repayment. The Company placed GPI on non-accrual status effective October 1, 2019 and interest not recorded relative to the original terms of this investment amounted to approximately $29,644 for the three months ended March 31, 2020.

 

Producam SA

Between March 2018 and June 2018, the Company purchased three Participations totaling $15,986,369 in a trade finance facility originated by the Company’s sub-advisor, AMC Trade Finance Limited (“AMC”), with Producam SA (“Producam”), a Cameroon based cocoa and coffee exporter, as the borrower.  As of March 31, 2020, the aggregate outstanding principal balance of these Participations was $10,413,683 and accrued interest amounted to $2,037,045. Repayment on these Participations has been slower than originally anticipated due to short run cash flow pressure on Producam. 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 and the restructuring process is expected to be finalized in the coming quarters.  Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Producam to be $9,192,637 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Producam’s financial performance.

Conplex International Ltd.

Between November 2018 and May 2019, the Company purchased three Participations totaling $9,500,000 in a trade finance facility originated by the Company’s sub-advisor, TransAsia Private Capital Ltd. (“TransAsia”), with Conplex International Ltd. (“Conplex”), a Hong Kong based international open market distributor and wholesaler of electronics products, as the borrower. As of March 31, 2020, the aggregate outstanding principal balance of these Participations was $9,500,000 and accrued interest amounted to $788,528.  Repayment on these positions has been slower than originally anticipated due to short term cash flow pressure on Conplex. TransAsia informed the Company that the borrower had a large portion of receivables overdue from a large off-taker. TransAsia then began

47


working with the borrower to restructure the facility and the restructuring process is expected to be finalized in the coming quarters. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Conplex to be $7,868,028 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Conplex’s financial performance.

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 originated by the Company’s sub-advisor, TransAsia. Triton is a Singapore based diversified commodities trading company.  As of March 31, 2020 the aggregate outstanding principal balance of the investment was $16,456,270 and accrued interest amounted to $783,273. TransAsia informed the Company 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 the restructuring process is expected to be finalized in the coming quarters.  Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Triton to be $14,899,927 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Triton’s financial performance.

Helios Maritime I

Between July 2015 and December 2017, the Company purchased six Participations totaling $15,300,000 in a term loan facility originated by the Company’s sub-advisor, Helios Investment Partners, LLP (“Helios”), with Helios Maritime I (“Helios Maritime”), a company setup for the purposes of on-lending to Starz Investment Company, Ltd. (“Starzs”), a Nigerian shipping and logistics company for the purpose of acquiring a handling tug vessel. As of March 31, 2020, the aggregate outstanding principal balance of these Participations was $12,762,670 and total accrued interest amounted to $3,929,745, which included $2,527,015 of interest which is deferred and payable at maturity of the loan.  Repayment on these positions has been slower than originally anticipated due to delays in acquiring a long-term contract, which has been further prolonged based on challenges presented by the COVID-19 pandemic and the recent decline in oil prices. Helios is actively working with the borrower to restructure the facility which is expected to be finalized in the coming quarters. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Helios Maritime to be $11,084,262 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in Helios Maritime’s financial performance.

TRG Cape Verde Holdings Ltd

In May 2016, the Company purchased a $17,000,000 Participation in a term loan facility originated by the Company’s sub-advisor, Helios, with TRG Cape Verde Holdings Ltd (“TRG Cape Verde”), an owner and developer of resorts based in Cabo Verde. As of March 31, 2020, the aggregate outstanding principal balance of this Participation was $13,002,528 and accrued interest amounted to $897,607.  Repayment on this position has been slower than originally anticipated due to regulatory changes in TRG Cape Verde’s fundraising model, along with further challenges associated with little to no occupancy at its resort properties due to the ongoing COVID-19 pandemic. Helios is actively working with the borrower and its financial advisor to restructure the facility which is expected to be finalized in the coming quarters. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in TRG Cape Verde to be $11,354,899 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in TRG Cape Verde’s financial performance.

Trustco Group Holdings Ltd

In January 2017, the Company purchased a Participation of $15,000,000 in a term loan facility originated by the Company’s sub-advisor, Helios, 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. As of March 31, 2020, the aggregate outstanding principal balance of this Participation was $17,006,658 and accrued interest amounted to $999,302.  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 subsequent to quarter end. 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. Based on the information available to the Company and according to its valuation policies, the Company has estimated the fair value of the principal amount of its investment in Trustco to be $14,695,323 as of March 31, 2020 based on the income approach, discounted to present value using an appropriate yield to maturity, accounting for uncertainty in legal proceedings and Trustco’s financial performance.

48


Results of Operations

Consolidated operating results for the three months ended March 31, 2020 and 2019 are as follows:

 

 

 

Three Months Ended

 

 

 

 

March 31, 2020

 

 

March 31, 2019

 

 

Investment income

 

 

 

 

 

 

 

 

 

Interest income

 

$

9,956,842

 

 

$

11,279,504

 

 

Interest from cash

 

 

43,657

 

 

 

14,996

 

 

Total investment income

 

 

10,000,499

 

 

 

11,294,500

 

 

Expenses

 

 

 

 

 

 

 

 

 

Asset management fees

 

 

1,846,556

 

 

 

1,959,123

 

 

Incentive fees

 

 

851,111

 

 

 

1,458,513

 

 

Professional fees

 

 

1,269,819

 

 

 

938,202

 

 

General and administrative expenses

 

 

356,167

 

 

 

440,287

 

 

Interest expense

 

 

68,537

 

 

 

599,949

 

 

Board of managers fees

 

 

64,375

 

 

 

64,375

 

 

Total expenses

 

 

4,456,565

 

 

 

5,460,449

 

 

Expense support payment to (from) Sponsor

 

 

-

 

 

 

-

 

 

Net expenses

 

 

4,456,565

 

 

 

5,460,449

 

 

Net investment income

 

$

5,543,934

 

 

$

5,834,051

 

 

 

Revenues

Three months ended March 31, 2020 and 2019 

For the three months ended March 31, 2020 and 2019, total investment income amounted to $10,000,499 and $11,294,500, respectively.  Interest income decreased by $1,322,662 during the three months ended March 31, 2020 compared to the same period in 2019 as a result of an decrease in our weighted average investment portfolio of approximately $30,030,000 combined with a decrease in the weighted average yield of approximately 0.6% from a weighted average yield of 12.0% for the three months ended March 31, 2019 to approximately 11.4% for the three months ended March 31, 2020. The decrease in the average size of our portfolio during the first quarter of 2020 was due to investment repayments that were not redeployed. The decrease in yield was primarily due to a change in the mix of investments in our portfolio and an increase in non-accrual loans.

During the three months ended March 31, 2020, $7,047,594 or 70.9% of the interest income earned came from loan and trade finance participations and $2,896,046 or 29.1% came from direct loans. In addition, we earned $43,657 in interest income on our cash balances.

During the three months ended March 31, 2019, $8,591,371 or 76.2% of the interest income earned came from loan and trade finance participations and $2,688,133 or 23.8% came from direct loans. In addition, we earned $14,996 in interest income on our cash balances.

Expenses

Three months ended March 31, 2020 and 2019

Total operating expenses, excluding the asset management and incentive fees, incurred for the three months ended March 31, 2020 decreased by $283,915 to $1,758,898 from $2,042,813 for the three months ended March 31, 2019.  The decrease was primarily due to the following: 1) a decrease in interest expense of $531,412, which was attributable to a decrease in outstanding indebtedness, 2) a decrease in general and administrative expenses of $84,120 which was primarily due to a decrease in travel expenses, offset by 3) an increase in professional fees of $331,617 which was primarily due to additional fees incurred for legal, valuation and accounting services in connection with the valuation of our portfolio and the ongoing litigation with IIG.

For the three months ended March 31, 2020 and 2019, the asset management fees amounted to $1,846,556 and $1,959,123, respectively. The incentive fees for the three months ended March 31, 2020 and 2019 amounted to $851,111 and $1,458.513, respectively.  The decrease in incentive fees is due to the decrease in revenue during the first quarter of 2020.

49


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 and prepayment penalties. 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 had no realized gains or losses for the three months ended March 31, 2020 and 2019. We recorded unrealized losses of $8,678,718 and $2,147,016 for the three months ended March 31, 2020 and 2019, respectively. These unrealized losses were primarily driven by macro events, including the uncertainty created by the recent COVID-19 pandemic and its impact on the future cash flows generated by our investments as well as the ultimate realization of the underlying collateral.

Financial Condition, Liquidity and Capital Resources

As of March 31, 2020, we had approximately $23.8 million 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, and proceeds from private placements of our units. We may also generate cash in the future from 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. We currently expect to hold higher levels of cash than before the pandemic to ensure we have sufficient cash available to meet our cash obligations. As noted above, the combination of a potential slower pace of deployment of capital with higher cash balances may further reduce cash flows generated to cover our distributions to our unitholders and/or cause us to further reduce our NAV in future periods. From the beginning of the Company’s operations to date, our Sponsor has assumed a significant portion of our operating expenses under the Responsibility Agreement in the amount of approximately $16.7 million. The Company may only reimburse the Sponsor for expenses assumed by the Sponsor pursuant to the Responsibility Agreement to the extent the Company’s investment income in any quarter, as reflected on the statement of operations, exceeds the sum of (a) total distributions to unitholders incurred during the quarter and (b) the Company’s expenses as reflected on the statement of operations for the same quarter (the “Reimbursement Hurdle”). To the extent the Company is not successful in satisfying the Reimbursement Hurdle, no amount will be payable in that quarter by the Company for reimbursement to the Sponsor of the Company’s cumulative operating expenses.  The Company did not meet the Reimbursement Hurdle for the quarter ended March 31, 2020. As of March 31, 2020, there is a remaining aggregate balance of approximately $16,273,800 in operating expenses assumed by the Sponsor pursuant to the Responsibility Agreement which have not been recorded by the Company. Thus, such amounts are not yet reimbursable by the Company to the Sponsor. Such reimbursements to the Sponsor would affect the amount of cash available to the Company to pay distributions and/or make investments.

Our Sponsor is under no obligation to pay our operating expenses and, if our Sponsor does not assume our operating expenses, the distributions we pay to our unitholders may need to be reduced. Our Sponsor determined not to assume any of our additional operating expenses, commencing January 1, 2018. Commencing with distributions payable for the month of March 2018, our board of managers approved a decrease in our daily distribution rate from $0.00197808 to $0.00168675 per unit, per day (less the ongoing fees applicable to certain classes of units which reduce the amount of distributions paid to the applicable unitholders). If our Sponsor continues not to assume our operating expenses in the future and we do not generate sufficient investment income to cover our operating expenses, the distributions we pay to our unitholders may need to be further reduced.

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 the Company to fully achieve its 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, 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. As of March 31, 2020, TGIFC has $5.0 million total outstanding under the Christian Super notes. For more information on this note, please see “Notes to the Consolidated Financial Statements— Note 7. Notes Payable—Christian Super Promissory Note.” As of March 31, 2020, we had $5,000,000 in total debt outstanding with a debt to equity ratio of 1.4%.

Contractual Obligations and Commitments

The following table shows our payment obligations for repayment of debt, which represent our total contractual obligations as of March 31, 2020:

 

50


 

 

Total

 

 

Less than 1 Year

 

 

1 - 3 Years

 

 

3- 5 years

 

 

More than 5 years

 

Notes payable

 

$

5,000,000

 

 

$

-

 

 

$

5,000,000

 

 

$

-

 

 

$

-

 

Total contractual obligations

 

$

5,000,000

 

 

$

-

 

 

$

5,000,000

 

 

$

-

 

 

$

-

 

 

We have included the following information related to commitments of the Company to further assist investors in understanding the Company’s outstanding commitments.

We have entered into certain contracts under which we have material future commitments. Our Advisory Agreement between us and the Advisor, originally dated as of February 25, 2014, had previously been renewed and is subject to an unlimited number of one-year renewals upon mutual consent of the Company and the Advisor. The current term of the Advisory Agreement ends on February 25, 2021. The Advisor will serve as our advisor in accordance with the terms of our Advisory Agreement. Payments under our Advisory Agreement in each reporting period will consist of (i) asset management and incentive fees described in Part 1, Item 1. Business – Operating Expense Responsibility Agreement and – Investment Advisory Agreements and Fees of our Annual report on Form 10-K for the year ended December 31, 2018, and (ii) the reimbursement of certain expenses.

If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under our Advisory Agreement.

Off-Balance Sheet Arrangements

Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not expect to have any off-balance sheet financings or liabilities. The Company reimburses organization and offering expenses to the Sponsor to the extent that the aggregate of selling commissions, dealer manager fees and other organization and offering costs do not exceed 15.0 % of the gross offering proceeds raised from the particular offering. As of March 31, 2020, there is a remaining balance of approximately $520,600 of offering costs that have not been reimbursed to the Sponsor.  

Pursuant to the terms of the Responsibility Agreement between the Company, the Advisor and the Sponsor, the Sponsor has paid expenses on behalf of the Company through December 31, 2017, which may not be reimbursable to the Sponsor if the Company does not satisfy the Reimbursement Hurdle. Such expenses will be expensed and payable by the Company in the period they become reimbursable and are estimated to be approximately $16.3 million as of March 31, 2020.

Distributions

We have paid distributions commencing with the month beginning July 1, 2013, and we intend to continue to pay distributions on a monthly basis. From time to time, we may also pay interim distributions at the discretion of our board. 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 three months ended March 31, 2020, we paid a total of $7,082,006 in distributions, comprised of $4,772,058 paid in cash and $2,309,948 reinvested under our DRP.

Related Party Transactions

For the three months ended March 31, 2020 and 2019, the Advisor earned $1,846,556 and $1,959,123, respectively in asset management fees and $851,111 and $1,458,513, respectively, in incentive fees.

From our inception through September 30, 2017, pursuant to the terms of the Responsibility Agreement, the Sponsor has paid approximately $12,420,600 of operating expenses, asset management fees, and incentive fees on our behalf and will reimburse us an additional $4,240,200 of expenses, which we had paid as of September 30, 2017. Such expenses, in the aggregate of $16,660,800 since the Company’s inception, may be expensed and payable by the Company to the Sponsor only if the Company satisfies the Reimbursement Hurdle. The Company did not meet the Reimbursement Hurdle for the quarter ended March 31, 2020.

As of March 31, 2020 and December 31, 2019, due from affiliates on the Consolidated Statement of Assets and Liabilities in the amounts of $4,240,231 was due from the Sponsor in connection with the Responsibility Agreement for operating expenses which were paid by the Company, but, under the terms of the Responsibility Agreement, are the responsibility of the Sponsor. The Sponsor anticipates paying this receivable in the due course of business.

51


For the three months ended March 31, 2020 and 2019, we paid SC Distributors, the dealer manager for certain of our offerings, $121,628 and $132,849, respectively in ongoing distributions fees, dealer manager fees and service fees.

Legal Proceedings

As of March 31 2020, the Company was not a party to any material legal proceedings other than as set forth below.

On April 18, 2019, the Company, through its wholly-owned subsidiary, commenced an arbitration proceeding against IIG and IIG TOF B.V., asserting claims for breach of contract, breach of fiduciary duty, conversion and unjust enrichment.  These claims are related to IIG’s failure to repay the Company for certain Participations. There can be no assurance as to when or if the Company will obtain a judgment in its arbitration against IIG and IIG TOF B.V.

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.

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 three months ended March 31, 2020, 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, 2019.

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, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business, the businesses of the Company's borrowers and the global markets generally. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including fair value measurements, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

Recent Accounting Pronouncements

See Note 2 to our accompanying Consolidated Financial Statements for a description of recent accounting pronouncements and our expectation of their impact on our results of operations and financial condition.

 

Subsequent Events

Distributions

With the authorization of our board of managers, we declared distributions for all classes of units for the period from April 1 through April 30, 2020. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00168675 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 cash distributions for April totaled $1,534,416. With respect to unitholders participating in the Distribution Reinvestment Plan, $769,369 of the distributions for April were reinvested in units.

Our board of managers has authorized the declaration of distributions for May 2020. The May distributions will be calculated based on unitholders of record for each day in an amount equal to $0.00168675 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

52


respect to Class W units). These distributions will be paid in cash on or about June 1, 2020 or reinvested in units, for those unitholders participating in the Distribution Reinvestment Plan.

 Investments

 

Subsequent to March 31, 2020 through May 14, 2020, we funded approximately $3.3 million in new investments and received proceeds from repayment of investments of approximately $0.9 million.

 

Amendment to Distribution Reinvestment Plan

 

On May 14, 2020, our board of managers approved an amendment to our Distribution Reinvestment Plan to allow holders of all classes of units other than Class Z units to participate, including holders who purchased units in our private placements.

 

COVID-19

Please see “Impact of COVID-19” above for a description of the impact of the COVID-19 pandemic events subsequent to March 31, 2020 regarding.

 

 

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 March 31, 2020.

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.

 

53


Part II. Other Information

Item 1. Legal Proceedings.

As of March 31, 2020, the Company was not a party to any material legal proceedings other than the legal proceedings described in “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Legal Proceedings”.

Item 1A. Risk Factors.

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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 30, 2020 (“2019 Form 10-K”), which could materially affect our business, financial condition, and/or future results. The risks described in our 2019 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.

With the exception of the additional risk factors set forth below, there have been no material changes to the risk factors disclosed in our 2019 Form 10-K.

 

The recent global outbreak of COVID-19 (more commonly referred to as the Coronavirus) has disrupted economic markets and the prolonged economic impact is uncertain. Some economists and major investment banks have expressed concern that the continued spread of the virus globally, including the various quarantine policies being implemented in many countries, could lead to a world-wide economic downturn. The economic downturn has negatively impacted certain of our investments and our ability to make investments and we may see further impacts going forward, which could materially and adversely impact our NAV, our results of operations, financial condition and ability to make distributions to our unitholders at expected levels.

Our borrowers, as with all businesses, are susceptible to economic slowdowns or recessions and disruptions, such as the disruption and adverse impacts caused by the outbreak of the Coronavirus. These events may ultimately result in borrowers having difficulties repaying the loans in which we have invested or originated. For example, many businesses across the globe, first in Asia, then in Europe, and now in the United States, have seen a downturn in production and productivity due to the suspension of business and temporary closure of offices and factories in an attempt to curb the spread of the Coronavirus. Therefore, our non-performing assets, or borrowers requiring some form of forbearance, may increase and the value of our portfolio may correspondingly decrease during these periods. Adverse economic conditions also may decrease the value of collateral securing some of our loans (including loans in which we have acquired participations), which could lead to reduced recovery values should liquidation ultimately be required.

 

The borrowers with respect to three of the four investments we added to the Watch List for the three months ended March 31, 2020 have not made required payments in part due to adverse impacts they have experienced related to the COVID-19 pandemic. Due to the disruptions associated with COVID-19, we can provide no assurances that we will be able to continue to collect interest and principal payments at levels comparable to those prior to the pandemic. Further, we can provide no assurances that we will be able to recover all past due amounts from delinquent borrowers. The economic uncertainty and disruption caused by the pandemic is expected to be prolonged and we may see further defaults and additional investments may be added to the Watch List in subsequent quarters.  The adverse impact of COVID-19 was a significant driver of the $0.22 decline in our NAV per unit as of March 31, 2020, as compared to our NAV per unit as of December 31, 2019, and we may have further declines in NAV in future periods. Furthermore, if we continue to have delinquencies among our borrowers, it could have a material adverse impact on our results of operations, financial condition and ability to make distributions to our unitholders at expected levels.

In addition, we have seen, and expect to continue to see, a slowdown in transaction volume due to the impact of the pandemic, as smaller SMEs and those in industries most affected by COVID-19 (for example, travel and hospitality and retail sales, among others) may no longer be in a position to appropriately add debt capital.  Transaction volumes may also be affected by restrictions on travel and other shelter in place orders, making it more difficult to conduct in-person visits with potential borrowers. Additionally, the Company may hold higher levels of cash than before the pandemic to ensure it has sufficient cash available to meet its cash obligations. The combination of a potential slower pace of deployment with higher cash balances may further reduce cash flows generated to cover our distributions to our unitholders and/or cause us to further reduce our NAV in future periods.

 

In addition, we rely on our Advisor to manage our day-to-day operations. The business and operations of our Advisor, our Sponsor and their affiliates may also be adversely impacted by the coronavirus outbreak. Our Advisor has implemented its business continuity plan and additional procedures designed to protect against the introduction of the coronavirus to the workforce, including permitting and encouraging employees to work remotely, temporarily ceasing travel and significantly enhanced office sterilization procedures to minimize the probability of contagion. Although we are following our business continuity plan and following directives from federal, state and municipal authorities, our executive officers and directors, as well as the employees of our Advisor and Sponsor are subject

54


to the risk of illness or quarantine, which may negatively impact their ability to provide us services to the same degree as had been the case prior to the outbreak.

Any of these adverse developments could have a material adverse effect on our business, financial condition and results of operations.

Changes to the U.S. federal income tax laws, including the enactment of certain tax reform measures, could have an adverse impact on our business and financial results.

In recent years, numerous legislative, judicial and administrative changes have been made to the U.S. federal income tax laws applicable to investments in partnerships, including the passage of the Tax Cuts and Jobs Act of 2017. Federal legislation intended to ameliorate the economic impact of the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, has been enacted that makes technical corrections to, or modifies on a temporary basis, certain of the provisions of the Tax Cut and Jobs Act of 2017, and it is possible that additional such legislation may be enacted in the future. The full impact of the Tax Cuts and Jobs Act of 2017 and the CARES Act may not become evident for some period of time.  In addition, there can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results.

We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings will impact the Company. Prospective investors are urged to consult their tax advisors regarding the effect of potential future changes to the federal tax laws on an investment in our shares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended March 31, 2020, we sold an aggregate of 274,522 Class Y units to accredited investors for an aggregate amount of $2,225,000.  The units were issued pursuant to an exemption from registration provided under Rule 506 of Regulation D promulgated under the Securities Act, for transactions not involving a public offering. 

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 distribution reinvestment plan. 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. Redemptions for the first quarter of 2020 were redeemed at a price equal to $8.024 per unit, which was the net asset value per unit of each class as of December 31, 2019.

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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.  

During the three months ended March 31, 2020, we fulfilled the following requests pursuant to our unit repurchase program:

 

Period

 

Total Number of Units Purchased

 

 

Average Price Paid Per Unit

 

 

Total Number of Units Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number of Units that May Yet be Purchased Under the Program

 

01/01/2020 - 01/31/2020

 

 

261,130

 

 

$

8.106

 

 

 

261,130

 

 

 

892,446

 

02/01/2020 - 02/29/2020

 

 

2,952

 

 

$

8.105

 

 

 

2,952

 

 

 

892,446

 

03/01/2020 - 03/31/2020

 

 

 

 

 

 

 

 

 

 

 

892,446

 

Total

 

 

264,082

 

 

$

8.106

 

 

 

264,082

 

 

 

 

 

 

During the three months ended March 31, 2020, we repurchased 264,082 units for a total of $2,140,747.  In addition, as of March 31, 2020, there were repurchase requests for a total of 281,719 units that were pending which were processed by the Company during April 2020 at a price of $8.024 per unit. For the quarter ended March 31, 2020, eligible repurchase requests exceeded the limitations of our unit repurchase program described above and the requests were fulfilled on a pro rata basis, such that we fulfilled 19.34% of eligible repurchase requests (based on the number of units submitted for repurchase). Pursuant to the terms of our unit repurchase program, the unsatisfied portion of repurchase requests that were not fulfilled at quarter-end will be carried over to the next quarter and treated as a request for repurchase at the next quarter-end repurchase date, unless the repurchase request is withdrawn.

 

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On May 14, 2020, our board of managers approved an amendment to our Distribution Reinvestment Plan 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 amendment will take effect on May 25, 2020, ten days after the date of filing of this Quarterly Report on Form 10-Q.

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Item 6. Exhibits.

 

Number 

 

Description

 

 

 

    3.1

 

Certificate of Formation of TriLinc Global Impact Fund, LLC. Incorporated by reference to Exhibit 3.1 to the Draft Registration Statement on Form S-1 (File No. 377-00015) filed with the Securities and Exchange Commission (the “SEC”) on November 1, 2012.

 

 

 

    3.2

 

Fifth Amended and Restated Limited Liability Company Operating Agreement dated January 20, 2018. Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on January 25, 2018.

 

 

 

    4.1*

 

Fourth Amended and Restated Distribution Reinvestment Plan.

 

 

 

    4.2

 

Third Amended and Restated Unit Repurchase Program. Incorporated by reference to Exhibit 4.2 to the Form 8-K filed with the SEC on March 09, 2018.

 

 

 

  31.1*

 

Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.

 

 

 

  31.2*

 

Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.

 

 

 

  32.1*

 

Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

   101

 

The following materials from TriLinc Global Impact Fund LLC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed on May 15, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Assets and Liabilities, (ii) Consolidated Statement of Operations, (iii) Consolidated Statement of Changes in Net Assets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Schedules of Investments and (vi) Notes to the Consolidated Financial Statements.

 

 

*

Filed herewith

57


SIGNATURES

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.

 

 

 

 

 

May 15, 2020

 

By:

 

/s/ Gloria S. Nelund 

 

 

 

 

Gloria S. Nelund

 

 

 

 

Chief Executive Officer

 

 

 

 

 

May 15, 2020

 

By:

 

/s/ Mark A. Tipton

 

 

 

 

Mark A. Tipton

 

 

 

 

Chief Financial Officer

 

58