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 for “us”, “us”, “us” or “Company” references refer to
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;
• Impact of the COVID-19 epidemic և actions taken to prevent its spread
բիզնես our business, operating results, financial condition, liquidity և
unit net asset value.
• The economic, social and / or environmental impact of the investments we make
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 overall economy and its impact
on the companies in which we invest.
• Availability of cash 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 consultant և our dependence on its availability
the financial resources of our Sponsor; • the ability of our borrowers to make required payments;
• Sufficient staff to engage and retain the capacity of our consultant
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;
• Making our investments relative to our expectations և impact
on our actual return on invested equity, as well as the cash provided by these investments;
• Any failure by our Consultant or Sub-Consultants to properly identify everyone
relevant facts in our recommendation process or otherwise.
• The ability of our subcontractors և borrowers to achieve their goals.
• The effectiveness of our portfolio management techniques և strategies.
• failure to maintain effective internal controls; and
• Loss of our exemption from the definition of “investment company”
According to the 1940 Law on Investment Company.
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
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
Delawarelimited 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. 32 -------------------------------------------------------------------------------- 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 Researchand Rockefeller Foundationin 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 billionin units of our limited liability company interest, consisting of up to $1.25 billionof units in the primary offering consisting of Class A and Class C units at initial offering prices of $10.00and $9.576per unit, respectively, and Class I units at $9.025per unit, and up to $250 millionof units pursuant to our Distribution Reinvestment Plan. SC Distributors, LLCwas 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 $2,000,000when the Sponsor purchased 321,330 Class A units for aggregate gross proceeds of $2,900,000and we commenced operations. The Offering terminated on March 31, 2017. Through the termination of the Offering, we raised approximately $361,776,000in gross proceeds, including approximately $13,338,000raised through our Distribution Reinvestment Plan. Upon termination of the primary portion of the Offering, we registered $75 millionin 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 SECat the time of reinvestment. Our Distribution Reinvestment Plan was amended, effective May 25, 2020, to allow holders of all classes of units other than Class Z units to participate, including holders who purchased units in our private placements. The offering must be registered or exempt from registration in every state in which we offer or sell units. If the offering is not exempt from registration, the required registration generally is for a period of one year. Therefore, we may have to stop selling units in any state in which the registration is not renewed annually and the offering is not otherwise exempt from registration. 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 $500,000,000in a continuous private offering of our Class Y and Class Z units that will expire on August 25, 2022, unless extended or terminated earlier by us. For the six months ended June 30, 2021, we issued 559,321 of our units pursuant to our Distribution Reinvestment Plan for gross proceeds of approximately $4,253,000. In addition, for the six months ended June 30, 2021, we issued 401,148 of our units for gross proceeds of approximately $3,059,000pursuant to our ongoing private placement described above. As of June 30, 2021, $33,176,000in units remained available for sale pursuant to the Distribution Reinvestment Plan. From our inception to June 30, 2021, we have issued an aggregate of 53,734,346 of our units, including 6,526,908 units issued under our Distribution Reinvestment Plan, for gross proceeds of approximately $500,343,000including approximately $55,162,000reinvested under our Distribution Reinvestment Plan (before dealer manager fees of approximately $4,800,000and selling commissions of $16,862,000), for net proceeds of $478,681,000. Impact of COVID-19 The 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 have seen a downturn in production and productivity due to the suspension of business and temporary closure of offices and factories that was prevalent during most of 2020, 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, if COVID-19 further adversely impacts the Company's borrowers' businesses, financial condition and results of operations, it 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 multiple vaccines have been approved for use in certain countries and the vaccination rates in the United Statesand certain other parts of the world have been encouraging, there is still uncertainty as to when a sufficient portion of the population will be vaccinated such that restrictions and safety protocols can be fully relaxed. During the six months ended June 30, 2021and the year ended December 31, 2020, the Company made material adjustments to the fair value of certain of its investments, in part due to the impact of COVID-19. These adjustments, which amounted to $3,225,544and $6,417,933, respectively, in the aggregate during the six months ended and the year ended December 31, 2020, were made with respect to 20.6% and 23.0%, respectively, of the Company's investments (calculated based on the aggregate fair value of the Company's total 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. 33 -------------------------------------------------------------------------------- While many of the Company's borrowers' businesses have experienced some disruption related to COVID-19, degrees of effect have varied. As indicated under "-Watch List Investments" below, the borrowers with respect to the investment added to the Watch List for the six months ended June 30, 2021and three of the six investments added to the Watch List for the year ended December 31, 2020have 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. 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 one of the material contributors to the $0.26decline in the Company's NAV per unit as of June 30, 2021, as compared to the Company's NAV per unit as of December 31, 2020. In addition, the Company saw a slowdown in transaction volume due to the impact of the pandemic through most of 2020, as smaller SMEs and those in industries most affected by COVID-19 (travel and hospitality, retail sales, etc.) were no longer in a position to appropriately add debt capital. While transaction volume has increased in recent months, it has not recovered to pre-pandemic levels and may continue to 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, in future periods, the Company may hold higher levels of cash than before the pandemic to ensure it has sufficient cash available to meet its cash obligations. Uncertain or inconsistent deployment of capital or higher cash balances each have the potential to 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.
As noted above, the pandemic has had an adverse impact on many of our borrowers as a result of the ongoing pandemic. The adverse impact on the global supply chain has been one of the largest challenges for our borrowers, as most of them are exporters directly tied to global trade. Some of these challenges include: demand from suppliers to be paid in cash rather than supplier credit, significant increases in shipping costs (when and if shipping is reliably available), and delays in the payment of receivables, all of which put pressure on borrowers' working capital needs. Similarly, our borrowers experienced challenges related to the decrease in global demand, which has resulted in declines in revenue for many of them. While many of our borrowers have been able to manage these declines by proactively reducing their operating expenses, a return to pre-pandemic global demand levels will be critical to our borrowers seeing a sustainable recovery with respect to revenue. We believe conditions should continue to improve if the global economy continues to emerge from the restrictions and lockdowns that were put in place to curb the spread of COVID-19. In order to see a rebound in global supply and demand, the supply chain challenges must be eased. As noted above, we have seen some improvement in conditions as vaccinations are deployed in greater numbers, but we believe the effective distribution of vaccines to the populations of emerging market countries will be critical to a full economic recovery for our affected borrowers. Although certain emerging market countries, especially in
Asia, are expected to have strong economic growth in the coming quarters, the delay in rolling out vaccinations in emerging market countries where many of our borrowers are located has caused, and we believe will continue to cause, a lag in their economic recovery in coming quarters.
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 millionper transaction for direct SME loans and $500,000to $15 millionfor trade finance transactions. We seek to protect and grow investor capital by: (1) targeting countries with favorable economic growth and investor protections; (2) partnering with sub-advisors with significant experience in local markets; (3) focusing on creditworthy lending targets who have at least 3-year operating histories and demonstrated cash flows enabling loan repayment; (4) making primarily debt investments, backed by collateral and borrower guarantees; (5) employing best practices in our due diligence and risk mitigation processes; and (6) monitoring our portfolio on an ongoing basis. By providing additional liquidity to growing small businesses, we believe we support both economic growth and the expansion of the global middle class. Investments will continue to be primarily credit facilities and participations in credit facilities to developing economy SMEs, including trade finance and term loans, through the Advisor's team of professional sub-advisors with a local presence in the markets where they invest. As of June 30, 2021, 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. 34 -------------------------------------------------------------------------------- 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.
July 2017, the United Kingdom's Financial Conduct Authority("FCA") announced it intends to stop compelling banks to submit rates for the calculation of LIBOR. As a result, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCAor other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, interest rates of our debt could decrease, which could adversely affect our operating results. In addition, uncertainty about the extent and manner of future changes may result in interest rate that are higher or lower than if LIBOR were to remain available in the current form. LIBOR is expected to be phased out or modified by June 2023, and the writing of contracts using LIBOR is expected to stop by the end of 2021. As of June 30, 2021, 18% of the fair value of the Company's total investments bore interest at floating rates based on LIBOR. There can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2023 and work with our sub-advisors to seek to ensure any transition away from LIBOR will have minimal impact on our investments, but we can provide no assurances regarding the impact of the discontinuation of LIBOR.
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.
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 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 millionof operating expenses, of which $16.3 millionhave not been reimbursed to the Sponsor as of June 30, 2021.
Portfolio և investment activity
During the six months ended
June 30, 2021, we invested approximately $40.9 millionacross two 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 $12.6 million. 35
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As of June 30, 2021 As of December 31, 2020 Investments Percentage of Investments Percentage of at Fair Value Total Investments at Fair Value Total Investments Senior secured term loans
$ 118,347,22337.4 % $ 106,899,15437.2 % Senior secured term loan participations 147,656,352 46.5 % 129,917,253 45.2 % Senior secured trade finance participations 46,392,899 14.6 % 45,800,210 15.9 % Short term and other investments * 3,758,063 1.2 % 3,758,063 1.3 % Equity warrants 1,088,168 0.3 % 1,199,618 0.4 % Total investments $ 317,242,705100.0 % $ 287,574,298100.0 %
* Short-term investments are defined by the company as investments in general
Comply with standard trade finance and term loan insurance guidelines
Transactions that also have the following characteristics: (1) Repayment period
less than one year, (2) loans to borrowers at the time of financing,
The company does not expect to repay the loan. Impact data are not considered short-term
June 30, 2021, 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 10.6%, 12.6%, 11.6%, and 8.8%, respectively, for a weighted average yield on investments of approximately 11.8% on our total portfolio. As of June 30, 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. 36
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Industry Principal Description Sector Classification Country Interest Maturity (1) Amount Fair Value Sugar Producer Agricultural Sustainable Brazil Products Agriculture & Agroprocessing 12.43% 12/15/2020 (2)
$ 2,851,296 $ 2,494,362LED Lighting Service Electric Services Technological Chile Provider Innovation 11.00% 6/6/2021 (2) 1,456,162 1,456,162 Minor Metals Resource Secondary Responsible Metals Hong Kong Trader Nonferrous Metals Distribution 12.00% 6/22/2021 (4) 2,500,000 2,500,000 Consumer Lender Personal Credit Inclusive Finance Colombia Institutions 11.25% 8/1/2021 1,009,965 1,009,965 Sustainable Packaging Corrugated and Recycling Ecuador 9.16% Cash/2.20% Manufacturer solid fiber boxes PIK 6/18/2025 13,654,514 13,654,514 Resource Trader Coal and Other Responsible Natural Hong Kong Minerals and Ores Resources Distribution 11.50% PIK 6/30/2023 19,241,663 19,241,663 Wholesale Distributor Chemicals and Responsible Malaysia Allied Products Industrial Goods Distribution 12.00% 6/30/2023 15,858,045 15,858,045 Waste to Fuels Refuse Systems Recycling Mexico Processor 14.50% PIK 7/27/2022 (3) 30,660,919 31,749,087 Cocoa Processor Chocolate and Sustainable Indonesia Cocoa Products Agriculture & Agroprocessing 13.00% 3/4/2024 10,000,000 10,000,000 Cocoa Processor Chocolate and Sustainable Indonesia Cocoa Products Agriculture & Agroprocessing 11.00% 5/26/2022 5,000,000 5,000,000 Diaper Manufacturer Consumer Products Responsible Peru II Consumer Goods Production 11.00% 12/31/2024 4,737,437 4,737,437 SME Financier Short-Term Inclusive Finance Botswana Business Credit 11.47% 8/18/2021 4,740,000 4,740,000 IT Service Provider Programming and Access to Brazil 10.00% Data Processing Technology Cash/3.00% PIK 11/23/2023 18,898,970 19,099,159 Ship Maintenance & Boatbuilding and Infrastructure Brazil Repair Service Repairing Development 8.00% Cash/8.00% Provider PIK 12/7/2023 6,243,279 6,198,973 Hospitality Service Hotels and Motels Infrastructure Cabo Verde 10.00% Provider Development Cash/4.75% PIK 8/21/2021 (2) 13,802,102 11,491,902 Consumer Lender Personal Credit Inclusive Finance Colombia Institutions 11.90% 9/1/2025 8,109,916 8,109,916 Mall Operator Department Stores Infrastructure Croatia 8.50% Cash/4.50% Development PIK 1/23/2022 9,886,180 9,886,180 Tank Farm Operator Petroleum and Responsible Fuel Ghana Petroleum Storage Products 12.00% 2/10/2023 10,386,712 10,386,712 Mobile Network Telephone Access to Jersey Operator Communications Technology 9.70% 9/30/2026 15,000,000 15,000,000 Freight and Cargo Freight Responsible Kenya Transporter Transportation Logistics 7.67% Cash/4.00% Arrangement Management PIK 3/31/2023 (2) 14,320,165 13,270,083 Property Developer Land Subdividers Infrastructure Namibia 8.50% Cash/4.00% and Developers Development PIK 8/15/2021 (2) 17,884,001 15,282,684 Wheel Manufacturer Motor Vehicle Responsible Netherlands Parts and Consumer Goods Accessories Production 14.23% 8/20/2021 8,275,000 9,728,061 Marine Logistics Water Responsible Nigeria Provider Transportation Logistics Management 10.60% 9/16/2020 (2) 16,452,971 11,262,055 Bread Manufacturer Food Products Responsible Romania Consumer Goods 7.00% Cash/7.00% Production PIK 5/20/2024 3,764,972 3,764,972 Grain Processor C Farm Products Sustainable Uganda Agriculture & Agroprocessing 14.50% 4/30/2024 9,363,985 9,435,655 FMCG Manufacturer Soap, Detergents, Responsible Zambia and Cleaning Consumer Goods Production 10.38% 8/27/2023 - - Agriculture Agricultural Sustainable Argentina Distributor Products Agriculture & Agroprocessing 10.45% 6/30/2018 (2) 12,500,000 6,055,061 Dairy Co-Operative Consumer Products Sustainable Dairy Argentina Production 10.67% 7/29/2019 (2) 6,000,000 4,590,979 Beef Exporter Meat, Poultry & Sustainable Argentina Fish Agriculture & Agroprocessing 11.50% 8/31/2017 (2) 9,000,000 6,361,679 Oilseed Distributor Fats and Oils Sustainable Argentina Agriculture & Agroprocessing 9.00% 8/31/2017 (2) 6,000,000 3,398,558 Cocoa & Coffee Chocolate and Sustainable Cameroon Exporter Cocoa Products Agriculture & Agroprocessing 9.50%, 6.00% 6/30/2022 (2) 14,208,736 13,616,859 Chia Seed Exporter Farm Products Sustainable Chile Agriculture & Agroprocessing 10.90% 3/4/2018 (2) 1,326,687 1,375,794 Non-Ferrous Metal Coal and Other Responsible Metals Singapore 3.00% Cash/3.00% Trader Minerals and Ores Distribution PIK 8/18/2025 (2) 18,876,517 16,734,156 Mobile Phone Telephone and Access to Hong Kong Distributor Telegraph Technology Apparatus 12.00% 5/31/2020 (2) 9,500,000 2,495,595 Vanilla Exporter Groceries and Sustainable Mauritius Related Products Agriculture & Agroprocessing 10.61% 8/31/2021 (4) 209,397 209,397 Scrap Metal Recycler Secondary Recycling Morocco Nonferrous Metals 11.00% 7/31/2018 (2) 1,433,058 628,862 Cocoa Trader III Farm Products Sustainable Nigeria Agriculture & Agroprocessing 8.50% 12/15/2021 (4) 675,256 675,256 Cocoa Trader II Farm Products Sustainable Nigeria Agriculture & Agroprocessing 8.50% 12/15/2021 (4) 838,967 838,967 37
-------------------------------------------------------------------------------- Fruit & Nut Food Products Sustainable South Distributor Agriculture & Africa Agroprocessing 17.50% 5/22/2015 (2) 785,806 497,462 Pharmaceuticals Drugs, Access to United Distributor Proprietaries, Healthcare and Arab and Sundries Pharmaceuticals Emirates 14.60% 6/30/2018 (2) 648,430 648,430 Receivable from IIG Financial Other N/A TOF B.V. services 8.75% N/A (2) 6,000,000 3,758,063 Total Investments
1 Trade finance borrowers may be given repayment flexibility
in order to comply with certain contracts և (or) compared to the specified repayment period
Business cycle features: This flexibility is agreed upon in each case
Company և sub-consultant և sub-consultant և
2 For more information, see the Watch List Investments section below.
3 This investment consists of senior guaranteed term loan և equity guarantees
4 Refer to the Consolidated Investment Schedule for more information
the status of this investment.
Industry Classification Value of Total Access to Healthcare and Pharmaceuticals
$ 648,4300.2 % Access to Technology 36,594,754 11.5 % Inclusive Finance 13,859,881 4.4 % Infrastructure Development 42,859,739 13.5 % Recycling 46,032,463 14.5 % Responsible Consumer Goods Production 18,230,470 5.7 % Responsible Fuel Storage 10,386,712 3.3 % Responsible Industrial Goods Distribution 15,858,045 5.0 % Responsible Logistics Management 24,532,138 7.7 % Responsible Metals Distribution 19,234,156 6.1 % Responsible Natural Resources Distribution 19,241,663 6.1 % Sustainable Agriculture & Agroprocessing 59,959,050 18.9 % Sustainable Dairy Production 4,590,979 1.4 % Technological Innovation 1,456,162 0.5 % Other 3,758,063 1.2 % Total $ 317,242,705100.0 % Concentration Limits
The company is subject to the following concentration limits:
• Maximum 45% regional exposure • Maximum 20% country exposure • Maximum 5% individual investment exposure We may only make investments that do not cause us to exceed these limits on the date of investment. These limits are calculated as a percentage of the aggregate of all outstanding principal balances on our investments and our cash balances on the date of investment. As of
June 30, 2021, the Company was in compliance with all of the above concentration limits.
Watch List Investments:
Please see “Notes on Consolidated Financial Statements – Note 3. Investments – Investments List View”.
Results of operations:
Consolidated operating results for the three and six months ended
June 30, 2021and 2020 are as follows: Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Investment income Interest income $ 9,464,096 $ 10,903,460 $ 18,614,542 $ 20,860,302Interest from cash 9,870 18,722 37,299 62,379 Total investment income 9,473,966 10,922,182 18,651,841 20,922,681 Expenses Asset management fees 1,769,982 1,844,871 3,579,212 3,691,427 Incentive fees 1,347,541 1,628,075 2,128,997 2,479,186 Professional fees 459,852 516,940 1,321,807 1,786,759 General and administrative expenses 394,258 287,086 678,745 643,253 Interest expense 47,794 68,536 95,062 137,073 Board of managers fees 64,375 64,375 128,750 128,750 Total expenses 4,083,802 4,409,883 7,932,573 8,866,448 Net investment income $ 5,390,164 $ 6,512,299 $ 10,719,268 $ 12,056,233Revenues
Three months are over
For the three months ended
June 30, 2021and 2020, total investment income amounted to $9,473,966and $10,922,182, respectively. Interest income decreased by $1,439,364during the three months ended June 30, 2021compared to the same period in 2020 as a result of a decrease in our weighted average investment portfolio of approximately $8,853,000and decrease in the weighted average yield of approximately 1.6% from a weighted average yield of 12.7% for the three months ended June 30, 2020to approximately 11.1% for the three months ended June 30, 2021. The decrease in the average size of our portfolio during the second quarter of 2021 was due to investment repayments that were not redeployed. The decrease in yield was primarily due to a change in the mix of investments. During the three months ended June 30, 2021, $5,846,232or 61.8% of the interest income earned came from loan and trade finance participations and $3,617,865or 38.2% came from direct loans. In addition, we earned $9,870in interest income on our cash balances. During the three months ended June 30, 2020, $7,676,064or 70.4% of the interest income earned came from loan and trade finance participations and $3,227,397or 29.6% came from direct loans. In addition, we earned $18,722in interest income on our cash balances.
Six months are over
For the six months ended
June 30, 2021and 2020, total investment income amounted to $18,651,841and $20,922,681, respectively. Interest income decreased by $2,245,760during the six months ended June 30, 2021compared to the same period in 2020 as a result of a decrease in our weighted average investment portfolio of approximately $17,288,000and decrease in the weighted average yield of approximately 0.5% from a weighted average yield of 12.3% for the six months ended June 30, 2020to approximately 11.8% for the six months ended June 30, 2021. The decrease in the average size of our portfolio during the second quarter of 2021 was due to investment repayments that were not redeployed. The decrease in yield was primarily due to a change in the mix of investments. During the six months ended June 30, 2021, $11,607,526or 62.4% of the interest income earned came from loan and trade finance participations and $7,007,016or 37.6% came from direct loans. In addition, we earned $37,299in interest income on our cash balances. During the six months ended June 30, 2020, $14,736,859or 70.7% of the interest income earned came from loan and trade finance participations and $6,123,444or 29.3% came from direct loans. In addition, we earned $62,379in interest income on our cash balances. Expenses
Three months are over
Total operating expenses, excluding the asset management and incentive fees, incurred for the three months ended
June 30, 2021increased by $29,342to $966,279from $936,937for the three months ended June 30, 2020. The increase was primarily due to the following: 1) increase in general and administrative expenses of $107,172offset by 2) a decrease in interest expense of $20,742, which was attributable to a decrease in outstanding indebtedness and 3) a decrease in professional fees of $57,088which was primarily due to less fees incurred for legal, valuation and accounting services in connection with the valuation of our portfolio and our ongoing efforts to recover amounts outstanding with respect to investments for which IIG was the sub-advisor. 39 -------------------------------------------------------------------------------- For the three months ended June 30, 2021and 2020, the asset management fees amounted to $1,769,982and $1,844,871, respectively. The incentive fees for the three months ended June 30, 2021and 2020 amounted to $1,347,541and $1,628,075, respectively. The decrease in incentive fees is due to the decrease in revenue during the second quarter of 2021.
Six months are over
Total operating expenses, excluding the asset management and incentive fees, incurred for the six months ended
June 30, 2021decreased by $471,471to $2,224,364from $2,695,835for the six months ended June 30, 2020. The decrease was primarily due to the following: 1) a decrease in interest expense of $42,011, which was attributable to a decrease in outstanding indebtedness and 2) a decrease in professional fees of $464,952which was primarily due to less fees incurred for legal, valuation and accounting services in connection with the valuation of our portfolio and our ongoing efforts to recover amounts outstanding with respect to investments for which IIG was the sub-advisor. For the six months ended June 30, 2021and 2020, the asset management fees amounted to $3,579,212and $3,691,427, respectively. The incentive fees for the six months ended June 30, 2021and 2020 amounted to $2,128,997and $2,479,186, respectively. The decrease in incentive fees is due to the decrease in revenue during the second quarter of 2021. 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 recorded realized losses of $909,584for the three and six months ended June 30, 2021and none for the three and six months ended June 30, 2020. We recorded unrealized losses of $7,555,975and $1,052,185for the three months ended June 30, 2021and 2020. We recorded unrealized losses of $8,531,302and $9,730,903for the six months ended June 30, 2021and 2020, 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 ներ capital assets
June 30, 2021, we had approximately $11.6 millionin 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. As noted above, the combination of a 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 June 30, 2021. Therefore, none of the expenses of the Company covered by the Responsibility Agreement have been recorded as expenses of the Company for the quarter ended June 30, 2021. As of June 30, 2021, there is a remaining aggregate balance of approximately $16.3 millionin 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. We may borrow additional funds to make investments. We have not decided to what extent going forward we will finance portfolio investments using debt or the specific form that any such financing would take, but we believe that obtaining financing is necessary for us to fully achieve our long-term goals. We have been, and still are, actively seeking further financing through both development banks and several commercial banks. Accordingly, we cannot predict with certainty what terms any such financing would have or the costs we would incur in connection with any such arrangement. On August 7, 2017, TGIFC issued $5 millionin 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 millionof Series 2 Senior Secured Promissory Notes to Christian Super. As of June 30, 2021, TGIFC has $5 milliontotal outstanding under the Christian Super notes. For more information on this note, please see "Notes to Consolidated Financial Statements- Note 7. Notes Payable-Christian Super Promissory Note." As of June 30, 2021, we had $5 millionin total debt outstanding with a debt to equity ratio of 1.4%. 40
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Although the Company has a perpetual duration, we disclosed previously that if we do not consummate a liquidity event by
August 25, 2021, we would commence an orderly liquidation of our assets unless a majority of the board of managers, including a majority of the independent managers, determines that liquidation is not in the best interests of our unitholders. In light of this previous disclosure, beginning in late 2020, the board of managers, together with our management, conducted a review of the risks and benefits of various potential strategic alternatives, with the goal of determining what is in the best interests of the Company and our unitholders. The board of managers engaged a nationally recognized investment bank to evaluate possible strategic alternatives, including: liquidation; continuing as an operating company; listing the Company's units on a national securities exchange; and merger with another company. After review and discussion of the strategic alternatives and market conditions, the board of managers, including all of the independent managers, determined in May 2021that the commencement of a liquidation of our assets in August 2021was not in the best interests of the unitholders and approved the continuation of operations for at least an additional 12 months thereafter, until August 26, 2022. This decision was consistent with the recommendation of management and the investment bank. The board of managers and management believe that this will provide the Company with time to stabilize its portfolio and NAV as the world begins to emerge from the adverse impact of the pandemic. In addition, the Company will continue to pursue leverage, which, if obtained, is expected to be accretive as the portfolio stabilizes. The board of managers will revisit this analysis no later than August 26, 2022and then may continue to reassess strategic alternatives annually, or may determine to extend the period between its considerations of alternatives for a longer period.
Contractual obligations և obligations
The table below shows our debt repayment obligations, which represent our total contractual obligations as of
Less than 1 More than 5 Total Year 1 - 3 Years 3- 5 years years Notes payable
$ 5,000,000$ - $ 5,000,000$ - $ - Total contractual obligations $ 5,000,000$ - $ 5,000,000$ - $ -
We have included the following information to help investors understand our outstanding liabilities in the future.
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, 2022. 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, 2020, 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.
Inadequate 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. 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 $16,273,800as of June 30, 2021. 41
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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 six months ended June 30, 2021, we paid a total of $13,668,364in distributions, comprised of $9,415,223paid in cash and $4,253,141reinvested under our DRP.
Related party transactions
Completed for six months
From our inception through
September 30, 2017, pursuant to the terms of the Responsibility Agreement, the Sponsor has paid approximately $12,420,600of operating expenses, asset management fees, and incentive fees on our behalf and will reimburse us an additional $4,240,231of expenses, which we had paid as of September 30, 2017. Such expenses, in the aggregate of $16,273,800since 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 June 30, 2021. Therefore, none of the expenses of the Company covered by the Responsibility Agreement have been recorded as expenses of the Company for the quarter ended June 30, 2021. As of June 30, 2021and December 31, 2020, due from affiliates on the Consolidated Statement of Assets and Liabilities in the amount of $4,240,231and $4,057,734, respectively was due from the Sponsor pursuant to the Responsibility Agreement for operating expenses which were paid by the Company, but, under the terms of the Responsibility Agreement, are the responsibility of the Sponsor. The Sponsor anticipates paying this receivable in the due course of business.
Completed for six months
Critical accounting policy օգտագործում 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 six months ended June 30, 2021, 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, 2020. 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. 42
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Recent accounting statements
See our accompanying Consolidated Financial Statements Note 2 for a description of recent financial statements և our impact on our financial performance և financial performance.
Please see “Notes on Consolidated Financial Statements – Footnote 11. Further developments”.
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