TRILINC GLOBAL IMPACT FUND, LLC 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
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;
• general global economic, political and business conditions, including
inflation, and the conflict in
• 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 theSEC .
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 aDelaware limited liability company onApril 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 byTriLinc Advisors, LLC , or the Advisor. The Advisor is an investment advisor registered with theSEC . 34 -------------------------------------------------------------------------------- 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, whichJ.P. Morgan Global Research andRockefeller 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 onFebruary 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. InMay 2012 , the Advisor purchased 22,161 Class A units for aggregate gross proceeds of$200,000 . OnJune 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 onMarch 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 theSEC at the time of reinvestment. Our Distribution Reinvestment Plan was amended, effectiveMay 25, 2020 , to allow holders of all classes of units other than Class Z units to participate, including holders who purchased units in our private placements. The offering must be registered or exempt from registration in every state in which we offer or sell units. If the offering is not exempt from registration, the required registration generally is for a period of one year. Therefore, we may have to stop selling units in any state in which the registration is not renewed annually and the offering is not otherwise exempt from registration. For the nine months endedSeptember 30, 2022 , we issued 741,000 of our units pursuant to our Distribution Reinvestment Plan for gross proceeds of approximately$5,243,000 . In addition, for the nine months endedSeptember 30, 2022 , we issued 41,163 of our units for gross proceeds of approximately$295,000 pursuant to our ongoing private placement described above. As ofSeptember 30, 2022 ,$24,186,000 in units remained available for sale pursuant to the Distribution Reinvestment Plan. From our inception toSeptember 30, 2022 , we have issued an aggregate of 56,000,530 of our units, including 7,778,116 units issued under our Distribution Reinvestment Plan, for gross proceeds of approximately$512,698,000 including approximately$64,152,000 reinvested under our Distribution Reinvestment Plan (before dealer manager fees of approximately$4,801,000 and selling commissions of$16,862,000 ), for net proceeds of$491,035,000 .
Outlook
The COVID-19 pandemic and its lingering effects has adversely impacted many of the Company's borrowers both directly and indirectly. First, the adverse impact on the global supply chain has been one of the largest challenges for our borrowers, as most of them are exporters directly tied to global trade. Some of these challenges include: demand from suppliers to be paid in cash rather than supplier credit, significant increases in shipping costs (when and if shipping is reliably available), and delays in the payment of receivables, all of which put pressure on borrowers' working capital needs. Although not as severe as they once were, supply chain problems continue to be aggravated byChina's rolling lockdowns to control COVID-19 and the conflict betweenRussia andUkraine . Second, our borrowers experienced challenges related to the decrease in global demand during 2020 and 2021, which decreased revenue for many of them. Additionally, input costs remain high and the conflict betweenRussia andUkraine has increased the disruption, instability and volatility in global markets and industries. The Company expects some of the regions in which it invests to achieve economic normalization once the lingering supply chain disruptions and input cost increases dissipate. However, the Company believes certain regions, industries and borrowers may experience further material economic distress due to the compound impact of more than two years of economic hardship and some borrowers may find it difficult or impossible to recover. If the continuing impacts of COVID-19 combined with rising input costs further adversely affect borrowers' businesses, financial condition and results of operations, borrowers may be unable to make required payments in the near term, which could impact the fair value of the Company's investments. While inflation and rising interest rates are major issues in most advanced economies, the Company believes they are not core issues in the Company's markets. The Company continues to believe that the central issue driving results is that borrowers are struggling to recover from the compound impact of more than two years of economic hardship. Indeed, although the Company's NAV per unit modestly decreased by$0.06 as ofSeptember 30, 2022 , compared to the NAV per unit as ofJune 30, 2022 , the Company's 35 -------------------------------------------------------------------------------- NAV is a reflection of the cumulative effect of 11 consecutive quarters of the adverse economic impact of COVID-19 and its ramifications, including persistent supply chain and cash flow issues, on our borrowers.
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, includingthe United States . With the sub-advisors that our Advisor has contracted with to assist the Advisor in implementing the Company's investment program, we expect to provide growth capital financing generally ranging in size from$5-20 million per transaction for direct SME loans and$500,000 to$15 million for trade finance transactions. We seek to protect and grow investor capital by: (1) targeting countries with favorable economic growth and investor protections; (2) partnering with sub-advisors with significant experience in local markets; (3) focusing on creditworthy lending targets who have at least 3-year operating histories and demonstrated cash flows enabling loan repayment; (4) making primarily debt investments, backed by collateral and borrower guarantees; (5) employing best practices in our due diligence and risk mitigation processes; and (6) monitoring our portfolio on an ongoing basis. By providing additional liquidity to growing small businesses, we believe we support both economic growth and the expansion of the global middle class. Investments will continue to be primarily credit facilities and participations in credit facilities to developing economy SMEs, including trade finance and term loans, through the Advisor's team of professional sub-advisors with a local presence in the markets where they invest. As ofSeptember 30, 2022 , 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.
LIBOR
InJuly 2017 , theUnited Kingdom's Financial Conduct Authority ("FCA") announced it intends to stop compelling banks to submit rates for the calculation of LIBOR. As a result, theU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for USD LIBOR in derivatives and other financial contracts. The transition away from LIBOR could cause interest rates on our debt to decrease, which could adversely affect our operating results. In addition, uncertainty about the extent and manner of future changes may result in interest rates that are higher or lower than if LIBOR were to remain available in the current form. LIBOR is expected to be phased out completely byJune 2023 , and new contracts ceased to be written using USD LIBOR at the beginning of 2022. As ofSeptember 30, 2022 , 14.3% of the fair value of the Company's total investments bore interest at floating rates based on LIBOR, with an alternative rate to be designated by the Company in the event that LIBOR is unavailable. The Company expects to fix SOFR as the alternative benchmark rate for our remaining investments with 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 phasing out of LIBOR 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. 36
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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 throughDecember 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 toDecember 31, 2017 . From our inception throughSeptember 30, 2017 , pursuant to the terms of the Responsibility Agreement, the Sponsor has paid approximately$12,421,000 of operating expenses, asset management fees, and incentive fees on our behalf and will reimburse us an additional$4,240,231 of expenses, which we had paid as ofSeptember 30, 2017 . Such expenses, in the aggregate of approximately$16,274,000 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 endedSeptember 30, 2022 . Therefore, none of the expenses of the Company covered by the Responsibility Agreement have been recorded as expenses of the Company for the quarter endedSeptember 30, 2022 .
Portfolio and Investment Activity
During the nine months endedSeptember 30, 2022 , the Company did not fund any new investments. Our investments consisted of senior secured trade finance participations, senior secured term loan participations, senior secured term loans, other investments, and equity warrants. Additionally, we received proceeds from repayments of investment principal of approximately$9.6 million . AtSeptember 30, 2022 andDecember 31, 2021 , the Company's investment portfolio included 35 and 36 companies, respectively, and the fair value of our portfolio was comprised of the following: As of September 30, 2022 As of December 31, 2021 Investments Percentage of Investments Percentage of at Total at Total Fair Value Investments Fair Value Investments Senior secured term loans$ 118,328,770 39.9 %$ 119,374,062 39.5 % Senior secured term loan participations 128,851,567 43.4 % 132,290,743 43.9 % Senior secured trade finance participations 44,591,325 15.0 % 45,092,689 15.0 % Other investments * 3,758,063 1.3 % 3,758,063 1.2 % Equity warrants 1,205,503 0.4 % 1,088,168 0.4 % Total investments$ 296,735,228 100.0 %$ 301,603,725 100.0 %
* This investment was originally classified as an investment in a credit facility
originated by
As ofSeptember 30, 2022 , the weighted average yields, based upon the cost of our portfolio, on trade finance participations, term loan participations, senior secured term loans, and other investments were 10.4%, 11.3%, 11.9%, and 8.8%, respectively, for a weighted average yield on investments of approximately 11.3% on our total portfolio. As ofSeptember 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 other investments were 10.6%, 12.3%, 11.6%, and 8.8%, respectively, for a weighted average yield on investments of approximately 11.7% on our total portfolio. 37
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As of
Industry Principal
Description Sector Classification Country Interest Maturity (1) Amount Fair Value
Sugar Producer Sugarcane and Sustainable Brazil
Sugar Beets Agriculture &
Agroprocessing 12.43% 12/15/2020 (2) $ 2,851,296 $ 555,673
LED Lighting Service Electric Services Technological Chile
Provider Innovation 11.00% 6/6/2021 (2) 1,456,162 1,245,868
Sustainable Packaging Corrugated and Recycling Ecuador 9.44% Cash/2.20%
Manufacturer solid fiber boxes PIK 6/18/2025 11,102,781 11,102,781
Resource Trader Coal and Other Responsible Natural Hong Kong
Minerals and Ores Resources
Distribution 11.50% PIK 6/30/2023 22,219,565 17,791,170
Wholesale Distributor Chemicals and Responsible Malaysia
Allied Products Industrial Goods
Distribution 12.00% 6/30/2023 18,484,703 16,744,391
Waste to Fuels Refuse Systems Recycling Mexico
Processor 15.50% PIK 1/27/2023 (3) 37,361,095 38,459,771
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% 5/26/2023 5,000,000 5,000,000
Diaper Manufacturer Sanitary Paper Responsible Consumer Peru 8.0% Cash/3.0%
II Products Goods Production PIK 12/31/2024 4,990,692 4,990,692
SME Financier Short-Term Inclusive Finance Botswana
Business Credit 10.38% 8/18/2023 4,740,000 4,740,000
IT Service Provider Computer Related Access to Technology Brazil 10.75%
Services, NEC Cash/3.25% PIK 11/23/2023 18,944,790 19,246,894
Ship Maintenance & Boatbuilding and Infrastructure Brazil
Repair Service Repairing Development 8.00% Cash/10.0%
Provider PIK 12/7/2023 7,006,741 6,985,352
Hospitality Service Hotels and Motels Infrastructure Cabo Verde 10.0% Cash/3.5%
Provider Development PIK 12/31/2024 (2) 17,987,949 17,101,321
Consumer Lender II Personal Credit Inclusive Finance Colombia
Institutions 11.90% 9/1/2025 2,121,530 2,121,530
Tank Farm Operator Petroleum and Responsible Fuel Ghana
Petroleum Products Storage 12.00% 2/10/2023 4,588,390 4,588,390
Mobile Network Telephone Access to Technology Jersey
Operator Communications 13.00% 9/30/2026 13,750,000 13,750,000
Freight and Cargo Freight Responsible Kenya
Transporter Transportation Logistics Management 10.29%
Arrangement Cash/4.00% PIK 3/31/2023 (2) 15,062,231 13,072,206
Property Developer Land Subdividers Infrastructure Namibia 8.50% Cash/4.0%
and Developers Development PIK 8/15/2021 (2) 18,717,631 14,222,622
Wheel Manufacturer Motor Vehicle Responsible Consumer Netherlands
Parts and Goods Production
Accessories 8.00% 2/7/2023 8,275,000 9,779,546
Marine Logistics Towing and Tugboat Responsible Nigeria
Provider Service Logistics Management 3.00% 11/30/2021 (2) 16,443,585 7,476,711
Frozen Bakery Retail Bakeries Responsible Consumer Romania 7.0% Cash/7.0%
Products Manufacturer Goods Production PIK 5/20/2024 4,112,447 4,127,441
Grain Processor G Corn Sustainable Uganda
Agriculture &
Agroprocessing 12.80% PIK 7/8/2024 568,179 568,179
Grain Processor F Corn Sustainable Uganda
Agriculture & 3.50% Cash/8.00%
Agroprocessing PIK 6/30/2025 12,100,913 11,071,375
Agriculture Soybeans Sustainable Argentina
Distributor Agriculture &
Agroprocessing 10.45% 6/30/2018 (2) 12,500,000 5,592,112
Dairy Co-Operative Dairy Farms Sustainable Dairy Argentina
Production 10.67% 7/29/2019 (2) 5,802,296 4,393,274
Beef Exporter Beef Cattle, Sustainable Argentina
Except Feedlots Agriculture &
Agroprocessing 11.50% 8/31/2017 (2) 9,000,000 6,361,679
Cotton Producer Cotton Ginning 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%, 6.0% 6/30/2023 (2) 16,035,023 15,314,592
Non-Ferrous Metal Coal and Other Responsible Metals Singapore
Trader Minerals and Ores Distribution 13.50% PIK 8/17/2025 (2) 20,907,297 18,643,927
Mobile Phone Telephone and Access to Technology Hong Kong
Distributor Telegraph
Apparatus 14.0%, 12.0% 5/31/2020 (2) 9,072,469 1,685,937
Scrap Metal Recycler Secondary Recycling Morocco
Nonferrous Metals N/A 7/31/2018 (2) 1,433,058 628,862
Cocoa Trader III Farm Products Sustainable Nigeria
Agriculture &
Agroprocessing 8.50% 12/31/2022 664,101 664,101
Cocoa Trader II Farm Products Sustainable Nigeria
Agriculture &
Agroprocessing 8.50% 12/31/2022 820,482 820,482
Fruit & Nut Salted and Roasted Sustainable South
Distributor Nuts and Seeds Agriculture & Africa
Agroprocessing 17.50% 5/22/2015 (2) 785,806 83,298
Pharmaceuticals Drugs, Access to Healthcare United Arab
Distributor Proprietaries, and and Pharmaceuticals Emirates
Sundries 14.60% 6/30/2018 (2) 648,430 648,430
Receivable from IIG Miscellaneous Other N/A
TOF B.V. Business Credit 8.75% N/A (2) 6,000,000 3,758,063
Total Investments $ 296,735,228 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.
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As of
Industry Classification Value of Total
Access to Healthcare and Pharmaceuticals
34,682,831 11.70 %
Inclusive Finance 6,861,530 2.30 %
Infrastructure Development 38,309,295 12.90 %
Recycling 50,191,414 16.90 %
Responsible Consumer Goods Production 18,897,679 6.40 %
Responsible Fuel Storage 4,588,390 1.50 %
Responsible Industrial Goods Distribution 16,744,391 5.60 % Responsible Logistics Management
20,548,917 6.90 %
Responsible Metals Distribution 18,643,927 6.30 %
Responsible Natural Resources Distribution 17,791,170 6.00 % Sustainable Agriculture & Agroprocessing 59,430,049 20.00 % Sustainable Dairy Production
4,393,274 1.50 %
Technological Innovation 1,245,868 0.40 %
Other 3,758,063 1.40 %
Total $ 296,735,228 100.00 %
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 ofSeptember 30, 2022 , the Company was in compliance with all of the above concentration limits.
Watch List Investments
Please see "Notes to Consolidated Financial Statements - Note 3. Investments - Watch List Investments."
Results of Operations
Consolidated operating results for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Investment income
Interest income $ 8,786,055 $ 9,069,603 $ 26,631,208 $ 27,684,145
Interest from cash - 3,703 3,481 41,002
Total investment income 8,786,055 9,073,306 26,634,689 27,725,147
Expenses
Asset management fees 1,641,882 1,758,565 4,987,817 5,337,777
Incentive fees 995,962 1,049,785 3,151,543 3,178,782
Professional fees 819,457 601,923 2,345,583 1,923,730
General and administrative
expenses 340,189 362,157 901,573 1,040,902
Interest expense - 48,319 11,169 143,381
Board of managers fees 64,375 64,375 193,125 193,125
Total expenses 3,861,865 3,885,124 11,590,810 11,817,697
Net investment income $ 4,924,190 $ 5,188,182 $ 15,043,879 $ 15,907,450
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Revenues
Three months ended
For the three months endedSeptember 30, 2022 and 2021, total investment income amounted to$8,786,055 and$9,073,306 , respectively. Interest income decreased approximately by$287,000 during the three months endedSeptember 30, 2022 compared to the same period in 2021 as a result of the change in the average size of the investment portfolio from the second quarter of 2022 to the third quarter of 2022, which decreased by approximately$1.9 million . The average size of the investment portfolio increased by approximately$78,000 from the second quarter of 2021 to the third quarter of 2021. The decrease in the average size of our portfolio during the third quarter of 2022 was due to investment repayments that were not redeployed.
During the three months ended
During the three months endedSeptember 30, 2021 ,$5,437,026 or 59.9% of the interest income was earned from loan and trade finance participations and$3,632,577 or 40.1% from direct loans. In addition, the Company earned$3,703 in interest income on our cash balances.
Nine months ended
For the nine months endedSeptember 30, 2022 and 2021, total investment income amounted to$26,634,689 and$27,725,147 , respectively. Interest income decreased approximately by$1,090,000 during the nine months endedSeptember 30, 2022 compared to the same period in 2021 as a result of the change in the average size of the investment portfolio for the nine months endedSeptember 30, 2022 , which decreased by approximately$909,000 . The average size of the investment portfolio increased by approximately$2,165,000 for the nine months endedSeptember 30, 2021 . The decrease in the average size of our portfolio during the first three quarters of 2022 was due to investment repayments that were not redeployed.
During the nine months ended
During the nine months ended
Expenses
Three months ended
Total operating expenses, excluding the asset management and incentive fees, incurred for the three months endedSeptember 30, 2022 increased by$147,247 to$1,224,021 from$1,076,774 for the three months endedSeptember 30, 2021 as a result of an increase in the professional fees of approximately$215,000 which was primarily due to more fees incurred for audit, legal and valuation 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 during the three months endedSeptember 30, 2022 . For the three months endedSeptember 30, 2022 and 2021, the asset management fees amounted to$1,641,882 and$1,758,565 , respectively. The incentive fees for the three months endedSeptember 30, 2022 and 2021 amounted to$995,962 and$1,049,785 , respectively. The decrease in incentive fees primarily is due to the decrease in revenue during the third quarter of 2022.
Nine months ended
Total operating expenses, excluding the asset management and incentive fees, incurred for the nine months endedSeptember 30, 2022 increased by$150,312 to$3,451,450 from$3,301,138 for the nine months endedJune 30, 2021 . The increase is mainly due to more audit fees incurred in relation to the new audit service contract in the second and third quarter of 2022. For the nine months endedSeptember 30, 2022 and 2021, the asset management fees amounted to$4,987,817 and$5,337,777 , respectively. The incentive fees for the nine months endedSeptember 30, 2022 and 2021 amounted to$3,151,543 and$3,178,782 , respectively. The decrease in incentive fees is due to the increase in professional fees during the first three quarters of 2022 and the decrease in investment income during the third quarter of 2022. 40 --------------------------------------------------------------------------------
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 recorded realized losses of for the three and nine months endedSeptember 30, 2022 but we recorded realized losses of$0 and$ 909,584 for the three and nine months endedSeptember 30, 2021 , respectively. We recorded unrealized losses of$1,967,920 and$3,047,884 for the three months endedSeptember 30, 2022 and 2021, respectively. We recorded unrealized losses of$10,866,588 and$11,579,186 for the nine months endedSeptember 30, 2022 and 2021, respectively. These unrealized losses were primarily driven by macro events, including the uncertainty created by the recent COVID-19 pandemic and the rising input costs caused in part by the conflict between Russian andUkraine and their impact on the future cash flows generated by our investments as well as the ultimate realization of the underlying collateral.
Financial Condition, Liquidity and Capital Resources
As ofSeptember 30, 2022 , we had approximately$1.2 million in cash. Historically, we have generated 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. We have experienced decreased liquidity; however, we expect this will be short-lived because the decline in liquidity is primarily the result of the inconsistent cash flows generated from the existing portfolio that has been caused by the current economic uncertainty. The decrease in liquidity has the potential to impact our ability to cover future distributions to our unitholders or meet other Company obligations. In order to address our temporary liquidity needs, onSeptember 1, 2022 , we sold$1.25 million of our investment inAfricell Holding Limited to an entity whose advisor is under common ownership with our Advisor and, subsequent toSeptember 30, 2022 , we sold one of our participation interests to a third party for$5.0 million , with an agreement to repurchase the participation from the buyer in approximately four months (as further discussed in Note 11 to the financial statements). In addition, we anticipate closing a significant leverage facility prior to year-end, and, in the short-term, may pursue additional repurchase or other financial transactions, as needed, in order to supplement cash flows to allow us to maintain normal future operations. 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 endedSeptember 30, 2022 . Therefore, none of the expenses of the Company covered by the Responsibility Agreement have been recorded as expenses of the Company for the quarter endedSeptember 30, 2022 . As ofSeptember 30, 2022 , there is a remaining aggregate balance of approximately$16.3 million 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. 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. OnAugust 7, 2017 , TGIFC issued$5.0 million in the first of a Series 1 Senior Secured Promissory Notes private offering to State Street Australia Ltd ACF Christian Super ("Christian Super"). OnDecember 18, 2018 , TGIFC issued$5.0 million of Series 2 Senior Secured Promissory Notes toChristian Super . The Company extended and repaid the CS Note in full inJanuary 2022 . Company Strategy Although the Company has a perpetual duration, it disclosed previously that if the Company did not consummate a liquidity event byAugust 25, 2021 , it would commence an orderly liquidation of its assets unless a majority of the board of managers, including a majority of the independent managers, determined that liquidation is not in the best interests of the Company's unitholders. Following the completion of a review process, inMay 2021 , the board of managers, including all of the independent managers, determined that a 41 -------------------------------------------------------------------------------- liquidation was not in the best interests of the Company's unitholders and approved the continuation of the Company's operations through at leastAugust 26, 2022 . InAugust 2022 , the board of managers again determined that a liquidation is not in the best interests of the Company. The board of managers and management believe that it is in the best interests of the Company to continue its operations and to pursue leverage and other alternatives to stabilize its portfolio and NAV throughDecember 31, 2023 .
Distributions
We have paid distributions commencing with the month beginningJuly 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 nine months endedSeptember 30, 2022 , we paid a total of$17,731,627 in distributions, comprised of$12,488,127 paid in cash and$5,243,500 reinvested under our DRP. Related Party Transactions
For the nine months ended
From our inception throughSeptember 30, 2017 , pursuant to the terms of the Responsibility Agreement, the Sponsor has paid approximately$12,421,000 of operating expenses, asset management fees, and incentive fees on our behalf and will reimburse us an additional$4,240,231 of expenses, which we had paid as ofSeptember 30, 2017 . Such expenses, in the aggregate of approximately$16,274,000 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 endedSeptember 30, 2022 . Therefore, none of the expenses of the Company covered by the Responsibility Agreement have been recorded as expenses of the Company for the quarter endedSeptember 30, 2022 . As ofSeptember 30, 2022 andDecember 31, 2021 , due from affiliates on the Consolidated Statements of Assets and Liabilities in the amount of$4,240,231 and$4,240,231 , respectively was due from the Sponsor pursuant to the Responsibility Agreement for operating expenses which were paid by the Company, but, under the terms of the Responsibility Agreement, are the responsibility of the Sponsor. The Sponsor anticipates paying this receivable in the due course of business. For the nine months endedSeptember 30, 2022 and 2021, we paid SC Distributors, formally known asStratCap Securities , the dealer manager for certain of our offerings, approximately$299,000 and$327,000 , respectively in ongoing distributions fees, dealer manager fees and service fees. OnSeptember 1, 2022 , the Company sold$1.25 million of its investment inAfricell Holding Limited to an entity whose advisor is under common ownership with the Company's Advisor. The transaction was recorded at par with no realized gain or loss. The Company engaged an independent valuation firm to validate the transaction price. Legal Proceedings
As of
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 theSEC , 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. 42
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There have been no significant changes to our critical accounting policies,
estimates and judgments during nine months ended
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 the Company's accompanying Consolidated Financial Statements for a description of recent accounting pronouncements and its expectation of their impact on the Company's results of operations and financial condition.
Subsequent Events
Please see "Notes to Consolidated Financial Statements-Note 11. Subsequent Events."
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