TRILINC GLOBAL IMPACT FUND LLC Management’s Report of Financial Condition and Results of Operations (Form 10-Q)
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.
Unless otherwise specified, references to “we”, “us”, “our” or the “Company” mean
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 the measures 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
about the companies in which we invest;
• the availability of cash flows 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 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 staff 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 conflict
• the performance of our investments compared to our expectations and the impact
on our actual return on invested equity, as well as the cash provided by these investments;
• any failure of our advisor or sub-advisors to exercise due diligence in identifying all
relevant facts in our underwriting process or otherwise;
• the ability of our sub-advisers 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 “investment company”
under the Investment Company Act of 1940, as amended.
We use words such as "anticipates," "believes," "expects," "intends" and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason. The foregoing list of factors is not exhaustive. We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the
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. 35 -------------------------------------------------------------------------------- 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, 2022, we issued 492,268 of our units pursuant to our Distribution Reinvestment Plan for gross proceeds of approximately $3,515,000. In addition, for the six months ended June 30, 2022, we issued 33,354 of our units for gross proceeds of approximately $241,000pursuant to our ongoing private placement described above. As of June 30, 2022, $25,914,000in units remained available for sale pursuant to the Distribution Reinvestment Plan. From our inception to June 30, 2022, we have issued an aggregate of 55,741,881 of our units, including 7,529,384 units issued under our Distribution Reinvestment Plan, for gross proceeds of approximately $510,893,000including approximately $62,424,000reinvested under our Distribution Reinvestment Plan (before dealer manager fees of approximately $4,800,000and selling commissions of $16,862,000), for net proceeds of $489,231,000.
Impact of COVID-19
The ongoing COVID-19 pandemic (more commonly referred to as the Coronavirus), including the emergence of the BA.5 variant and other variants, 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, and continued into the second quarter of 2022 in certain areas. Although the economic recovery has been significantly affected by supply chain disruptions and higher input costs, which have been exacerbated by the conflict between
Russiaand Ukraine. These issues have more acutely affected developing economies. The Company believes that some of the regions in which it invests are poised to achieve economic normalization once the 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. Any of these adverse developments could have a material adverse effect on our business, financial condition and results of operations. However, if COVID-19 cases began to spike again globally, as we saw with recent variants, it could further adversely impact the Company's borrowers' businesses, financial condition and results of operations, which could result in their inability to make required payments in the near term and impact the fair value of the Company's investments. During the six months ended June 30, 2022and the year ended December 31, 2021, 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 approximately $231,000and $6,368,000, respectively, in the aggregate during the six months ended June 30, 2022and the year ended December 31, 2021, were made with 36
in respect of 18.7% and 18.5%, respectively, of the Company’s investments (calculated on the basis of 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, the Company 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 employees to work remotely and significantly enhanced office sterilization procedures to minimize the probability of contagion. While many of the Company's borrowers' businesses have experienced some disruption related to COVID-19, degrees of effect have varied. For example, as indicated under "-Watch List Investments" below, the borrowers with respect to the investments added to the Watch List for the six months ended
June 30, 2022and for the year ended December 31, 2021have not made required payments in part due to adverse impacts they have experienced related to the COVID-19 pandemic, as well as due to the adverse impacts of supply chain disruptions and higher input costs associated with shortages of goods and labor. 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 in part to the disruptions associated with COVID-19 as well as due to the supply chain disruptions and increased input costs, 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 described above is expected to continue 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 approximate $0.22decline in the Company's NAV per unit as of June 30, 2022, as compared to the Company's NAV per unit as of December 31, 2021. The Company's NAV is a reflection of the cumulative effect of 10 consecutive quarters of the adverse economic impact of COVID-19, compounded by the rising input costs caused, in part, by the conflict between Russiaand Ukraine. In addition, the Company saw a slowdown in transaction volume due to the impact of the pandemic in the first and second quarters of 2022 and through most of 2021, 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 yet 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. 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 during 2021, which 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. As conditions continue to improve, due to the easing of restrictions and lockdowns that were put in place to curb the spread of COVID-19, global demand has recovered. However, in order to see a full normalization of economic conditions, supply chain challenges must be eased. As noted above, we have seen improvement in conditions as vaccinations are deployed globally in greater numbers, but we believe the effective distribution of vaccines to the populations of emerging market countries will remain critical to a full economic recovery for our affected borrowers. The delay of vaccination distribution in emerging market countries, where many of our borrowers are located, caused a lag in their economic recovery in 2021, which the Company expects to improve in coming quarters, particularly if supply chain disruptions and input costs normalize. Additionally, input costs remain high and the conflict between
Russiaand Ukrainehas increased the disruption, instability and volatility in global markets and industries. We do not have any investments in, and none of our borrowers receive supplies directly from, Russia, Belarusor Ukraine. Therefore, to date, we have not been materially impacted by the actions of the Russian government. Market disruptions in a single country could cause a worsening of conditions on a regional and even global level, as economic problems in a single country can significantly impact other markets and economies. While the direct impact on the Company of Russia'sinvasion of Ukraineis limited, we are being affected by increases in the price of oil as a result of sanctions on Russia, which contributes to overall inflation and increased costs. The ongoing conflict could cause increased volatility in the economies and financial markets of countries throughout the region, or even globally. We continue to monitor the uncertainty surrounding the extent and duration of this ongoing conflict and the impact that it may have on the global economy and on our business. The Company's NAV is a reflection of the cumulative effect of 10 consecutive quarters of the adverse economic impact of COVID-19, compounded by the rising input costs caused, in part, by the conflict between Russiaand Ukraine. 37 --------------------------------------------------------------------------------
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, 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.
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 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 by June 2023, and new contracts ceased to be written using USD LIBOR at the beginning of 2022. As of June 30, 2022, 17% 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. 38
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 approximately $16.3 millionhave not been reimbursed to the Sponsor as of June 30, 2022.
Portfolio and investment activity
In the six months ended
As of June 30, 2022 As of December 31, 2021 Investments Percentage of Investments Percentage of at Fair Value Total
Investments at fair value Total investments Senior secured term loans
$ 117,645,48039.5 % $ 119,374,06239.6 % Senior secured term loan participations 130,626,998 43.8 % 132,290,743 43.9 % Senior secured trade finance participations 44,822,350 15.0 % 45,092,689 15.0 % Other investments * 3,758,063 1.3 % 3,758,063 1.2 % Equity warrants 1,088,168 0.4 % 1,088,168 0.4 % Total investments $ 297,941,059100.0 % $ 301,603,725100.0 %
* This investment was originally classified as an investment in a credit facility
June 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 10.5%, 12.9%, 11.6%, and 8.8%, respectively, for a weighted average yield on investments of approximately 11.9% on our total portfolio. As of 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 other 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. 39
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 Electrical Service Technology Provider in Chile
Innovation 11.00% 6/6/2021 (2) 1,456,162 1,245,868 Sustainable Packaging Corrugated and Recycling Ecuador 9.16% 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
MalaysiaAllied Products Industrial Goods Distribution 12.00% 6/30/2023 18,159,843 16,419,531 Waste to Fuels Refuse Systems Recycling Mexico Processor 15.50% PIK 1/27/2023 (3) 35,865,930 36,740,448 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% 3/4/2024 5,000,000 5,000,000 Diaper Manufacturer Sanitary Paper Responsible Consumer Peru 8.00% Cash/3.00% II Products Goods Production PIK 12/31/2024 4,953,237 4,953,237 SME Financier Short-Term Inclusive Finance Botswana Business Credit 9.63% 8/18/2023 4,740,000 4,740,000 IT Service Provider Computer Related Access to Technology Brazil 10.75% Services, NEC
Development 8.00% Cash/8.00% Provider PIK 12/7/2023 6,832,142 6,806,170
Hospitality Service Hotels and Motels Infrastructure
Development Cash/4.75% PIK 12/31/2024 (2) 14,511,780 16,067,298 Consumer Lender II Personal Credit Inclusive Finance Colombia Institutions 11.90% 9/1/2025 3,051,167 3,051,167 Tank Farm Operator Petroleum and Responsible Fuel Ghana Petroleum Products Storage 12.00% 2/10/2023 5,747,004 5,747,004 Mobile Network Telephone Access to Technology Jersey Operator Communications 9.70% 9/30/2026 15,000,000 15,000,000 Freight and Cargo Freight Responsible Kenya Transporter Transportation Logistics Management
Arrangement PIK 3/31/2023 (2) 14,909,819 12,919,794
Property developer Land subdivisions Infrastructure
and Developers Development PIK 8/15/2021 (2) 18,622,449 14,127,440 Wheel Manufacturer Motor Vehicle Responsible Consumer Netherlands Parts and Goods Production Accessories 14.23% 2/7/2024 8,275,000 9,779,546 Marine Logistics Towing and Tugboat Responsible Nigeria Provider Service Logistics Management 15.28% 1/31/2022 (2) 17,007,004 8,040,131 Frozen Bakery Retail Bakeries Responsible Consumer Romania 7.00% Cash/7.00% Products Manufacturer Goods Production PIK 5/20/2024 4,039,909 4,054,903 Grain Processor G Corn Sustainable Uganda Agriculture & Agroprocessing 12.80% PIK 7/8/2024 528,004 528,004 Grain Processor F Corn Sustainable Uganda Agriculture &
Agroprocessing PIK 6/30/2025 11,551,568 10,522,030 Agriculture Soybeans Sustainable Argentina Distributor Agriculture & Agroprocessing 10.45% 6/30/2018 (2) 12,500,000 5,772,745 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%, 6.00% 9/30/2023 (2) 15,671,250 14,950,820 Non-Ferrous Metal Coal and Other Responsible Metals Singapore Trader Minerals and Ores Distribution 6.00% PIK 8/18/2025 (2) 20,458,129 18,194,760 Mobile Phone Telephone and Access to Technology Hong Kong Distributor Telegraph Apparatus 12.00% 5/31/2020 (2) 9,072,469 1,685,937 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% 12/31/2022 (4) 664,101 664,101 Cocoa Trader II Farm Products Sustainable Nigeria Agriculture & Agroprocessing 8.50% 12/31/2022 (4) 820,482 820,482 Fruit & Nut Salted and Roasted Sustainable South Distributor Nuts and Seeds Agriculture & Africa Agroprocessing 17.50% 5/22/2015 (2) 785,806 497,462 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
1 Trade finance borrowers may be granted repayment flexibility
relative to the maturity date indicated to take account of specific contracts and/or
characteristics of the business cycle. This flexibility in each case is agreed
between the Company and the sub-advisor and between the sub-advisor and the
2 See the Watch List Investments section below for more information.
3 This investment consists of a senior secured term loan and warrants
4 Refer to the consolidated table of investments for more information on
the status of this investment. 40
Industry Classification Value of Total
Access to health care and pharmaceuticals
35,929,448 12.10 % Inclusive Finance 7,791,167 2.60 % Infrastructure Development 37,000,908 12.40 % Recycling 48,472,091 16.30 % Responsible Consumer Goods Production 18,787,686 6.30 % Responsible Fuel Storage 5,747,004 1.90 %
Responsible distribution of industrial goods 16,419,531 5.50% Responsible management of logistics
20,959,925 7.00 % Responsible Metals Distribution 18,194,760 6.10 %
Responsible distribution of natural resources 19,521,350 6.60% Sustainable agriculture and agro-industry 59,071,554 19.80% Sustainable dairy production
4,393,274 1.50 % Technological Innovation 1,245,868 0.40 % Other 3,758,063 1.30 % Total
$ 297,941,059100.00 % 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 of
June 30, 2022, the Company was in compliance with all of the above concentration limits.
Investment Watch List
Please see “Notes to Consolidated Financial Statements – Note 3. Investments – Investments to watch”.
Results of Operations Consolidated operating results for the three and six months ended
June 30, 2022and 2021 are as follows: Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Investment income Interest income $ 9,260,185 $ 9,464,096 $ 17,845,153 $ 18,614,542Interest from cash - 9,870 3,481 37,299 Total investment income 9,260,185 9,473,966 17,848,634 18,651,841 Expenses Asset management fees 1,655,975 1,769,982 3,345,935 3,579,212 Incentive fees 1,259,703 1,347,541 2,155,581 2,128,997 Professional fees 910,386 459,852 1,526,126 1,321,807 General and administrative expenses 330,932 394,258 561,384 678,745 Interest expense - 47,794 11,169 95,062 Board of managers fees 64,375 64,375 128,750 128,750 Total expenses 4,221,371 4,083,802 7,728,945 7,932,573 Net investment income $ 5,038,814 $ 5,390,164 $ 10,119,689 $ 10,719,26841
Three months completed
For the three months ended
June 30, 2022and 2021, total investment income amounted to $9,260,185and $9,473,966, respectively. Interest income decreased by $213,781during the three months ended June 30, 2022compared to the same period in 2021 as a result of the increase in the average size of the investment portfolio from the first quarter of 2022 to the second quarter of 2022 is lower by approximately $1.1Mcompared with the increase in the average size of the investment portfolio from the first quarter of 2021 to the second quarter of 2021. The decrease in the average size of our portfolio during the second quarter of 2022 was due to investment repayments that were not redeployed. During the three months ended June 30, 2022, $5,176,021or 55.9% of the interest income was earned from loan and trade finance participations and $4,084,164or 44.1% from direct loans. During the three months ended June 30, 2021, $5,846,232or 61.8% of the interest income was earned from loan and trade finance participations and $3,617,865or 38.2% from direct loans. In addition, the Company earned $9,870in interest income on our cash balances.
Six months ended
For the six months ended
June 30, 2022and 2021, total investment income amounted to $17,848,634and $18,651,841, respectively. Interest income decreased by $803,207during the six months ended June 30, 2022compared to the same period in 2021 as a result of a decrease in the weighted average investment portfolio of approximately $168,000from the weighted average investment portfolio of $41,647,639for the six months ended June 30, 2021to $41,479,155for the six months ended June 30, 2022. The decrease in the average size of our portfolio during the first half of 2022 was due to investment repayments that were not redeployed. During the six months ended June 30, 2022, $9,947,223or 55.8% of the interest income was earned from loan and trade finance participations and $7,895,930or 44.2% from direct loans. During the six months ended June 30, 2021, $11.607.526or 62.4% of the interest income was earned from loan and trade finance participations and $7,007,016or 37.6% from direct loans. In addition, we earned $37,299in interest income on our cash balances. Expenses
Three months completed
Total operating expenses, excluding the asset management and incentive fees, incurred for the three months ended
June 30, 2022increased by $339,414to $1,305,693from $966,279for the three months ended June 30, 2021as a result of an increase in the professional fees of $450,534which 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. For the three months ended June 30, 2022and 2021, the asset management fees amounted to $1,655,975and $1,769,982, respectively. The incentive fees for the three months ended June 30, 2022and 2021 amounted to $1,259,703and $1,347,541, respectively. The decrease in incentive fees is due to the decrease in revenue during the second quarter of 2022.
Six months ended
Total operating expenses, excluding the asset management and incentive fees, incurred for the six months ended
June 30, 2022increased by $ 3,065to $2,227,429from $2,224,364for the six months ended June 30, 2021. The increase is mainly due to more audit fees incurred in relation to the new audit service contract in the second quarter of 2022. For the six months ended June 30, 2022and 2021, the asset management fees amounted to $3,345,935and $3,579,212, respectively. The incentive fees for the six months ended June 30, 2022and 2021 amounted to $2,155,581and $2,128,997, respectively. The increase in incentive fees is due to the decrease in management fees and the increase in investment income during the first and second quarter of 2022. 42 -------------------------------------------------------------------------------- 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 six months ended June 30, 2022and 2021, respectively. We recorded unrealized losses of $6,252,468and $7,555,975for the three months ended June 30, 2022and 2021, respectively. We recorded unrealized losses of $8,898,668and $8,531,302for the six months ended June 30, 2022and 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 and Ukraineand their impact on the future cash flows generated by our investments as well as the ultimate realization of the underlying collateral.
Financial position, liquidity and capital resources
June 30, 2022, we had approximately $4.6 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, 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 ended June 30, 2022. As of June 30, 2022, 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 $5.0 millionin the first of a Series 1 Senior Secured Promissory Notes private offering to State Street Australia Ltd ACF Christian Super ("Christian Super"). On faveraDecember 18, 2018, TGIFC issued $5.0 millionof Series 2 Senior Secured Promissory Notes to Christian Super. The Company extended and repaid the CS Note in full in January 2022. Company Strategy Although the Company has a perpetual duration, it disclosed previously that if the Company did not consummate a liquidity event by August 25, 2021, it would commence an orderly liquidation of its assets unless a majority of the board of managers, including a majority of the independent managers, determined that liquidation is not in the best interests of the Company's unitholders. Following the completion of a review process, in May 2021, the board of managers, including all of the independent managers, determined that a liquidation was not in the best interests of the Company's unitholders and approved the continuation of the Company's operations through at least August 26, 2022. In August 2022, the board of managers again determined that a liquidation is not in the best interests of the Company. 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 through December 31, 2023.
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 43 -------------------------------------------------------------------------------- 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, 2022, we paid a total of $11,852,638in distributions, comprised of $8,337,466paid in cash and $3,515,172reinvested under our DRP.
Transactions with related parties
For the six months ended
From our inception through
September 30, 2017, pursuant to the terms of the Responsibility Agreement, the Sponsor has paid approximately $12,421,000of 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 approximately $16,274,000since 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, 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 ended June 30, 2022. As of June 30, 2022and December 31, 2021, due from affiliates on the Consolidated Statements of Assets and Liabilities in the amount of $4,240,231and $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 six months ended
Significant Accounting Policies and Use of Estimates
In preparing our Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations promulgated by the
SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and discuss our critical accounting policies and estimates with the audit committee of our board of managers. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. There have been no significant changes to our critical accounting policies, estimates and judgments during six months ended June 30, 2022, 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, 2021. 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. 44 --------------------------------------------------------------------------------
Please refer to “Notes to the consolidated financial statements – Note 11. Subsequent events”.
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