Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - TriLinc Global Impact Fund LLCFinancial_Report.xls
EX-32.1 - EX-32.1 - TriLinc Global Impact Fund LLCd793504dex321.htm
EX-31.1 - EX-31.1 - TriLinc Global Impact Fund LLCd793504dex311.htm
EX-10.2 - EX-10.2 - TriLinc Global Impact Fund LLCd793504dex102.htm
EX-31.2 - EX-31.2 - TriLinc Global Impact Fund LLCd793504dex312.htm
EX-4.3 - EX-4.3 - TriLinc Global Impact Fund LLCd793504dex43.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 333-185676

 

 

TriLinc Global Impact Fund, LLC

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   36-4732802

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1230 Rosecrans Avenue, Suite 605,

Manhattan Beach, CA 90266

(Address of principal executive offices)

(310) 997-0580

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


Table of Contents

Table of Contents

 

Part I. Financial Information

     3   

Item 1. Consolidated Financial Statements

     3   

Consolidated Statements of Assets and Liabilities as of September 30, 2014 (unaudited) and December  31, 2013

     3   

Consolidated Statements of Operations for the three and nine months ended September  30, 2014 and 2013 (unaudited)

     4   

Consolidated Statements of Changes in Net Assets for the nine months ended September  30, 2014 and 2013 (unaudited)

     5   

Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)

     6   

Consolidated Schedule of Investments as of September 30, 2014 (unaudited) and December 31, 2013

     7-8   

Notes to Financial Statements (unaudited)

     9   

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

     21   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     32   

Item 4. Controls and Procedures

     33   

Part II. Other Information

     33   

Item 1. Legal Proceedings

     33   

Item 1A. Risk Factors

     33   

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

     33   

Item 3. Defaults Upon Senior Securities

     34   

Item 4. Mine Safety Disclosures

     34   

Item 5. Other Information

     34   

Item 6. Exhibits

     34   

 

2


Table of Contents

Part I. Financial Information

Item 1. Consolidated Financial Statements.

TriLinc Global Impact Fund, LLC

Consolidated Statements of Assets and Liabilities

 

     As of  
     September 30,     December 31,  
     2014     2013  
     (Unaudited)        

ASSETS

    

Investments owned, at fair value (amortized cost of $41,093,624 and $6,547,061, respectively)

   $ 41,093,624      $ 6,547,061   

Cash

     2,463,712        6,666,659   

Interest receivable

     502,243        114,809   

Due from affiliates (see Note 5)

     661,993        79,109   

Prepaid expenses

     20,296        54,180   
  

 

 

   

 

 

 

Total assets

     44,741,868        13,461,818   
  

 

 

   

 

 

 

LIABILITIES

    

Due to unitholders

     201,571        65,015   

Management fee payable

     82,959        —     

Due to affiliates (see Note 6)

     —          31,391   

Other payables

     —          149   
  

 

 

   

 

 

 

Total liabilities

     284,530        96,555   
  

 

 

   

 

 

 

NET ASSETS

   $ 44,457,338      $ 13,365,263   
  

 

 

   

 

 

 

ANALYSIS OF NET ASSETS:

    

Net capital paid in on Class A units

   $ 20,541,896      $ 3,405,283   

Net capital paid in on Class C units

     2,436,819        385,565   

Net capital paid in on Class I units

     23,912,757        10,280,361   

Offering costs

     (2,434,134     (705,946
  

 

 

   

 

 

 

Net assets (equivalent to $8.557 and $8.572, respectively per unit based on total units outstanding of 5,195,730.953 and 1,559,136.769, respectively)

   $ 44,457,338      $ 13,365,263   
  

 

 

   

 

 

 

Net assets, Class A (units outstanding of 2,276,110.403 and 377,316.669, respectively)

   $ 19,475,568      $ 3,234,442   

Net assets, Class C (units outstanding of 270,007.594 and 42,721.867, respectively)

     2,310,323        366,221   

Net assets, Class I (units outstanding of 2,649,612.956 and 1,139,098.233, respectively)

     22,671,447        9,764,600   
  

 

 

   

 

 

 

Net assets

   $ 44,457,338      $ 13,365,263   
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

3


Table of Contents

TriLinc Global Impact Fund, LLC

Consolidated Statements of Operations

(Unaudited)

 

     Three months ended     Nine months ended  
     September 30,
2014
    September 30,
2013
    September 30,
2014
    September 30,
2013
 

INVESTMENT INCOME

        

Interest income

   $ 854,884      $ 95,868      $ 1,801,568      $ 99,542   

Interest from cash

     11,024        —          11,675        39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     865,908        95,868        1,813,243        99,581   
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Management fees

     222,701        23,331        481,247        26,420   

Incentive fees

     156,590        14,591        314,208        14,591   

Operating expenses

     —          —          9,780        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     379,291        37,922        805,235        41,011   

Expense support payment from Sponsor

     (296,332     (10,020     (563,029     (10,020
  

 

 

   

 

 

   

 

 

   

 

 

 

Net expenses

     82,959        27,902        242,206        30,991   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     782,949        67,966        1,571,037        68,590   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 782,949      $ 67,966      $ 1,571,037      $ 68,590   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME PER UNITS - BASIC AND DILUTED

   $ 0.18      $ 0.16      $ 0.50      $ 0.37   

WEIGHTED AVERAGE UNITS OUTSTANDING - BASIC AND DILUTED

     4,345,654.006        433,303.579        3,117,628.149        183,936.808   

See accompanying notes to the consolidated financial statements.

 

4


Table of Contents

TriLinc Global Impact Fund, LLC

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

     Nine months ended  
     September 30,
2014
    September 30,
2013
 

INCREASE FROM OPERATIONS

    

Net investment income

   $ 1,571,037      $ 68,590   
  

 

 

   

 

 

 

Net increase from operations

     1,571,037        68,590   
  

 

 

   

 

 

 

DECREASE FROM DISTRIBUTIONS

    

Distributions to Class A unitholders

     (602,079     (55,640

Distributions to Class C unitholders

     (64,253     —     

Distributions to Class I unitholders

     (936,591     (12,812
  

 

 

   

 

 

 

Net decrease from distributions

     (1,602,923     (68,452
  

 

 

   

 

 

 

INCREASE FROM CAPITAL TRANSACTIONS

    

Issuance of Class A units

     17,162,128        3,120,841   

Issuance of Class C units

     2,051,628        —     

Issuance of Class I units

     13,632,277        1,560,607   

Contribution from Sponsor

     31,750        —     

Repurchase of Class A units

     (25,634     —     

Offering costs

     (1,728,188     (244,588
  

 

 

   

 

 

 

Net increase from capital transactions

     31,123,961        4,436,860   
  

 

 

   

 

 

 

Net increase in net assets

     31,092,075        4,436,998   

Net assets at beginning of period

     13,365,263        199,862   
  

 

 

   

 

 

 

Net assets at end of period

   $ 44,457,338      $ 4,636,860   
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

5


Table of Contents

TriLinc Global Impact Fund, LLC

Consolidated Statements of Cash Flows

(Unaudited)

 

     Nine months ended  
     September 30,
2014
    September 30,
2013
 

Cash flows from operating activities

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 1,571,037      $ 68,590   

ADJUSTMENT TO RECONCILE NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES

    

Purchase of investments

     (48,148,136     (4,187,214

Maturity of investments

     13,703,960        971,605   

Accretion of discounts on investments

     (102,387     (9,198

Increase in sub-advisor receivable

     —          (379,970

Increase in interest receivable

     (387,434     (65,969

Increase in due from affiliates

     (633,918     (41,076

Decrease (increase) in prepaid expenses

     33,884        (77,400

Increase in due to unitholders

     136,556        22,892   

Increase in management fee payable

     82,959        26,420   

Increase in due to affiliates

     —          28,855   

Increase in incentive fee payable

     —          4,571   

Decrease in other payable

     (149     —     
  

 

 

   

 

 

 

NET CASH USED IN OPERATING ACTIVITIES

     (33,743,628     (3,637,894
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from issuance of units

     32,380,367        4,659,678   

Distributions paid to unitholders

     (1,137,257     (46,682

Payments of offering costs

     (1,759,579     (244,588

Repurchase of units

     (25,634     —     

Capital contribution from our Sponsor

     82,784        —     
  

 

 

   

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

     29,540,681        4,368,408   
  

 

 

   

 

 

 

TOTAL INCREASE (DECREASE) IN CASH

     (4,202,947     730,514   

CASH AT BEGINNING OF THE PERIOD

     6,666,659        200,114   
  

 

 

   

 

 

 

CASH AT END OF THE PERIOD

   $ 2,463,712      $ 930,628   
  

 

 

   

 

 

 

Supplemental non-cash information

    

Issuance of units in connection with distribution reinvestment plan

   $ 465,667      $ 21,770   

See accompanying notes to the consolidated financial statements.

 

6


Table of Contents

TriLinc Global Impact Fund, LLC

Consolidated Schedule of Investments

As of September 30, 2014

(Unaudited)

 

Investment Type /
Country

  

Portfolio Company

  

Sector

  

Description

   Interest     Fees (2)     Maturity
(3)
     Principal
Amount
     Current
Commitment (4)
     Amortized
Cost
     Fair Value      % of Net
Assets
 

Senior Secured Term Loan Participations (1)

                     

Brazil

   Usivale Industria y Commercio    Agricultural Products    Sugar Producer      12.43     0.0    
 
12/15/2014-
12/15/2016
 
  
     3,000,000         3,000,000         3,000,000         3,000,000         6.7

Peru

   Corporacion Prodesa S.R.L. (5)    Consumer Products    Diaper Manufacturer      14.75 % - 14.85%      0.0    
 
12/22/2016-
6/15/2017
 
  
     2,750,000         2,750,000         2,750,000         2,750,000         6.2

Peru

   Other Investments    Food Products    Food Processor      13.00     0.0     11/29/2014         352,000         352,000         352,000         352,000         0.8
                        

 

 

    

 

 

    

 

 

 

Total Senior Secured Term Loan Participations

                  6,102,000         6,102,000         13.7

Senior Secured Trade Finance Participations (1)

                     

Argentina

   Compania Argentina De Granos    Agricultural Products    Agriculture Distributor      9.00     0.0     7/28/2015         5,000,000         5,000,000         5,000,000         5,000,000         11.2

Argentina

   Sancor Coop Unidas Ltd.    Consumer Products    Dairy Co-Operative      10.33     0.0     2/25/2015         3,500,000         5,000,000         3,500,000         3,500,000         7.9

Argentina

   Frigorifico Regional Industrias Alimenticias S.A.    Meat, Poultry & Fish    Beef Exporter      11.98     0.0     6/5/2015         4,000,000         5,000,000         4,000,000         4,000,000         9.0

Peru

   Other Investments    Electrical Equipment    Insulated Wire Manufacturer      8.00     0.0     9/25/2014         1,991,000         3,000,000         1,991,000         1,991,000         4.5

Kenya

   Seruji Limited    Construction Materials    Cement Distributor      14.75     0.0     3/17/2015         5,000,000         5,000,000         5,000,000         5,000,000         11.2

Namibia

   Other Investments    Packaged Foods & Meats    Consumer Goods Distributor      12.50     0.0     11/15/2014         2,000,000         2,000,000         2,000,000         2,000,000         4.5

South Africa

   Other Investments    Meat, Poultry & Fish    Meat Processor      12.50     0.0     11/1/2014         1,000,000         1,000,000         1,000,000         1,000,000         2.2

South Africa

   Other Investments    Food Products    Rice & Bean Importer      12.50     0.0     10/30/2014         1,000,000         1,000,000         1,000,000         1,000,000         2.2

South Africa

   Other Investments    Food Products    Fruit & Nut Distributor      17.50     0.0     10/2/2014         1,250,000         1,250,000         1,250,000         1,250,000         2.8

South Africa

   Other Investments    Household Products    Candle Distributor      12.75 % - 13.00%      0.0%       
 
11/4/2014 -
11/27/2014
  
  
     1,400,000         1,400,000         1,400,000         1,400,000         3.1

South Africa

   Other Investments    Textiles, Apparel & Luxury Goods    Textile Distributor      15.00     0.0    
 
11/4/2014 -
12/5/2014
  
  
     1,041,800         1,500,000         1,041,800         1,041,800         2.3

Zambia

   Neria Investments Ltd    Fertilizer & Agricultural Chemicals    Farms Supplies      12.50     0.0     10/22/2014         3,000,000         3,000,000         3,000,000         3,000,000         6.7

Zambia

   Other Investments    Fertilizer & Agricultural Chemicals    Fertilizer Distributor      12.00     0.0     10/6/2014         1,808,824         3,000,000         1,808,824         1,808,824         4.1
                        

 

 

    

 

 

    

 

 

 

Total Senior Secured Trade Finance Participations

  

             31,991,624         31,991,624         71.9

Unsecured Short Term Note Receivable (1)

  

                

South Africa

   Barak Fund Management Ltd.(6)    Financial         14.75     0.0     10/23/2014         3,000,000         3,000,000         3,000,000         3,000,000         6.7
                        

 

 

    

 

 

    

Total Investments

                         $ 41,093,624       $ 41,093,624      
                        

 

 

    

 

 

    

 

1. Refer to Notes 3 and 4 of the consolidated financial statements for additional information on the Company’s investments.
2. Fees may include upfront, origination, commitment, facility and/or other fees that the borrower must contractually pay to the Company.
3. Given the nature of trade finance contracts, trade finance borrowers typically have a 30 day grace period relative to the maturity date.
4. Loan commitments are subject to the availability of funds and do not represent a contractual obligation to provide funding to the borrower.
5. The interest rate includes 1.75% of deferred interest.
6. Barak Fund Management Ltd. is a sub-advisor to the Company.

See accompanying notes to the consolidated financial statements.

 

7


Table of Contents

TriLinc Global Impact Fund, LLC

Consolidated Schedule of Investments

December 31, 2013

 

 

Investment Type /

Country

 

Portfolio
Company

 

Sector

 

Description

  Interest     Fees (2)     Maturity     Principal
Amount
    Current
Commitment (3)
    Amortized
Cost
    Fair
Value
    % of Net
Assets
 

Secured Mezzanine Term Loan (1)

                     

Indonesia

  PT Indah Global Semesta (IGS) (4)   Consumer Electronics   Electronics Retailer     10.00     4.50     7/26/2014      $ 3,000,000        3,000,000      $ 2,952,836      $ 2,952,836        22.1
                 

 

 

   

 

 

   

 

 

 

Total Secured Mezzanine Term Loan

                    2,952,836        2,952,836        22.1

Senior Secured Term Loan Participations (1)

                     

Peru

  Corporacion Prodesa S.R.L.   Consumer Products   Diaper Manufacturer     13.10     0.0     7/12/2016        500,000        500,000        500,000        500,000        3.7

Brazil

  Usivale Industria y Commercio   Agricultural Products   Sugar Producer     12.43     0.0    
 
12/15/2014-
12/15/2016
  
  
    2,500,000        2,500,000        2,500,000        2,500,000        18.7
                 

 

 

   

 

 

   

 

 

 

Total Senior Secured Term Loan Participations

                    3,000,000        3,000,000        22.4

Senior Secured Trade Finance Participations (1)

                     

Chile

  Forestal Rio Calle Calle S.A.   Forest Products   Sustainable Timber Exporter     9.85     0.0     1/14/2014        500,000        500,000        500,000        500,000        3.7

Ecuador

  Gondi. S.A.   Meat, Poultry & Fish   Other    

 

12.46

12.55

%- 

    0.0    
 
8/08/2014-
9/21/2014
  
  
    94,225        500,000        94,225        94,225        0.7
                 

 

 

   

 

 

   

 

 

 

Total Senior Secured Trade Finance Participations

                    594,225        594,225        4.4
                 

 

 

   

 

 

   

Total Investments

                  $ 6,547,061      $ 6,547,061     
                 

 

 

   

 

 

   

 

1  Refer to Notes 3 and 4 of the consolidated financial statements for additional information on the Company’s investments.
2  Fees may include upfront, origination, commitment, facility and/or other fees that the borrower must contractually pay to the Company.
3  Other than the IGS loan facility, all other loan commitments are subject to the availability of funds and do not represent a contractual obligation to provide funding to the borrower.
4  Subject to the Advisor’s approval, the borrower has the option to extend the loan for 3 years at 12-month intervals.

See accompanying notes to the consolidated financial statements.

 

8


Table of Contents

TRILINC GLOBAL IMPACT FUND, LLC

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

Note 1. Organization and Operations of the Company

TriLinc Global Impact Fund, LLC (the “Company”) was organized as a Delaware limited liability company on April 30, 2012 and formally commenced operations on June 11, 2013. The Company makes impact investments in Small and Medium Enterprises, known as SMEs, primarily in developing economies that provide the opportunity to achieve both competitive financial returns and positive measurable impact. The Company uses the proceeds raised from the issuance of units to invest in SMEs through local market sub-advisors in a diversified portfolio of financial assets, including direct loans, convertible debt instruments, trade finance, structured credit and preferred and common equity investments. The Company’s investment objectives are to generate current income, capital preservation and modest capital appreciation primarily through investments in SMEs. The Company is externally managed by TriLinc Advisors, LLC (the “Advisor”). The Advisor is an investment advisor registered in the State of California.

TriLinc Global, LLC (the “Sponsor”) owns 85% of the units of the Advisor, and is the sponsor of the Company. Strategic Capital Advisory Services, LLC (“SCAS”) owns 15% of the Advisor, and is considered an affiliate of the Company. The Sponsor employs staff who operate both the Advisor and the Company. The Sponsor, the Advisor and SCAS are Delaware limited liability companies.

In May 2012, the Advisor purchased 22,160.665 Class A units for aggregate gross proceeds of $200,000. The Company commenced its initial public offering of up to $1,500,000,000 in units of limited liability company interest (the “Offering”) on February 25, 2013. On June 11, 2013, the Company satisfied its minimum offering requirement of $2,000,000 when the Sponsor purchased 321,329.639 Class A units for aggregate gross proceeds of $2,900,000 and the Company commenced operations. The Company’s offering period is currently scheduled to terminate two years after the initial offering date, or February 25, 2015, unless extended.

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

To assist the Company in achieving its investment objective, the Company makes investments via wholly owned subsidiaries. As of September 30, 2014, the Company’s subsidiaries are TriLinc Global Impact Fund – Asia, Ltd. (“TGIF-A”), TriLinc Global Impact Fund – Latin America, Ltd. (“TGIF-LA”), TriLinc Global Impact Fund – Trade Finance, Ltd. (“TGIF-TF”), and TriLinc Global Impact Fund – African Trade Finance, Ltd. (“TGIF-ATF”), all of which are Cayman Islands exempted companies. To assist the Advisor in managing the Company and its subsidiaries, the Advisor may provide services via TriLinc Advisors International, Ltd. (“TAI”), a Cayman Islands exempted company that is wholly owned by TriLinc Advisors, LLC. Through September 30, 2014, the Company has made, through its subsidiaries, loans in several countries located in South America, Asia and Africa.

Note 2. Significant Accounting Policies

Basis of Presentation

The Company’s financial information is prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These financial statements are presented in United States dollars.

 

9


Table of Contents

The interim consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP is not required for interim reporting purposes and has been omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the Securities and Exchange Commission (“SEC”) on March 31, 2014.

The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that ultimately may be achieved for the full year ending December 31, 2014.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, which were established to hold certain investments of the Company. The Company owns 100% of each subsidiary and, as such, the subsidiaries are consolidated into the Company’s consolidated financial statements. Transactions between subsidiaries, to the extent they occur, are eliminated in consolidation. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Cash

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

Prepaid expenses

Prepaid expenses represent prepaid insurance paid by the Company during 2013. Prepaid insurance is being amortized over the term of the insurance policy, which is one year. The amortization of prepaid expense for the three and nine months ended September 30, 2014, is reimbursable to the Company by the Sponsor under the Amended and Restated Operating Expense Responsibility Agreement (“Responsibility Agreement”).

Revenue Recognition

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

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

The Company places loans on non-accrual status when principal and interest are past due 90 days or more or when there is a reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment of the financial condition of the borrower. Non-accrual loans are generally restored to accrual status when past due principal and interest is paid and, in the Company’s management’s judgment, is likely to remain current over the remainder of the term.

Valuation of Investments

The Company applies fair value accounting to all of its investments in accordance with ASC Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, the Company has categorized its investments into a three-level fair value hierarchy as discussed in Note 3.

 

10


Table of Contents

ASC 820 establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

 

    Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

    Level 2 — Valuations based on inputs other than quoted prices included in Level 1, which are either directly or indirectly observable.

 

    Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the market or income approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. The information may also include pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

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

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

 

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

 

  2. For all investments with a maturity of greater than 12 months, we have engaged Duff & Phelps, LLC (“Duff & Phelps”) to conduct a review on the reasonableness of our internal estimates of fair value on each asset on a quarterly rotating basis, with each of such investments being reviewed at least annually, and provide an opinion that the Advisor’s estimate of fair value for each investment is reasonable;

 

  3. The audit committee of our board of managers reviews and discusses the preliminary valuation prepared by the Advisor and any opinion rendered by Duff & Phelps; and

 

  4. Our board of managers discusses the valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Advisor, Duff & Phelps and the audit committee. Our board of managers is ultimately responsible for the determination, in good faith, of the fair value of each investment.

Below is a description of factors that our board of managers may consider when valuing our investments.

Fixed income investments are typically valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including the sale of a business). The income approach uses valuation techniques to convert future amounts (for example, interest and principal payments) to a single present value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in valuing our investments include, as applicable: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection

 

11


Table of Contents

provisions, information rights, the nature and realizable value of any collateral, the borrower’s ability to make payments, its earnings and discounted cash flows, the markets in which the Company does business, comparisons of financial ratios of peer companies that are public, the principal market for the borrower’s securities and an estimate of the borrower’s enterprise value, among other factors.

Equity interests in portfolio companies for which there is no liquid public market are valued at fair value. The board of managers, in its analysis of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or in limited instances book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or the effects of acquisitions, recapitalizations, restructurings or other similar items.

We may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. We may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors we deem relevant in measuring the fair values of our investments.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation on Investments

The Company measures net realized gains or losses by the difference between the net proceeds from the repayment or sale on investments and the amortized cost basis of the investment including unamortized upfront fees and prepayment penalties. Realized gains or losses on the disposition of an investment are calculated using the first in first out (FIFO) method, utilizing 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 values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Payment-in-Kind Interest

The Company may have investments that contain a payment-in-kind, or PIK, interest provision. For loans with contractual PIK interest, any interest will be added to the principal balance of such investments and be recorded as income, if the valuation indicates that such interest is collectible.

Income Taxes

The Company, as a limited liability company, allocates all income or loss to its unitholders according to their respective percentage of ownership. Therefore, no provision for federal or state income taxes has been included in these financial statements.

The Company may be subject to withholding taxes on income and capital gains imposed by certain countries in which the Company invests. The withholding tax on income is netted against the income accrued or received. Any reclaimable taxes are recorded as income. The withholding tax on realized or unrealized gain is recorded as a liability.

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

At September 30, 2014, no tax liability for uncertain tax provision has been recognized in the accompanying financial statements nor did the Company recognize any interest and penalties related to unrecognized tax benefits. The earliest year that the Company’s income tax returns are subject to examination is the period ending December 31, 2012.

Unitholders are individually responsible for reporting income or loss, to the extent required by the federal and state income tax laws and regulations, based upon their respective share of the Company’s income and expense as reported for income tax purposes.

 

12


Table of Contents

Calculation of Net Asset Value

The Company’s net asset value is calculated on a quarterly basis and commenced with respect to the first full quarter after the Company commenced operations. The Company calculates its net asset value per unit by subtracting total liabilities from the total value of the Company’s assets on the date of valuation and dividing the result by the total number of outstanding units on the date of valuation. The net asset value per Class A, Class C and Class I units are calculated on a pro-rata basis based on total units outstanding.

Net Income (Loss) per Unit

Basic net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members’ units outstanding during the period. Diluted net income or loss per unit is computed by dividing net income (loss) by the weighted average number of members’ units and members’ unit equivalents outstanding during the period. The Company did not have any potentially dilutive units outstanding at September 30, 2014 and 2013.

Organization and Offering Costs

The Sponsor has incurred organization and offering costs on behalf of the Company. Organization and offering costs are reimbursable to the Sponsor to the extent the aggregate of selling commissions, dealer manager fees and other organization and offering costs do not exceed 15.0% of the gross offering proceeds (the “O&O Reimbursement Limit”) raised from the offering and will be accrued and payable by the Company only to the extent that such costs do not exceed the O&O Reimbursement Limit. Reimbursement of organization and offering costs that exceed the O&O Reimbursement Limit will be expensed in the period they become reimbursable, which is dependent on the gross offering proceeds raised in such period, and are therefore not included on the Statements of Assets and Liabilities as of September 30, 2014 or December 31, 2013. These expense reimbursements are subject to regulatory caps and approval by the Company’s board of managers. If the Company sells the maximum amount of the Offering, it anticipates that such expenses will equal approximately 1.25% of the gross proceeds raised. Reimbursements to the Sponsor are included as a reduction to net assets on the Consolidated Statement of Changes in Net Assets.

The Company may reimburse the dealer manager for certain expenses that are deemed underwriting compensation. Assuming an aggregate selling commission and a dealer manager fee of 9.75% of the gross offering proceeds (which assumes all offering proceeds come from Class A units), the Company would reimburse the dealer manager in an amount up to 0.25% of the gross offering proceeds. Because the aggregate selling commission and dealer manager fees will be less than 9.75% of the gross offering proceeds due to a portion of the offering proceeds coming from the sale of Class C and Class I units, the Company may reimburse the dealer manager for expenses in an amount greater than 0.25% of the gross offering proceeds, provided that the Company will not pay or reimburse any of the foregoing costs to the extent such payment would cause total underwriting compensation to exceed 10.0% of the gross proceeds of the primary offering as of the termination of the Offering, as required by the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

Operating Expense Responsibility Agreement

On November 11, 2014, the Company, Advisor and the Sponsor entered into an Amended and Restated Operating Expense Responsibility Agreement (“Responsibility Agreement”) originally effective as of June 11, 2013 and covering expenses through September 30, 2014. Pursuant to the terms of the Responsibility Agreement, the Sponsor has paid expenses on behalf of the Company through September 30, 2014 and will additionally pay the accrued operating expenses of the Company as of September 30, 2014 on behalf of the Company. Such expenses will not be reimbursable to the Sponsor until the Company has raised $200 million of gross proceeds, provided any such reimbursement during the period in which the Company is offering units in the Offering will not cause the Company’s Net Asset Value per unit to fall below the prior quarter’s Net Asset Value per unit (the “Gross Proceeds Hurdle”). To the extent the Company does not meet the Gross Proceeds Hurdle in any quarter, no amount will be payable by the Company for reimbursement to the Sponsor. Therefore, expenses of the Company covered by the Responsibility Agreement have not been recorded as expenses of the Company as of September 30, 2014. In accordance with ASC 450, Contingencies, such expenses will be accrued and payable by the Company in the period that they become both probable and estimable.

Recently Issued Accounting Pronouncements

Under the Jumpstart Our Business Startups Act (the “JOBS Act”), emerging growth companies can delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. The Company is choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, the Company’s financial statements may not be comparable to those of companies that comply with public company effective dates. There are no new or revised accounting standards that we have not adopted.

 

13


Table of Contents

In June 2013, the FASB issued ASU 2013-08, Financial Services—Investment Companies: Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 amends the current criteria for an entity to qualify as an investment company, creates new disclosure requirements and amends the measurement criteria for certain interests in other investment companies. ASU 2013-08 was effective on January 1, 2014, and did not have a material effect on the Company’s consolidated financial statements. In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The adoption of the amended guidance in ASU 2014-09 is not expected to have a significant effect on the Company’s financial statements.

Risk Factors

The Company has limited operating history and is subject to the business risks and uncertainties associated with any new business. As an externally-managed Company, the Company is largely dependent on the efforts of the Advisor and other service providers.

The Company is subject to financial market risks, including changes in interest rates. Global economies and capital markets can and have experienced significant volatility, which has increased the risks associated with investments in collateralized private debt instruments. Investment in the Company carries risk and there are no guarantees that the Company’s investment objectives will be achieved. The Company is also exposed to credit risk related to maintaining all of its cash at a major financial institution.

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

The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral securing the loan and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as the Company’s borrowers, and those for which market yields are observable increase materially.

At September 30, 2014, the Company’s investment portfolio included 17 companies and was comprised of $6,102,000 or 13.7% in senior secured term loan participations, $31,991,624 or 71.9% in senior secured trade finance participations, and $3,000,000 or 6.7% in an unsecured short term note receivable. The Company’s two largest loans by value amounted to an aggregate of $10,000,000, representing 24.3% of total investments. Participation in loans amounted to 92.7% of the Company’s total portfolio at September 30, 2014.

Note 3. Fair Value Measurements

The following table summarizes the fair value of the Company’s investments based on the inputs at September 30, 2014:

 

     Fair
Value
     Level 1      Level 2      Level 3  

Senior secured term loan participations

   $ 6,102,000       $ —         $ —         $ 6,102,000   

Senior secured trade finance participations

     31,991,624         —           —           31,991,624   

Unsecured short term note receivable

     3,000,000         —           —           3,000,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 41,093,624       $ —         $ —         $ 41,093,624   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

The following table summarizes the fair value of the Company’s investments based on the inputs at December 31, 2013:

 

     Fair
Value
     Level 1      Level 2      Level 3  

Senior secured term loan participations

   $ 3,000,000       $ —        $ —        $ 3,000,000   

Secured mezzanine term loan

     2,952,836         —          —          2,952,836   

Senior secured trade finance participations

     594,225         —          —          594,225   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,547,061       $ —        $ —        $ 6,547,061   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a reconciliation for the nine months ended September 30, 2014, of investments for which Level 3 inputs were used in determining fair value:

 

     Fair Value at
December 31,
2013
     Purchases      Maturities or
Prepayments
    Amortization      Fair Value at
September 30,
2014
 

Senior secured term loan participations

   $ 3,000,000       $ 3,326,000       $ (224,000   $ —         $ 6,102,000   

Senior mezzanine term loan

     2,952,836         1,944,777         (5,000,000     102,387         —     

Senior secured trade finance participations

     594,225         39,877,359         (8,479,960     —           31,991,624   

Unsecured short term note receivable

     —           3,000,000         —          —           3,000,000   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 6,547,061       $ 48,148,136       $ (13,703,960   $ 102,387       $ 41,093,624   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

As of September 30, 2014, all of the Company’s portfolio investments utilized Level 3 inputs. The following table presents the quantitative information about Level 3 fair value measurements of the Company’s investments as of September 30, 2014:

 

     Fair value      Valuation technique      Unobservable input      Range (weighted average)

Senior secured trade finance participations

   $ 31,991,624         Income approach         Market yield       8.00% – 17.50% (12.06%)

Senior secured term loan participations

   $ 6,102,000         Income approach         Market yield       12.43% – 14.85% (13.54%)

Unsecured short term note receivable

   $ 3,000,000         Income approach         Market yield       14.75%

The significant unobservable inputs used in the fair value measurement of the Company’s investments are market yields. Significant increases in market yields would result in significantly lower fair value measurements.

For details of the country-specific risk concentrations for the Company’s investments, refer to the Consolidated Schedule of Investments and Note 4.

 

15


Table of Contents

Note 4. Investments

As of September 30, 2014, the Company’s investments consisted of the following:

 

     Amortized
Cost
     Fair
Value
     Percentage
of Total
 

Senior secured term loan participations

   $ 6,102,000       $ 6,102,000         14.8

Senior secured trade finance participations

     31,991,624         31,991,624         77.9

Unsecured short term note receivable

     3,000,000         3,000,000         7.3
  

 

 

    

 

 

    

 

 

 

Total

   $ 41,093,624       $ 41,093,624         100.0
  

 

 

    

 

 

    

 

 

 

As of December 31, 2013, the Company’s investments consisted of the following:

 

 

     Amortized
Cost
     Fair
Value
     Percentage
of Total
 

Senior secured term loan participations

   $ 3,000,000       $ 3,000,000         45.8

Secured mezzanine term loan

     2,952,836         2,952,836         45.1

Senior secured trade finance participations

     594,225         594,225         9.1
  

 

 

    

 

 

    

 

 

 

Total investments

   $ 6,547,061       $ 6,547,061         100.0
  

 

 

    

 

 

    

 

 

 

The industry composition of the Company’s portfolio, at fair market value, as of September 30, 2014, and December 31, 2013, was as follows:

 

     As of September 30, 2014     As of December 31, 2013  

Industry

   Fair
Value
     Percentage
of Total
    Fair
Value
     Percentage
of Total
 

Agricultural Products

   $ 8,000,000         19.5   $ 2,500,000         38.3

Construction Materials

     5,000,000         12.2     —           0.0

Consumer Electronics

     —           0.0     2,952,836         45.1

Electrical Equipment

     1,991,000         4.8     —           0.0

Fertilizer & Agricultural Chemicals

     4,808,824         11.7     —           0.0

Financial

     3,000,000         7.3     —           0.0

Food Products

     2,602,000         6.3     —           0.0

Forest Products

     —           0.0     500,000         7.6

Household Products

     1,400,000         3.4     —           0.0

Meat, Poultry & Fish

     5,000,000         12.2     94,225         1.4

Packaged Foods & Meats

     2,000,000         4.9     —           0.0

Personal and Nondurable Consumer Products

     6,250,000         15.2     500,000         7.6

Textiles, Apparel & Luxury Goods

     1,041,800         2.5     —           0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 41,093,624         100.0   $ 6,547,061         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

16


Table of Contents

The table below shows the portfolio composition by geography classification at fair value as of September 30, 2014, and December, 31, 2013:

 

     As of September 30, 2014     As of December 31, 2013  

Country

   Fair
Value
     Percentage
of Total
    Fair
Value
     Percentage
of Total
 

Argentina

   $ 12,500,000         30.4   $ —           0.0

Brazil

     3,000,000         7.3     2,500,000         38.2

Chile

     —           0.0     500,000         7.6

Ecuador

     —           0.0     94,225         1.4

Indonesia

     —           0.0     2,952,836         45.1

Kenya

     5,000,000         12.2     —           0.0

Namibia

     2,000,000         4.9     —           0.0

Peru

     5,093,000         12.4     500,000         7.6

South Africa

     8,691,800         21.2     —           0.0

Zambia

     4,808,824         11.7     —           0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 41,093,624         100.0   $ 6,547,061         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

As of September 30, 2014, the Company restructured two loans with one of its borrowers, Corporacion Prodesa S.R.L. (“Prodesa”). The Company’s investment in Prodesa is comprised of two loans with the following original terms: 1) a $2,000,000 participation in a senior secured term loan with an annual interest rate of 13.1% requiring $200,000 quarterly principal payments and maturing in July 2016 and 2) a $750,000 participation in a loan secured by inventory with an annual interest rate of 13.0% and maturing in February 2015. Under the restructure, the terms of the loans have been modified as follows: the maturity of the $2,000,000 loan was extended to June 2017 with equal monthly principal payment starting March 2015; the maturity of the $750,000 loan was extended to December 2016 with equal monthly principal payment starting January 2016; both loans will be assessed additional deferred interest of 1.75%; additional sources of collateral securing the loans have been pledged; and increased reporting requirements including biannual audited financial statements and monthly internal financial statements. At closing of the restructure, Prodesa agreed to pay the Company a restructuring fee of $46,250 less expenses incurred by one of the Company’s sub-advisors. Prodesa also agreed to secure a $400,000 equity injection by October 30, 2014. As part of the restructure, if Prodesa did not secure the $400,000 equity injection by October 30, 2014, the deferred interest rate would increase from 1.75% to 2.5%. As of November 11, 2014, Prodesa had not secured the $400,000 equity injection and, pursuant to the modified terms, the deferred interest rate has been increased to 2.5%. Before and throughout the restructure, Prodesa has continued to make the required interest payments under both loans and continues to remain current. The Company has determined that no concessions were granted to Prodesa and, therefore, the restructure is not considered a troubled debt restructuring.

Note 5. Related Parties

Agreements

Advisory Agreement

In February 2014, the Company entered into an Amended and Restated Advisory Agreement with the Advisor to renew the Company’s arrangement with the Advisor for an additional year.

Asset management fees payable to the Advisor are remitted quarterly in arrears and are equal to 0.50% (2.00% per annum) of Gross Asset Value, as defined in the Amended and Restated Advisory Agreement between the Company and the Advisor. Asset management fees are paid to the Advisor in exchange for fund management and administrative services. Although the Advisor manages, on the Company’s behalf, many of the risks associated with global investments in developing economies, management fees do not include the cost of any hedging instruments or insurance policies that may be required to appropriately manage the Company’s risk. If certain financial goals are reached by the Company, the Company is required to pay the Advisor an incentive fee on net investment income and an incentive fee on capital gains. The incentive fee on net investment income, or the subordinated incentive fee on income, is calculated and payable quarterly in arrears and is based upon the Company’s pre-incentive fee net investment income for the immediately preceding quarter. No subordinated incentive fee is earned by the Advisor in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the quarterly preferred return rate of 1.50% (6.00% annualized) (the “Preferred Return”). In any quarter, all of the Company’s pre-incentive fee net investment income, if any, that exceeds the quarterly Preferred Return, but is less than or equal to 1.875% (7.50% annualized) at the end of the immediately preceding fiscal quarter, is payable to the Advisor. For any quarter in which the Company’s pre-incentive fee net investment income exceeds 1.875% on its net assets at the end of the immediately preceding fiscal quarter, the incentive fee on income equals 20% of the amount of the Company’s pre-incentive fee net investment income.

 

17


Table of Contents

An incentive fee on capital gains will be earned on investments sold and shall be determined and payable to the Advisor in arrears as of the end of each calendar year. The incentive fee on capital gains is equal to 20% of the Company’s realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees on capital gains. The Company had no capital gains and therefore did not accrue an incentive fee for the three and nine months ended September 30, 2014.

Transactions

For the three and nine months ended September 30, 2014, the Company incurred $326,922 and $1,300,495, respectively, in total operating expenses excluding the management and incentive fees earned by the Advisor. As discussed in Note 2, for the three and nine months ended September 30, 2014, the Sponsor assumed responsibility for $326,922 and $1,290,715 of the Company’s operating expenses, which are deferred under the Responsibility Agreement.

For the three and nine months ended September 30, 2014, the Advisor earned $222,701 and $481,247, respectively, in management fees and $156,590 and $314,208, respectively, in incentive fees. For the three and nine months ended September 30, 2014, the Sponsor paid an aggregate of $296,332 and $563,029, respectively, in management and incentive fees, which are deferred under the Responsibility Agreement.

Since the inception of the Company through September 30, 2014, pursuant to the terms of the Responsibility Agreement, the Sponsor has paid approximately $2,651,800 of operating expenses, management fees, and incentive fees on behalf of the Company and will pay or reimburse to the Company an additional $986,200 of expenses, which have been accrued by the Sponsor as of September 30, 2014. Such expenses, in the aggregate of $3,638,000 since the Company’s inception, will be expensed and payable by the Company to the Sponsor once the Company has raised gross proceeds of $200 million.

On March 31, 2014, the Sponsor made a permanent capital contribution to the Company in the amount of $31,750 to cover the amount of distributions paid by the Company that were in excess of net investment income. This contribution is not covered by the Responsibility Agreement and thus will not be repaid to the Sponsor by the Company.

Due from affiliates on the Consolidated Statement of Assets and Liabilities in the amount of $661,993 is due from the Sponsor in connection with the Responsibility Agreement. The $661,993 in operating expenses, net of a reimbursement of $335,896 received from the Sponsor by the Company in September 2014, were paid by the Company during the nine months ended September 30, 2014, but, under the terms of the Responsibility Agreement, are the responsibility of the Sponsor. The timing of the repayment of this receivable is at the discretion of the Sponsor.

For the nine months ended September 30, 2014, the Company paid a total of $1,998,825 in dealer manager fees and selling commissions to the Company’s dealer manager, SC Distributors. These fees and commissions were paid in connection with the sales of the Company’s units to investors and, as such, were recorded against the proceeds from the issuance of units and are not reflected in the Company’s consolidated statement of operations.

On July 9, 2014, the Company repurchased 2,840.21 Class A units from the Sponsor at a price of $9.025 per unit for a total of $25,634.

Note 6. Organization and Offering Costs

As of September 30, 2014, the Sponsor has paid approximately $6,277,000 of offering costs and $236,000 of organization costs, all of which were paid directly by the Sponsor on behalf of the Company, and will be reimbursed to the Sponsor as disclosed in Note 2 of the consolidated financial statements. Such amounts include approximately $1,463,000 of offering costs, which were incurred by the Sponsor during the nine months ended September 30, 2014. During the nine months ended September 30, 2014, the Company paid $1,759,579 in reimbursement of offering costs to the Sponsor including $31,391 which was payable to the Sponsor as of December 31, 2013. As of September 30, 2014, the Company has reimbursed the Sponsor a total of $2,434,134 of offering costs since the Company started operations and there is a remaining balance of approximately $4,079,000 of offering and organization costs to be reimbursed to the Sponsor.

 

18


Table of Contents

Note 7. Unit Capital

The Company has three classes of units: Class A units, Class C units and Class I units. The unit classes have different sales commissions and dealer manager fees, and there is an ongoing distribution fee with respect to Class C units. All units participate in the income and expenses of the Company on a pro-rata basis based on the number of units outstanding and therefore have the same net asset value per unit. The following table is a summary of transactions with respect to the Company’ units during the nine months ended September 30, 2014:

 

     Units Outstanding as of
December 31, 2013
     Units Issued During
the Period
     Units Repurchased
During the Period
    Units Outstanding as of
September 30, 2014
 

Class A units

     377,316.669         1,901,634.054         (2,840.320     2,276,110.403   

Class C units

     42,721.867         227,285.727         —          270,007.594   

Class I units

     1,139,098.233         1,510,514.723         —          2,649,612.956   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

     1,559,136.769         3,639,434.504         (2,840.320     5,195,730.953   
  

 

 

    

 

 

    

 

 

   

 

 

 

The total of 3,639,434.504 units issued during the nine months ended September 30, 2014 included 51,597.421 units issued under the Amended and Restated Distribution Reinvestment Plan (“Distribution Reinvestment Plan”) at a value of $465,667.

Note 8. Distributions

On January 28, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from January 1 through January 31, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00173082 per unit per day (less the distribution fee with respect to Class C units). On February 4, 2014, $71,184 of these distributions were paid in cash and on January 31, 2014, $21,091 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

On February 24, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from February 1 through February 28, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00173082 per unit per day (less the distribution fee with respect to Class C units). On March 3, 2014, $83,752 of these distributions were paid in cash and on February 28, 2014, $19,925 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

On March 25, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from March 1 through March 31, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00173082 per unit per day (less the distribution fee with respect to Class C units). On April 3, 2014, $95,043 of these distributions were paid in cash and on March 31, 2014, $30,466 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

On April 21, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from April 1 through April 30, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00173082 per unit per day (less the distribution fee with respect to Class C units). On May 1, 2014, $97,345 of these distributions were paid in cash and on April 30, 2014, $40,089 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

On May 25, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from May 1 through May 31, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00197808 per unit per day (less the distribution fee with respect to Class C units). On June 1, 2014, $120,880 of these distributions were paid in cash and on May 31, 2014, $51,552 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

On June 25, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from June 1 through June 30, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00197808 per unit per day (less the distribution fee with respect to Class C units). On July 1, 2014, $128,489 of these distributions were paid in cash and on June 30, 2014, $59,962 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

 

19


Table of Contents

On July 22, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from July 1 through July 31, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00197808 per unit per day (less the distribution fee with respect to Class C units). On August 4, 2014, $152,386 of these distributions were paid in cash and on July 31, 2014, $71,215 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

On August 8, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from August 1 through August 31, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00197808 per unit per day (less the distribution fee with respect to Class C units). On September 2, 2014, $186,607 of these distributions were paid in cash and on August 31, 2014, $80,373 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

On September 30, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from September 1 through September 30, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00197808 per unit per day (less the distribution fee with respect to Class C units). On October 1, 2014, $201,571 of these distributions were paid in cash and on September 30, 2014, $90,994 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

Note 9. Financial Highlights

The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2014 and 2013. The Company’s income and expense is allocated pro-rata across the outstanding Class A, Class C and Class I units, as applicable, and, therefore, the financial highlights are equal for each of the outstanding classes.

 

     2014     2013  

Per unit data (1):

    

Net proceeds before offering costs (2)

   $ 9.025      $ 9.025   

Offering costs

     (0.468     (0.452
  

 

 

   

 

 

 

Net Proceeds after offering costs

     8.557        8.573   

Net investment income/(loss)

     0.504        0.166   

Distributions

     (0.514     (0.166

Capital contribution

     0.010        —     
  

 

 

   

 

 

 

Net increase/(decrease) in net assets

     (0.000     —     
  

 

 

   

 

 

 

Net asset value at end of period

     8.557        8.573   
  

 

 

   

 

 

 

Total return based on net asset value (3)

     6.020     1.936

Net assets at end of period

   $ 44,457,338      $ 4,636,860   

Units Outstanding at end of period

     5,195,730.953        540,880.631   

Ratio/Supplemental data (annualized) (4)(5):

    

Ratio of net investment income/(loss) to average net assets

     7.68     4.82

Ratio of operating expenses to average net assets

     1.18     2.18

 

1  The per unit data was derived by using the weighted average units outstanding during the nine months ended September 30, 2014, which was 3,117,628.
2  Represents net asset value at the beginning of the period.
3  Net asset value would have been lower if the Sponsor had not made capital contributions as of March 31, 2014, and December 31, 2013, of $31,750 and $51,034, respectively, or had not absorbed and deferred reimbursement for a substantial portion of the Company’s operating expenses since the Company began operations.
4  Total return, ratio of net investment income and ratio of operating expenses to average net assets for the nine months ended September 30, 2014 and 2013, prior to the effect of the Responsibility Agreement were as follows: total return: (0.99%) and (13.21%), ratio of net investment income/(loss): (1.45%) and (32.90%), and ratio of net expenses to average net assets: 9.12% and 38.89%, respectively.
5  The Company’s net investment income has been annualized assuming consistent results over a full fiscal year, however, this figure may not be indicative of a full fiscal year.

 

20


Table of Contents

Note 10. Subsequent Events

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in the Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the nine months ended September 30, 2014, except as discussed below.

Distributions

On October 21, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from October 1 through October 31, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00197808 per unit per day (less the distribution fee with respect to Class C units). On November 4, 2014, $236,099 of these distributions were paid in cash and on October 31, 2014, $106,509 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

Status of the Offering

For the period from October 1, 2014 through November 7, 2014, the Company sold approximately 993,591 units in the Offering (including units issued pursuant to the Distribution Reinvestment Plan) for approximately $9,344,800 in gross proceeds. As of November 7, 2014, the Company had received approximately $58.3 million in total gross offering proceeds through the issuance of approximately 6.2 million total units in the Offering (including units issued pursuant to the Distribution Reinvestment Plan).

Unit Offering Price

Pursuant to the net asset value determination by the Company’s board of managers, the value has not increased above nor decreased below the Company’s net proceeds per unit; therefore, the Company will continue to sell units at a price of $10.00 per Class A unit, $9.576 per Class C unit and $9.186 per Class I unit. The Company’s net asset value and the offering prices would have decreased if the Sponsor had not made a capital contribution in the amount of $31,750 in the quarter ended March 31, 2014, or had not absorbed and deferred reimbursement for a substantial portion of the Company’s operating expenses since the Company began its operations.

Investments

For the period from October 1, 2014 through November 7, 2014, the Company funded approximately $13.2 million in new loans and received proceeds from repayment of loans of approximately $10 million.

On October 22, 2014, the Company renewed the $3 million short term note receivable with Barak Fund Management Ltd. for an additional 30 days. The interest rate under the note remained at 14.75% per annum.

Agreements

On November 11, 2014, the Company entered into an Amended and Restated Operating Expense Responsibility Agreement with the Company’s Sponsor and Advisor. Pursuant to the terms of this agreement, the Sponsor agreed to be responsible for the Company’s cumulative operating expenses incurred through September 30, 2014, including the incentive fee earned by the Advisor during the quarter ended September 30, 2014. For additional information regarding the Responsibility Agreement refer to Notes 2 and 5.

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

The following discussion and analysis should be read in conjunction with the Company’s financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q.

Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to TriLinc Global Impact Fund, LLC.

 

21


Table of Contents

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 raise capital in our public offering;

 

    our ability to purchase or make investments in a timely manner;

 

    our business prospects and the prospects of our borrowers;

 

    the economic, social and/or environmental impact of the investments that we expect to make;

 

    our contractual arrangements and relationships with third parties;

 

    the dependence of our future success on the general economy and its impact on the companies in which we invest;

 

    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;

 

    the ability of our sub-advisors and borrowers to achieve their objectives;

 

    our expected financings and investments;

 

    the adequacy of our cash resources and working capital; and

 

    the timing of cash flows, if any, from the operations of our borrowers.

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.

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 in the future may file with the SEC.

Overview

We make impact investments in SMEs that provide the opportunity to achieve both competitive financial returns and positive measurable impact. We were organized as a Delaware limited liability company on April 30, 2012. We have 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. 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.

Our business strategy is to generate competitive financial returns and positive economic, social and environmental impact by providing financing to SMEs, primarily in developing economies. Our style of investment is referred to as impact investing, which J.P. Morgan Global Research and Rockefeller Foundation in a 2010 report called “an emerging alternative asset class” and defined as investing with the intent to create positive impact beyond financial return. We believe it is possible to generate competitive financial returns while creating positive, measurable impact. We measure the economic, social and environmental impact of our investments using industry-standard metrics, including the Impact Reporting and Investment Standards. Through our investments in SMEs, we believe we are enabling job creation and stimulating economic growth.

 

22


Table of Contents

We commenced the Offering on February 25, 2013. Pursuant to the Offering, we are 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 units at an initial offering price of $10.00 per unit, Class C units at $9.576 per unit and Class I units at $9.186 per unit, and up to $250 million of units pursuant to the Distribution Reinvestment Plan. SC Distributors, LLC (“SC Distributors”) is the dealer manager for the Offering. The Company’s offering period is currently scheduled to terminate two years after the initial offering date, or February 25, 2015, unless extended.

In May 2012, the Advisor purchased 22,160.665 Class A units for aggregate gross proceeds of $200,000. On June 11, 2013, we satisfied the minimum offering requirement of $2,000,000 when the Sponsor purchased 321,329.639 Class A units for aggregate gross proceeds of $2.9 million and we commenced operations. On July 9, 2014, the Company repurchased 2,840.21 Class A units from the Sponsor for a total of $25,634. As of September 30, 2014, we had received subscriptions for and issued 5,195,730.953 of our units, including 57,166.669 units issued under our Distribution Reinvestment Plan, for gross proceeds of $48,931,401 including $515,929 reinvested under our Distribution Reinvestment Plan (before dealer-manager fees of $507,939 and selling commissions of $1,531,848, for net proceeds of $46,891,614).

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. With the four sub-advisors that we have contracted to assist the Advisor in implementing the Company’s investment program, we expect to provide growth capital financing generally ranging in size from $1-10 million. 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.

Investments will continue to be primarily credit facilities to developing economy SMEs, including trade finance and term loans, through TriLinc Advisor’s team of professional sub-advisors with a local presence in the markets where they invest. We typically provide financing that is collateralized, has a short to medium-term maturity and is self-liquidating through the repayment of principal. By providing additional liquidity to growing small businesses, we believe we support both economic growth and the expansion of the global middle class.

Revenues

Since we anticipate that the majority of our assets will continue to consist of term loans and trade finance instruments, 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 may 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 Amended and Restated Advisory Agreement. We bear all other costs and expenses of our operations and transactions.

Since our inception through September 30, 2014, our Sponsor has assumed substantially all our operating expenses under the terms of the Responsibility Agreement.

 

23


Table of Contents

Portfolio and Investment Activity

During the nine months ended September 30, 2014, we invested, either through direct loans or loan participations, $48,148,136 across 20 portfolio companies, including 16 new and 4 existing portfolio companies. The new investments consisted of senior secured term loan participations and senior secured trade finance participations. Additionally, we received proceeds from repayment of investment principal of $13,703,960. During the nine months ended September 30, 2013, we invested $4,187,214 in direct loans and loan participations with 4 companies and received proceeds from repayment of investment principal of $971,605.

At September 30, 2014, the Company’s investment portfolio included loans to 17 companies and was comprised of the following:

 

     Amortized
Cost
     Fair
Value
     Percentage
of Total
 

Senior secured term loan participations

   $ 6,102,000       $ 6,102,000         14.8

Senior secured trade finance participations

     31,991,624         31,991,624         77.9

Unsecured short term note receivable

     3,000,000         3,000,000         7.3
  

 

 

    

 

 

    

 

 

 

Total

   $ 41,093,624       $ 41,093,624         100.0
  

 

 

    

 

 

    

 

 

 

The Company’s two largest loans by value amounted to an aggregate of $10,000,000, representing 24.3% of total investments as of September 30, 2014.

The weighted average yield of our senior secured term loan participations and senior secured trade finance participations at their current cost basis were 13.5% and 12.1%, respectively at September 30, 2014.

Results of Operations

Revenues. For the three months ended September 30, 2014, total investment income amounted to $865,908. Interest income from loan participations amounted to $845,051. Investment income also included $9,833 in interest earned on our unsecured short term note receivable position and $11,024 in interest earned on our cash balance.

For the nine months ended September 30, 2014, total investment income amounted to $1,813,243. Interest income from loan participations and direct loans amounted to $1,395,015 and $294,333, respectively. Investment income also included $102,387 in amortization of upfront fees paid on our secured mezzanine term loan position, $9,833 in interest earned on our unsecured short term note receivable position, and $11,675 in interest earned on our cash balance.

For the three and nine months ended September 30, 2013, interest income from loan participations amounted to $95,868 and $99,542, respectively. We also earned $39 in interest on our cash balance.

Expenses. For the three months ended September 30, 2014, the management and incentive fees amounted to $222,701 and $156,590, respectively. An aggregate of $296,332 of the management and incentive fees was paid by the Sponsor under the Responsibility Agreement. In addition, the Sponsor assumed responsibility for our operating expenses in the aggregate amount of $326,922 under the Responsibility Agreement for expenses paid or incurred by the Company.

For the three months ended September 30, 2013, we incurred management and incentive fees of $23,331 and $14,591, respectively. The Sponsor paid $10,020 of the incentive fee under the Responsibility Agreement. In addition, the Sponsor paid $177,573 of operating expenses on the behalf of the Company under the terms of the Responsibility Agreement.

For the nine months ended September 30, 2014, the management and incentive fees amounted to $481,247 and $314,208, respectively. An aggregate of $563,029 of the management and incentive fees was paid by the Sponsor under the Responsibility Agreement. We incurred $9,780 in operating expenses. In addition, the Sponsor assumed responsibility for our operating expenses in the aggregate amount of $1,290,715 under the Responsibility Agreement for expenses paid or incurred by the Company.

For the nine months ended September 30, 2013, we incurred management and incentive fees of $26,420 and $14,591, respectively. The Sponsor paid $10,020 of the incentive fee under the Responsibility Agreement. In addition, the Sponsor paid $252,915 of operating expenses on the behalf of the Company under the terms of the Responsibility Agreement.

 

24


Table of Contents

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 values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized. We had no realized or unrealized gains or losses for the three and nine months ended September 30, 2014 and 2013.

Changes in Net Assets from Operations. For the three and nine months ended September 30, 2014, we recorded a net increase in net assets resulting from operations of $782,949 and $1,571,037, respectively. For the three and nine months ended September 30, 2013, we recorded a net increase in net assets resulting from operations of $67,966 and $68,590, respectively.

Financial Condition, Liquidity and Capital Resources

As of September 30, 2014, we had $2.5 million in cash. We generate cash primarily from the net proceeds from the sale of units, from cash flows from interest, dividends and fees earned from our investments and principal repayments and proceeds from sales of our investments. We may also generate cash in the future from debt financing. Our primary use of cash is to make loans, either directly or through participations, payments of our expenses, repayment of debt, if any, and cash distributions to our unitholders. We expect to maintain cash reserves from time to time for investment opportunities, working capital and distributions. We sell our units on a continuous basis at initial offering prices of $10.00 per Class A unit, $9.576 per Class C unit, and $9.186 per Class I unit; however, to the extent that our net asset value on the most recent valuation date increases above or decreases below our net proceeds per unit as stated in the Company’s prospectus, our board of managers will adjust the offering prices of all classes of units to ensure that no unit is sold at a price, after deduction of selling commissions, dealer manager fees and organization and offering expenses, that is above or below our net asset value per unit as of such valuation date.

Based on the valuation with respect to the quarter ended September 30, 2014, the offering price of our units has not changed and we are continuing to sell our units at their original prices. However, the valuation and the offering prices would have decreased if the Sponsor had not made a capital contribution in the amount of $31,750 as of March 31, 2014, and $51,034 as of December 31, 2013, and had not absorbed and deferred reimbursement for substantially all of the Company’s operating expenses since it began its operations.

As of September 30, 2014, the Company had sold approximately 5.2 million total units in the Offering (including units pursuant to the Distribution Reinvestment Plan) for total gross offering proceeds of approximately $48.9 million.

We may borrow funds to make investments, including before we have fully invested the proceeds raised from the issuance of units, to the extent we determine that leveraging our portfolio would be appropriate. We have not decided whether, and to what extent, we will finance portfolio investments using debt or the specific form that any such financing would take. 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. As of September 30, 2014, we had no debt outstanding and no available sources of debt financing.

Contractual Obligations and Commitments

The Company does not include a contractual obligations table herein because all obligations of the Company are short-term. We have included the following information related to commitments of the Company to further assist investors in understanding the Company’s outstanding commitments.

We have entered into certain contracts under which we have material future commitments. On February 25, 2013, we entered into the Advisory Agreement with the Advisor. The Advisory Agreement was effective as of February 25, 2013, the date that the Company’s registration statement was declared effective by the SEC. In February 2014, we entered into an Amended and Restated Advisory Agreement with the Advisor to renew our arrangement with the Advisor for an additional year. The Advisor serves as our advisor in accordance with the terms of our Amended and Restated Advisory Agreement. Payments under our Amended and Restated Advisory Agreement in each reporting period consist of (i) an asset management fee equal to a percentage of the value of our gross assets, as defined in the agreement, and (ii) the reimbursement of certain expenses. Certain subordinated fees based on our performance are payable after our subordination is met.

 

25


Table of Contents

We also had an unfunded commitment to one trade finance borrower of $3 million as of September 30, 2014. This commitment expired in October 2014, and was subject to approval by our Advisor and the availability of funds

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

Off-Balance Sheet Arrangements

Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not expect to have any off-balance sheet financings or liabilities. The Company reimburses organization and offering expenses to the Sponsor to the extent that the aggregate of selling commissions, dealer manager fees and other organization and offering costs do not exceed 15.0% of the gross offering proceeds raised from the offering. As of September 30, 2014, the total amount that would be due to be reimbursed to the Sponsor is approximately $4.1 million.

Pursuant to the terms of an Responsibility Agreement between the Company, the Advisor and the Sponsor, the Sponsor has paid expenses on behalf of the Company through September 30, 2014, and will pay additional accrued operating expenses of the Company, which will not be reimbursable to the Sponsor until the Company has raised $200 million of gross proceeds in the Offering. Such expenses will be expensed and payable by the Company in the period they become reimbursable and are estimated to be approximately $3.6 million through September 30, 2014.

Distributions

We have paid distributions commencing with the month beginning July 1, 2013, and we intend to continue to pay distributions on a monthly basis. From time to time, we may also pay interim distributions at the discretion of our board. Distributions are subject to the board of managers’ discretion and applicable legal restrictions and accordingly, there can be no assurance that we will make distributions at a specific rate or at all. Distributions are made on all classes of our units at the same time. The cash distributions with respect to the Class C units are lower than the cash distributions with respect to Class A and Class I units because of the distribution fee relating to Class C units, which is allocated as a Class C specific expense. 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 Distribution Reinvestment Plan. For the nine months ended September 30, 2014 we have paid a total of $1,602,923 in distributions, comprised of $1,137,257 paid in cash and $465,667 reinvested under our Distribution Reinvestment Plan.

 

26


Table of Contents

The table below contains additional information regarding distributions to our unitholders:

 

                                 Sources  

Months ended

   Amount per
Unit
     Cash Distributions      Distributions
Reinvested
     Total Declared      Cash Flows from
Operating
Activities
     Cash Flows from
Financing
Activities (1)
 

January 31, 2014

   $ 0.05366       $ 71,184       $ 21,091       $ 92,275       $ 71,184       $ —     

February 28, 2014

   $ 0.04846         83,752         19,925         103,677         83,752         —     

March 31, 2014

   $ 0.05366         95,043         30,466         125,509         63,293         31,750   

April 30, 2014

   $ 0.05192         97,345         40,089         137,434         97,345         —     

May 31, 2014

   $ 0.05986         120,880         51,552         172,432         120,880         —     

June 30, 2014

   $ 0.05792         128,489         59,962         188,451         128,489         —     

July 31, 2014

   $ 0.05986         152,386         71,215         223,601         152,386         —     

August 31, 2014

   $ 0.05986         186,607         80,373         266,980         186,607         —     

September 30, 2014

   $ 0.05792         201,571         90,994         292,565         201,571         —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total for 2014

      $ 1,137,257       $ 465,667       $ 1,602,924       $ 1,105,507       $ 31,750   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

July 31, 2013

   $ 0.05366       $ 857       $ 18,547       $ 19,404       $ 857       $ —     

August 31, 2013

   $ 0.05366         22,932         1,452         24,384         22,932         —     

September 30, 2013

   $ 0.05192         22,892         1,771         24,663         22,892         —     

October 31, 2013

   $ 0.05366         47,409         6,287         53,696         47,409         —     

November 30, 2013

   $ 0.05192         57,275         9,370         66,645         57,275         —     

December 31, 2013

   $ 0.05366         65,015         12,835         77,850         13,981         51,034   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total for 2013

      $ 216,380       $ 50,262       $ 266,642       $ 165,346       $ 51,034   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Proceeds from the sale of units offered under our Distribution Reinvestment Plan, and as capital contribution from our Sponsor.

Related Party Transactions

For the three and nine months ended September 30, 2014, the Company incurred $326,922 and $1,300,495, respectively, in total operating expenses excluding the management and incentive fees earned by the Advisor. As discussed in Note 2, for the three and nine months ended September 30, 2014, the Sponsor assumed responsibility for $326,922 and $1,290,715 of the Company’s operating expenses, which are deferred under the Responsibility Agreement.

For the three and nine months ended September 30, 2014, the Advisor earned $222,701 and $481,247, respectively, in management fees and $156,590 and $314,208, respectively, in incentive fees. For the three and nine months ended September 30, 2014, the Sponsor paid an aggregate of $296,332 and $563,029, respectively in management and incentive fees, which are deferred under the Responsibility Agreement.

Since the inception of the Company through September 30, 2014, pursuant to the terms of the Responsibility Agreement, the Sponsor has paid approximately $2,651,800 of operating expenses and management and incentive fees on behalf of the Company and will pay or reimburse to us an additional $986,200 of expenses, which have been accrued by the Sponsor as of September 30, 2014. Such expenses, in the aggregate of $3,638,000 since the Company’s inception, will be expensed and payable by the Company to the Sponsor once the Company has raised gross proceeds of $200 million.

On March 31, 2014, the Sponsor made a permanent capital contribution to the Company in the amount of $31,750 to cover the amount of distributions paid by the Company that were in excess of net investment income. This contribution is not covered by the Responsibility Agreement and thus will not be repaid to the Sponsor by the Company.

Due from affiliates on the Consolidated Statement of Assets and Liabilities in the amount of $661,993 is due from the Sponsor in connection with the Responsibility Agreement. The $661,993 in operating expenses, net of a reimbursement of $335,896 received from the Sponsor by the Company during September 2014, were paid by the Company during the nine months ended September 30, 2014, but, under the terms of the Responsibility Agreement, are the responsibility of the Sponsor. The timing of the repayment of this receivable is at the discretion of the Sponsor.

 

27


Table of Contents

For the nine months ended September 30, 2014, the Company paid a total of $1,998,825 in dealer manager fees and selling commissions to the Company’s dealer manager, SC Distributors. These fees and commissions were paid in connection with the sales of the Company’s units to investors and, as such, were recorded against the proceeds from the issuance of units and are not reflected in the Company’s consolidated statement of operations.

On July 9, 2014, the Company repurchased 2,840.21 Class A units from the Sponsor at a price of $9.025 per unit for a total of $25,634.

Legal Proceedings

The Company is not party to any legal proceedings.

Subsequent Events

There have been no subsequent events that occurred during such period that would require disclosure in the Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the three months ended September 30, 2014, except as discussed below.

Distributions

On October 21, 2014, with the authorization of the Company’s board of managers, the Company declared distributions for all classes of units for the period from October 1 through October 31, 2014. These distributions were calculated based on unitholders of record for each day in an amount equal to $0.00193082 per unit per day (less the distribution fee with respect to Class C units). On November 4, 2014, $236,099 of these distributions were paid in cash and on October 31, 2014, $106,505 were reinvested in units for those unitholders participating in the Distribution Reinvestment Plan.

Status of the Offering

For the period from October 1, 2014 through November 7, 2014, the Company sold approximately 993,591 units in the Offering (including units issued pursuant to the Distribution Reinvestment Plan) for approximately $9,344,800 in gross proceeds. As of November 7, 2014, the Company had received approximately $58.3 million in total gross offering proceeds through the issuance of approximately 6.2 million total units in the Offering (including units issued pursuant to the Distribution Reinvestment Plan).

Unit Offering Price

Pursuant to the net asset value determination by the Company’s board of managers, the value of our units has not increased above nor decreased below the Company’s net proceeds per unit; therefore, the Company will continue to sell units at a price of $10.00 per Class A unit, $9.576 per Class C unit and $9.186 per Class I unit. The Company’s net asset value and the offering prices would have decreased if the Sponsor had not made a capital contribution in the amount of $31,750 in the quarter ended March 31, 2014, or had not absorbed and deferred reimbursement for a substantial portion of the Company’s operating expenses since the Company began its operations.

Investments

For the period from October 1, 2014 through November 7, 2014, the Company funded approximately $13.2 million in new loans and received proceeds from repayment of loans of approximately $10 million.

On October 22, 2014, the Company renewed the $3 million short term note receivable with Barak Fund Management Ltd. for an additional 30 days. The interest rate under the note remained at 14.75% per annum.

Agreements

On November 11, 2014, the Company entered into an Amended and Restated Operating Expense Responsibility Agreement with the Company’s Sponsor and Advisor. Pursuant to the terms of this agreement, the Sponsor agreed to be responsible for the Company’s cumulative operating expenses incurred through September 30, 2014, including the incentive fee earned by the Advisor during the quarter ended September 30, 2014. For additional information regarding the Responsibility Agreement refer to Notes 2 and 5 of the financial statements.

 

28


Table of Contents

Critical Accounting Policies and Use of Estimates

The following discussion addresses the initial accounting policies that we utilize based on our current expectations of our operations. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments upon which our financial statements are based are reasonable at the time made and based upon information available to us at that time. Our critical accounting policies and accounting estimates will be expanded over time as we continue to implement our business and operating strategy. In addition to the discussion below, we also describe our critical accounting policies in the notes to our financial statements.

Basis of Presentation

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires the use of estimates, assumptions and the exercise of subjective judgment as to future uncertainties.

Although we were organized and intend to conduct our business in a manner so that we are not required to register as an investment company under the Investment Company Act of 1940, our financial statements are prepared using the specialized accounting principles of ASC Topic 946, Financial Services — Investment Companies. Overall, we believe that the use of investment company accounting makes our financial statements more useful to investors and other financial statement users since it allows a more appropriate basis of comparison to other entities with similar objectives.

Valuation of Investments

Our board of managers has established procedures for the valuation of our investment portfolio in accordance with ASC Topic 820, Fair Value Measurement. ASC 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

 

    Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

    Level 2 — Valuations based on inputs other than quoted prices included in Level 1, which are either directly or indirectly observable.

 

    Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the market or income approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates and earnings before EBITDA multiples. The information may also include pricing information or broker quotes that include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

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

 

29


Table of Contents

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

 

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

 

  2. For all investments with a maturity of greater than 12 months, we have engaged Duff & Phelps to conduct a review on the reasonableness of our internal estimates of fair value on each asset on a quarterly rotating basis, with each of such investments being reviewed at least annually, and provide an opinion that the Advisor’s estimate of fair value for each investment is reasonable;

 

  3. The audit committee of our board of managers reviews and discusses the preliminary valuation prepared by the Advisor and any opinion rendered by Duff & Phelps; and

 

  4. Our board of managers discusses the valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Advisor, Duff & Phelps and the audit committee. Our board of managers is ultimately responsible for the determination, in good faith, of the fair value of each investment.

Below is a description of factors that our board of managers may consider when valuing our investments.

Fixed income investments are typically valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including the sale of a business). The income approach uses valuation techniques to convert future amounts (for example, interest and principal payments) to a single present value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in valuing our investments include, as applicable: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the borrower’s ability to make payments, its earnings and discounted cash flows, the markets in which the company does business, comparisons of financial ratios of peer companies that are public, the principal market for the borrower’s securities and an estimate of the borrower’s enterprise value, among other factors.

Equity interests in portfolio companies for which there is no liquid public market are valued at fair value. The board of managers, in its analysis of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or in limited instances book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or the effects of acquisitions, recapitalizations, restructurings or other similar items.

We may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. We may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors we deem relevant in measuring the fair values of our investments.

Revenue Recognition

We record interest income on an accrual basis to the extent that we expect to collect such amounts. We do not accrue as a receivable interest on loans for accounting purposes if we have reason to doubt our ability to collect such interest. Structuring, upfront and similar fees are recorded as a discount on investments purchased and are accreted into interest income, on a straight line basis, which we have determined not to be materially different from the effective yield method.

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

We place loans on non-accrual status when principal and interest are past due 90 days or more or when there is a reasonable doubt that we will collect principal or interest. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment of the financial condition of the borrower. Non-accrual loans are generally restored to accrual status when past due principal and interest is paid and, in the Advisor’s judgment, is likely to remain current over the remainder of the term.

 

30


Table of Contents

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 and the amortized cost basis of the investment, including unamortized upfront fees and prepayment penalties. Realized gains or losses on the disposition of an investment are calculated using the first in first out (FIFO) method, utilizing 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 values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Payment-in-Kind Interest

We may have investments that contain a payment-in-kind, or PIK, interest provision. For loans with contractual PIK interest, any interest will be added to the principal balance of such investments and be recorded as income, if the valuation indicates that such interest is collectible.

Organization Expenses

Organization expenses, together with offering expenses, are reimbursable to the Sponsor up to the extent the aggregate of selling commissions, dealer manager fees and other organization and offering costs do not exceed 15.0% of the gross offering proceeds raised from the offering and will be accrued and payable by the Company only to the extent that such costs do not exceed the O&O Reimbursement Limit. Reimbursement of organization and offering costs that exceed the O&O Reimbursement Limit will be expensed in the period they become reimbursable, which is dependent on the gross offering proceeds raised in such period, and are therefore not included on the Statements of Assets and Liabilities as of September 30, 2014 and December 31, 2013. These expense reimbursements are subject to regulatory caps and approval by the Company’s board of managers. If the Company sells the maximum amount of the Offering, it anticipates that such expenses will equal approximately 1.25% of the gross proceeds raised. Reimbursements to the Sponsor are included as a reduction to net assets on the Consolidated Statement of Changes in Net Assets.

Offering Expenses

Offering expenses, which consist of fees paid in relation to items such as legal, accounting, regulatory and printing work incurred related to our offering, are charged directly against the proceeds of the offering. Offering expenses, together with organization expenses, are reimbursable to the Sponsor up to the O&O Reimbursement Limit and will be accrued and payable by the Company only to the extent that such costs do not exceed the O&O Reimbursement Limit. Reimbursement of organization and offering costs that exceed the O&O Reimbursement Limit will be expensed in the period they become reimbursable, which is dependent on the gross offering proceeds raised in such period, and are, therefore, not included on the Statements of Assets and Liabilities as of September 30, 2014 and December 31, 2013. These expense reimbursements are subject to regulatory caps and approval by the Company’s board of managers. If the Company sells the maximum amount of the Offering, it anticipates that such expenses will equal approximately 1.25% of the gross proceeds raised. The reimbursement to the Sponsor is included as a reduction to net assets on the Consolidated Statement of Changes in Net Assets.

The Company may reimburse the dealer manager for certain expenses that are deemed underwriting compensation. Assuming an aggregate selling commission and a dealer manager fee of 9.75% of the gross offering proceeds (which assumes all offering proceeds come from Class A units), the Company would reimburse the dealer manager in an amount up to 0.25% of the gross offering proceeds. Because the aggregate selling commission and dealer manager fees will be less than 9.75% of the gross offering proceeds due to a portion of the offering proceeds coming from the sale of Class C and Class I units, the Company may reimburse the dealer manager for expenses in an amount greater than 0.25% of the gross offering proceeds, provided that the Company will not pay or reimburse any of the foregoing costs to the extent such payment would cause total underwriting compensation to exceed 10.0% of the gross proceeds of the primary offering as of the termination of the Offering, as required by the rules of FINRA.

Expense Responsibility Agreement

Pursuant to the terms of the Responsibility Agreement, the Sponsor has paid expenses on behalf of the Company through September 30, 2014, and will additionally pay the accrued operating expenses of the Company as of September 30, 2014, on behalf of the Company. Such expenses will not be reimbursable to the Sponsor until the Company has raised $200 million of gross proceeds, provided any such reimbursement during the period in which the Company is offering units in the Offering will not cause the Company’s Net Asset Value per unit to fall below the prior quarter’s Net Asset Value per unit (the “Gross Proceeds Hurdle”). To the extent the Company does not meet the Gross Proceeds Hurdle in any quarter, no amount will be payable by the Company for reimbursement to the Sponsor. Therefore, expenses of the Company covered by the Responsibility Agreement have not been recorded as expenses of the Company as of September 30, 2014. In accordance with ASC 450, Contingencies, such expenses will be accrued and payable by the Company in the period that they become both probable and estimable.

 

31


Table of Contents

Income Taxes

We are characterized as a partnership for U.S. federal income tax purposes.

Calculation of Net Asset Value

The Company’s net asset value is calculated on a quarterly basis and commenced with respect to the first full quarter after the Company commenced operations. The Company calculates its net asset value per unit by subtracting total liabilities from the total value of the Company’s assets on the date of valuation and dividing the result by the total number of outstanding units on the date of valuation. The net asset value per Class A, Class C and Class I units are calculated on a pro-rata basis based on units outstanding.

Recently Issued Accounting Pronouncements

Under the Jumpstart Our Business Startups Act (the “JOBS Act”), emerging growth companies can delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates. There are no new or revised accounting standards that we have not adopted.

In June 2013, the FASB issued ASU 2013-08, Financial Services—Investment Companies: Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 amends the current criteria for an entity to qualify as an investment company, creates new disclosure requirements and amends the measurement criteria for certain interests in other investment companies. ASU 2013-08 is effective on January 1, 2014, and did not have a material effect on the Company’s consolidated financial statements.

In June 2013, the FASB issued ASU 2013-08, Financial Services—Investment Companies: Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 amends the current criteria for an entity to qualify as an investment company, creates new disclosure requirements and amends the measurement criteria for certain interests in other investment companies. ASU 2013-08 was effective on January 1, 2014, and did not have a material effect on the Company’s consolidated financial statements. In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The adoption of the amended guidance in ASU 2014-09 is not expected to have a significant effect on the Company’s financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. Our investments are currently structured with both fixed and floating interest rates. Those structured with floating rates are referenced to LIBOR and incorporate fixed interest rate floors. If rates go down further, interest income will not decrease from current levels. To the extent that interest rates go up substantially, these investments will accrue higher amounts of income than currently being realized. Returns on investments that carry fixed rates are not subject to fluctuations in interest rates, and will not adjust should rates move up or down.

To the extent that we borrow money to make investments, our net investment income will be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of rising interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

Although we operate in a number of foreign markets, all investments are currently denominated in U.S. Dollars. Therefore, the current portfolio does not present currency risk to U.S. unitholders. In the future, we may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates.

 

32


Table of Contents

Item 4. Controls and Procedures

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings.

There are no pending material legal proceedings to which the Company or any of our subsidiaries or any of our property is subject.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 31, 2014 (“2013 Form 10-K”), which could materially affect our business, financial condition, and/or future results. The risks described in our 2013 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

There have been no material changes to the risk factors disclosed in our 2013 Form 10-K and our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2014, filed with the SEC on August 13, 2014.

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

During the three months ended September 30, 2014, we did not sell or issue any equity securities that were not registered under the Securities Act.

Use of Proceeds from Registered Securities

On February 25, 2013, the Registration Statement on Form S-1, File No. 333-185676 covering the Offering, of up to $1.5 billion in units of our limited liability company interest, was declared effective under the Securities Act of 1933 by the SEC. The Offering commenced on February 25, 2013, and is currently expected to terminate on or before February 24, 2015, unless extended by our board of managers.

Through SC Distributors, the dealer manager for the Offering, we are offering to the public on a best efforts basis up to $1.25 billion of units, consisting of Class A units at $10.00 per unit, Class C units at $9.576 per unit and Class I units at $9.186 per unit.

We are also offering up to $250 million of units to be issued pursuant to our Distribution Reinvestment Plan. Units issued under the Distribution Reinvestment Plan are offered at a price equal to the then current offering price per unit less the sales fees associated with that class of units in the Primary Offering. The units being offered can be reallocated among the different classes and between the primary Offering and the Distribution Reinvestment Plan.

As of September 30, 2014, we had received subscriptions for and issued 5,195,730.953 of our units, including 57,166.669 units issued under our Distribution Reinvestment Plan, for gross proceeds of $48,931,401 including $515,929 reinvested under our Distribution Reinvestment Plan (before dealer-manager fees of $507,939 and selling commissions of

 

33


Table of Contents

$1,531,848, for net proceeds of $46,891,614). From the net offering proceeds, we have paid a total of $2,434,134 towards reimbursement to our Sponsor for our organization and offering costs. With net offering proceeds, we have financed a net total of $41,093,624 in senior secured trade finance, senior secured term loans, and unsecured short term note receivable.

As of September 30, 2014, approximately $4.1 million remained payable to our Sponsor for costs related to our organization and offering.

Unit Repurchase Program

Beginning June 11, 2014, we commenced a unit repurchase program pursuant to which we may conduct quarterly unit repurchases of up to 5% of our weighted average number of outstanding units in any 12-month period to allow our unitholders, who have held our units for a minimum of one year, to sell their units back to us at a price equal to the then current offering price less the sales fees associated with that class of units. Our unit repurchase program includes numerous restrictions, including a one-year holding period, that limit the ability of our unitholders to sell their units. Unless our board of managers determines otherwise, we will limit the number of units to be repurchased during any calendar year to the number of units we can repurchase with the proceeds we receive from the sale of units under our distribution reinvestment plan. At the sole discretion of our board of managers, we may also use cash on hand, cash available from borrowings and cash from liquidation of investments as of the end of the applicable quarter to repurchase units.

On November 11, 2014, our board of managers amended our unit repurchase program to provide for the repurchases to be made on the last calendar day of the quarter rather than the last business day of the quarter.

Our board of managers has the right to amend, suspend or terminate the unit repurchase program to the extent that it determines that it is in our best interest to do so. We will promptly notify our unitholders of any changes to the unit repurchase program, including any amendment, suspension or termination of it in our periodic or current reports or by means of other notice. Moreover, the unit repurchase program will terminate on the date that our units are listed on a national securities exchange, are included for quotation in a national securities market or, in the sole determination of our board of managers, a secondary trading market for the units otherwise develops.

The above description of the unit repurchase program is a summary of certain of the terms of the unit repurchase program. Please see the full text of the unit repurchase program, which is included as Exhibit 4.3 to this Quarterly Report on Form 10-Q, for all the terms and conditions.

As of September 30, 2014, the Company had received and processed one repurchase request. The Company repurchased 2,840.320 Class A units from the Sponsor at a price of $9.025 per unit for a total of $25,634.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On November 11, 2014, the Company’s Board of Managers received notice of Mark Torline’s decision to retire from his roles as the Company’s President, a member of the Company’s Board of Managers and a member of the Advisor’s Investment Committee in order to pursue an opportunity to serve as the Director of the Center for Entrepreneurship of Wichita State University. On the same date, the Board of Managers appointed Gloria S. Nelund to serve as the Company’s President in addition to her positions of Chief Executive Officer and Chairman of the Board of Managers and elected Brent L. VanNorman to replace Mr. Torline on the Company’s Board of Managers. The resignations and appointments described above will be effective on December 1, 2014.

Ms. Nelund, age 53, has served as the Company’s Chairman and Chief Executive Officer since its formation in April 2012. In addition, she has served as the Chairman and Chief Executive Officer of the Advisor since its formation in April 2012, Chief Compliance Officer of the Advisor since October 2013, and as the Chairman and Chief Executive Officer of the Sponsor since its formation in August 2008. In addition to her activities with the Company, Ms. Nelund is Chairman of the Board and Independent Trustee for RS Investments, a mutual fund complex with more than $20 billion in assets under management. Mr. VanNorman is Ms. Nelund’s brother-in-law.

Item 6. Exhibits.

 

Number

  

Description

    3.1    Certificate of Formation of TriLinc Global Impact Fund, LLC. Incorporated by reference to Exhibit 3.1 to the Draft Registration Statement on Form S-1 (File No. 377-00015) filed with the Securities and Exchange Commission (the “SEC”) on November 1, 2012.
    3.2    Amended and Restated Limited Liability Company Operating Agreement. Incorporated by reference to Appendix A to the Prospectus filed pursuant to Rule 424(b)(3) with the SEC on February 27, 2013.
    4.1    Amended and Restated Distribution Reinvestment Plan. Incorporated by reference to Appendix C to the Prospectus filed pursuant to Rule 424(b)(3) with the SEC on February 27, 2013.
    4.3*    Amended and Restated Unit Repurchase Program.

 

34


Table of Contents

Number

  

Description

  10.1    Sub-Advisory Agreement dated as of July 1, 2014 by and between TriLinc Advisors International, Ltd., Barak Fund Management, Ltd., and TriLinc Global Impact Fund – African Trade Finance, Ltd. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on July 7, 2014.
  10.2*    Amended and Restated Operating Expense Responsibility Agreement among TriLinc Global Impact Fund, LLC, TriLinc Global, LLC and TriLinc Advisors, LLC dated November 11, 2014.
  31.1*   

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

as amended.

  31.2*   

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

as amended.

  32.1*    Certification of CEO and Interim CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  101    The following materials from TriLinc Global Impact Fund LLC’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, filed on November 12, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Assets and Liabilities, (ii) Consolidated Statement of Operations, (iii) Consolidated Statement of Changes in Net Assets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements.

 

* Filed herewith

 

35


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    TRILINC GLOBAL IMPACT FUND, LLC.
November 12, 2014     By:   /s/ Gloria S. Nelund
        Gloria S. Nelund
        Chief Executive Officer
November 12, 2014     By:    /s/ Brent L. VanNorman
        Brent L. VanNorman
        Chief Financial Officer

 

36