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however, this is mitigated to the extent our loans bear interest at a floating rate.
−Removed: As of September 30, 2022 , a decrease of 50 bps or increase of 50 bps of the market yield would have resulted in a change in unrealized gain (loss) of approximately $0.5 million and $(0.5) million, respectively.
−Removed: As of September 30, 2022 , we had five floating-rate loans, representing approximately 31% of our portfolio based on aggregate outstanding principal balances.
−Removed: These floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 3.143%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0%, and quoted at 3.042% and U.S.
−Removed: Prime Rate subject to a weighted average floor of 4.4% quoted at 6.250%.
+Added: As of March 31, 2023 , a decrease of 50 bps or increase of 50 bps of the market yield would have resulted in a change in unrealized gain (loss) of approximately $0.5 million and $(0.5) million, respectively.
+Added: As of March 31, 2023 , we had six floating-rate loans, representing approximately 56% of our portfolio based on aggregate outstanding principal balances.
+Added: These floating benchmark rates included one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 4.9%, one-month SOFR subject to a weighted average floor of 1.0% and quoted at 4.8% and U.S.
+Added: prime rate subject to a weighted average floor of 4.9% and quoted at 8.0%.
We estimate that a hypothetical 100 basis points increase in the floating benchmark rate would result in an increase in annual interest income of approximately $2.2 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in annual interest income of approximately $(2.2) million.
Potential Impact of LIBOR Transition
−Removed: As of September 30, 2022 , five of our loans, representing approximately 31% of our portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to either LIBOR, SOFR, or U.S.
−Removed: If one of these floating benchmarks are no longer available, our applicable loan documents generally allow us to choose a new index based upon comparable information.
+Added: As of March 31, 2023 , six of our loans, representing approximately 56% of our portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to either LIBOR, SOFR, or U.S.
+Added: If one of these floating benchmarks are no longer available, our applicable loan documents generally include fallback provisions that allow us to choose a new index based upon comparable information.
However, if each of these benchmarks are no longer available, we may need to renegotiate some of our agreements to determine a replacement index or rate of interest.
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In addition, the elimination of LIBOR and/or changes to another index could result in mismatches with the interest rate of loans that we are financing.
+Added: As of March 31, 2023, only two of our loans paid interest at a variable rate tied to LIBOR.
+Added: Subsequent to March 31, 2023, one loan transitioned from LIBOR to SOFR.
+Added: The remaining loan we plan to transition to an alternative benchmark rate either through modification or replacement in accordance with the fallback provisions in the loan documents by June 30, 2023.
+Added: We continue to monitor the transition guidance provided by the ARRC, the FASB and other relevant regulators, agencies and industry working groups, and we continue to engage with clients, lenders, market participants and other industry leaders as the transition from LIBOR progresses.
Changes in Fair Value of Our Assets
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We may carry our loans at fair value or carrying value in our consolidated balance sheet.
−Removed: As of September 30, 2022 and December 31, 2021 , three of our loans held for investment were carried at fair value within loans held at fair value in our consolidated balance sheets, with changes in fair value recorded through earnings.
+Added: As of March 31, 2023 and December 31, 2022 , three of our loans held for investment were carried at fair value within loans held at fair value in our consolidated balance sheets, with changes in fair value recorded through earnings.
We evaluate our loans on a quarterly basis and fair value is determined by our Board through its independent Audit and Valuation Committee.
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Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that we may ultimately realize.
−Removed: Further, such loans are generally subject to legal and other restrictions on resale or
−Removed: otherwise are less liquid than publicly traded securities.
+Added: Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities.
If we were required to liquidate our investment in a loan in a forced or liquidation sale, we could realize significantly less than the value at which we had recorded such loan investment.
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Interest Rate Mismatch Risk
−Removed: We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on various benchmarks, while the interest rates on these assets may be fixed or indexed to LIBOR, SOFR, Prime Rate, or another index rate.
+Added: We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on various benchmarks, while the interest rates on these assets may be fixed or indexed to LIBOR, SOFR, U.S.
+Added: prime rate, or another index rate.
Accordingly, any increase in an index rate will generally result in an increase in our borrowing costs that would not be matched by fixed-rate interest earnings and may not be matched by a corresponding increase in floating-rate interest earnings.
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Our Manager will seek to manage credit risk by performing deep credit fundamental analysis of potential assets and through the use of non-recourse financing, when and where available and appropriate.
−Removed: Credit risk will also be addressed through our Manager’s on-going review, and loans will be monitored for variance from expected prepayments, defaults, severities, losses and cash flow on a quarterly basis.
+Added: Credit risk will also be addressed through our Manager’s ongoing review, and loans will be monitored for variance from expected prepayments, defaults, severities, losses and cash flow on a quarterly basis.
Other than the acquisition of our initial portfolio of loans and certain loan commitments relating to Private Company A, we, through our Manager, have originated substantially all of our loans and intend to continue to originate our loans, but we have previously and may in the future acquire loans from time to time.
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As a result, we cannot predict the percentage of our capital that will be invested in any individual target investment at any given time.
−Removed: Our loan portfolio as of September 30, 2022 was concentrated with the top four borrowers representing approximately 63.6% of the aggregate outstanding principal balances and approximately 63.8% of the total loan commitments.
−Removed: Additionally, the industry is experiencing significant consolidation, which we expect to continue, among cannabis operations and certain of our borrowers may combine, increasing the concentration of our borrower portfolio with those consolidated operators.
−Removed: Our largest credit facility represented approximately 17.2% of our total loan commitments and approximately 19.4% of the aggregate outstanding principal balances of our portfolio as of September 30, 2022.
−Removed: The borrower under this credit facility is Public Company F, a multi-state operator with real estate assets in several states, certain of which have been included as collateral in connection with the senior term loan.
−Removed: Our portion of the senior term loan provided to such borrower had an aggregate principal amount of $86.6 million outstanding as of September 30, 2022 .
−Removed: This senior term loan accrues interest at a blended rate of 8.6% per annum, payable in cash, across the three tranches of the senior term loan facility.
−Removed: The Public Company F senior term loan is managed by a third-party agent, acting as sole lead arranger, administrative agent and collateral agent, which is an affiliate of one of the other lender parties.
−Removed: Subsequent to the end of the third quarter, Public Company F repaid its loan in full.
−Removed: Refer to Note 17 to our unaudited interim consolidated financial statements titled “Subsequent Events” for more information.
+Added: Our loan portfolio as of March 31, 2023 was concentrated with the top four borrowers representing approximately 73.5% of the aggregate outstanding principal balances and approximately 73.9% of the total loan commitments.
+Added: Additionally, the industry is experiencing significant consolidation, which we expect to increase, among cannabis operations and certain of our borrowers may combine, increasing the concentration of our borrower portfolio with those consolidated operators.
+Added: Our largest credit facility represented approximately 19.2% of the aggregate outstanding principal balances of our portfolio and approximately 21.4% of our total loan commitments as of March 31, 2023.
+Added: The borrower under this credit facility is a Subsidiary of Public Company H, a multi-state operator with real estate assets in several states, certain of which have been included as collateral in connection with the senior term loan.
+Added: Our portion of the senior term loan provided to such borrower had a principal amount of $75.0 million outstanding as of March 31, 2023 and $15.0 million unfunded.
+Added: This senior term loan accrues interest at a variable rate of U.S.
+Added: prime rate plus 5.8%, subject to a U.S.
+Added: prime rate floor of 5.5%.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.
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The CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within current expected credit loss reserve as a liability in our consolidated balance sheet.
−Removed: Refer to Note 6 to our unaudited interim consolidated financial statements titled “Current Expected Credit Losses” for more information on CECL.
+Added: Refer to Note 6 within our unaudited interim consolidated financial statements titled “Current Expected Credit Losses” for more information on CECL.
We primarily provide loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against our borrowers of the federal illegality of cannabis, our borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and we could lose all or part of any of our loans.
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changes or continued weakness in specific industry segments;
−Removed: quality, age and design;
+Added: construction quality, age and design;
demographic factors;
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.