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Our loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers.
−Removed: Changes in market yields may change the fair value of certain of our loans.
−Removed: Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans;
+Added: Changes in market yields and revenue multiples may change the fair value of certain of our loans.
+Added: Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans, while a decrease in revenue multiples may result in a decrease in the fair value of certain of our loans ;
however, this is mitigated to the extent our loans bear interest at a floating rate.
−Removed: As of June 30, 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.
−Removed: As of June 30, 2023 , we had six floating-rate loans, representing approximately 56% of our portfolio based on aggregate outstanding principal balances.
−Removed: These floating benchmark rates included one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 5.2%, one-month SOFR subject to a weighted average floor of 1.0% and quoted at 5.1% and U.S.
+Added: As of September 30, 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 $0.3 million and $(0.3) million, respectively.
+Added: As of September 30, 2023 , we had seven floating-rate loans, representing approximately 68% of our portfolio based on aggregate outstanding principal balances.
+Added: These floating benchmark rates included one-month SOFR subject to a weighted average floor of 3.3% and quoted at 5.3% and U.S.
prime rate subject to a weighted average floor of 4.9% and quoted at 8.5%.
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 $2.7 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in annual interest income of approximately $(2.4) million.
−Removed: Potential Impact of LIBOR Transition
−Removed: As of June 30, 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: LIBOR Transition
+Added: In July 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) (the authority that regulates LIBOR) announced its intention to cease sustaining LIBOR by the end of 2021.
+Added: The ICE Benchmark Administration (the “IBA”), which is supervised by the FCA, ended publication of the one-week and two-month USD LIBOR tenors on December 31, 2021, and the remaining USD LIBOR tenors (overnight, one-month, three-month, six-month and 12-month) ended following their publication on June 30, 2023.
+Added: On April 3, 2023, the FCA announced that it will compel the IBA to publish an unrepresentative synthetic USD LIBOR through September 30, 2024 for use in legacy contracts.
+Added: As of September 30, 2023 , seven of our loans, representing approximately 68% of our portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to either SOFR or U.S.
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.
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As such, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our loans.
−Removed: 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.
−Removed: As of June 30, 2023 , only one of our loans paid interest at a variable rate tied to LIBOR, which was transitioned to one-month SOFR in July 2023 in accordance with the loan documents.
−Removed: 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.
+Added: In addition, changes to another index could result in mismatches with the interest rate of loans that we are financing.
+Added: As of September 30, 2023 , none of our loans paid interest at a variable rate tied to LIBOR, transitioning the remaining loan tied to LIBOR to one-month SOFR in July 2023 in accordance with the loan documents.
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 June 30, 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.
+Added: As of September 30, 2023 and December 31, 2022 , two and three of our loans held for investment were carried at fair value within loans held at fair value in our consolidated balance sheets, respectively, 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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As loans held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded loans, as well as secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
−Removed: Changes in market yields may change the fair value of certain of our loans.
−Removed: Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans;
+Added: Changes in market yields and revenue multiples may change the fair value of certain of our loans.
+Added: Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans, while a decrease in revenue multiples may result in a decrease in the fair value of certain of our loans ;
however, this is mitigated to the extent our loans bear interest at a floating rate.
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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 June 30, 2023 was concentrated with the top four borrowers representing approximately 74.9% of the aggregate outstanding principal balances and approximately 73.3% of the total loan commitments.
+Added: Our loan portfolio as of September 30, 2023 was concentrated with the top four borrowers representing approximately 68.5% of the aggregate outstanding principal balances and approximately 68.8% of the total loan commitments.
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.
−Removed: Our largest credit facility represented approximately 21.2% of the aggregate outstanding principal balances of our portfolio and approximately 20.6% of our total loan commitments as of June 30, 2023.
+Added: Our largest credit facility represented approximately 21.1% of the aggregate outstanding principal balances of our portfolio and approximately 19.4% of our total loan commitments as of September 30, 2023.
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.
−Removed: Our portion of the senior term loan provided to such borrower has a principal amount of $84.0 million outstanding as of June 30, 2023, which is fully funded.
+Added: Our portion of the senior term loan provided to such borrower has a principal amount of $84.0 million outstanding as of September 30, 2023, which is fully funded.
This senior term loan accrues interest at a variable rate of U.S.
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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.