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On April 3, 2023, the FCA announced that it would compel the IBA to publish an unrepresentative synthetic USD LIBOR through September 30, 2024 for use in legacy contracts.
−Removed: As of March 31, 2024 , eight of our loans, representing approximately 51% of our portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to either SOFR or U.S.
−Removed: 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.
−Removed: 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.
+Added: As of June 30, 2024 , seven of our loans, representing approximately 37% of our portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to SOFR.
+Added: If this floating benchmark is no longer available, our applicable loan documents generally include fallback provisions that allow us to choose a new index based upon comparable information.
+Added: However, if this benchmark is no longer available, we may need to renegotiate some of our agreements to determine a replacement index or rate of interest.
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.
In addition, changes to another index could result in mismatches with the interest rate of loans that we are financing.
−Removed: As of March 31, 2024 , none of our loans paid interest at a variable rate tied to LIBOR.
+Added: As of June 30, 2024 , none of our loans paid interest at a variable rate tied to LIBOR.
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 March 31, 2024 and December 31, 2023, two 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.
+Added: As of June 30, 2024 and December 31, 2023, one and two 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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however, this is mitigated to the extent our loans bear interest at a floating rate.
−Removed: As of March 31, 2024, 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 $0.2 million and $(0.2) million, respectively.
−Removed: As of March 31, 2024, we had eight floating-rate loans, representing approximately 51% of our portfolio based on aggregate outstanding principal balances.
−Removed: These floating benchmark rates included one-month SOFR subject to a weighted average floor of 3.7% and quoted at 5.3% and U.S.
−Removed: prime rate subject to a weighted average floor of 5.4% and quoted at 8.5%.
+Added: As of June 30, 2024, 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 $0.2 million and $(0.2) million, respectively.
+Added: As of June 30, 2024, we had seven floating-rate loans, representing approximately 37% 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 3.7% and quoted at 5.3%.
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 $1.2 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in annual interest income of approximately $(0.9) million.
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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 SOFR, U.S.
−Removed: 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 SOFR, 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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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 March 31, 2024 was concentrated with the top four borrowers representing approximately 58.3% of the aggregate outstanding principal balances and approximately 57.3% of the total loan commitments.
+Added: Our loan portfolio as of June 30, 2024 was concentrated with the top three borrowers representing approximately 49.5% of the aggregate outstanding principal balances and approximately 49.6% 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 19.0% of the aggregate outstanding principal balances of our portfolio and approximately 16.8% of our total loan commitments as of March 31, 2024.
−Removed: 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 March 31, 2024, which is fully funded.
−Removed: This senior term loan accrues interest at a variable rate of U.S.
−Removed: prime rate plus 5.8%, subject to a U.S.
−Removed: prime rate floor of 5.5%.
−Removed: In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.
−Removed: 2016-13, which replaced the incurred loss impairment methodology pursuant to GAAP with a methodology that reflects current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”).
−Removed: We adopted ASU No.
−Removed: 2016-13 as of July 31, 2020, the date of our commencement of operations.
−Removed: Subsequent period increases and decreases to expected credit losses impact earnings and are recorded within provision for current expected credit losses in our consolidated statement of operations.
−Removed: The CECL Reserve related to outstanding balances on loans held for investment required under ASU No.
−Removed: 2016-13 is a valuation account that is deducted from the amortized cost basis of our loans held at carrying value and loans receivable at carrying value in our consolidated balance sheet.
−Removed: 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 within our unaudited interim consolidated financial statements titled “Current Expected Credit Losses” for more information on CECL.
+Added: Our largest credit facility represented approximately 23.6% of the aggregate outstanding principal balances of our portfolio and approximately 18.7% of our total loan commitments as of June 30, 2024.
+Added: The borrower under this credit facility is a Subsidiary of Private Company G, 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 has a principal amount of $79.2 million outstanding as of June 30, 2024, which is fully funded.
+Added: This senior term loan accrues interest at a fixed rate of 12.5%, a minimum portion of which is payable in cash pursuant to the excess cash flow sweep, and the remainder of which, if any, is paid in kind.
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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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.