Fair Value Measurements

6 Months Ended

Jun. 30, 2020

Note 4. Fair Value Measurements

The following table summarizes the valuation of the Company’s investments by the fair value hierarchy levels required under ASC 820 as of June 30, 2020:

	Fair
	Value		Level 1		Level 2		Level 3
Senior secured term loans	$	99,415,415	$	—	$	—	$	99,415,415
Senior secured term loan participations		158,424,908		—		—		158,424,908
Senior secured trade finance participations		67,795,496		—		—		67,795,496
Other investments		3,758,063		—		—		3,758,063
Equity warrants		1,199,618		—		—		1,199,618
Total	$	330,593,500	$	—	$	—	$	330,593,500

The following table summarizes the valuation of the Company’s investments by the fair value hierarchy levels required under ASC 820 as of December 31, 2019:

	Fair
	Value		Level 1		Level 2		Level 3
Senior secured term loan	$	83,353,208	$	—	$	—	$	83,353,208
Senior secured term loan participations		180,500,425						180,500,425
Senior secured trade finance participations		71,606,458		—		—		71,606,458
Short term investments		3,758,063						3,758,063
Equity warrants		1,080,222						1,080,222
Total	$	340,298,376	$	—	$	—	$	340,298,376

The following is a reconciliation of activity for the six months ended June 30, 2020, of investments classified as Level 3:

	Fair Value at December 31, 2019		Purchases		Maturities or Prepayments			Accretion of discounts / Payment-in-kind interest		Net change in unrealized appreciation (depreciation)			Fair Value at June 30, 2020
Senior secured term loans	$	83,353,208	$	13,250,000	$	(627,901	)	$	3,440,108	$	—		$	99,415,415
Senior secured term loan participations		180,500,425		-		(18,238,360	)		2,468,343		(6,305,500	)		158,424,908
Senior secured trade finance participations		71,606,458		7,000,000		(7,266,163	)		—		(3,544,799	)		67,795,496
Short term and other investments		3,758,063		4,000,000		(4,000,000	)		—					3,758,063
Equity warrants		1,080,222		—		—			—		119,396			1,199,618
Total	$	340,298,376	$	24,250,000	$	(30,132,424	)	$	5,908,451	$	(9,730,903	)	$	330,593,500

There were no realized gains or losses for any of the Company’s investments classified as Level 3 during the three and six months ended June 30, 2020 and 2019. Net unrealized depreciation for the six months ended June 30, 2020 and 2019 reported in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets still held at period end were $9,730,903 and $1,903,180, respectively. These unrealized losses were primarily driven by macro events including the uncertainty created by the recent COVID-19 pandemic and its impact on the future cash flows generated by our investments as well as the ultimate realization of the underlying collateral.

As of June 30, 2020, 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 June 30, 2020:

	Fair value		Valuation technique	Unobservable input	Range (weighted average)
Senior secured trade finance participations (2)	$	67,136,562	Income approach (DCF)	Market yield	9.0% - 16.4% (11.7%)
Senior secured trade finance participations (1)	$	658,934	Collateral based approach	Value of collateral (collateral coverage)	1.0x - 1.1x
Senior secured term loans	$	99,415,415	Income approach (DCF)	Market yield	11.0% - 14.5% (12.4%)
Senior secured term loan participations	$	158,424,908	Income approach (DCF)	Market yield	11.5% - 15.0% (12.7%)
Other investments (3)	$	3,758,063	Hybrid income/collateral based approach	Market yield / value of collateral	8.80%
Equity warrants	$	1,199,618	Option Pricing Method	Estimated company value	N/A

(1)	Collateral based approach used for the following watch list investments: Profasa and GPI. See Note 3 “Watch List Investments” for further information.

(2)

The Company used the income approach for Algodonera, FRIAR, CAGSA, and Functional and a hybrid of the collateral based approach and the income approach for Sancor and Mac Z, using additional unobservable inputs including recovery rates ranging from 15% to 30%, after considering potential and ongoing litigation and expected collection period ranging from 2 to 3 years. See Note 3 “Watch List Investments” for further information.

(3)	Receivable from IIG TOF B.V. using additional discount rate of 20%.

As of December 31, 2019, 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 December 31, 2019:

	Fair value		Valuation technique	Unobservable input	Range (weighted average)
Senior secured trade finance participations (2)	$	70,792,700	Income approach (DCF)	Market yield	9.0% - 16.8% (12.7%)
Senior secured trade finance participations (1)	$	813,758	Collateral based approach	Value of collateral (collateral coverage)	1.0x - 1.1x
Senior secured term loans	$	83,353,208	Income approach (DCF)	Market yield	10.0% - 14.5% (12.4%)
Senior secured term loan participations	$	180,500,425	Income approach (DCF)	Market yield	11.0% - 15.9% (13.0%)
Other investments (3)	$	3,758,063	Hybrid income/collateral based approach	Market yield / value of collateral	8.75%
Equity warrants	$	1,080,222	Option Pricing Method	Estimated company value	N/A

(1)	Collateral based approach used for the following watch list investments: Profasa and GPI. See Note 3 “Watch List Investments” for further information.

(2)

(3)	Receivable from IIG TOF B.V. using additional discount rate of 20%.

The significant unobservable Level 3 inputs used in the fair value measurement of the Company’s investments are market yields used to discount the estimated future cash flows expected to be received from the underlying investments, which include both future principal and interest payments. Significant increases in market yields would result in significantly lower fair value measurements. In addition, a significant decrease in future cash flows is expected to be received from the underlying investments due to a projected decrease in results of operations and cash flows from the underlying investments, would result in significantly lower fair value measurements.

For additional information concerning of the country-specific risk concentrations for the Company’s investments, refer to the Consolidated Schedule of Investments and Note 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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