UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area
code:
Securities registered pursuant to Section 12(b) of the Act: None
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| None | N/A | N/A |
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |
| [X] | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]
The registrant had common shares outstanding as of May 10, 2024.
GUGGENHEIM CREDIT INCOME FUND
INDEX
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are characterized by the use of terms such as “may,” “should,” “plan,” “anticipate,” “estimate,” “intend,” “predict,” “believe,” “expect,” “will,” “will be,” and “project” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: increased direct competition; changes in government regulations or accounting rules; changes in local, national and global economic and capital market conditions; our ability to obtain or maintain credit lines or credit facilities on satisfactory terms; changes in interest rates; availability of proceeds from our private offering of common shares; our ability to identify suitable investments and/or to close on identified investments; the performance of our investments; and the ability of borrowers related to our debt investments to make payments under their respective loans. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors which could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the U.S. Securities and Exchange Commission (“SEC”), including but not limited to those described in Part II. Item 1A. Risk Factors of this Report and in Part I. Item 1A. Risk Factors of our Form 10-K for the fiscal year ended December 31, 2023, that was filed on March 22, 2024. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which apply only as of the date of this Report, unless noted otherwise. Except as may be required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements. The forward-looking statements should be read in light of the risk factors identified in Part II. Item 1A. Risk Factors of this Report and in Part I. Item 1A. Risk Factors of our Form 10-K for the fiscal year ended December 31, 2023, that was filed on March 22, 2024. The forward-looking statements and projections contained in this Report are excluded from the safe harbor protection provided by Section 27A of the Securities Act and Section 21E of the Exchange Act.
All references to “Note” or “Notes” throughout this Report refer to the notes to the consolidated financial statements of the registrant in Part I. Item 1. Consolidated Financial Statements (Unaudited).
Unless otherwise noted, the terms “we,” “us,” “our,” and the “Master Fund” refer to Guggenheim Credit Income Fund. Other capitalized terms used in this Report have the same meaning as in the accompanying consolidated financial statements presented in Part I. Item 1. Consolidated Financial Statements (Unaudited), unless otherwise defined herein. Guggenheim Partners Investment Management, LLC is referred to as “Guggenheim” or the “Advisor” throughout this Report.
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
| March 31, 2024 | December 31, 2023 | |||||||
| Assets | (Unaudited) | |||||||
| Investments at fair value (amortized cost of $ | $ | $ | ||||||
| Cash and cash equivalents | ||||||||
| Interest and dividend income receivable | ||||||||
| Principal receivable | ||||||||
| Receivable from related parties | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Accrued management fee | $ | $ | ||||||
| Payable to related parties | ||||||||
| Accrued professional services fees | ||||||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8. Commitments and Contingencies) | ||||||||
| Net Assets | $ | $ | ||||||
| Components of Net Assets: | ||||||||
| Common shares, $ par value, shares authorized, and shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | $ | $ | ||||||
| Paid-in-capital in excess of par value | ||||||||
| Accumulated loss, net of distributions | ( | ) | ( | ) | ||||
| Net assets | $ | $ | ||||||
| Net asset value per Common Share (NAV) | $ | $ | ||||||
See Unaudited Notes to Consolidated Financial Statements.
| 3 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Investment Income | ||||||||
| Interest income | $ | $ | ||||||
| PIK interest income | ||||||||
| Fee income | ||||||||
| Total investment income | ||||||||
| Operating Expenses | ||||||||
| Management fee | ||||||||
| Administrative services | ( | ) | ||||||
| Custody services | ||||||||
| Trustees fees | ||||||||
| Related party reimbursements | ||||||||
| Professional services fees | ||||||||
| Other expenses | ||||||||
| Total expenses | ||||||||
| Net investment income | ||||||||
| Realized and unrealized gains (losses): | ||||||||
| Net realized gains (losses) on: | ||||||||
| Investments | ( | ) | ||||||
| Foreign currency forward contracts | ||||||||
| Foreign currency transactions | ( | ) | ||||||
| Net realized gains | ||||||||
| Net change in unrealized appreciation (depreciation) on: | ||||||||
| Investments | ||||||||
| Foreign currency forward contracts | ( | ) | ||||||
| Foreign currency transactions | ||||||||
| Net change in unrealized appreciation | ||||||||
| Net realized and unrealized gains | ||||||||
| Net increase in net assets resulting from operations | $ | $ | ||||||
| Per Common Share information: | ||||||||
| Net investment income per Common Share outstanding - basic and diluted | $ | $ | ||||||
| Earnings per Common Share outstanding - basic and diluted | $ | $ | ||||||
| Weighted average Common Shares outstanding - basic and diluted | ||||||||
| Distribution per Common Share outstanding | $ | $ | ||||||
See Unaudited Notes to Consolidated Financial Statements.
| 4 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
(in thousands, except share and per share data)
| Common Shares | Paid-in-Capital in Excess of Par | Accumulated Loss, net | ||||||||||||||||||
| Shares | Amount | Value | of Distributions | Total | ||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Operations: | ||||||||||||||||||||
| Net investment income | — | |||||||||||||||||||
| Net realized gain | — | |||||||||||||||||||
| Net change in unrealized appreciation | — | |||||||||||||||||||
| Net increase in net assets resulting from operations | — | |||||||||||||||||||
| Net increase for the period | — | |||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Shares | Paid-in-Capital in Excess of Par | Accumulated Loss, net | ||||||||||||||||||
| Shares | Amount | Value | of Distributions | Total | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Operations: | ||||||||||||||||||||
| Net investment income | — | |||||||||||||||||||
| Net realized gains | — | |||||||||||||||||||
| Net change in unrealized appreciation | — | |||||||||||||||||||
| Net increase in net assets resulting from operations | — | |||||||||||||||||||
| Shareholder distributions: | ||||||||||||||||||||
| Distributions from earnings | — | ( | ) | ( | ) | |||||||||||||||
| Distributions representing a return of capital | — | ( | ) | ( | ) | |||||||||||||||
| Net decrease in net assets resulting from shareholder distributions | — | ( | ) | ( | ) | ( | ) | |||||||||||||
| Net decrease for the period | — | ( | ) | ( | ) | ( | ) | |||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See Unaudited Notes to Consolidated Financial Statements.
| 5 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating activities | ||||||||
| Net increase in net assets resulting from operations | $ | $ | ||||||
| Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: | ||||||||
| Capitalized paid-in-kind income | ( | ) | ( | ) | ||||
| Amortization of premium/accretion of discount, net | ( | ) | ( | ) | ||||
| Proceeds from sales of investments | ||||||||
| Proceeds from paydowns on investments | ||||||||
| Net receipt of settlement of derivatives | ||||||||
| Net payment of settlement of derivatives | ( | ) | ||||||
| Net realized (gains) on derivatives | ( | ) | ||||||
| Purchases of investments | ( | ) | ( | ) | ||||
| Net realized (gains) losses on investments | ( | ) | ||||||
| Net change in unrealized (appreciation) on investments | ( | ) | ( | ) | ||||
| Net change in unrealized depreciation on foreign currency forward contracts | ||||||||
| (Increase) decrease in operating assets: | ||||||||
| Interest and dividend income receivable | ||||||||
| Principal receivable | ||||||||
| Principal payable | ||||||||
| Receivable from related parties | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accrued management fee | ( | ) | ||||||
| Payable to related parties | ||||||||
| Accrued professional services fees | ( | ) | ||||||
| Accounts payable, accrued expenses and other liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Financing activities | ||||||||
| Distributions paid | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Reconciliation of cash and cash equivalents | ||||||||
| Cash and cash equivalents | ||||||||
| Total cash and cash equivalents | $ | $ | ||||||
See Unaudited Notes to Consolidated Financial Statements.
| 6 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED)
| March 31, 2024 (in thousands) | ||||||||||||||||||||||||||
| Portfolio Company (1) (2) (3) | Footnotes | Investment | Spread
Above Reference Rate (4) | Interest
Rate (4) (5) | Maturity Date | Principal
/ Par Amount / Shares (6) | Amortized Cost (7) (8) | Fair Value | % of Net Assets | |||||||||||||||||
| INVESTMENTS | ||||||||||||||||||||||||||
| Debt investments - 52.6% | ||||||||||||||||||||||||||
| Automotive | ||||||||||||||||||||||||||
| Accuride Corporation | (10) | $ | $ | $ | % | |||||||||||||||||||||
| Total Automotive | % | |||||||||||||||||||||||||
| Chemicals, Plastics & Rubber | ||||||||||||||||||||||||||
| Drew Marine Group Inc. | (11) | % | ||||||||||||||||||||||||
| Total Chemicals, Plastics & Rubber | % | |||||||||||||||||||||||||
| Energy: Oil & Gas | ||||||||||||||||||||||||||
| Basic Energy Services Inc | (12) | N/A | N/A | % | ||||||||||||||||||||||
| Permian Production Partners | (10) | % | ||||||||||||||||||||||||
| Total Energy: Oil & Gas | % | |||||||||||||||||||||||||
| Metals & Mining | ||||||||||||||||||||||||||
| Polyvision Corp. | (10)(11) | % | ||||||||||||||||||||||||
| Polyvision Corp. | (10)(11) | % | ||||||||||||||||||||||||
| Polyvision Corp. (Delayed Draw) | (10)(11) | % | ||||||||||||||||||||||||
| Polyvision Corp. (Revolver) | (10)(11) | % | ||||||||||||||||||||||||
| Total Metals & Mining | % | |||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Save-a-Lot | (11) | % | ||||||||||||||||||||||||
| Save-a-Lot | (11) | % | ||||||||||||||||||||||||
| Save-a-Lot | (10)(11) | % | ||||||||||||||||||||||||
| Total Retail | % | |||||||||||||||||||||||||
| Services: Business | ||||||||||||||||||||||||||
| Hersha Hospitality Management | (11) | % | ||||||||||||||||||||||||
| PSI Services LLC (Revolver) | (9)(11) | % | ||||||||||||||||||||||||
| PSI Services LLC (Delayed Draw) | (11) | % | ||||||||||||||||||||||||
| PSI Services LLC (Delayed Draw) | (11) | % | ||||||||||||||||||||||||
| PSI Services LLC | (11) | % | ||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| 7 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED)
| March 31, 2024 (in thousands) | ||||||||||||||||||||||||||
| Portfolio Company (1) (2) (3) | Footnotes | Investment | Spread
Above Reference Rate (4) | Interest
Rate (4) (5) | Maturity Date | Principal
/ Par Amount / Shares (6) | Amortized Cost (7) (8) | Fair Value | % of Net Assets | |||||||||||||||||
| Total Services: Business | % | |||||||||||||||||||||||||
| Total Debt Investments | $ | $ | % | |||||||||||||||||||||||
| Equity investments - 6.5% | ||||||||||||||||||||||||||
| Energy: Oil & Gas | ||||||||||||||||||||||||||
| Permian Production Partners | (11) | N/A | N/A | % | ||||||||||||||||||||||
| Total Energy: Oil & Gas | % | |||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Save-a-Lot | N/A | N/A | % | |||||||||||||||||||||||
| Total Retail | % | |||||||||||||||||||||||||
| Service: Businesses | ||||||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES A | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES B-1 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES B-2 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES C-1 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES C-2 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| Total Service: Businesses | % | |||||||||||||||||||||||||
| Total Equity Investments | $ | $ | % | |||||||||||||||||||||||
| Total Investments - 59.1% | $ | $ | % | |||||||||||||||||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| 8 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED)
| (5) |
| (6) |
| (7) |
| (8) |
| (9) |
| (10) |
| Coupon Rate | PIK Component | Cash Component | PIK Option | |
| Accuride Corporation | ||||
| Galls LLC | ||||
| Galls LLC (Delayed Draw) | ||||
| Permian Production Partners | ||||
| Polyvision Corp. | ||||
| Polyvision Corp. | ||||
| Polyvision Corp. (Delayed Draw) | ||||
| Polyvision Corp. (Revolver) | ||||
| Save-A-Lot |
| (11) |
| (12) |
See Unaudited Notes to Consolidated Financial Statements.
| 9 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
| December 31, 2023 (in thousands) | ||||||||||||||||||||||||||
| Portfolio Company (1) (2) (3) | Footnotes | Investment | Spread
Above Reference Rate (4) | Interest
Rate (4) (5) | Maturity Date | Principal
/ Par Amount / Shares (6) | Amortized Cost (7) (8) | Fair Value | % of Net Assets | |||||||||||||||||
| INVESTMENTS | ||||||||||||||||||||||||||
| Debt investments - 84.0% | ||||||||||||||||||||||||||
| Automotive | ||||||||||||||||||||||||||
| Accuride Corporation | (10) | $ | $ | $ | % | |||||||||||||||||||||
| Total Automotive | % | |||||||||||||||||||||||||
| Chemicals, Plastics & Rubber | ||||||||||||||||||||||||||
| Drew Marine Group Inc. | (11) | % | ||||||||||||||||||||||||
| Total Chemicals, Plastics & Rubber | % | |||||||||||||||||||||||||
| Consumer Goods: Non-Durable | ||||||||||||||||||||||||||
| Galls LLC | (10)(11) | % | ||||||||||||||||||||||||
| Galls LLC (Delayed Draw B) | (10)(11) | % | ||||||||||||||||||||||||
| Galls LLC (Revolver) | (9)(11) | % | ||||||||||||||||||||||||
| Total Consumer Goods: Non-Durable | % | |||||||||||||||||||||||||
| Energy: Oil & Gas | ||||||||||||||||||||||||||
| Basic Energy Services Inc | (12) | N/A | N/A | % | ||||||||||||||||||||||
| Permian Production Partners | (10) | % | ||||||||||||||||||||||||
| Total Energy: Oil & Gas | % | |||||||||||||||||||||||||
| Metals & Mining | ||||||||||||||||||||||||||
| Polyvision Corp. | (10)(11) | % | ||||||||||||||||||||||||
| Polyvision Corp. | (10)(11) | % | ||||||||||||||||||||||||
| Polyvision Corp. (Delayed Draw) | (10)(11) | % | ||||||||||||||||||||||||
| Polyvision Corp. (Revolver) | (10)(11) | % | ||||||||||||||||||||||||
| Total Metals & Mining | % | |||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Save-a-Lot | (11) | % | ||||||||||||||||||||||||
| Save-a-Lot | (11) | % | ||||||||||||||||||||||||
| Save-a-Lot | (10)(11) | % | ||||||||||||||||||||||||
| Total Retail | % | |||||||||||||||||||||||||
| Services: Business | ||||||||||||||||||||||||||
| Hersha Hospitality Management | (11) | % | ||||||||||||||||||||||||
| 10 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
| December 31, 2023 (in thousands) | ||||||||||||||||||||||||||
| Portfolio Company (1) (2) (3) | Footnotes | Investment | Spread
Above Reference Rate (4) | Interest
Rate (4) (5) | Maturity Date | Principal
/ Par Amount / Shares (6) | Amortized Cost (7) (8) | Fair Value | % of Net Assets | |||||||||||||||||
| PSI Services LLC (Revolver) | (9)(11) | % | ||||||||||||||||||||||||
| PSI Services LLC (Delayed Draw) | (11) | % | ||||||||||||||||||||||||
| PSI Services LLC (Delayed Draw) | (11) | % | ||||||||||||||||||||||||
| PSI Services LLC | (11) | % | ||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| Total Services: Business | % | |||||||||||||||||||||||||
| Total Debt Investments | $ | $ | % | |||||||||||||||||||||||
| Equity investments - 2.0% | ||||||||||||||||||||||||||
| Energy: Oil & Gas | ||||||||||||||||||||||||||
| Permian Production Partners | (11) | N/A | N/A | % | ||||||||||||||||||||||
| Total Energy: Oil & Gas | % | |||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Save-a-Lot | — | N/A | N/A | % | ||||||||||||||||||||||
| Total Retail | % | |||||||||||||||||||||||||
| Service: Business | ||||||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES A | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES B-1 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES B-2 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES C-1 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| YAK BLOCKER 2 LLC SERIES C-2 | (11) | N/A | N/A | % | ||||||||||||||||||||||
| Total Service: Business | % | |||||||||||||||||||||||||
| Total Equity Investments | $ | $ | % | |||||||||||||||||||||||
| Total Investments - 86.0% | $ | $ | % | |||||||||||||||||||||||
| (1) |
| (2) |
| 11 |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
| (3) |
| (4) |
| (5) |
| (6) |
| (7) |
| (8) |
| (9) |
| (10) |
| Coupon Rate | PIK Component | Cash Component | PIK Option | |
| Accuride Corporation | ||||
| Galls LLC | ||||
| Galls LLC (Delayed Draw B) | ||||
| Permian Production Partners | ||||
| Polyvision Corp. | ||||
| Polyvision Corp. | ||||
| Polyvision Corp. (Delayed Draw) | ||||
| Polyvision Corp. (Revolver) | ||||
| Save-A-Lot |
| (11) |
| (12) |
See Unaudited Notes to Consolidated Financial Statements.
| 12 |
GUGGENHEIM CREDIT INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share data, percentages and as otherwise indicated;
for example, with the word “million” or otherwise)
Note 1. Principal Business and Organization
Guggenheim Credit Income Fund (the “Master Fund”) was formed as a Delaware statutory trust on September 5, 2014. The Master Fund’s investment objectives are to provide its shareholders with current income, capital preservation and, to a lesser extent, long-term capital appreciation by investing primarily in privately-negotiated loans to private middle market United States (U.S.) companies. On April 1, 2015, the Master Fund elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Master Fund commenced investment operations on April 2, 2015. The Master Fund serves as the master fund in a master fund/feeder fund structure. The Master Fund issues its shares (“Shares” or “Common Shares”) to one or more affiliated feeder funds in a continuous series of private placement transactions.
In accordance with the offering documents and the intention of Guggenheim Credit Income Fund 2016 T (“GCIF 2016T”) and Guggenheim Credit Income Fund 2019 (“GCIF 2019”) (together, the “Feeder Funds”) to provide substantial shareholder liquidity, the Boards of Trustees of the Master Fund and the Feeder Funds approved respective Plans of Liquidation for each company on March 30, 2021 (each, a “Liquidation Plan”). In accordance with the Liquidation Plans, the Board has declared multiple liquidating distributions. These distributions have been substantially composed of return of capital and have decreased the net asset value of the Master Fund and Feeder Funds. As such, the value on shareholder’s investment statements has decreased as liquidating distributions have been paid.
In accordance with the Liquidation Plan, the Master Fund and the Feeder Funds will remain registered as a BDC and intend to maintain their qualifications, as regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
Guggenheim Partners Investment Management, LLC (“Guggenheim” or the “Advisor”) is responsible for sourcing potential investments, analyzing and conducting due diligence on prospective investment opportunities, structuring investments and ongoing monitoring of the Master Fund’s investment portfolio.
On September 30, 2022, Hamilton Finance LLC (“Hamilton”), a previous, wholly-owned, special purpose financing subsidiary of the Master Fund was dissolved.
Note 2. Significant Accounting Policies
Basis of Presentation
Management has determined that the Master Fund meets the definition of an investment company and adheres to the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC 946”).
The Master Fund’s interim consolidated financial statements have been prepared pursuant to the requirements for reporting on Form 10-Q and the disclosure requirements as stipulated in Articles 6 and 10 of Regulation S-X, and therefore do not necessarily include all information and notes necessary for a fair statement of financial position and results of operations in accordance with accounting principles generally accepted in the U.S. (“GAAP”). In the opinion of management, the unaudited consolidated financial information for the interim period presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position and results from operations. Operating results for interim periods are not necessarily indicative of operating results for an entire year.
Principles of Consolidation
As provided under ASC 946, the Master Fund will generally not consolidate its investment in a company other than an investment in an investment company or an operating company whose business consists of providing substantially all of its services to the benefit of the Master Fund. Accordingly, the Master Fund consolidated the results of its wholly-owned subsidiary in its consolidated financial statements. All intercompany balances and transactions have been eliminated.
| 13 |
Notes to Consolidated Financial Statements (UNAUDITED)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the reported amounts of income and expenses during the reported period and (iii) disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ materially from those estimates under different assumptions and conditions.
Cash and Cash Equivalents
Cash consists of demand deposits held at a major U.S. financial institution and the amount recorded on the consolidated statements of assets and liabilities exceeds the Federal Deposit Insurance Corporation insured limit. Management believes the credit risk related to its demand deposits is minimal.
Cash equivalents include short-term,
highly liquid instruments with an original maturity of three months or less. As of March 31, 2024, the Master Fund’s cash equivalents
of $
Valuation of Investments
The Master Fund measures the value of its investments in accordance with ASC Topic 820 — Fair Value Measurement (“ASC 820”), issued by the FASB. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable and willing and able to transact. In accordance with ASC 820, the Master Fund considers its principal market to be the market that has the greatest volume and level of activity.
ASC 820 defines hierarchical levels directly related to the amount of subjectivity associated with the inputs used to determine fair values of assets and liabilities. The hierarchical levels and types of inputs used to measure fair value for each level are described as follows:
Level 1 - Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities and debt securities, publicly listed derivatives, money market/short-term investment funds and foreign currency are generally included in Level 1. The Master Fund does not adjust the quoted price for these investments.
Level 2 - Valuation inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from orderly transactions for similar investments in active markets between market participants and provided by reputable dealers or independent pricing services. In determining the value of a particular investment, independent pricing services may use certain information with respect to transactions in such investments, quotations from multiple dealers or brokers, pricing matrices, market transactions in comparable investments and various relationships between investments. Investments generally included in this category are corporate bonds and loans.
Level 3 - Valuation inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments generally included in this category are illiquid corporate bonds and loans and preferred stock investments that lack observable market pricing.
In certain cases, the inputs used to measure fair value may fall within different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Depending on the relative liquidity in the markets for certain investments, the Master Fund may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are severely limited, or not available, or otherwise not reliable. The Master Fund’s assessment of the significance of a particular input to the fair value measurement requires judgment, and the consideration of factors specific to the investment.
| 14 |
Notes to Consolidated Financial Statements (UNAUDITED)
Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to the Master Fund’s portfolio investments for which market quotations are not readily available, the Master Fund’s board of trustees (“Board of Trustees”), including our trustees who are not “interested persons” as defined in the 1940 Act (the “Independent Trustees”), is responsible for determining in good faith the fair value of the Master Fund’s portfolio investments in accordance with the valuation policy and procedures approved by the Board of Trustees. Pursuant to Rule 2a-5 under the 1940 Act (“Rule 2a-5”), the Board of Trustees has designated the Advisor as the valuation designee to perform fair valuation determinations for the Master Fund with respect to all Fund investments and/or other assets. The Advisor conducts a fair value determination process on a quarterly basis and any other time when a decision regarding the fair value of the portfolio investments is required.
The U.S. Securities and Exchange Commission (the “SEC”) adopted Rule 2a-5 which establishes requirements for determining fair value in good faith and became effective September 8, 2022. Rule 2a-5 also defines when “readily available market quotations” for purposes of the 1940 Act and establishes requirements for determining whether a fund must fair value a security in good faith.
The valuation techniques used by the Master Fund for the assets that are classified as Level 3 in the fair value hierarchy are described below.
Senior Debt and Subordinated Debt: Senior debt and subordinated debt investments are valued at initial transaction price and are subsequently valued using (i) market data for similar instruments (e.g., recent transactions or indicative broker quotes), and/or (ii) valuation models. Valuation models may be based on investment yield analysis and discounted cash flow techniques, where the key inputs include risk-adjusted discount rates and required rates of return, based on the analysis of similar debt investments issued by similar issuers.
Equity/Other Investments: Equity/other investments are valued at initial transaction price and are subsequently valued using valuation models in the absence of readily observable market prices. Valuation models are generally based on (i) market and income (discounted cash flow) approaches, in which various internal and external factors are considered, and (ii) earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples analysis. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach include the weighted average cost of capital and investment terminal values derived from EBITDA multiples. An illiquidity discount may be applied where appropriate.
The Master Fund utilizes several valuation techniques that use unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. The valuation techniques, as well as the key unobservable inputs that have a significant impact on the Master Fund’s investments classified and valued as Level 3 in the valuation hierarchy, are described in Note 5. Fair Value of Financial Instruments. The unobservable inputs and assumptions may differ by asset and in the application of the Master Fund’s valuation methodologies. The reported fair value estimates could vary materially if the Master Fund had chosen to incorporate different unobservable pricing inputs and assumptions.
The determination of fair value involves subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of investments may differ materially from the values that would have been determined had a readily available market value existed for such investments. Further, such investments are generally less liquid than publicly traded securities. If the Master Fund was required to liquidate a portfolio investment that does not have a readily available market value in a forced or liquidation sale, the Master Fund could realize significantly less value than the value recorded by the Master Fund.
| 15 |
Notes to Consolidated Financial Statements (UNAUDITED)
Security Transactions and Realized/Unrealized Gains or Losses
Investments purchased on a secondary market basis are recorded on the trade date. Loan originations are recorded on the funding date. All investments sold are derecognized on the trade date. The Master Fund measures realized gains or losses from the repayment or sale of investments using the specific lot identification method. Realized gains or losses are measured by the difference between (i) the net proceeds from the repayment or sale, inclusive of any prepayment premiums and (ii) the amortized cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized and include investments charged off during the period, net of recoveries. Unrealized appreciation or depreciation primarily measures the change in investment values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. The amortized cost basis of investments includes (i) the original cost, net of original issue discount and loan origination fees, if any, and (ii) adjustments for the accretion/amortization of market discounts and premiums. The Master Fund reports changes in fair value of investments as net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.
Interest Income
Interest income is recorded on an accrual basis and includes amortization of premiums to par value and accretion of discounts to par value. Discounts and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method, or straight-line method, as applicable. Loan origination, closing and other fees received by the Master Fund directly or indirectly from borrowers in connection with the closing of investments are accreted over the contractual life of the debt investment as interest income based on the effective interest method.
Certain of the Master Fund’s investments in debt securities may contain a contractual payment-in-kind (“PIK”) interest provision. The PIK provisions generally feature the obligation, or the option, at each interest payment date of making interest payments in (i) cash, (ii) additional securities or (iii) a combination of cash and additional securities. PIK interest, computed at the contractual rate specified in the investment’s credit agreement, is accrued as interest income and recorded as interest receivable up to the interest payment date. On the interest payment date, the Master Fund will capitalize the accrued interest receivable attributable to PIK as additional principal due from the borrower. When additional PIK securities are received on the interest payment date, they typically have the same terms, including maturity dates and interest rates, as the original securities issued. PIK interest generally becomes due on the investment’s maturity date or call date.
If the portfolio company’s valuation indicates the value of the PIK security is not sufficient to cover the contractual PIK interest, the Master Fund will not accrue additional PIK interest income and will record an allowance for any accrued PIK interest receivable as a reduction of interest income in the period the Master Fund determines it is not collectible.
Debt securities are placed on non-accrual status when principal or interest payments are at least 90 days past due or when there is reasonable doubt that principal or interest will be collected. Generally, accrued interest is reversed against interest income when a debt security is placed on non-accrual status. Interest payments received on debt securities on non-accrual status may be recognized as interest income or applied to principal based on management’s judgment. Debt securities on non-accrual status are restored to accrual status when past due principal and interest are paid, and, in management’s judgment, such securities are likely to remain current on interest payment obligations. The Master Fund may make exceptions to this treatment if the debt security has sufficient collateral value and is in the process of collection.
Dividend Income
Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) equity investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Master Fund will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
| 16 |
Notes to Consolidated Financial Statements (UNAUDITED)
Fee Income
Guggenheim, or its affiliates, may provide financial advisory services to portfolio companies and in return may receive fees for capital structuring services. Guggenheim is obligated to remit to the Master Fund any earned capital structuring fees based on the pro rata portion of the Master Fund’s investment in originated co-investment transactions. These fees are generally non-recurring and are recognized as fee income by the Master Fund upon the earlier of the investment commitment date or investment closing date. The Master Fund may also receive fees for investment commitments, amendments to credit agreements and other services rendered to portfolio companies. Such fees are recognized as fee income when earned or when the services are rendered.
Derivative Instruments
Derivative instruments solely consist of foreign currency forward contracts. The Master Fund recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements. Foreign currency forward contracts entered into by the Master Fund are not designated as hedging instruments, and as a result, the Master Fund presents changes in fair value through net change in unrealized appreciation (depreciation) on foreign currency forward contracts in the consolidated statements of operations. Realized gains and losses that occur upon the cash settlement of the foreign currency forward contracts are included in net realized gains (losses) on foreign currency forward contracts on the consolidated statements of operations.
Foreign Currency Translation, Transactions and Gains (Losses)
Foreign currency amounts are translated into U.S. dollars on the following basis: (i) at the exchange rate on the last business day of the reporting period for the fair value of investment securities, other assets and liabilities; and (ii) at the prevailing exchange rate on the respective recording dates for the purchase and sale of investment securities, income, expenses, gains and losses.
Net assets and fair values are presented based on the applicable foreign exchange rates described above and the Master Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held; therefore, fluctuations related to foreign exchange rate conversions are included with the net realized gains (losses) and unrealized appreciation (depreciation) on investments.
Net realized gains or losses on foreign currency transactions arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded by the Master Fund and the U.S. dollar equivalent of the amounts actually received or paid by the Master Fund.
Unrealized appreciation (depreciation) from foreign currency translation for foreign currency forward contracts is included in net change in unrealized appreciation (depreciation) on foreign currency forward contracts in the consolidated statements of operations and is included in accumulated earnings (loss), net of distributions on the consolidated statements of assets and liabilities.
Investment Advisory Fees
The Master Fund incurs investment advisory fees including: (i) a base management fee and (ii) a performance-based incentive fee which includes (a) an incentive fee on income and (b) an incentive fee on capital gains, due to Guggenheim pursuant to an investment advisory agreement between the Master Fund and Guggenheim (the “Investment Advisory Agreement”) as described in Note 6. Related Party Agreements and Transactions. The two components of the performance-based incentive fee will be combined and expensed in the consolidated statements of operations and accrued in the consolidated statements of assets and liabilities as accrued performance-based incentive fee. Pursuant to the terms of the Investment Advisory Agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement) based on the Master Fund’s realized capital gains on a cumulative basis from inception, net of all realized capital losses and unrealized depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. Although the terms of the Investment Advisory Agreement do not provide for the inclusion of unrealized gains in the calculation of the incentive fee on capital gains, the Master Fund includes unrealized gains in the calculation of the incentive fee on capital gains in accordance with GAAP. Therefore the accrued amount, if any, represents an estimate of the incentive fees that may be payable to Guggenheim if the Master Fund’s entire investment portfolio was liquidated at its fair value as of the date of the consolidated statements of assets and liabilities, even though Guggenheim is not entitled to any incentive fee based on unrealized appreciation unless and until such unrealized appreciation is realized.
| 17 |
Notes to Consolidated Financial Statements (UNAUDITED)
Deferred Financing Costs
Deferred financing costs represent fees and other direct incremental costs incurred in connection with the arrangement of the Master Fund’s borrowings. These costs are presented in the consolidated statements of assets and liabilities as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense on the consolidated statements of operations over the life of the borrowings.
Distributions
Distributions to the Master Fund’s common shareholders are periodically declared by its Board of Trustees and recognized as a liability on the record date.
Federal Income Taxes
Beginning with its tax year ended December 31, 2015, the Master Fund has elected to be treated for federal income tax purposes, and thereafter intends to maintain its qualification, as a RIC under the Code. Generally, a RIC is not subject to federal income taxes on distributed income and gains if it distributes dividends in a timely manner out of assets legally available for distributions to its shareholders of an amount generally at least equal to 90% of its “Investment Company Taxable Income,” as defined in the Code. The Master Fund intends to distribute sufficient dividends to maintain its RIC status each year and it does not anticipate paying a material level of federal income taxes.
The Master Fund is generally subject
to nondeductible federal excise taxes if it does not distribute dividends to its shareholders in respect of each calendar year of an amount
at least equal to the sum of (i)
The Master Fund follows ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Penalties or interest, if applicable, that may be assessed relating to income taxes would be classified as other expenses in the statements of operations. Management has reviewed all open tax years and concluded that there is no effect to the Master Funds’ financial positions or results of operations and no tax liability was required to be recorded resulting from unrecognized tax benefits relating to uncertain income tax position taken or expected to be taken on a tax return. During this period, the Master Fund did not incur any material interest or penalties. Open tax years are those years that are open for examination by the relevant income taxing authority. As of March 31, 2024, open U.S. Federal and state income tax years include the tax years ended December 31, 2020 through December 31, 2023. The Master Fund has no examinations in progress. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
Note 3. Investments
The following table presents the composition of the investment portfolio at amortized cost and fair value as of March 31, 2024 and December 31, 2023, respectively, with corresponding percentages of total investments at fair value:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Amortized Cost | Fair Value | Percentage of Investments at Fair Value | Amortized Cost | Fair Value | Percentage of Investments at Fair Value | |||||||||||||||||||
| Senior secured loans - first lien | $ | $ | % | $ | $ | % | ||||||||||||||||||
| Senior secured bonds | ||||||||||||||||||||||||
| Total senior debt | $ | $ | % | $ | $ | % | ||||||||||||||||||
| Equity and other | ||||||||||||||||||||||||
| Total investments | $ | $ | % | $ | $ | % | ||||||||||||||||||
| 18 |
Notes to Consolidated Financial Statements (UNAUDITED)
The following table presents the composition of the investment portfolio by industry classifications at amortized cost and fair value as of March 31, 2024 and December 31, 2023, respectively, with corresponding percentages of total investments at fair value:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Industry Classification | Amortized Cost | Fair Value | Percentage of Investments at Fair Value | Amortized Cost | Fair Value | Percentage of Investments at Fair Value | ||||||||||||||||||
| Services: Business | $ | $ | % | $ | $ | % | ||||||||||||||||||
| Consumer Goods: Non-Durable | ||||||||||||||||||||||||
| Metals & Mining | ||||||||||||||||||||||||
| Automotive | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Chemicals, Plastics & Rubber | ||||||||||||||||||||||||
| Energy: Oil & Gas | ||||||||||||||||||||||||
| Total investments | $ | $ | % | $ | $ | % | ||||||||||||||||||
The following table presents the geographic dispersion of the investment portfolio as a percentage of total investments at fair value as of March 31, 2024 and December 31, 2023:
| Geographic Dispersion | March 31, 2024 | December 31, 2023 | ||||||
| United States of America | % | % | ||||||
| Total investments | % | % | ||||||
Note 4. Derivative Instruments
The Master Fund may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Master Fund’s investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract forward exchange rate and the forward market exchange rate on the last day of the period presented as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks arise as a result of the potential inability of the counterparties to meet the terms of their contracts; the Master Fund attempts to limit counterparty risk by only dealing with well-known counterparties and those that it believes have the financial resources to honor their obligations. As of March 31, 2024 and December 31, 2023, there are no open foreign currency forward contracts.
The following table presents the net realized and unrealized gains and losses on derivative instruments recorded by the Master Fund for the three months ended March 31, 2024 and March 31, 2023 :
| For the Three Months Ended March 31, | ||||||||||
| Statement Location | 2024 | 2023 | ||||||||
| Net realized gains (losses) | ||||||||||
| Foreign currency forward contracts | Net realized gains on foreign currency forward contracts | $ | $ | |||||||
| Net change in unrealized appreciation (depreciation) | ||||||||||
| Foreign currency forward contracts | Net change in unrealized (depreciation) on foreign currency forward contracts | ( | ) | |||||||
| Net realized and unrealized gains on foreign currency forward contracts | $ | $ | ||||||||
| 19 |
Notes to Consolidated Financial Statements (UNAUDITED)
For derivatives traded under an International Swaps and Derivatives Association Master Agreement (“ISDA Master Agreement”), the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Master Fund and/or the counterparty. Cash collateral that has been pledged, if any, to cover obligations of the Master Fund and cash collateral received from the counterparty, if any, is reported on the consolidated statements of assets and liabilities as collateral deposits (received) for foreign currency forward contracts. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold before a transfer is required. To the extent amounts due to the Master Fund from a counterparty are not fully collateralized, the Master Fund bears the risk of loss from counterparty non-performance.
Note 5. Fair Value of Financial Instruments
The following tables present the segmentation of the investment portfolio at fair value, as of March 31, 2024 and December 31, 2023, according to the fair value hierarchy as described in Note 2. Significant Accounting Policies:
| March 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Investments | ||||||||||||||||
| Senior secured loans - first lien | $ | $ | $ | $ | ||||||||||||
| Senior secured loans - second lien | ||||||||||||||||
| Senior secured bonds | ||||||||||||||||
| Total senior debt | $ | $ | $ | $ | ||||||||||||
| Equity and other | ||||||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
| Percentage | % | % | % | % | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Investments | ||||||||||||||||
| Senior secured loans - first lien | $ | $ | $ | $ | ||||||||||||
| Senior secured loans - second lien | ||||||||||||||||
| Senior secured bonds | ||||||||||||||||
| Total senior debt | $ | $ | $ | $ | ||||||||||||
| Equity and other | ||||||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
| Percentage | % | % | % | % | ||||||||||||
| 20 |
Notes to Consolidated Financial Statements (UNAUDITED)
Significant Level 3 Unobservable Inputs
The following tables present quantitative information related to the significant Level 3 unobservable inputs associated with the determination of fair value for certain investments as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | ||||||||||||||
| Asset Category | Fair Value | Valuation Techniques (1) | Unobservable Inputs (2) | Weighted Average Input Value | Range (3) | Impact to Valuation from an Increase in Input (4) | ||||||||
| Senior Secured Loans - First Lien | $ | |||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| Equity/Other | $ | 4.6x | 4.6x | |||||||||||
| $ | 4.8x - 5.5x | |||||||||||||
| 26333x | 26333x | |||||||||||||
| 9.9x | 9.9x | |||||||||||||
| $ | ||||||||||||||
| Total | $ | |||||||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
| December 31, 2023 | ||||||||||||||
| Asset Category | Fair Value | Valuation Techniques (1) | Unobservable Inputs (2) | Weighted Average Input Value | Range (3) | Impact to Valuation from an Increase in Input (4) | ||||||||
| Senior Secured Loans - First Lien | $ | |||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| Equity/Other | $ | 4.6x | 4.6x | |||||||||||
| $ | 5.15x | 4.8x - 5.5x | ||||||||||||
| 26333x | 26333x | |||||||||||||
| 9.9x | 9.9x | |||||||||||||
| $ | ||||||||||||||
| Total | $ | |||||||||||||
| 21 |
Notes to Consolidated Financial Statements (UNAUDITED)
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
In addition to the Level 3 valuation methodologies and unobservable inputs noted above, the Master Fund, in accordance with its valuation policy, may also use other valuation techniques and methodologies when determining the fair value estimates for its investments.
The following tables present a roll-forward of the fair value changes for all investments for which the Master Fund determines fair value using Level 3 unobservable inputs for the three months ended March 31, 2024 and March 31, 2023:
| For the Three Months Ended March 31, 2024 | ||||||||||||||||||||
| Senior Secured Loans - First Lien | Senior Secured Loans - Second Lien | Senior Secured Bonds | Equity and Other | Total | ||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| Additions (1) | ||||||||||||||||||||
| Sales and repayments (2) | ( | ) | ( | ) | ||||||||||||||||
| Net realized gains (3) | ||||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments (4) | ( | ) | ||||||||||||||||||
| Net discount accretion | ( | ) | ( | ) | ||||||||||||||||
| Restructuring | ||||||||||||||||||||
| Transfers into Level 3 (5) | ||||||||||||||||||||
| Transfers out of Level 3 (6) | ||||||||||||||||||||
| Fair value balance as of March 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| Change in net unrealized appreciation (depreciation) on investments held as of March 31, 2024 | $ | ( | ) | $ | $ | $ | $ | |||||||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
| 22 |
Notes to Consolidated Financial Statements (UNAUDITED)
| For the Three Months Ended March 31, 2023 | ||||||||||||||||||||
| Senior Secured Loans - First Lien | Senior Secured Loans - Second Lien | Senior Secured Bonds | Equity and Other | Total | ||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| Additions (1) | ||||||||||||||||||||
| Sales and repayments (2) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net realized gains (losses) (3) | ||||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments (4) | ( | ) | ( | ) | ||||||||||||||||
| Net discount accretion | ||||||||||||||||||||
| Transfers into Level 3 (5) | ||||||||||||||||||||
| Transfers out of Level 3 (6) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Fair value balance as of March 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| Change in net unrealized appreciation (depreciation) on investments held as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
Note 6. Related Party Agreements and Transactions
The Master Fund is affiliated with Guggenheim Credit Income Fund 2016 T (“GCIF 2016T”) and Guggenheim Credit Income Fund 2019 (“GCIF 2019”) (together, the “Feeder Funds”). The membership of the Boards of Trustees for the Master Fund, GCIF 2016T and GCIF 2019 are identical. The Feeder Funds have invested, and/or intend to invest, substantially all of the proceeds from their public offerings of common shares in the acquisition of the Master Fund’s Common Shares.
One of the Master Fund’s executive officers, Brian Binder, Senior Vice President, serves as an executive officer of Guggenheim. All of the Master Fund’s executive officers also serve as executive officers of the Feeder Funds.
Guggenheim and/or its affiliates receive, as applicable, compensation for (i) investment advisory services, (ii) reimbursement of expenses in connection with investment advisory activities, administrative services and organizing the Master Fund and (iii) capital markets services in connection with the raising of equity capital for Feeder Funds affiliated with the Master Fund, as more fully discussed below.
Investment Advisory Agreements and Compensation of the Advisor
The Master Fund is party to an Investment Advisory Agreement with Guggenheim, pursuant to which the Master Fund agreed to pay Guggenheim an investment advisory fee consisting of two components: (i) a management fee and (ii) a performance-based incentive fee. Guggenheim continues to be entitled to reimbursement of certain expenses incurred on behalf of the Master Fund in connection with investment operations and investment transactions.
Management Fees: The management
fee is calculated at an annual rate of
Performance-based Incentive Fee: The performance-based incentive fee consists of two parts: (i) an incentive fee on income and (ii) an incentive fee on capital gains.
| 23 |
Notes to Consolidated Financial Statements (UNAUDITED)
| (i) | The incentive fee on income is paid quarterly, if earned; it is computed as the sum of (A) |
| (ii) | The incentive fee on capital gains is paid annually, if earned; it is equal to 20% of realized capital gains on a cumulative basis from inception, net of (A) all realized capital losses and unrealized depreciation on a cumulative basis from inception, and (B) the aggregate amount, if any, of previously paid incentive fees on capital gains. |
All fees are computed in accordance with a detailed fee calculation methodology as approved by the Board of Trustees.
The Investment Advisory Agreement may be terminated at any time, without the payment of any penalty: (i) by the Master Fund upon 60 days’ written notice to Guggenheim, or (ii) by Guggenheim upon not less than 120 days’ written notice to the Master Fund. In the event that the Investment Advisory Agreement is terminated by Guggenheim, and if the Independent Trustees elect to continue the Master Fund, then Guggenheim shall pay all direct expenses incurred by the Master Fund as a result of Guggenheim’s withdrawal, up to, but not exceeding $250,000. Unless earlier terminated, the Investment Advisory Agreement will remain in effect for a period of two years from the date on which the Master Fund’s shareholders approved the Investment Advisory Agreement and will remain in effect year to year thereafter if approved annually (i) by a majority of the Master Fund’s Independent Trustees and (ii) the Master Fund’s Board of Trustees or the holders of a majority of the Master Fund’s outstanding voting securities.
Administrative Services Agreement
The Master Fund entered into an administrative services agreement with Guggenheim (the “Administrative Services Agreement”) whereby Guggenheim agreed to provide administrative services to the Master Fund, including office facilities and equipment, and clerical, bookkeeping and record-keeping services. More specifically, Guggenheim, serving as the administrator (the “Administrator”), performs and oversees the Master Fund’s required administrative services, which included financial and corporate record-keeping, preparing and disseminating the Master Fund’s reports to its shareholders and filing reports with the SEC. In addition, the Administrator assists in determining net asset value, overseeing the preparation and filing of tax returns, overseeing the payment of expenses and distributions and overseeing the performance of administrative and professional services fees rendered by others. For providing these services, facilities and personnel, the Master Fund reimburses the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administrative Services Agreement. To the extent that the Administrator outsources any of its functions, the Master Fund may pay the fees associated with such functions on a direct basis, without incremental profit to the Administrator.
The Administrative Services Agreement may be terminated at any time, without the payment of any penalty: (i) by the Master Fund upon 60 days’ written notice to the Administrator upon the vote of the Master Fund’s Independent Trustees, or (ii) by the Administrator upon not less than 120 days’ written notice to the Master Fund. Unless earlier terminated, the Administrative Services Agreement will remain in effect for two years, and thereafter shall continue automatically for successive one-year periods if approved annually by a majority of the Board of Trustees and the Master Fund’s Independent Trustees.
Dealer Manager Agreement
The Master fund is party to a dealer manager agreement, as amended (the “Dealer Manager Agreement”) with Guggenheim Funds Distributors, LLC (“GFD”) an affiliate of Guggenheim. Under the terms of the Dealer Manager Agreement, GFD is to act on a best efforts basis as the exclusive dealer manager for (i) GCIF 2016T’s and GCIF 2019’s public offerings of common shares and (ii) the public offering of common shares for future feeder funds affiliated with the Master Fund. The Master Fund is not responsible for the compensation of GFD pursuant to the terms of the Dealer Manager Agreement; therefore, fees compensating GFD are not presented in this periodic report. As to a Feeder Fund, the Deal Manager Agreement may be terminated by a Feeder Fund or GFD upon 60 calendar days’ written notice to the other party.
Capital Structuring Fees and Administrative Agency Fees
Guggenheim and its affiliates are obligated to remit to the Master Fund any earned capital structuring fees and administrative agency fees (i.e. loan administration fees) based on the Master Fund’s pro rata portion of the co-investment transactions or originated investments in which the Master Fund participates.
| 24 |
Notes to Consolidated Financial Statements (UNAUDITED)
Summary of Related Party Transactions
The following table presents the related party fees, expenses and transactions for the three months ended March 31, 2024 and March 31, 2023:
| For the Three Months Ended March 31, | ||||||||||
| Related Party (1) (2) | Source Agreement & Description | 2024 | 2023 | |||||||
| Expenses: | ||||||||||
| Guggenheim | Investment Advisory Agreement - management fee | $ | $ | |||||||
| Guggenheim | Administrative Services Agreement - expense reimbursement | |||||||||
| Income: | ||||||||||
| Guggenheim | Share on capital structuring fees and administrative agency fees | |||||||||
| (1) |
| (2) |
Co-Investment Transactions Exemptive Relief
The Master Fund was granted an SEC exemptive order which grants the Master Fund exemptive relief permitting the Master Fund, subject to the satisfaction of specific conditions and requirements, to co-invest in privately negotiated investment transactions with certain affiliates of Guggenheim.
Indemnification
The Investment Advisory Agreement and Administrative Services Agreement provide certain indemnifications to Guggenheim, its directors, officers, persons associated with Guggenheim and its affiliates, including the administrator. In addition, the Master Fund’s Declaration of Trust, as amended, provides certain indemnifications to its officers, trustees, agents and certain other persons. As of March 31, 2024 and December 31, 2023, management believes that the risk of incurring any losses for such indemnifications is remote.
Note 7. Borrowings
Hamilton Credit Facility
On December 17, 2015, Hamilton initially entered into a senior-secured term loan, as amended (the “Hamilton Credit Facility”) with JPMorgan Chase Bank, National Association (“JPM”), as administrative agent, each of the lenders from time to time party thereto, and U.S. Bank National Association, as collateral agent, collateral administrator and securities intermediary.
| 25 |
Notes to Consolidated Financial Statements (UNAUDITED)
On November 29, 2021, Hamilton repaid in full all outstanding amounts due in connection with, and terminated all commitments under, the Hamilton Credit Facility. On September 30, 2022, Hamilton was dissolved.
Note 8. Commitments and Contingencies
The amounts associated with unfunded commitments to provide funds to portfolio companies are not recorded in the Master Fund’s consolidated statements of assets and liabilities. Since these commitments and the associated amounts may expire without being drawn upon, the total commitment amount does not necessarily represent a future cash requirement. As of March 31, 2024 and December 31, 2023, the Master Fund’s unfunded commitments consisted of the following:
| Total Unfunded Commitments | ||||||||
| Category / Portfolio Company (1) | March 31, 2024 | December 31, 2023 | ||||||
| Galls LLC (Revolver) | ||||||||
| PSI Services LLC (Revolver) | (2) | |||||||
| Total Unfunded Commitments | $ | $ | ||||||
| (1) |
| (2) |
Note 9. Financial Highlights
The following per Common Share data and financial ratios have been derived from information provided in the consolidated financial statements. The following is a schedule of financial highlights during the three months ended March 31, 2024 and March 31, 2023:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| PER COMMON SHARE OPERATING PERFORMANCE | ||||||||
| Net asset value, beginning of period | $ | $ | ||||||
| Net investment income (1) | ||||||||
| Net change in unrealized appreciation (2) | ||||||||
| Net increase resulting from operations | ||||||||
| Distributions to Common Shareholders (3) | ||||||||
| Distributions from net investment income | ( | ) | ||||||
| Distributions representing return of capital | ( | ) | ||||||
| Net decrease resulting from distributions | ( | ) | ||||||
| Net asset value, end of period | $ | $ | ||||||
| INVESTMENT RETURNS | ||||||||
| Total investment return (4) | % | % | ||||||
| RATIOS/SUPPLEMENTAL DATA | ||||||||
| Net assets, end of period | $ | $ | ||||||
| Average net assets (5) | $ | $ | ||||||
| Common Shares outstanding, end of period | ||||||||
| Weighted average Common Shares outstanding | ||||||||
| Ratios-to-average net assets: (5) | ||||||||
| Total operating expenses | % | % | ||||||
| Net investment income | % | % | ||||||
| Portfolio turnover rate (5) (6) | % | % | ||||||
| 26 |
Notes to Consolidated Financial Statements (UNAUDITED)
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
Note 10. Distributions
The following table summarizes the distributions that the Master Fund declared on its Common Shares during the three months ended March 31, 2024 and March 31, 2023:
| Record Date | Payment Date | Distribution Per Common Share at Record Date | Distribution Per Common Share at Payment Date | Cash Distribution | ||||||||||
| For Calendar Year 2023 | ||||||||||||||
| $ | $ | $ | ||||||||||||
| $ | $ | |||||||||||||
There were no distributions declared during the three months ended March 31, 2024.
Note 11. Subsequent Events
Management has evaluated subsequent events through the date of issuance of these consolidated financial statements and has determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, or disclosure in, the consolidated financial statements.
| 27 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(amounts in thousands, except share and per share data, percentages and as otherwise indicated; for example, with the word “million” or otherwise)
The information contained in this Item 7 should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this Report. Capitalized terms used in this Item 7 have the same meaning as in the accompanying consolidated financial statements presented in Part I. Item 1. Consolidated Financial Statements (Unaudited), unless otherwise defined herein.
Overview
We are a specialty finance investment company focused on lending to middle market companies. We were formed on September 5, 2014 as a statutory trust under the laws of the State of Delaware and commenced investment operations on April 2, 2015. In addition, we have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We are externally managed by Guggenheim, which is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments, determining the securities and other assets that we will purchase, retain or sell, and monitoring our portfolio on an ongoing basis.
We serve as the master fund in a master/feeder fund structure in that one or more feeder funds (each, a “Feeder Fund”), each a separate closed-end management investment company that has adopted our investment objectives and strategies, invests substantially all of its equity capital in our common shares (“Shares” or “Common Shares”). Presently, our shareholders are the two initial shareholders and two Feeder Funds.
We conduct private offerings (each a “Private Offering”) of our Shares to the Feeder Funds in reliance on exemptions from the registration requirements of the Securities Act. While we expect to continuously offer our Shares and have an indefinite life, each Feeder Fund features a specific period for the offering of its Common Shares, and each Feeder Fund has a specified finite term.
Beginning with the taxable year ended December 31, 2015, we have elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
Plan of Liquidation
In accordance with the offering documents and the intention of Guggenheim Credit Income Fund 2016 T (“GCIF 2016T”) and Guggenheim Credit Income Fund 2019 (“GCIF 2019”) (together, the “Feeder Funds”) to provide substantial shareholder liquidity, the Boards of Trustees of the Master Fund and the Feeder Funds approved respective Plans of Liquidation for each company on March 30, 2021 (each, a “Liquidation Plan”). In accordance with the Liquidation Plans, the Board has declared multiple liquidating distributions which are outlined in the table below. These distributions have been substantially composed of return of capital and have decreased the net asset value of the Master Fund and Feeder Funds. As such, the value on shareholder’s investment statements has decreased as liquidating distributions have been paid.
For the Master Fund, as of May 10, 2024, over 95% of the NAV has been declared to be paid to shareholders in the form of liquidating distributions.
The table below is intended to highlight some relevant metrics associated with the Plans of Liquidation ($ in thousands).
| Noted Information | GCIF (Master Fund) | GCIF 2016 T | GCIF 2019 | |||||||||
| Cumulative Liquidating Distributions declared per share through May 10, 2024 | $ | 7.23 | $ | 7.60 | $ | 20.86 | ||||||
| Number of Portfolio Companies at beginning of year | 10 | — | — | |||||||||
| Number of Portfolio Companies at end of period | 9 | — | — | |||||||||
| YTD Portfolio sales and repayments ($ in thousands) | $ | 7,827 | $ | — | $ | — | ||||||
| Percentage of December 31, 2020 NAV Declared through May 10, 2024 | 95.60 | % | 95.20 | % | 92.00 | % | ||||||
| Net Assets at beginning of Year ($ in thousands) | $ | 27,777 | $ | 18,397 | $ | 6,097 | ||||||
| Net Assets at end of Period ($ in thousands) | $ | 28,425 | $ | 18,706 | $ | 6,157 | ||||||
| Net asset value per share at end of period | $ | 1.11 | $ | 1.15 | $ | 3.55 | ||||||
In accordance with the Liquidation Plan, the Master Fund and the Feeder Funds will remain registered as a BDC and intend to maintain their qualifications as RICs under Subchapter M of the Code.
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Investment Objectives and Investment Strategy
Our investment objectives are to provide our shareholders with current income, capital preservation, and, to a lesser extent, long-term capital appreciation. There can be no assurances that any of these investment objectives will be achieved.
Prior to the Board’s approval of the Liquidation Plan, our investment strategy was continuously focused on growing an investment portfolio that generates superior risk adjusted returns by carefully selecting investments through rigorous due diligence and actively managing and monitoring our investment portfolio. When evaluating an investment and the related portfolio company, we use the resources of Guggenheim to develop an investment thesis and a proprietary view of a potential portfolio company’s intrinsic value and its expected risks and rewards.
We primarily focused on the following investment types that may be available within the capital structure of portfolio companies:
| • | Senior Debt. Senior debt investments generally take a security interest in the available assets of the portfolio company, including equity interests in any of its subsidiaries. The senior debt classification includes senior secured first lien loans, senior secured second lien loans, senior secured bonds, and senior unsecured debt. In some circumstances, the secured lien could be subordinated to the claims of other creditors. While there is no specific collateral associated with senior unsecured debt, such positions are senior in payment priority over subordinated debt investments. |
| • | Subordinated Debt. Subordinated debt investments are subordinated to senior debt and are generally unsecured. These investments are generally structured with interest-only payments throughout the life of the security with the principal due at maturity. |
| • | Equity Investments. Preferred and/or common equity investments may be acquired alongside senior and subordinated debt investment activities or through the exercising of warrants or options attached to debt investments. Income is generated primarily through regular or inconstant dividends and realized gains on dispositions of such investments. |
We intend to meet our investment objectives by investing primarily in large, privately-negotiated loans to private middle market U.S. companies. Specifically, we expect a typical borrower to have earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of $25 million to $100 million and annual revenue ranging from $50 million to $1 billion. We seek to invest in businesses that have a strong reason to exist and have demonstrated competitive and strategic advantages. These companies generally possess distinguishing business characteristics, such as a leading competitive position in a well-defined market niche, unique brands, sustainable profitability and cash flow, and experienced management. We anticipate that a majority of our investments will be classified as senior debt in a borrower’s capital structure and have repayment priority over other parts of a borrower’s capital structure (i.e., subordinated debt, preferred and common equity). By investing in a more senior attachment point of a borrower’s capital structure, we expect to protect our principal with less risk, which we believe provides for a distinctive risk/return profile as compared to that of a typical middle market or private equity alternative investment.
In addition to privately-negotiated loans, we invest in more broadly syndicated assets, such as bank loans and corporate bonds. Our portfolio is more heavily weighted towards floating-rate investments, whose interest payment obligations may increase in a rising interest rate environment. We may also invest in fixed-rate investments, options, or other forms of equity participation, and, to a limited extent and not as a principal investment strategy, structured products such as collateralized loan obligations (“CLOs”) and collateralized debt obligations (“CDOs”). We seek to make investments which have favorable characteristics, including closing fees, prepayment premiums, lender-friendly control provisions, and lender-friendly covenants.
Our portfolio may include “covenant-lite” loans which generally refer to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
Our portfolio includes investments in securities that are rated below investment grade (e.g., junk bonds) by rating agencies, or that would be rated below investment grade if they were rated and have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. These investments may also be illiquid and feature variances in opinions of fair value and market prices. A material amount of our debt investments in portfolio companies may contain interest rate reset provisions that may present challenges for the borrowers to continue paying periodic interest to us. In addition, a material amount of our debt investments may not pay down principal until the end of their lifetimes, which could result in a substantial loss to us if the portfolio companies are unable to refinance or repay their debts at maturity.
| 29 |
Our investment strategy leverages the skills and depth of Guggenheim’s research team and credit investment platform which features a relative value perspective across all corporate credit asset types. We believe these elements create a larger, proprietary opportunity set and increase the potential for the generation of a wide spectrum of value-risk investment ideas. We intend for our investment strategy to access investments with attractive combinations of reward and risk, better economics and stronger lender protections than those offered in traditional loan transactions. We also intend to deploy our direct loan origination investment platform and apply it to our portfolio company business relationships.
Our investment activity can and does vary substantially from period to period depending on many factors, including: the demand for capital from creditworthy privately-owned U.S. companies, the level of merger, acquisition and refinancing activity involving private companies, the availability of credit to finance merger and acquisition transactions, the general economic environment, the competitive investment environment for the types of investments we currently seek and intend to seek in the future, the amount of equity capital we raise from the sale of our Shares, and the amount of capital we may borrow.
We acquire our portfolio investments through the following investment access channels:
| • | Direct Originations: This channel consists of investments that are directly originated through Guggenheim’s relationship network. Such investments are originated and/or structured by Guggenheim and are not generally available to the broader investment market. These investments may include both debt and equity investment components. |
| • | Syndicated Transactions: This channel primarily includes investments in broadly syndicated loans and high yield bonds, typically originated and arranged by investment intermediaries other than Guggenheim. These investments may be purchased at the original syndication or in the secondary through various trading markets. |
We may continue to borrow money from time to time within the borrowing limits stipulated by the 1940 Act, which generally allows us to incur leverage of up to 50% of our total assets, less liabilities and indebtedness not represented by senior securities. The use of borrowed funds and/or the proceeds of preferred stock offering to finance investments would have its own specific set of benefits and risks, and all of the costs of borrowing funds or issuing preferred stock are borne by our shareholders.
Revenues
We generate revenues primarily in the form of interest on the debt securities of portfolio companies that we acquire and hold for investment purposes. Our investments in debt securities generally have expected maturities of one to eight years, although we have no lower or upper constraint on maturity, and typically earn interest at floating and fixed interest rates. Interest on our debt securities is generally payable to us quarterly or semi-annually. The outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the respective maturity dates. In addition, we may generate revenue in the form of dividends from preferred and common equity investments, amortization of original issue discount, prepayment fees, commitment fees, origination fees and fees for providing significant managerial assistance.
Operating Expenses
Our primary operating expenses include a management fee and, depending on our operating results, a performance-based incentive fee, interest expense, administrative services, related party reimbursements, custodian and accounting services and other third-party professional services fees and expenses. The management and performance-based incentive fees compensate Guggenheim for its services in identifying, evaluating, negotiating, closing and monitoring our investments.
| 30 |
Financial and Operating Highlights
The following tables present financial and operating highlights (i) as of March 31, 2024 and December 31, 2023 and (ii) for the three months ended March 31, 2024 and March 31, 2023:
| As of | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Total assets | $ | 28,933 | $ | 28,261 | ||||
| Adjusted total assets (total assets net of payable for investments purchased) | $ | 28,933 | $ | 28,261 | ||||
| Investments in portfolio companies, at fair value | $ | 16,741 | $ | 23,926 | ||||
| Net assets | $ | 28,425 | $ | 27,777 | ||||
| Net asset value per Common Share | $ | 1.11 | $ | 1.09 | ||||
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Average net assets | $ | 28,148 | $ | 57,242 | ||||
| Cost of investments purchased | $ | 104 | $ | 4,905 | ||||
| Sales of investments | $ | 8 | $ | 11,123 | ||||
| Principal payments | $ | 7,819 | $ | 267 | ||||
| Net investment income | $ | 176 | $ | 369 | ||||
| Net realized gain | $ | 67 | $ | 1 | ||||
| Net change in unrealized appreciation (depreciation) | $ | 405 | $ | 32 | ||||
| Net increase (decrease) in net assets resulting from operations | $ | 648 | $ | 402 | ||||
| Total distributions to shareholders | $ | — | $ | 17,404 | ||||
| Net investment income per Common Share - basic and diluted | $ | 0.01 | $ | 0.01 | ||||
| Earnings (loss) per Common Share - basic and diluted | $ | 0.03 | $ | 0.02 | ||||
| Distributions per Common Share | $ | — | $ | 0.68 | ||||
Portfolio and Investment Activity for the Three Months Ended March 31, 2024
The following table presents our portfolio company activity for the three months ended March 31, 2024:
| For the Three Months Ended March 31, 2024 | ||||
| Portfolio companies at beginning of period | 10 | |||
| Number of exited portfolio companies | (1 | ) | ||
| Portfolio companies at period end | 9 | |||
| Number of debt investments at period end | 16 | |||
| Number of equity/other investments at period end | 7 | |||
The following table presents a roll-forward of all investment purchase, sale and repayment activity and changes in fair value, within our investment portfolio throughout for the three months ended March 31, 2024:
| Balance as of January 1, 2024 | Purchases | Sales and Repayments | Other Changes in Fair Value (1) | Balance as of March 31, 2024 | ||||||||||||||||
| Senior secured loans - first lien | $ | 23,330 | $ | 104 | $ | (7,819 | ) | $ | (732 | ) | $ | 14,883 | ||||||||
| Senior secured bonds | 21 | — | (8 | ) | 8 | 21 | ||||||||||||||
| Total senior debt | $ | 23,351 | $ | 104 | $ | (7,827 | ) | $ | (724 | ) | $ | 14,904 | ||||||||
| Equity and other | 575 | — | — | 1,262 | 1,837 | |||||||||||||||
| Total | $ | 23,926 | $ | 104 | $ | (7,827 | ) | $ | 538 | $ | 16,741 | |||||||||
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| (1) | Other changes in fair value includes changes resulting from realized and unrealized gains and losses, amortization/accretion, increases from PIK income and restructurings. |
The following table presents selected information regarding our investment portfolio as of March 31, 2024 and December 31, 2023:
| As of | |||||
| March 31, 2024 | December 31, 2023 | ||||
| Weighted average purchase price of debt investments (1) | 82.7 | % | 86.5 | % | |
| Weighted average duration of debt investments (2) | 0.01 | years | 0.03 | years | |
| Debt investments on non-accrual status as a percentage of amortized cost of total debt investments | 7.7 | % | 7.7 | % | |
| Debt investments on non-accrual status as a percentage of fair value of total debt investments | 0.1 | % | 0.1 | % | |
| Number of debt investments on non-accrual status | 1 | 1 | |||
| Floating interest rate debt investments: | |||||
| Percent of debt portfolio (3) | 99.9 | % | 99.9 | % | |
| Percent of floating rate debt investments with interest rate floors (3) | 91.4 | % | 93.9 | % | |
| Weighted average interest rate floor | 1.0 | % | 1.0 | % | |
| Weighted average coupon spread to base interest rate | 551 | bps | 578 | bps | |
| 3-month SOFR | 535 | bps | 536 | bps | |
| Fixed interest rate debt investments: | |||||
| Percent of debt portfolio (3) | 0.1 | % | 0.1 | % | |
| Weighted average years to maturity | — | years | 2.1 | years | |
| Weighted average effective yields | |||||
| Senior secured loans - first lien (4) | 14.8 | % | 14.0 | % | |
| Total debt investments (4) | 13.7 | % | 13.3 | % | |
| Total investments (5) | 10.9 | % | 11.3 | % | |
| (1) | Percent is calculated as a percentage of the par value of debt investments. |
| (2) | Duration is a measure of a debt investment’s price sensitivity to 100 basis points (“bps”) change in interest rates. It represents an inverse relationship between price and the change in interest rates. For example, if a bond has a duration of 5.0 years and interest rates increase by 100 bps, then the bond price is expected to decrease by 5%. Weighted average duration is calculated using weights based on amortized cost. |
| (3) | Percent is calculated as a percentage of the fair value of total debt investments. |
| (4) | Weighted average effective yield by investment type is calculated as the effective yield of each investment and weighted by its amortized cost as compared to the aggregate amortized cost of all investments of that investment type. Effective yield is the return earned on an investment net of any discount, premium or issuance costs. The total debt portfolio yield is calculated before considering the impact of leverage or any operating expenses. |
| (5) | The total investment portfolio yield is calculated before considering the impact of leverage or any operating expenses, and includes all income generating investments, non-income generating investments and investments on non-accrual status. |
All of our floating interest rate debt investments have base interest rate reset frequencies of twelve months or less, with the majority resetting at least quarterly. SOFR ranged between 5.32% for the 1 Month SOFR to 5.39% for the 6 Month SOFR on March 31, 2024. Base interest rate resets for floating interest rate debt investments will only result in increases in interest income when the base interest rate exceeds the associated interest rate floor (e.g., 1.0%).
| 32 |
The following table presents the maturity schedule of our debt investments, excluding unfunded commitments, based on their principal amount as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Maturity Year | Principal Amount | Percentage of Portfolio | Principal Amount | Percentage of Portfolio | ||||||||||||
| 2024 | — | — | 331 | 1.1 | ||||||||||||
| 2025 | 394 | 2.1 | 4,937 | 16.3 | ||||||||||||
| 2026 | 17,946 | 97.9 | 20,724 | 68.4 | ||||||||||||
| Total | $ | 18,340 | 100.0 | % | $ | 30,283 | 100.0 | % | ||||||||
Results of Operations
Operating results for the three months ended March 31, 2024 and March 31, 2023 were as follows:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Total investment income | $ | 695 | $ | 921 | ||||
| Total expenses | 519 | 552 | ||||||
| Net investment income | 176 | 369 | ||||||
| Net realized gains | 67 | 1 | ||||||
| Net change in unrealized appreciation | 405 | 32 | ||||||
| Net increase (decrease) in net assets resulting from operations | $ | 648 | $ | 402 | ||||
Investment Income
Interest and dividend income consisted of the following components for the three months ended March 31, 2024 and March 31, 2023:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Interest income on debt securities: | ||||||||
| Cash interest | $ | 629 | $ | 836 | ||||
| PIK interest | 63 | 8 | ||||||
| Net accretion/amortization of discounts/premiums | 1 | 51 | ||||||
| Total interest on debt securities | 693 | 895 | ||||||
| Fee income | 2 | — | ||||||
| Total interest and dividend income | $ | 695 | $ | 895 | ||||
| Average Investments at cost | $ | 28,841 | $ | 40,183 | ||||
| Average Income Generating Investments at cost (1) | $ | 18,148 | $ | 35,863 | ||||
| Income return (2) | 3.8 | % | 2.5 | % | ||||
| (1) | Income Generating Investments pertains to investments with stated interest rate or preferred returns and includes investments on non-accrual. |
| (2) | Income return is calculated using the total interest and dividend income over the average income generating investments at cost for the period presented. |
The decrease in interest and dividend income was mainly driven by the decrease in the size of our income generating investments. As of March 31, 2024 and March 31, 2023, yield on debt investments at cost was 10.9% and 11.2%, respectively. PIK dividend pertains to dividends on preferred stock investments.
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Our fee income is comprised of the following fee classifications and is considered non-recurring income for the three months ended March 31, 2024 and March 31, 2023:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Administrative agency fees | $ | 2 | $ | 3 | ||||
| Amendment fees and other | — | 14 | ||||||
| Total fee income | $ | 2 | $ | 17 | ||||
Operating Expenses
Our operating expenses can be categorized into fixed operating expenses, variable operating expenses and performance-dependent expenses. Fixed operating expenses are generally static period over period. Variable expenses are calculated based on fund metrics such as total assets, net assets or total borrowings. Performance-dependent expenses fluctuate independent of our size.
The table below shows a breakdown of our operating expenses for the three months ended March 31, 2024 and March 31, 2023:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Fixed operating expenses: | ||||||||
| Related party reimbursements (1) | 90 | 102 | ||||||
| Trustees fees | 49 | 68 | ||||||
| Professional services fees (2) | 112 | 61 | ||||||
| Other expenses | 115 | 69 | ||||||
| Total fixed operating expenses | 366 | 300 | ||||||
| Variable operating expenses: | ||||||||
| Administrative services (3) | 22 | (13 | ) | |||||
| Management fee | 123 | 255 | ||||||
| Custody services | 8 | 10 | ||||||
| Total variable operating expenses | 153 | 252 | ||||||
| Total expenses before incentive fee waiver and advisor transition costs reimbursement | $ | 519 | $ | 552 | ||||
| (1) | Related party reimbursements decreased due to a decrease in resource allocation to Master Fund. |
| (2) | Professional services fees includes the expenses for third party service providers such as internal and independent auditors, tax return preparer and tax consultant, third-party investment valuers, and fund legal counsel. |
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| (3) | Administrative services fees include the expenses for third party service providers such as fund accountant, fund sub-administrator, and independent pricing vendors. |
The decrease in total expenses for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to the decrease in trustee fees and management fees. For the three months ended March 31, 2024 and March 31, 2023, there were no borrowing costs.
Net Realized Gains (Losses)
For the three months ended March 31, 2024, we had dispositions and principal repayments of $7.8 million, resulting in net realized gains of $0.7 million.
For the three months ended March 31, 2023, we had dispositions and principal repayments of $6.3 million, resulting in net realized gains of $0.1 million. For the three months ended March 31, 2023, we had realized gains from our foreign currency forward contracts of $111.0 thousand primarily due the movement of the U.S. dollar against the British pound.
For the three months ended March 31, 2024 and March 31, 2023, the components of total realized gains (losses) were comprised of the following:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Investments | $ | 67 | $ | (74 | ) | |||
| Foreign currency forward contracts | — | 111 | ||||||
| Foreign currency transactions | — | (36 | ) | |||||
| Net realized gain | $ | 67 | $ | 1 | ||||
Changes in Unrealized Appreciation (Depreciation)
For the three months ended March 31, 2024 and March 31, 2023, the components of total net change in unrealized appreciation (depreciation) were comprised of the following:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Investments | $ | 405 | $ | 106 | ||||
| Foreign currency forward contracts | — | (78 | ) | |||||
| Foreign currency transactions | — | 4 | ||||||
| Net change in unrealized appreciation (depreciation) | $ | 405 | $ | 32 | ||||
For the three months ended March 31, 2024 and March 31, 2023, the components of total net change in unrealized appreciation and depreciation on (i) all investments and (ii) investments classified as Level 3 in the valuation hierarchy were comprised of the following:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Unrealized appreciation on all investments (1) | $ | 1,470 | $ | 5,181 | ||||
| Unrealized depreciation on all investments (1) | (1,065 | ) | (5,075 | ) | ||||
| Total net change in unrealized appreciation on all investments | $ | 405 | $ | 106 | ||||
| Unrealized appreciation on Level 3 investments only (1) | $ | 1,463 | $ | 270 | ||||
| Unrealized depreciation on Level 3 investments only (1) | (877 | ) | (4,612 | ) | ||||
| Total net change in unrealized appreciation (depreciation) on Level 3 investments only | $ | 586 | $ | (4,342 | ) | |||
| (1) | Amounts are net of any reclassification of realized gains or losses on investments. |
Annual Investment Returns and Total Returns Since Commencement
Our initial investors, who each invested at $9.00 per share, have seen a cumulative 2.33% increase in the value of their investment, or an annualized return of 2.62%, assuming reinvestment of distributions.
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The table below presents returns for our shareholders for the three months ended March 31, 2024 and March 31, 2023, and the period from commencement to March 31, 2024. Our performance changes over time and currently may be different than that shown below. Past performance is no guarantee of future results. The returns for shareholders of the affiliated Feeder Funds are different from the returns for our direct shareholders.
| Total Investment Return-Net Asset Value(1) | ||||||||||||||||||
| For the Three Months Ended March 31, | Since Commencement | |||||||||||||||||
| Company | Date Operations Commenced (2) | 2024 | 2023 | Cumulative | Annualized | |||||||||||||
| Guggenheim Credit Income Fund | 12/19/2014 | 2.33 | % | (1.18 | )% | 46.71 | % | 4.21 | % | |||||||||
| (1) | Total investment return is based on (i) the purchase of Common Shares at net asset value on the first day of the period, (ii) the sale of Common Shares at the net asset value per share on the last day of the period, of (A) all purchased Common Shares plus (B) any fractional Common Shares issued in connection with the reinvestment of distributions and (iii) distributions payable relating to the ownership of Common Shares, if any, on the last day of the period. The total investment return calculation assumes that cash distributions are reinvested concurrent with the issuance of Common Shares at the most recent transaction price on or prior to each distribution payment date. Since there is no public market for our Common Shares, then the terminal sales price per common share is assumed to be equal to net asset value per common share on the last day of the period. |
| (2) | Commencement of operations represents the date that we sold our initial Common Shares. |
Off-Balance Sheet Arrangements
Unfunded Commitments
Unfunded commitments to provide funds to portfolio companies are not recorded on our consolidated statements of assets and liabilities. Our unfunded commitments may be significant from time to time. Unfunded commitments may expire without being drawn upon and the total commitment amount does not necessarily represent future cash requirements. As of March 31, 2024, we had one unfunded commitment totaling $15.0 thousand as compared to two unfunded commitments totaling $0.3 million as of December 31, 2023. See Note 8. Commitments and Contingencies for specific identification of the unfunded commitments. We believe we maintain sufficient liquidity in the form of cash, receivables and borrowing capacity to fund these unfunded commitments should the need arise. See Financial Condition, Liquidity and Capital Resources.
Financial Condition, Liquidity and Capital Resources
Our primary sources of cash and cash equivalents may include: (i) the sale of our Shares to affiliated feeder funds, (ii) borrowings under various financing arrangements, (iii) cash flows from interest, dividends and transaction fees earned from investment in portfolio companies and (iv) principal repayments and sale proceeds from our investments.
Our primary uses of cash and cash equivalents may include: (i) investments in portfolio companies, (ii) payments of operating expenses, (iii) interest payments on, and repayment of, borrowings, (iv) cash distributions to our shareholders and (v) periodic repurchases of our Shares pursuant to our share repurchase program.
Liquidity
Operating liquidity is our ability to meet our short term liquidity needs. The following table presents our operating liquidity position as of March 31, 2024 and December 31, 2023:
| As of | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | 11,573 | $ | 3,688 | ||||
| Principal receivable | 6 | 51 | ||||||
| Unfunded investment commitments | (15 | ) | (270 | ) | ||||
| Other net working capital (1) | (217 | ) | (169 | ) | ||||
| Total operational liquidity | $ | 11,347 | $ | 3,300 | ||||
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| (1) | Other net working capital is the sum of collateral deposits/payable for foreign currency forward contracts, interest and dividend income receivable and receivable from related parties less accrued management fee, payable to related parties, distributions payable, and accounts payable, accrued expenses and other liabilities. |
Capital Resources
We may from time to time enter into additional credit facilities and borrowing arrangements to increase the amount of our borrowings as our equity capital foundation increases. Accordingly, we cannot predict with certainty what terms any such financing would have or the costs we would incur in connection with any such financing arrangements. We are currently required to maintain a minimum asset coverage ratio (total assets-to-senior securities) of 200% under the 1940 Act.
The table below summarizes certain financing obligations and Feeder Fund liquidity targets that are expected to have an impact on our liquidity and cash flow in specified future interval periods:
| March 31, 2024 | ||||||||||||||||||||
| Total | < 1 year | 1-3 years | 3-5 years | > 5 years | ||||||||||||||||
| Liquidation of Feeder Funds’ Investments: | ||||||||||||||||||||
| GCIF 2016T (1) | $ | 18,949 | $ | 18,949 | $ | — | $ | — | $ | — | ||||||||||
| GCIF 2019 (1) | 5,605 | 5,605 | — | |||||||||||||||||
| Total Liquidation of Feeder Funds’ Investments | $ | 24,554 | $ | 24,554 | $ | — | $ | — | $ | — | ||||||||||
| (1) | The Feeder Fund investment liquidity amounts are based on the net asset value of each Feeder Fund’s ownership interest in the Master Fund as of March 31, 2024. In accordance with the Liquidation Plans, the Board has declared multiple liquidating distributions. These distributions have been substantially composed of return of capital and have decreased the net asset value of the Master Fund and Feeder Funds. As such, the value on shareholder’s investment statements has decreased as liquidating distributions have been paid. |
As of March 31, 2024, GCIF 2016T owned 66.7% of our outstanding Common Shares and GCIF 2019 owned 19.7% of our outstanding Common Shares. The two initial investors accounted for the remaining 13.6% of our outstanding Common Shares.
Critical Accounting Policies
Valuation of Investments
Our investments consist primarily of investments in senior and subordinated debt of private middle market U.S. companies and are presented in our consolidated financial statements at fair value. See Note 3. Investments for more information on our investments. As described more fully in Note 2. Significant Accounting Policies and Note 5. Fair Value of Financial Instruments, a valuation hierarchy based on the level of independent, objective evidence available regarding value is used to measure the fair value of our investments. Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to our portfolio investments for which market quotations are not readily available, our Board of Trustees is responsible for determining in good faith the fair value of our portfolio investments in accordance with, and through the consistent application of, the valuation policy and procedures approved by our Board of Trustees, based on, among other things, the input of Guggenheim and any independent third-party valuation firms.
We utilize valuation techniques that use unobservable inputs and assumptions in determining the fair value of our investments classified as Level 3 within the valuation hierarchy. For senior debt and subordinated debt classified as Level 3 fair value investments, we initially value the investment at its initial transaction price and subsequently value the investment using (i) market data for similar instruments (e.g., recent transactions or indicative broker quotes) and/or (ii) valuation models. Valuation models are based on EBITDA multiples to determine enterprise value and debt multiple ratios where the key inputs are based on relative value analysis of similar credit investments issued by similar portfolio companies. The valuation techniques used by us for other types of assets that are classified as Level 3 investments are described in Note 2. Significant Accounting Policies. The unobservable inputs and assumptions may differ by asset and in the application of our valuation methodologies. The reported fair value estimates could vary materially if we had chosen to incorporate different unobservable inputs and assumptions.
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We and our Board of Trustees conduct our fair value determination process on a quarterly basis and any other time when a material decision regarding the fair value of our portfolio investments is required, including in connection with ensuring our compliance with the 1940 Act’s requirements regarding the price at which we issue our Shares. A determination of fair value involves subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of these portfolio investments may differ materially from the values that would have been determined had a readily available market value existed for such investments. Further, such investments are generally less liquid than exchange-traded securities. If we were required to liquidate a portfolio investment that does not have a readily available market value in a forced or liquidation sale, we could realize significantly less than the fair value recorded by us.
The table below presents information on investments classified as Level 3 according to the valuation hierarchy within the investment portfolio on March 31, 2024 and December 31, 2023:
| As of | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Investments classified as Level 3 fair value | $ | 13,646 | $ | 20,630 | ||||
| Total investments at fair value | $ | 16,741 | $ | 23,926 | ||||
| Total assets | $ | 28,933 | $ | 28,261 | ||||
| Percentage of investment portfolio classified as Level 3 fair value | 81.5 | % | 86.2 | % | ||||
| Percentage of total assets classified as Level 3 fair value | 47.2 | % | 73.0 | % | ||||
The ranges of unobservable inputs used in the fair value measurement of our investments classified as Level 3 fair valued as of March 31, 2024 and December 31, 2023 are presented in Note 5. Fair Value of Financial Instruments, as well as the directional impact to the investments’ valuation from an increase or decrease in the associated unobservable inputs.
In addition to impacting the estimated fair value recorded for our investments on our consolidated statements of assets and liabilities, had we used different key unobservable inputs to determine the estimated fair value of our investments, amounts recorded in our consolidated statements of operations, including the net change in unrealized appreciation and depreciation on investments, management and performance-based incentive fees would also be impacted. The table below outlines the impact on our results of a 5% increase in the fair value of our Level 3 investments for the periods ended March 31, 2024 and March 31, 2023:
| March 31, 2024 | March 31, 2023 | |||||||
| Fair Value of Level 3 Investments at Year End | $ | 13,646 | $ | 27,623 | ||||
| Fair Value Assuming a 5% Increase in Value | 14,328 | 29,004 | ||||||
| Increase in unrealized appreciation | 682 | 1,381 | ||||||
| (Increase) in management fees (1) | (3 | ) | (6 | ) | ||||
| (Increase) in performance based incentive fee (2) | (136 | ) | (276 | ) | ||||
| Increase in net assets resulting from operations | $ | 543 | $ | 1,099 | ||||
| Weighted average Common Shares outstanding (basic and diluted) | 25,594,125 | 25,594,125 | ||||||
| Common Shares outstanding at the end of the Year | 25,594,125 | 25,594,125 | ||||||
| Increase in earnings per Common Share | $ | 0.02 | $ | 0.04 | ||||
| Increase in net asset value per Common Share | $ | 0.02 | $ | 0.04 | ||||
| (1) | Increases in management fees for the periods ended March 31, 2024 and March 31, 2023 represent only 12 months’ worth of the change to the Master Fund’s management fees. |
| (2) | Increase in performance-based incentive fee is calculated as 20% of the increase in unrealized appreciation. |
Investment Advisory Fees
See Note 2. Significant Accounting Policies.
Recent Accounting Standards
See Note 2. Significant Accounting Policies.
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Contractual Obligations
We have entered into certain agreements under which we have material future commitments.
The Master Fund is a party to an Investment Advisory Agreement with Guggenheim, pursuant to which the Master Fund agreed to pay Guggenheim an investment advisory fee. See Note 6. Related Party Agreements and Transactions for a more detailed description of the Investment Advisory Agreement. If the Investment Advisory Agreement is terminated, our costs may increase under any replacement investment advisory agreement that we subsequently enter into. We would also likely incur expenses in identifying and evaluating candidates to provide the services we expect to receive under any successor investment advisory agreement and administrative services agreement. Any successor investment advisory agreement would also be subject to approval by our shareholders.
In 2015, Hamilton, a wholly-owned, special purpose financing subsidiary of the Master Fund, initially entered into the Hamilton Credit Facility with JPMorgan Chase Bank, National Association, as administrative agent, each of the lenders from time to time party thereto, and U.S. Bank National Association, as collateral agent, collateral administrator and securities intermediary. On June 29, 2018, the Hamilton Credit facility was amended to extend the term from December 17, 2019 to December 29, 2022 and to extend the draw-down term from December 17, 2018 to December 29, 2021 among other things. On November 29, 2021, Hamilton repaid in full all outstanding amounts due in connection with, and terminated all commitments under, the Hamilton Credit Facility. See Note 7. Borrowings.
Related Party Transactions
We have entered into agreements with Guggenheim whereby we agreed to pay certain fees to, and reimburse certain expenses, of Guggenheim for investment advisory services and investment-related and administrative costs incurred on our behalf. See Note 6. Related Party Agreements and Transactions for a discussion of related party transactions, investment advisory fees and reimbursement of administrative services expenses.
Organization and Offering Expenses and Reimbursement Arrangements with Guggenheim
See Note 6. Related Party Agreements and Transactions.
Reimbursement for Guggenheim Administrative Services Expenses
Guggenheim has provided administrative services to the Master Fund since September 11, 2017. We will reimburse Guggenheim, for their expenses in connection with the provision of administrative services to us. However, such reimbursement will be made at an amount equal to the lower of their actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location. Also, such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable allocation methods. We do not reimburse Guggenheim for rent, depreciation, utilities, capital equipment or other administrative items allocated to controlling persons of Guggenheim.
Co-Investment Transactions Exemptive Relief
The Master Fund was granted an SEC exemptive order which grants the Master Fund exemptive relief permitting the Master Fund, subject to the satisfaction of specific conditions and requirements, to co-invest in privately negotiated investment transactions with certain affiliates of Guggenheim.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are subject to financial market risks, including changes in interest rates. As of March 31, 2024, 99.9% of our debt investments (88.9% of our total investments), or $14.9 million measured at fair value, are subject to floating interest rates. A rise in the general level of interest rates can be expected to lead to (i) higher interest income from our floating rate debt investments and (ii) value declines for fixed interest rate investments we may hold. Since a majority of our investments consist of floating rate investments, an increase in interest rates could also make it more difficult for borrowers to repay their loans, and a rise in interest rates may also make it easier for Guggenheim to meet or exceed the quarterly threshold for performance-based incentive fees as described in Note 6. Related Party Agreements and Transactions.
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The following table presents the approximate annualized increase (decrease) in (i) interest income from our investment portfolio, (ii) interest expense associated with our floating rate credit facility and (iii) the net increase or decrease of interest-related income and expense, directly resulting from hypothetical changes in base interest rates (e.g., SOFR), assuming no changes in the composition of our investment portfolio and capital structure as of March 31, 2024.
Basis Points (bps) Increase | Annualized Interest Income Increase (Decrease) | Annualized Net Increase (Decrease) | Net Increase (Decrease) per Share | |||||||||
| -50 bps | $ | (92 | ) | $ | (92 | ) | $ | — | ||||
| +50 bps | 92 | 92 | — | |||||||||
| +100 bps | 183 | 183 | 0.01 | |||||||||
| +150 bps | 275 | 275 | 0.01 | |||||||||
| +200 bps | 367 | 367 | 0.01 | |||||||||
We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Exchange Act, is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.
Our Chief Executive Officer and Chief Financial Officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024, have concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, were effective as of March 31, 2024 at a reasonable level of assurance.
Changes in Internal Control over Financial Reporting
During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As of May 10, 2024, we were not subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or our subsidiary.
From time to time, we or Guggenheim may be a party to certain legal proceedings in the ordinary course of, or incidental to the normal course of, our business, including legal proceedings related to the enforcement of our rights under contracts with our portfolio companies. While legal proceedings, lawsuits, claims and regulatory proceedings are subject to many uncertainties and their ultimate outcomes are not predictable with assurance, the results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
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Item 1A. Risk Factors.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2023, which could materially affect our business, financial condition and/or operating results. The risks described in our annual report on Form 10-K are not the only risks we face. Additional risks and uncertainties are 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. During the three months ended March 31, 2024, other than as set forth below, there have been no material changes from the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2023.
Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies.
Certain of our portfolio companies may be impacted by inflation. If such portfolio companies are unable pass any increases in their costs along to their customers, it could adversely affect their results and their ability to impacting their ability to pay interest and principal on our loans. In addition, any projected future decreases in our portfolio companies’ operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future unrealized losses and therefore reduce our net assets resulting from operations.
The Company is currently operating in a period of capital markets disruption, significant volatility and economic uncertainty.
The global capital markets are experiencing a period of disruption and instability resulting in increasing spreads between the yields realized on riskier debt securities and those realized on risk-free securities, lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the re-pricing of credit risk in the broadly syndicated market. Highly disruptive market conditions have resulted in increasing volatility and illiquidity in the global credit, debt and equity markets generally. The duration and ultimate effect of such market conditions cannot be accurately forecasted. Extreme uncertainty regarding economic markets is resulting in declines in the market values of potential investments and declines in the market values of investments after they are made or acquired by the Company and affecting the potential for liquidity events involving such investments or portfolio companies. During periods of market disruption, portfolio companies may be more likely to seek to draw on unfunded commitments the Company has made, and the risk of being unable to fund such commitments is heightened during such periods. Applicable accounting standards require the Company to determine the fair value of its investments as the amount that would be received in an orderly transaction between market participants at the measurement date. While most of the Company’s investments are not publicly traded, as part of the Company’s valuation process the Company considers a number of measures, including comparison to publicly traded securities. As a result, volatility in the public capital markets can adversely affect the Company’s investment valuations.
Various social and political tensions around the world, including public health emergencies (such as the spread of infectious diseases, pandemics and epidemics), may contribute to increased market volatility, may have long-term effects on the worldwide financial markets and may cause further economic uncertainties worldwide. In particular, the consequences of the conflict between Russia and Ukraine, including international sanctions, the potential impact on inflation and increased disruption to supply chains may impact portfolio companies. Such consequences also may increase the Company’s funding cost or limit its access to the capital markets.
A prolonged period of market illiquidity may cause the Company to reduce the volume of loans and debt securities originated and/or fund and adversely affect the value of the Company’s portfolio investments, which could have a material and adverse effect on the Company’s business, financial condition, results of operations and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) None.
(b) Not applicable.
(c) The Master Fund had implemented a share repurchase program, whereby it conducts tender offers each calendar quarter. In accordance with the Liquidation Plan, the Master Fund’s share repurchase program has been suspended effective March 30, 2021.
Item 3. Defaults Upon Senior Securities.
(a) None.
(b) Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits required by this item are set forth in the Exhibit Index attached hereto and are filed or incorporated as part of this Report.
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SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
| Guggenheim Credit Income Fund | ||||
| Date: | May 10, 2024 | By: | /s/ Matthew S. Bloom | |
| MATTHEW S. BLOOM | ||||
| Chief Executive Officer | ||||
| (Principal Executive Officer) | ||||
| Date: | May 10, 2024 | By: | /s/ James Howley | |
| JAMES HOWLEY | ||||
| Chief Financial Officer | ||||
| (Principal Financial Officer) | ||||
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EXHIBIT INDEX
The following exhibits are filed or incorporated as part of this Report.
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