UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR |
For the quarterly period ended SeptemberJune 30, 2017
OR
| [ ] | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR |
Commission file number: 814-01094
GUGGENHEIM CREDIT INCOME FUND 2016 T
(Exact name of registrant as specified in its charter)
| Delaware | 47-2016837 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 330 Madison Avenue, New York, New York | 10017 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code code: (212)739-0700
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. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 definitiondefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |||
| Non-accelerated filer | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of the Registrant'sRegistrant’s common shares outstanding as of November 1, 2017August 9, 2023 was 17,456,860
GUGGENHEIM CREDIT INCOME FUND 2016 T
INDEX
| PAGE | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements (Unaudited) | 3 | ||
| 7 | ||||
| Notes to the Financial Statements (Unaudited) | 8 | |||
| Item 2. | 18 | |||
| Item 3. | 23 | |||
| Item 4. | ||||
| PART II. OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 24 | ||
| Item | 24 | |||
| Item 2. | 25 | |||
| Item 5. | Other Information | 25 | ||
| Item | 25 | |||
| Signatures | 26 | |||
| 27 | ||||
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Report, including
All references to "Note"“Note” or "Notes"“Notes” throughout this Report refer to the notesfootnotes to the financial statements of the registrantpresented in
Unless otherwise noted, the terms "we," "us," "our,"“we,” “us,” “our,” and "Company"the “Company” refer to Guggenheim Credit Income Fund 2016 T, formerly known as Carey Credit Income Fund 2016 T. All2016T. Other capitalized terms used in this Report have the same meaning as defined in the Notes.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
GUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
(in thousands, except share and per share amounts)
| September 30, 2017 | December 31, 2016 | ||||||
| Assets | |||||||
| Investment in Guggenheim Credit Income Fund (18,835,670 shares purchased at a cost of $156,091 and 13,104,774 shares purchased at a cost of $107,184, respectively) | $ | 161,126 | $ | 111,030 | |||
| Cash | 1,003 | 1,313 | |||||
| Due from Advisors | — | 598 | |||||
| Deferred offering costs | 345 | 854 | |||||
| Other assets | — | 4 | |||||
| Total assets | 162,474 | 113,799 | |||||
| Liabilities | |||||||
| Accounts payable, accrued expenses and other liabilities | $ | 35 | $ | 87 | |||
| Accrued professional services fees | 191 | 42 | |||||
| Due to Advisors | 43 | 24 | |||||
| Accrued offering expenses | — | 193 | |||||
| Due to Dealer Manager | 3,705 | 2,300 | |||||
| Total liabilities | 3,974 | 2,646 | |||||
Commitments and contingencies (Note 4. Related party agreements and transactions) | |||||||
| Net Assets | $ | 158,500 | $ | 111,153 | |||
| Components of Net Assets: | |||||||
| Common Shares, $0.001 par value, 1,000,000,000 Common Shares authorized, 17,407,514 and 12,205,783 Common Shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | $ | 17 | $ | 12 | |||
| Paid-in-capital in excess of par value | 155,084 | 107,638 | |||||
| Distributions in excess of net investment income | (1,682 | ) | (343 | ) | |||
| Net unrealized appreciation on investment | 5,035 | 3,846 | |||||
| Accumulated undistributed net realized gain | 46 | — | |||||
| Total net assets | $ | 158,500 | $ | 111,153 | |||
| Net asset value per Common Share | $ | 9.11 | $ | 9.11 | |||
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Investment in Guggenheim Credit Income Fund (“GCIF”) ( shares purchased at a cost of $31,779 and shares purchased at a cost of $49,545, respectively) | $ | 22,696 | $ | 40,846 | ||||
| Cash | 193 | 430 | ||||||
| Total assets | 22,889 | 41,276 | ||||||
| Liabilities | ||||||||
| Accounts payable, accrued expenses and other liabilities | 37 | 51 | ||||||
| Accrued professional services fees | 50 | 99 | ||||||
| Payable to related parties | 11 | 11 | ||||||
| Total liabilities | 98 | 161 | ||||||
| Commitments and contingencies (Note 4. Related Party Agreements and Transactions) | ||||||||
| Net Assets | $ | 22,791 | $ | 41,115 | ||||
| Components of Net Assets: | ||||||||
| Common Shares, $ par value, Common Shares authorized, and Common Shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | $ | 16 | $ | 16 | ||||
| Paid-in-capital in excess of par value | 35,639 | 53,582 | ||||||
| Accumulated loss, net of distributions | (12,864 | ) | (12,483 | ) | ||||
| Total net assets | $ | 22,791 | $ | 41,115 | ||||
| Net asset value per Common Share (NAV) | $ | 1.40 | $ | 2.52 | ||||
See Unaudited Notes to Financial Statements.
3
GUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Investment Income | ||||||||||||||||
| Dividends from investment in GCIF | $ | 205 | $ | 863 | $ | 490 | $ | 2,320 | ||||||||
| Total investment income | 205 | 863 | 490 | 2,320 | ||||||||||||
| Operating Expenses (1) | ||||||||||||||||
| Administrative services | 3 | 3 | 7 | 7 | ||||||||||||
| Related party reimbursements | 11 | 33 | 21 | 61 | ||||||||||||
| Professional services fees | 24 | 32 | — | 63 | ||||||||||||
| Transfer agent expense | 80 | 79 | 160 | 157 | ||||||||||||
| Other expenses | 5 | 10 | (14 | ) | 20 | |||||||||||
| Net expenses | 123 | 157 | 174 | 308 | ||||||||||||
| Net investment income | 82 | 706 | 316 | 2,012 | ||||||||||||
| Realized and unrealized losses: | ||||||||||||||||
| Net change in unrealized depreciation from investment in GCIF | (367 | ) | (2,138 | ) | (385 | ) | (1,933 | ) | ||||||||
| Net realized and unrealized losses | (367 | ) | (2,138 | ) | (385 | ) | (1,933 | ) | ||||||||
| Net increase (decrease) in net assets resulting from operations | $ | (285 | ) | $ | (1,432 | ) | $ | (69 | ) | $ | 79 | |||||
| Per Common Share information: | ||||||||||||||||
| Net investment income per Common Share outstanding - basic and diluted | $ | — | $ | 0.04 | $ | 0.01 | $ | 0.12 | ||||||||
| Loss per Common Share outstanding - basic and diluted | $ | ) | $ | ) | $ | ) | $ | |||||||||
| Weighted average Common Shares outstanding - basic and diluted | ||||||||||||||||
| Distributions per Common Share outstanding | $ | 0.41 | $ | 0.82 | $ | 0.71 | $ | 1.70 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Investment Income | |||||||||||||||
| Dividends from investment in Guggenheim Credit Income Fund | $ | 2,968 | $ | 1,539 | $ | 6,773 | $ | 1,626 | |||||||
| Total investment income | 2,968 | 1,539 | 6,773 | 1,626 | |||||||||||
Operating Expenses (1) | |||||||||||||||
| Administrative services | 4 | 4 | 12 | 12 | |||||||||||
| Related party reimbursements | 81 | 61 | 265 | 220 | |||||||||||
| Trustees fees | 1 | 3 | 2 | 3 | |||||||||||
| Professional services fees | 9 | 53 | 263 | 130 | |||||||||||
| Offering expenses | 371 | 137 | 1,247 | 181 | |||||||||||
| Organization expenses | — | — | — | 94 | |||||||||||
| Printing and mailing expenses | (1 | ) | 18 | 23 | 40 | ||||||||||
| Shareholder servicing component expenses | 97 | — | 97 | — | |||||||||||
| Other expenses | 46 | 11 | 133 | 22 | |||||||||||
| Total operating expenses | 608 | 287 | 2,042 | 702 | |||||||||||
| Reimbursement of expense support | 44 | — | 44 | — | |||||||||||
Less: Expense support to (from) related parties (See Note 4. Related Party Agreements and Transactions) | (2 | ) | 261 | (1,783 | ) | (623 | ) | ||||||||
| Net expenses | 650 | 548 | 303 | 79 | |||||||||||
| Net investment income | 2,318 | 991 | 6,470 | 1,547 | |||||||||||
| Realized and unrealized gain: | |||||||||||||||
| Net realized gain on investment Guggenheim Credit Income Fund | 46 | — | 46 | — | |||||||||||
| Net change in unrealized appreciation on investment | 94 | 1,422 | 1,189 | 2,086 | |||||||||||
| Net realized and unrealized gains | 140 | 1,422 | 1,235 | 2,086 | |||||||||||
| Net increase in net assets resulting from operations | $ | 2,458 | $ | 2,413 | $ | 7,705 | $ | 3,633 | |||||||
| Per Common Share information: | |||||||||||||||
| Net investment income per Common Share outstanding - basic and diluted | $ | 0.13 | $ | 0.14 | $ | 0.39 | $ | 0.41 | |||||||
| Earnings per Common Share - basic and diluted | $ | 0.14 | $ | 0.35 | $ | 0.47 | $ | 0.97 | |||||||
| Weighted average Common Shares outstanding - basic and diluted | 17,432,402 | 6,956,110 | 16,443,891 | 3,752,921 | |||||||||||
| Distributions per Common Share | $ | 0.16 | $ | 0.16 | $ | 0.48 | $ | 0.49 | |||||||
| (1) | Operating expenses solely represent the |
See Unaudited Notes to Financial Statements.
4
GUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
(in thousands, except share amounts)
| Common Shares | Paid-in-Capital in Excess of | Accumulated Loss, net of | ||||||||||||||||||
| Shares | Amount | Par Value | Distributions | Total | ||||||||||||||||
| Balance at December 31, 2022 | 16,297,188 | $ | 16 | $ | 53,582 | $ | (12,483 | ) | $ | 41,115 | ||||||||||
| Operations: | ||||||||||||||||||||
| Net investment income | — | — | — | 233 | 233 | |||||||||||||||
| Net change in unrealized depreciation from investment in GCIF | — | — | — | (18 | ) | (18 | ) | |||||||||||||
| Net increase in net assets resulting from operations | — | — | — | 215 | 215 | |||||||||||||||
| Shareholder distributions: | ||||||||||||||||||||
| Distributions from earnings | — | — | — | (232 | ) | (232 | ) | |||||||||||||
| Distributions representing a return of capital | — | — | (11,338 | ) | — | (11,338 | ) | |||||||||||||
| Net decrease in net assets resulting from shareholder distributions | — | — | (11,338 | ) | (232 | ) | (11,570 | ) | ||||||||||||
| Net decrease for the period | — | — | (11,338 | ) | (17 | ) | (11,355 | ) | ||||||||||||
| Balance at March 31, 2023 | 16,297,188 | $ | 16 | $ | 42,244 | $ | (12,500 | ) | $ | 29,760 | ||||||||||
| Operations: | ||||||||||||||||||||
| Net investment income | — | — | — | 82 | 82 | |||||||||||||||
| Net change in unrealized depreciation from investment in GCIF | — | — | — | (367 | ) | (367 | ) | |||||||||||||
| Net decrease in net assets resulting from operations | — | — | — | (285 | ) | (285 | ) | |||||||||||||
| Shareholder distributions: | ||||||||||||||||||||
| Distributions from earnings | — | — | — | (79 | ) | (79 | ) | |||||||||||||
| Distributions representing a return of capital | — | — | (6,605 | ) | — | (6,605 | ) | |||||||||||||
| Net decrease in net assets resulting from shareholder distributions | — | — | (6,605 | ) | (79 | ) | (6,684 | ) | ||||||||||||
| Net decrease for the period | — | — | (6,605 | ) | (364 | ) | (6,969 | ) | ||||||||||||
| Balance at June 30, 2023 | 16,297,188 | $ | 16 | $ | 35,639 | $ | (12,864 | ) | $ | 22,791 | ||||||||||
5
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Operations: | |||||||
| Net investment income | $ | 6,470 | $ | 1,547 | |||
| Net realized gain on investment | 46 | — | |||||
| Net change in unrealized appreciation | 1,189 | 2,086 | |||||
| Net increase in net assets resulting from operations | 7,705 | 3,633 | |||||
| Shareholder distributions: | |||||||
| Distributions from net investment income | (6,470 | ) | (1,547 | ) | |||
| Distributions in excess of net investment income | (1,340 | ) | (272 | ) | |||
| Net decrease in net assets from shareholder distributions | (7,810 | ) | (1,819 | ) | |||
| Capital share transactions: | |||||||
| Issuance of Common Shares | 46,390 | 76,071 | |||||
| Reinvestment of shareholders distributions | 3,732 | 910 | |||||
| Repurchase of Common Shares | (1,417 | ) | (5 | ) | |||
| Distribution services charge | (1,253 | ) | — | ||||
| Net increase in net assets resulting from capital share transactions | 47,452 | 76,976 | |||||
| Total increase in net assets | 47,347 | 78,790 | |||||
| Net assets at beginning of period | 111,153 | 2,161 | |||||
| Net assets at end of period | $ | 158,500 | $ | 80,951 | |||
| Capital share activity: | |||||||
| Common Shares outstanding at the beginning of the period | 12,205,783 | 248,877 | |||||
| Common Shares issued from subscriptions | 4,951,760 | 8,520,476 | |||||
| Common Shares issued from reinvestment of distributions | 404,899 | 100,738 | |||||
| Common Shares repurchased | (154,928 | ) | (600 | ) | |||
| Common Shares outstanding at the end of the period | 17,407,514 | 8,869,491 | |||||
| Distribution in excess of net investment income at end of period | $ | (1,682 | ) | $ | (273 | ) | |
| Common Shares | Paid-in-Capital in Excess of | Accumulated Loss, net of | ||||||||||||||||||
| Shares | Amount | Par Value | Distributions | Total | ||||||||||||||||
| Balance at December 31, 2021 | 16,297,188 | $ | 16 | $ | 114,301 | $ | (7,431 | ) | $ | 106,886 | ||||||||||
| Operations: | ||||||||||||||||||||
| Net investment income | — | — | — | 1,306 | 1,306 | |||||||||||||||
| Net change in unrealized appreciation from investment in GCIF | — | — | — | 205 | 205 | |||||||||||||||
| Net increase in net assets resulting from operations | — | — | — | 1,511 | 1,511 | |||||||||||||||
| Shareholder distributions: | ||||||||||||||||||||
| Distributions from earnings | — | — | — | (1,535 | ) | (1,535 | ) | |||||||||||||
| Distributions representing a return of capital | — | — | (12,807 | ) | — | (12,807 | ) | |||||||||||||
| Net decrease in net assets resulting from shareholder distributions | — | — | (12,807 | ) | (1,535 | ) | (14,342 | ) | ||||||||||||
| Net decrease for the period | — | — | (12,807 | ) | (24 | ) | (12,831 | ) | ||||||||||||
| Balance at March 31, 2022 | 16,297,188 | $ | 16 | $ | 101,494 | $ | (7,455 | ) | $ | 94,055 | ||||||||||
| Operations: | ||||||||||||||||||||
| Net investment income | — | — | — | 706 | 706 | |||||||||||||||
| Net change in unrealized depreciation from investment in GCIF | — | — | — | (2,138 | ) | (2,138 | ) | |||||||||||||
| Net decrease in net assets resulting from operations | — | — | — | (1,432 | ) | (1,432 | ) | |||||||||||||
| Shareholder distributions: | ||||||||||||||||||||
| Distributions from earnings | — | — | — | (1,206 | ) | (1,206 | ) | |||||||||||||
| Distributions representing a return of capital | — | — | (12,158 | ) | — | (12,158 | ) | |||||||||||||
| Net decrease in net assets resulting from shareholder distributions | — | — | (12,158 | ) | (1,206 | ) | (13,364 | ) | ||||||||||||
| Net decrease for the period | — | — | (12,158 | ) | (2,638 | ) | (14,796 | ) | ||||||||||||
| Balance at June 30, 2022 | 16,297,188 | $ | 16 | $ | 89,336 | $ | (10,093 | ) | $ | 79,259 | ||||||||||
See Unaudited Notes to Financial Statements.
6
GUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Operating activities | |||||||
| Net increase in net assets resulting from operations | $ | 7,705 | $ | 3,633 | |||
| Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: | |||||||
| Purchase of investments in Guggenheim Credit Income Fund | (49,417 | ) | (75,661 | ) | |||
| Sale of investments in Guggenheim Credit Income Fund | 556 | — | |||||
| Net realized gain on investment | (46 | ) | — | ||||
| Net change in unrealized appreciation on investment | (1,189 | ) | (2,086 | ) | |||
| (Increase) decrease in operating assets: | |||||||
| Due from Advisors | 598 | — | |||||
| Deferred offering costs | 509 | (646 | ) | ||||
| Dividend income receivable | — | 33 | |||||
| Other assets | 4 | — | |||||
| Increase (decrease) in operating liabilities: | |||||||
| Accounts payable, accrued expenses and other liabilities | (52 | ) | 28 | ||||
| Accrued professional services fees | 149 | 19 | |||||
| Due to Advisors | 19 | 452 | |||||
| Accrued offering expenses | (193 | ) | 172 | ||||
| Due to Dealer Manager | 152 | — | |||||
| Net cash used in operating activities | (41,205 | ) | (74,056 | ) | |||
| Financing activities | |||||||
| Issuance of Common Shares | $ | 46,390 | $ | 76,071 | |||
| Distributions paid | (4,078 | ) | (909 | ) | |||
| Repurchase of Common Shares | (1,417 | ) | (5 | ) | |||
| Net cash provided by financing activities | 40,895 | 75,157 | |||||
| Net increase (decrease) in cash | (310 | ) | 1,101 | ||||
| Cash, beginning of period | 1,313 | 41 | |||||
| Cash, end of period | $ | 1,003 | $ | 1,142 | |||
| Supplemental information and non-cash financing activities: | |||||||
| Distributions reinvested | $ | 3,732 | $ | 910 | |||
| Due to Dealer Manager | $ | 1,253 | $ | — | |||
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities | ||||||||
| Net increase (decrease) in net assets resulting from operations | $ | (69 | ) | $ | 79 | |||
| Adjustments to reconcile net increase (decrease) in net assets from operations to net cash provided by operating activities: | ||||||||
| Proceeds from liquidation distribution | 17,764 | 24,297 | ||||||
| Net change in unrealized depreciation from investment in GCIF | 385 | 1,933 | ||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable, accrued expenses and other liabilities | (14 | ) | (19 | ) | ||||
| Accrued professional services fees | (49 | ) | 1 | |||||
| Payable to related parties | — | 2 | ||||||
| Net cash provided by operating activities | 18,017 | 26,293 | ||||||
| Financing activities | ||||||||
| Distributions paid | (18,254 | ) | (27,706 | ) | ||||
| Net cash used in financing activities | (18,254 | ) | (27,706 | ) | ||||
| Net decrease in cash | (237 | ) | (1,413 | ) | ||||
| Cash, beginning of period | 430 | 2,207 | ||||||
| Cash, end of period | $ | 193 | $ | 794 | ||||
See Unaudited Notes to Financial Statements.
7
GUGGENHEIM CREDIT INCOME FUND 2016 T
NOTES TO 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 2016 T (the "Company"“Company”) was formed as a Delaware statutory trust on September 5, 2014. The Company'sCompany’s investment objectives are to provide its shareholders with current income, capital preservation and, to a lesser extent, long-term capital appreciation by investing substantially all of its equity capital in Guggenheim Credit Income Fund (the "Master Fund"“Master Fund” or “GCIF”). The Company is a non-diversified, closed-end management investment company that elected to be treated as a business development company (a "BDC"“BDC”) under the Investment Company Act of 1940, as amended (the "1940 Act"“1940 Act”).
The Master Fund has elected to be treated as a BDC under the 1940 Act and it has the same investment objectives as the Company. The Master Fund commenced investment operations on April 2, 2015. The Master Fund'sFund’s consolidated financial statements are an integral part of the Company'sCompany’s financial statements and should be read in their entirety.
The Master Fund wasis externally managed by Carey Credit Advisors, LLC ("CCA") and Guggenheim Partners Investment Management, LLC ("Guggenheim"(“Guggenheim” or the "Advisor"“Advisor”), which wereis 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 August 10, 2017, CCA resigned as the Master Fund's investment advisor and administrator, and the Master Fund's Board of Trustees ("Master Fund's Board") selected Guggenheim to perform the Master Fund's investment advisory and administrative responsibilities, both events concurrently effective on September 11, 2017. As of September 30, 2017, Guggenheim serves as investment advisor pursuant to an interim investment advisory agreement which commenced on September 11, 2017. The Master Fund's Board set a shareholder meeting date of October 20, 2017 and a record date of August 25, 2017 for Master Fund shareholders to consider the approval of a new investment advisory agreement between Guggenheim and the Master Fund.
Between July 24, 2015 and April 28, 2017, the Company was offeringoffered and sellingsold its common shares ("Shares"(“Shares” or "Common Shares"“Common Shares”) pursuant to a registration statement on Form N-2 (the “Registration Statement”) covering its continuous public offering of up to $1.0$1.0 billion (the “Public Offering”). The Company initially sold and issued Shares on October 8, 2015 and then commenced investment operations. On April 28, 2017, the Company'sCompany’s Public Offering was terminated, resulting in a gross capital raise of approximately $164$164.0 million from the sale and issuance of Common Shares in the the Public Offering. The
In accordance with the offering documents and the intention of the Company may continueand Guggenheim Credit Income Fund 2019 (“GCIF 2019”) (together, the “Feeder Funds”) to acquireprovide substantial shareholder liquidity, the Boards of Trustees of the Master Fund common shares inand the Feeder Funds approved respective Plans of Liquidation for each company on March 30, 2021 (each, a continuous series of private placement transactions“Liquidation Plan”). In accordance with the proceeds from its distribution reinvestment program, subjectLiquidation 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.
For the Master Fund and the Feeder Funds, as of December 31, 2022, over 70% of the December 31, 2020 NAV has been paid to shareholders in the availabilityform of surplus cash available forliquidating distributions
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 (see
As of SeptemberJune 30, 2017,2023, the Company owned 64.6% of the Master Fund'sFund’s outstanding common shares.
Note 2. Significant Accounting Policies
Basis of Presentation
Management has determined that the Company meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC Topic 946”).
8
Notes to Financial Statements
The Company'sCompany’s interim financial statements have been prepared pursuant to the requirements for reporting on Form 10-Q and the disclosure requirements 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"(“GAAP”). In the opinion of management, the unaudited 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. The Company'sCompany’s unaudited financial statements should be read in conjunction with the Master Fund'sFund’s unaudited consolidated financial statements; the Master Fund'sFund’s quarterly report on Form 10-Q is incorporated by reference and filed as an exhibit to this Report.
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
Cash consists of demand deposits held at a major U.S. financial institution and the amount recorded on the statements of assets and liabilities may exceed the Federal Deposit Insurance Corporation insured limit. Management believes the credit risk related to its demand deposits is minimal.
Valuation of Investments
The Company invests substantially all of its equity capital in the purchase of the Master Fund'sFund’s common shares and its primary investment position is common shares of the Master Fund. The Company determines the fair value of the Master Fund'sFund’s common shares as the Master Fund'sFund’s net asset value per common share (as determined by the Master Fund) multiplied by the number of Master Fund common shares owned by the Company. The Company has implemented Accounting Standards Update ("ASU"(“ASU”) 2015-07, which permits a reporting entity, as a practical expedient, to measure the fair value of certain investments using the net asset value per share of the investment.
Transactions with the Master Fund
Distributions received from the Master Fund are recorded on the record date. Distributions received from the Master Fund are generally recognized as dividend income or return of capital in the current period, a portion of which may be subject to a change in characterization in future periods, including the potential for reclassification to realized gainsbetween dividend income and return of capital. The Company'sCompany’s transactions with the Master Fund are recorded on the effective date of the subscription in, or the redemption of, the Master Fund shares. Realized gains and losses resulting from the Company'sCompany’s share repurchase transactions with the Master Fund are calculated on the specific share identification basis.
Offering Expenses
Continuous offering expenses are capitalized monthly on the Company'sCompany’s statements of assets and liabilities as deferred offering costs and thereafter expensed to the Company'sCompany’s statements of operations over a 12-month period.period on a straight-line basis commencing at the later of (i) when the expense was incurred or (ii) when operations began.
9
Notes to Financial Statements
The purpose of the distribution and shareholder servicing fee (the "DSS Fee") at an annual rate of 0.90% of the average net purchase price per share sold in the Public Offering. The purpose of the (“DSS FeeFee”) is to reimburse Guggenheim Funds Distributors, LLC, a Delaware limited liability company (the "Dealer Manager"“Dealer Manager” or "GFD"“GFD”), an affiliate of Guggenheim, for costs incurred by selected dealers and investment representatives for (i) distribution of the Company'sCompany’s Common Shares (the "Distribution“Distribution Services Component"Component”) and (ii) providing ongoing shareholder services (the "Shareholder“Shareholder Services Component"Component”). Beginning in the third quarter of 2017 (the first calendar quarter after the close of the Company'sCompany’s Public Offering), the Company commenced recognition of the Shareholder Services Component as an expense on the Company'sCompany’s statements of operations as the services are provided. The Company has allocated per annum of the average net purchase price per share sold in the Public Offering to thisthe Shareholder Services Component. As the Distribution Services Component, representing per annum of the average net purchase price per share sold in the Public Offering, pertains to the sale of the Company'sCompany’s Common Shares, the Company estimates the present value of all future Distribution Services Component payments, employing a discount rate equal to the prevailing effective yield on 5-year5-year US Treasuries as observed on December 30, 2016. The Company records a liability equal to the estimated present value of the Distribution Services Component payments, recorded as "Duepart of “Due to Dealer Manager"Manager” with an offsetting charge to “Paid-in-capital in excess of par value” on the statements of assets and liabilities and recorded as a "Distribution“Distribution services charge"charge” on the statements of changes in net assets.
| September 30, 2017 | ||||||||||||||||||||
| Total | < 1 year | 1-3 years | 3-5 years | > 5 years | ||||||||||||||||
| DSS Fee: Distribution Services Component | $ | 3,747 | $ | 1,014 | $ | 1,684 | $ | 1,049 | $ | — | ||||||||||
Declared distributions to the Company'sCompany’s shareholders are recorded as a liability as of the record date.
Federal Income Taxes
The Company has elected to be treated for federal income tax purposes, and intends to maintain its qualification, as a Regulated Investment Company ("RIC")RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").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,” determined without regard to any dividend paid, as defined in the Code. The Company intends to distribute sufficient dividends to maintain its RIC status each year and it does not anticipate incurring a material level of federal income taxes.
The Company 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) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gain net income (
i.e., capital gains in excess of capital losses), adjusted for certain ordinary losses, for the one-year period generally ending on October 31st of the calendar year and (iii) any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which the Company incurred no federal income tax. The Company may, at its discretion, incur a 4% nondeductible federal excise tax on under-distribution of taxable ordinary income and capital gains.The Company 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 Company’s 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 Company 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 June 30, 2023, open U.S. Federal and state income tax years include the tax years ended September 30, 2019 through September 30, 2022. The Company 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.
10
Notes to Financial Statements
Note 3. Investments
Below is a summary of the Company'sCompany’s investment in the Master Fund, a related party (in thousands):
| Investment | As of: | No. of Shares | Weighted Average Shares Owned (1) | Cost | Fair Value | % of Net Assets | |||||||||||||
| Guggenheim Credit Income Fund | September 30, 2017 | 18,836 | 17,582 | $ | 156,091 | $ | 161,126 | 101.7 | % | ||||||||||
| Guggenheim Credit Income Fund | December 31, 2016 | 13,105 | 5,860 | $ | 107,184 | $ | 111,030 | 99.9 | % | ||||||||||
| Schedule of investment | ||||||||||||||||||||||||
| End of Period | Weighted Average Shares Owned | |||||||||||||||||||||||
| Period Ended | No. of Shares | Quarter to Date | Year to Date | Cost | Fair Value | % of Net Assets | ||||||||||||||||||
| June 30, 2023 | 17,061,497 | 17,061,497 | 17,061,497 | $ | 31,779 | $ | 22,696 | 99.6 | % | |||||||||||||||
| December 31, 2022 | 17,061,497 | 17,061,497 | 17,061,497 | $ | 49,545 | $ | 40,846 | 99.3 | % | |||||||||||||||
Restricted Securities
The Master Fund does not currently intend to list its common shares on any securities exchange, and it does not expect a secondary market to develop for its issued and outstanding common shares. As a result, the Company'sCompany’s ability to sell its Master Fund common shares is limited. Because the Master Fund common shares are being acquired in one or more transactions not involving a public offering, they are "restricted securities"“restricted securities” and may be required to be held indefinitely. Master Fund common shares may not be sold, transferred, assigned, pledged or otherwise disposed of unless (i) the Master Fund'sFund’s consent is granted, and (ii) the Master Fund common shares are registered under applicable securities laws or specifically exempted from registration (in which case the Master Fund'sFund’s shareholder may, at the Master Fund'sFund’s option, be required to provide the Master Fund with a legal opinion, in form and substance satisfactory to the Master Fund, that registration is not required). Accordingly, a shareholder in the Master Fund, including the Company, must be willing to bear the economic risk of investing in the Master Fund.Fund common shares. No sale,
From October 15, 2015 through August 11, 2020, the Company acquired its investment in the Master Fund at prices ranging from $7.06 per share to $8.59 per share.
Share Repurchase Program
The Master Fund has implemented a share repurchase program, whereby it conducts tender offers each calendar quarter it offers to repurchase up to 2.5% ofquarter. In accordance with the weighted average number of common shares outstanding inLiquidation Plan, the prior four calendar quarters at a price estimated to be equal to its net asset value per common share as of the end of the preceding calendar quarter. The Master Fund's Board may amend, suspend, or terminate theFund’s share repurchase program uponhas been suspended effective March 30, days' notice.
Note 4. Related Party Agreements and Transactions
The Company has entered into agreements with Guggenheim whereby the Company agrees to (i) receive expense support payments, and (ii) reimburse certain expenses of, and to pay for, administrative, expense support, organization and offerings costs incurred by Guggenheim on the Company's behalf. The Company has also approved an assignmentCompany’s behalf and assumption agreement with respect to the Dealer Manager Agreement. Pursuant to the assigned Dealer Manager Agreement, GFD receives(iii) pay DSS Fees payments fromto GFD, an affiliate of Guggenheim.
The memberships of the Company’s Board of Trustees (the “Company’s Board” or the “Board of Trustees”) and the Master Fund’s Board are identical and consequently the Company and distributes collected DSS Fees to eligible selected dealers that have elected to receive DSS Fees.
Administrative Services Agreement
The Company wasis party to an amended and restated administrative services agreement with CCAGuggenheim (the "Prior Administrative“Administrative Services Agreement"Agreement”) whereby CCAGuggenheim, serving as the administrator (the “Administrator”), has agreed to provide administrative services, to the Company, including office facilities and equipment and clerical, bookkeeping and record-keeping services. More specifically, CCA, serving as the administrator (the "Prior Administrator"), performedAdministrator performs and oversawoversees the Company'sCompany’s required administrative services, which include financial and corporate record-keeping, preparing and disseminating the Company'sCompany’s reports to its shareholders and filing reports with the SEC. In addition, the Prior Administrator assistedassists 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 rendered by others. For providing these services, facilities and personnel, the Company reimbursedreimburses the Prior Administrator for the allocable portion of overhead and other expenses incurred by the Prior Administrator in performing its obligations under the Prior Administrative Services Agreement. On September 5, 2017 the Company entered into an administrative services agreement with Guggenheim (the "Administrative Services Agreement") whereby Guggenheim, serving as the administrator (the "Administrator") agreed
11
Notes to provide administrative services, similar to those previously provided by CCA, commencing on September 11, 2017.
The Administrative Services Agreement may be terminated at any time, without the payment of any penalty: (i) by the Company upon 60 days'days’ written notice to Guggenheim upon the vote of the Company'sCompany’s independent trustees or (ii) by the Guggenheim upon not less than 120 days'days’ written notice to the Company. Unless earlier terminated, the Administrative Services Agreement will remain in effect year to yearfor two years, and thereafter shall continue automatically for successive one-year periods if approved annually by a majority of the Company's Board and the Company's Independent Trustees.
Dealer Manager Agreement
The Company is party to a dealer manager agreement with GFD and the assignment and assumption agreement was approved by the Company's Board.(the “Dealer Manager Agreement”). Under the terms of the Dealer Manager Agreement, GFD is to act on a best efforts basis as the exclusive dealer manager for (i) the administration of the Company'sCompany’s DSS Fee payments to selected dealers and (ii) the public offering of common shares for future feeder funds affiliated with the Master Fund. The Company, not the Master Fund, is responsible for the compensation of GFD pursuant to the terms of the Dealer Manager Agreement. GFD does not receive any compensation to manage the Company'sCompany’s DSS Fees program and it is not entitled to retain any of the DSS Fees payments. The Dealer Manager Agreement may be terminated by the Company or GFD upon 60 calender days'calendar days’ written notice to the other party. In the event that the Company or GFD terminates the Dealer Manager Agreement with respect to the Company, the Dealer Manager Agreement will continue with respect to any other feeder fund.
Beginning in the fourth quarter of 2017 (the second calendar quarter after the close of the Company’s Public Offering), the Company will initiatecommenced quarterly payments of the DSS Fee paymentsat an annual rate of of the average net purchase price per share sold in the Public Offering. The quarterly payment of the DSS Fee is computed at the daily rate of 0.002466% (i.e. annual rate of 0.90%) of the product of (i) $ per Common Share (the average net purchase price of Common Shares sold in the Public Offering, excluding Common Shares issued under the Company’s distribution reinvestment plan (“DRP Shares”)) and (ii) the number of Common Shares outstanding on each day during the recording period, excluding (a) DRP Shares and (b) Shares owned by shareholders that are not recipients of ongoing shareholder services from eligible selected dealers. The Company will cease to reimburse GFDpay the DSS Fee at the earlier of: (i) the date at which the second amended and restated dealer manager agreement (the “Dealer Manager Agreement”) is terminated; (ii) the date at which the underwriting compensation from all sources, including the DSS Fee, any organization and offering fees paid to the Dealer Manager for costs incurred by selected dealers and investment representatives for providing distributionunderwriting, underwriting compensation and shareholder services.servicing paid directly by the shareholders and the Company or its affiliates, equals 10% of the gross proceeds from the Company’s Public Offering, excluding proceeds from DRP Share sales; and (iii) the date at which a liquidity event occurs. The DSS Fee quarterly payments will cease inapproval of the Liquidation Plan on March 30, 2021 is deemed a liquidity event thatand therefore, the Dealer Manager Agreement is terminated by the Company or GFD.
Organization and Offering Expense Reimbursement Agreement
Under the Company initially entered into anterms of the organization and offering expense reimbursement agreement, as may be amended (the "O&O Agreement"), with CCA and Guggenheim. Under the O&O Agreement, the Company reimbursed
Expense Support and Conditional Reimbursement Agreement
The Company initially entered into an expense support and conditional reimbursement agreement with CCA and Guggenheim executed on July 24, 2015, as amended (the "Prior Expense Support Agreement"). AccordingAgreement will automatically terminate if (i) the Master Fund terminates the Investment Advisory Agreement with Guggenheim or (ii) the Company’s Board of Trustees makes a determination to dissolve or liquidate the Company. The Board of Trustees’ approval of a Liquidation Plan on March 30, 2021 is deemed a liquidity event and therefore, the Expense Support Agreement is deemed terminated.
Upon termination of the Expense Support Agreement, Guggenheim is required to fund any amounts accrued thereunder as of the date of termination. Similarly, the conditional obligation of the Company to reimburse Guggenheim pursuant to the terms of the Prior Expense Support Agreement CCA and Guggenheim agreed to reimburseshall survive the Company for expenses in an amount that is sufficient to ensure that no portion of the Company's distributions to shareholders will be paid from Common Share offering proceeds. CCA and Guggenheim agreed to reimburse the Company monthly for expenses in an amount equal to the difference between the Company's cumulative distributions paid to its shareholders in each month less the sum of the Company's estimated investment company taxable income and net capital gains in each month. On September 5, 2017 the Company entered into an amended and restated expense support and conditional reimbursement agreement (the "Expense Support Agreement") with Guggenheim and CCA, for a limited purpose, effective as of September 11, 2017. The amended termstermination of the Expense Support Agreement: (i) release CCA from all obligationsAgreement.
12
Notes to make further expense payments, (ii) terminate all of CCA's rights under the Expense Support Agreement, including any right to reimbursement for prior period expense payments made under the terms of the Prior Expense Support Agreement, and (iii) permit the Company the option to limit or reduce the reimbursement of expenses in any manner so that the Company will comply with IRC Section 851 in each of its future tax years. As a result, 100% of all CCA's prior periods' expense support payments were classed as ineligible for future reimbursement, and going forward, Guggenheim is the sole source of expense support payments and solely eligible for reimbursement of prior periods' expense support payments.
Pursuant to the Expense Support Agreement, the Company has a conditional obligation to reimburse Guggenheim for any amounts funded by Guggenheim under this arrangement or the Prior Expense Support Agreement if (and only to the extent that), during any month occurring within three years of the date on which Guggenheim funded such amount, the sum of the Company'sCompany’s estimated investment company taxable income and net capital gains exceeds the ordinary cash distributions paid by the Company to its shareholders; provided, however, that (i) the Company will only reimburse Guggenheim for expense support payments made by Guggenheim to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause "other“other operating expenses"expenses” (as defined below) (on an annualized basis and net of any expense support reimbursement payments received by the Company during such fiscal year) to exceed the lesser of (A) of the Company'sCompany’s average net assets attributable to its Common Shares for the fiscal year-to-date period after taking such reimbursement payments into account and (B) the percentage of the Company'sCompany’s average net assets attributable to its Common Shares represented by "other“other operating expenses"expenses” during the fiscal year in which such expense support payment from Guggenheim was made (provided, however, that this clause (B) will not apply to any reimbursement payment which relates to an expense support payment from the AdvisorsGuggenheim made during the same fiscal year); and (ii) the Company will not reimburse Guggenheim for expense support payments made by Guggenheim if the annualized rate of regular cash distributions declared by the Company at the time of such reimbursement payment is less than the annualized rate of regular cash distributions declared by the Company at the time Guggenheim made the expense support payment to which such reimbursement payment relates. "Other“Other operating expenses"expenses” means the Company'sCompany’s total "operating expenses"“operating expenses” (as defined below), excluding any investment advisory fee, a performance-based incentive fee,fees, organization and offering expenses, shareholder servicing fees, interest expense, brokerage commissions and extraordinary expenses. "Operating expenses"“Operating expenses” means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.
As of the Expense Support Agreement at any time. The Expense Support Agreement will automatically terminate if (i)Board of Trustees’ approval of the Master Fund terminatesLiquidation Plan, the investment advisory agreement with Guggenheim, or (ii) the Company's Board makes a determination to dissolve or liquidate the Company.
| Month Ended | Expense Support from CCA and Guggenheim(3) | CCA Waiver of Expense Support Reimbursement | Expense Support Reimbursement | Unreimbursed Expense Support | Ratio of Other Operating Expenses to Average Net Assets for the Period (1) | Minimum of 1.75% and Annualized Fiscal Year to Date Other Operating Expense Ratio (1) | Annualized Regular Cash Distribution Rate/Share, Declared (2) | Eligible for Reimbursement through | ||||||||||
| July 2015 | $ | 11 | $ | — | $ | (11 | ) | $ | — | NM | NM | $ | — | July 31, 2018 | ||||
| August 2015 | 32 | (14 | ) | (18 | ) | — | NM | NM | $ | 0.33436 | August 31, 2018 | |||||||
| September 2015 | 30 | (15 | ) | — | 15 | NM | NM | $ | 0.66872 | September 30, 2018 | ||||||||
| October 2015 | 30 | (15 | ) | — | 15 | 135.82% | 1.75% | $ | 0.66872 | October 31, 2018 | ||||||||
| November 2015 | 33 | (16 | ) | — | 17 | 9.29% | 1.75% | $ | 0.66872 | November 30, 2018 | ||||||||
| December 2015 | (19 | ) | 10 | — | (9 | ) | 0.47% | 1.75% | $ | 0.66872 | December 31, 2018 | |||||||
| January 2016 | 44 | (22 | ) | — | 22 | 0.97% | 1.75% | $ | 0.66872 | January 31, 2019 | ||||||||
| February 2016 | 56 | (28 | ) | — | 28 | 0.52% | 1.75% | $ | 0.66872 | February 28, 2019 | ||||||||
| March 2016 | 73 | (37 | ) | — | 36 | 0.72% | 1.75% | $ | 0.64792 | March 31, 2019 | ||||||||
| April 2016 | 164 | (82 | ) | — | 82 | 0.20% | 1.75% | $ | 0.65520 | April 30, 2019 | ||||||||
| May 2016 | 267 | (133 | ) | — | 134 | 0.15% | 1.75% | $ | 0.65520 | May 31, 2019 | ||||||||
| June 2016 | 280 | (140 | ) | — | 140 | 0.12% | 1.75% | $ | 0.65520 | June 30, 2019 | ||||||||
| July 2016 | 330 | (165 | ) | — | 165 | 0.10% | 1.75% | $ | 0.65520 | July 31, 2019 | ||||||||
| August 2016 | 80 | (40 | ) | — | 40 | 0.08% | 1.75% | $ | 0.65520 | August 31, 2019 | ||||||||
| September 2016 | (670 | ) | 335 | — | (335 | ) | 0.06% | 1.65% | $ | 0.65520 | September 30, 2019 | |||||||
| October 2016 | 507 | (254 | ) | — | 253 | 0.05% | 1.43% | $ | 0.65520 | October 31, 2019 | ||||||||
| November 2016 | 693 | (347 | ) | — | 346 | 0.04% | 1.25% | $ | 0.65520 | November 30, 2019 | ||||||||
| December 2016 | 254 | (127 | ) | — | 127 | 0.03% | 1.10% | $ | 0.64480 | December 31, 2019 | ||||||||
| January 2017 | 424 | (212 | ) | — | 212 | 0.06% | 0.66% | $ | 0.64480 | January 31, 2020 | ||||||||
| February 2017 | 260 | (130 | ) | — | 130 | 0.05% | 0.60% | $ | 0.64480 | February 28, 2020 | ||||||||
| March 2017 | 348 | (174 | ) | — | 174 | 0.06% | 0.65% | $ | 0.64480 | March 31, 2020 | ||||||||
| April 2017 | 178 | (89 | ) | — | 89 | 0.04% | 0.61% | $ | 0.63700 | April 30, 2020 | ||||||||
| May 2017 | 254 | (127 | ) | (15 | ) | 112 | 0.04% | 0.58% | $ | 0.63076 | May 31, 2020 | |||||||
| June 2017 | 316 | (158 | ) | — | 158 | 0.13% | 0.75% | $ | 0.63076 | June 30, 2020 | ||||||||
| July 2017 | — | — | — | — | 0.07% | 0.76% | $ | 0.63076 | July 31, 2020 | |||||||||
| August 2017 | — | — | — | — | 0.07% | 0.77% | $ | 0.63076 | August 31, 2020 | |||||||||
| September 2017 | 2 | — | — | 2 | 0.01% | 0.70% | $ | 0.63076 | September 31, 2020 | |||||||||
| Total | $ | 3,977 | $ | (1,980 | ) | $ | (44 | ) | $ | 1,953 | ||||||||
Summary of Related Party Transactions for the Three and Nine Months Ended September 30, 2017 and 2016
The following table presents the related party fees, expenses and transactions for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016;June 30, 2022; related party transactions between the Company and the Master Fund in connection with Common Shares purchases, sales and distributions are disclosed elsewhere in the financial statements:statements ($ in thousands):
| Schedule of related party transactions | ||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| Related Party (1) | Source Agreement & Description | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Related Party Expenses: | ||||||||||||||||||
| Guggenheim | Administrative Services Agreement - expense reimbursement | $ | 11 | $ | 33 | $ | 21 | $ | 61 | |||||||||
| (1) | Not included in the table above is the Company’s change in “Due to Dealer Manager” which represents the payable balances associated with the DSS Fee. For a breakdown of the Company’s “Due to Dealer Manager” balance see Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies. |
13
Notes to Financial Statements (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| Related Party | Source Agreement & Description | 2017 | 2016 | 2017 | 2016 | |||||||||||||
| CCA | Prior Administrative Services Agreement - expense reimbursement | $ | 64 | $ | 61 | $ | 250 | $ | 220 | |||||||||
| Guggenheim | Administrative Services Agreement - expense reimbursement | $ | 15 | $ | — | $ | 15 | $ | — | |||||||||
| Carey Financial | Dealer Manager Agreement - sales commissions and dealer manager fees | $ | — | $ | 1,579 | $ | 2,311 | $ | 3,520 | |||||||||
| Dealer Manager | Dealer Manager Agreement - DSS Fee (Distribution Services Component only) | $ | 80 | $ | — | $ | 1,308 | $ | — | |||||||||
| Dealer Manager | Dealer Manager Agreement - DSS Fee (Shareholder Services Component) | $ | 97 | $ | — | $ | 97 | $ | — | |||||||||
| CCA & Guggenheim | O&O Agreement - organization expenses reimbursements | $ | — | $ | — | $ | — | $ | 94 | |||||||||
| CCA & Guggenheim | O&O Agreement - offering expenses reimbursements | $ | — | $ | 474 | $ | 738 | $ | 827 | |||||||||
| CCA & Guggenheim | Prior Expense Support Agreements - net expense support (to) from related parties | $ | (13 | ) | $ | (261 | ) | $ | 1,768 | $ | 623 | |||||||
| Guggenheim | Expense Support Agreement - expense reimbursement to related parties | $ | 29 | $ | — | $ | 29 | $ | — | |||||||||
Indemnification
The Administrative Services Agreement provides certain indemnification to the Administrator,Guggenheim, its directors, officers, persons associated with the Administrator,Guggenheim and its affiliates. In addition, the Company'sCompany’s Declaration of Trust, as amended, provides certain indemnifications to its officers, trustees, agents and certain other persons. The Dealer Manager Agreement provides for certain indemnifications from the Company (with respect to the primary offering of its Common Shares) to the Dealer Manager,GFD, any selected dealers and their respective officers, directors, employees, members, affiliates, agents, representatives and, if any, each person who controls such person or entity within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act. Such indemnifications are subject to certain limitations as provided for in the Company’s Declaration of Trust and the North American Securities Administrators Association Guidelines and are considered customary by management. As of SeptemberJune 30, 2017,2023, management believes that the risk of incurring any losses for such indemnification is remote.
Note 5. Common Shares
Issuance of Common Shares
The Company'sCompany’s Registration Statement pertaining to its Public Offering of Common Shares at an initial public offering price of $9.55$ per Share was declared effective on July 24, 2015. For the nine months ended September 30, 2017, the public offering price of the Company's Common Shares ranged from a low of $9.90 per Common Share to a high of $9.95 per Common Share when the Public Offering was terminated on April 28, 2017. For the nine months ended September 30, 2016, the public offering price of the Company's Common Shares ranged from a low of $9.25 per Common Share to a high of $9.80 per Common Share. The Company's Public Offering was terminated on April 28, 2017.
The following table summarizes (i) the total Common Shares issued before share repurchase activity, and proceeds received in connection with the Company'sCompany’s Public Offering and (ii) reinvestment of distributions for (i)(a) the ninesix months ended SeptemberJune 30, 20172023 and (ii)(b) the period commencing on July 24, 2015 (inception) and ending Septemberthrough June 30, 2017 (in thousands, except share and per share amounts):
| Nine Months Ended September 30, 2017 | Inception through September 30, 2017 | ||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||
| Gross proceeds from Public Offering | 4,951,760 | $ | 49,197 | 16,970,404 | $ | 164,194 | |||||||
| Commissions paid outside escrow | — | (496 | ) | — | (1,924 | ) | |||||||
| Dealer Manager fees and commissions | — | (2,311 | ) | — | (7,462 | ) | |||||||
| Net proceeds to the Company from Public Offering | 4,951,760 | 46,390 | 16,970,404 | 154,808 | |||||||||
| Reinvestment of distributions | 404,899 | 3,732 | 592,638 | 5,450 | |||||||||
| Net proceeds from all issuance of Common Shares | 5,356,659 | $ | 50,122 | 17,563,042 | $ | 160,258 | |||||||
| Average net proceeds per Common Share | $9.36 | $9.12 | |||||||||||
| Schedule of common shares | ||||||||||||||||
| Six Months Ended | Inception through | |||||||||||||||
| June 30, 2023 | June 30, 2023 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Gross proceeds from Public Offering | — | $ | — | 16,970,408 | $ | 164,194 | ||||||||||
| Commission paid outside escrow | — | — | — | (1,924 | ) | |||||||||||
| Dealer Manager fees and commissions | — | — | — | (7,462 | ) | |||||||||||
| Net proceeds to the Company from Public Offering | — | — | 16,970,408 | 154,808 | ||||||||||||
| Reinvestment of shareholders’ distributions | — | — | 2,550,474 | 22,011 | ||||||||||||
| Net proceeds from all issuance of Common Shares | — | $ | — | 19,520,882 | $ | 176,819 | ||||||||||
| Average net proceeds per Common Share | $ | $ | ||||||||||||||
Repurchase of Common Shares
The following table is a summary of the quarterly tender offers, completed pursuant to the share repurchases programs completedrepurchase program, during the nine monthstwo years ended SeptemberJune 30, 2017 (dollars in thousands):
| Schedule of tender offers, completed pursuant to the share repurchase program | ||||||||||||||||||||||||
| Tender Offer Termination Date | Total Number of Shares Offered to Repurchase | Total Number of Shares Repurchased | Total Consideration | Price Paid per Share | No. of Shares Repurchased / Total Shares Offered | No. of Shares Repurchased / Weighted Average Shares (1) | ||||||||||||||||||
| 2021: | ||||||||||||||||||||||||
| March 8, 2021 | 420,901 | 311,151 | $ | 2,555 | $ | 8.21 | % | % | ||||||||||||||||
| Total | 420,901 | 311,151 | $ | 2,555 | % | |||||||||||||||||||
| Tender Offer Termination Date | Total Number of Shares Offered to Repurchase | Total Number of Shares Repurchased | Total Consideration | No. of Shares Repurchased / Total Offer | Price Paid per Share | ||||||||||||
| 2017: | |||||||||||||||||
| March 3, 2017 | 136,060 | 9,718 | $ | 90 | 7.1 | % | $ | 9.29 | |||||||||
| June 19, 2017 | 221,543 | 26,043 | $ | 239 | 11.8 | % | $ | 9.17 | |||||||||
| September 20, 2017 | 307,448 | 119,167 | $ | 1,088 | 38.8 | % | $ | 9.13 | |||||||||
| Total | 665,051 | 154,928 | $ | 1,417 | 23.3 | % | |||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||
| Per Share | Amount | Allocation | Per Share | Amount | Allocation | |||||||||||||||||
| Total Declared Distributions | $ | 0.16 | $ | 2,748 | 100.0 | % | $ | 0.16 | $ | 1,129 | 100.0 | % | ||||||||||
| From net investment income | 0.13 | 2,318 | 84.4 | % | 0.14 | 991 | 87.8 | % | ||||||||||||||
| Distributions in excess of net investment income | 0.03 | 430 | 15.6 | % | 0.02 | 138 | 12.2 | % | ||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||
| Per Share | Amount | Allocation | Per Share | Amount | Allocation | |||||||||||||||||
| Total Declared Distributions | $ | 0.48 | $ | 7,810 | 100.0 | % | $ | 0.49 | $ | 1,819 | 100.0 | % | ||||||||||
| From net investment income | 0.39 | 6,470 | 82.8 | % | 0.41 | 1,547 | 85.0 | % | ||||||||||||||
| Distributions in excess of net investment income | 0.09 | 1,340 | 17.2 | % | 0.08 | 272 | 15.0 | % | ||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net increase in net assets resulting from operations | $ | 2,458 | $ | 2,413 | $ | 7,705 | $ | 3,633 | ||||||||
| Weighted average Common Shares outstanding - basic and diluted | 17,432,402 | 6,956,110 | 16,443,891 | 3,752,921 | ||||||||||||
Earnings per Common Share - basic and diluted (1) | $ | 0.14 | $ | 0.35 | $ | 0.47 | $ | 0.97 | ||||||||
| (1) |
In accordance with the Liquidation Plan, the Company’s share repurchase program and distribution reinvestment plan have been suspended effective March 30, 2021.
14
Notes to Financial Statements (Unaudited)
Note 6. Distributions
The following table summarizes the distributions that the Company declared on its Common Shares during the six months ended June 30, 2023 and June 30, 2022:
| Schedule of distributions | ||||||||||||||
| Record Date | Payment Date | Distribution Per Common Share at Record Date | Distribution Per Common Share at Payment Date | Distribution Amount | ||||||||||
| For Fiscal Year 2023 | ||||||||||||||
| March 22 | March 23 | $ | 0.71000 | $ | 0.71000 | $ | 11,570 | |||||||
| June 23 | June 26 | 0.41000 | 0.41000 | 6,684 | ||||||||||
| $ | 1.12000 | $ | 18,254 | |||||||||||
| Record Date | Payment Date | Distribution Per Common Share at Record Date | Distribution Per Common Share at Payment Date | Distribution Amount | ||||||||||
| For Fiscal Year 2022 | ||||||||||||||
| February 3 | February 7 | $ | 0.88000 | $ | 0.88000 | $ | 14,342 | |||||||
| May 23 | May 25 | 0.82000 | 0.82000 | 13,364 | ||||||||||
| $ | 1.70000 | $ | 27,706 | |||||||||||
15
Notes to Financial Statements
Note 8. 7. Financial Highlights
The following per Common Share data and financial ratios have been derived from information provided in the financial statements. The following is a schedule of financial highlights during the ninesix months ended SeptemberJune 30, 20172023 and 2016:
| Schedule of financial highlights | ||||||||
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| PER COMMON SHARE OPERATING PERFORMANCE | ||||||||
| Net asset value, beginning of period | $ | 2.52 | $ | 6.56 | ||||
| Net investment income (1) | 0.01 | 0.12 | ||||||
| Net unrealized depreciation from investment in GCIF (2) | (0.42 | ) | (0.12 | ) | ||||
| Net decrease resulting from operations | (0.41 | ) | — | |||||
| Distributions to common shareholders | ||||||||
| Distributions from net investment income (3) | (0.01 | ) | (0.17 | ) | ||||
| Distributions representing return of capital (3) | (0.70 | ) | (1.53 | ) | ||||
| Net decrease resulting from distributions | (0.71 | ) | (1.70 | ) | ||||
| Net asset value, end of period | $ | 1.40 | $ | 4.86 | ||||
| INVESTMENT RETURNS | ||||||||
| Total investment return-net asset value (4) | (0.44 | )% | (0.30 | )% | ||||
| RATIOS/SUPPLEMENTAL DATA | ||||||||
| Net assets, end of period | $ | 22,791 | $ | 79,259 | ||||
| Average net assets (5) | $ | 38,584 | $ | 93,817 | ||||
| Common Shares outstanding, end of period | 16,297,188 | 16,297,188 | ||||||
| Weighted average Common Shares outstanding | 16,297,188 | 16,297,188 | ||||||
| Ratios-to-average net assets: (5) (6) | ||||||||
| Total expenses | 0.53 | % | 0.32 | % | ||||
| Net expenses | 0.53 | % | 0.32 | % | ||||
| Net investment income | 0.93 | % | 2.07 | % | ||||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| PER COMMON SHARE OPERATING PERFORMANCE | |||||||
| Net asset value, beginning of period | $ | 9.11 | $ | 8.68 | |||
Net investment income (1) | 0.39 | 0.41 | |||||
Net unrealized gains (2) | 0.10 | 0.47 | |||||
| Net increase resulting from operations | 0.49 | 0.88 | |||||
| Distributions to common shareholders | |||||||
Distributions from net investment income (3) | (0.39 | ) | (0.41 | ) | |||
Distributions in excess of net investment income (3) | (0.09 | ) | (0.08 | ) | |||
| Net decrease resulting from distributions | (0.48 | ) | (0.49 | ) | |||
| Capital Share Transactions | |||||||
Issuance of Common Shares above net asset value (4) | 0.07 | 0.06 | |||||
Distribution services charge (9) | (0.08 | ) | — | ||||
| Net increase (decrease) in net assets resulting from Capital Share transactions | (0.01 | ) | 0.06 | ||||
| Net asset value, end of period | $ | 9.11 | $ | 9.13 | |||
| INVESTMENT RETURNS | |||||||
Total investment return-net price (5) | 2.74 | % | 10.63 | % | |||
Total Investment return-net asset value(6) | 5.27 | % | 11.06 | % | |||
| RATIOS/SUPPLEMENTAL DATA (all amounts in thousands except share amounts and ratios) | |||||||
| Net assets, end of period | $ | 158,500 | $ | 80,951 | |||
Average net assets (7) | $ | 148,236 | $ | 34,440 | |||
| Common Shares outstanding, end of period | 17,407,514 | 8,869,491 | |||||
| Weighted average Common Shares outstanding | 16,443,891 | 3,752,921 | |||||
Ratios-to-average net assets:(7)(8) | |||||||
| Total expenses | 1.38 | % | 2.04 | % | |||
| Effect of expense reimbursement from Advisors | (1.17 | )% | (1.81 | )% | |||
| Net expenses | 0.21 | % | 0.23 | % | |||
| Net investment income | 4.36 | % | 4.49 | % | |||
| (1) | The per Common Share data was derived by using the weighted average Common Shares outstanding during the |
| (2) | The |
| (3) | The per Common Share data for distributions is the actual amount of distributions paid or payable per Common Share outstanding during the entire period; distributions per Common Share are rounded to the nearest $0.01. |
| For income tax purposes, distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital or a combination thereof. The |
16
Notes to Financial Statements (Unaudited)
| Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s Common Shares at the beginning and end of the period, including distributions declared during the period. Total investment return-net asset value is based on (i) net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, plus any shares issued in connection with the reinvestment of monthly distributions and (iii) distributions payable relating to the ownership of shares, if any, on the last day of the period. The total investment return-net asset value calculation assumes that |
| The computation of average net assets during the period is based on averaging the amount on the first day of the first month of the period and the last day of each month during the period. |
| The ratios-to-average net assets do not include any proportionate allocation of income and expenses incurred at the Master Fund. The Master Fund’s total expenses-to-average net assets for the six months ended June 30, 2023 and June 30, 2022, were 2.23% and 1.61%, respectively. |
Note 9. 8. Subsequent Events
Management has evaluated subsequent events through the Master Funddate of issuance of these financial statements and Guggenheim was approved by a majority (as such term is definedhas determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, or disclosure in, the 1940 Act) of the votes cast by shareholders. The new investment advisory agreement replaced the Interim Investment Advisory Agreement effective as of October 20, 2017.financial statements.
17
Item 2. Management'sManagement’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 should be read in conjunction with our financial statements and related notes thereto appearing elsewhere in this Report. Unless otherwise noted, the terms "we," "us,"“we,” “us” and "our"“our” refer to Guggenheim Credit Income Fund 2016 T. The Term "Master Fund"“Master Fund” refers to Guggenheim Credit Income Fund. Capitalized terms used in this Item 2 have the same meaning as in the accompanying financial statements presented in
Overview
We are a feeder fund and we are affiliated with the Master Fund, which is a specialty finance investment company that has elected to be treated as a BDC under the 1940 Act. The Master Fund is 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 ourthe Master Fund’s portfolio on an ongoing basis. The Master Fund'sFund’s management discussion and analysis of financial condition and results of operations as presented in its quarterly report should be read in its entirety.
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 August 9, 2023, over 85% 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 August 9, 2023 | $ | 6.94 | $ | 7.30 | $ | 20.02 | ||||||
| Number of Portfolio Companies at beginning of Year | 18 | — | — | |||||||||
| Number of Portfolio Companies at end of Period | 13 | — | — | |||||||||
| YTD Portfolio sales and repayments ($ in thousands) | $ | 16,655 | $ | — | $ | — | ||||||
| Cumulative Liquidating Distributions Declared through August 9, 2023 ($ in thousands) | $ | (177,623 | ) | $ | (118,969 | ) | $ | (34,760 | ) | |||
| Percentage of December 31, 2020 NAV Declared through August 9, 2023 | 91.80 | % | 91.50 | % | 88.31 | % | ||||||
| Net Assets at beginning of Year ($ in thousands) | $ | 61,273 | $ | 41,115 | $ | 12,926 | ||||||
| Net Assets at end of Period ($ in thousands) | $ | 34,046 | $ | 22,791 | $ | 7,489 | ||||||
| Net asset value per share at end of period | $ | 1.33 | $ | 1.40 | $ | 4.31 | ||||||
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.
18
Investment Objectives and Investment Program
Our investment objectives are to provide our shareholders with current income, capital preservation and, to a lesser extent, long-term capital appreciation.
We intend to meet our investment objectives by investing substantially all of our equity capital in the Master Fund. The Master Fund'sFund’s investment objectives are the same as our own. ThePrior to the Board of Trustees’ approval of the Liquidation Plan, the Master Fund'sFund’s investment strategy iswas focused on creating and growing an investment portfolio that generates superior risk-adjusted returns by carefully selecting investments through rigorous due diligence and actively managing and monitoring ourits investment portfolio. When evaluating an investment and the related portfolio company, the Master Fund uses the resources of Guggenheimits advisor to develop an investment thesis and a proprietary view of a potential portfolio company’s intrinsic value. We believe the Master Fund'sFund’s flexible approach to investing allows it to take advantage of opportunities that offer favorable risk/reward characteristics.
The Master Fund primarily focusesfocused on the following range of 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 creditors. |
| ● | Subordinated Debt. Subordinated debt investments are generally subordinated to senior debt investments 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 sporadic dividends and realized gains on dispositions of such investments. |
The Master Fund'sFund’s investment activities may 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 transactions, the general economic environment, the competitive investment environment for the types of investments the Master Fund currently seeks and intends to seek in the future, the amount of equity capital the Master Fund raises from the sale of its common shares to us and any other feeder funds and the amount and cost of capital that the Master Fund may borrow.
The Master Fund acquires its portfolio investments through the following investment access channels:
| ● | Direct Originations: This channel consists of investments that are directly originated |
| ● | 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. |
On July 15, 2015, the relationship networksstaff of Guggenheim. Such investments are originated or structured for the Master Fund or made bySecurities and Exchange Commission (the “SEC”) issued a no action letter to the Master Fund and are not generally available to the broader investment market. These investments may include both debt and equity investment components.
| ● | a Feeder Fund to operate as a BDC under the 1940 Act; |
| ● | a Feeder Fund to look through the Master Fund and treat as its assets its proportionate ownership interest in the Master Fund’s assets; and |
| ● | the Master Fund to repurchase its shares in connection with the planned liquidation of a Feeder Fund at the end of the Feeder Fund’s finite term. |
19
Revenue
Dividend income derived from our ownership of the Master Fund'sFund’s common shares.shares is our source of investment income. Our revenuesrevenue will fluctuate with the operating performance of the Master Fund and its distributions paid to us.
Operating Expenses
Our primary operating expenses include administrative services, related party reimbursements, custodian and accounting services, independent audit services, compliance services, tax services, fees, legal services, transfer agent services, shareholder servicing component expenses, organization expenses and offering expenses. Additionally, we indirectly bear the operating expenses of the Master Fund through our ownership of its common shares, such as an investment advisory fee, a performance-based incentive fee, independent audit services, third-party valuation services and various other professional services fees.
Results of Operations
Operating results for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016June 30, 2022 were as follows (in thousands):
| For The Three Months Ended September 30, | For The Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Total investment income | $ | 2,968 | $ | 1,539 | $ | 6,773 | $ | 1,626 | |||||||
| Net expenses | 650 | 548 | 303 | 79 | |||||||||||
| Net investment income | 2,318 | 991 | 6,470 | 1,547 | |||||||||||
Net realized gain on investment | 46 | — | 46 | — | |||||||||||
| Net change in unrealized appreciation on investment | 94 | 1,422 | 1,189 | 2,086 | |||||||||||
| Net increase in net assets resulting from operations | $ | 2,458 | $ | 2,413 | $ | 7,705 | $ | 3,633 | |||||||
| Three months ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Total investment income | $ | 205 | $ | 863 | $ | 490 | $ | 2,320 | ||||||||
| Net expenses | 123 | 157 | 174 | 308 | ||||||||||||
| Net investment income | 82 | 706 | 316 | 2,012 | ||||||||||||
| Net change in unrealized depreciation from investment in GCIF | (367 | ) | (2,138 | ) | (385 | ) | (1,933 | ) | ||||||||
| Net increase (decrease) in net assets resulting from operations | $ | (285 | ) | $ | (1,432 | ) | $ | (69 | ) | $ | 79 | |||||
Investment Income
Investment income consisted solely of distributions from the Master Fund for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively.
Operating Expenses
Operating expenses consisted of the following major components for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016 (in thousands):
| For The Three Months Ended September 30, | For The Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Administrative services | $ | 4 | $ | 4 | $ | 12 | $ | 12 | |||||||
| Related party reimbursements | 81 | 61 | 265 | 220 | |||||||||||
| Trustees fees | 1 | 3 | 2 | 3 | |||||||||||
| Professional services fees | 9 | 53 | 263 | 130 | |||||||||||
| Offering expenses | 371 | 137 | 1,247 | 181 | |||||||||||
| Organization expenses | — | — | — | 94 | |||||||||||
| Printing and mailing expenses | (1 | ) | 18 | 23 | 40 | ||||||||||
| Shareholder servicing component expenses | 97 | — | 97 | — | |||||||||||
| Other expenses | 46 | 11 | 133 | 22 | |||||||||||
| Total operating expenses | 608 | 287 | 2,042 | 702 | |||||||||||
| Reimbursement of expense support | 44 | — | 44 | — | |||||||||||
| Less: Expense support to (from) related parties | (2 | ) | 261 | (1,783 | ) | (623 | ) | ||||||||
| Net expenses | $ | 650 | $ | 548 | $ | 303 | $ | 79 | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Administrative services | $ | 3 | $ | 3 | $ | 7 | $ | 7 | ||||||||
| Related party reimbursements | 11 | 33 | 21 | 61 | ||||||||||||
| Professional services fees | 24 | 32 | — | 63 | ||||||||||||
| Transfer agent expense | 80 | 79 | 160 | 157 | ||||||||||||
| Other expenses | 5 | 10 | (14 | ) | 20 | |||||||||||
| Net expenses | $ | 123 | $ | 157 | $ | 174 | $ | 308 | ||||||||
Related party reimbursements are comprised of the Company'sCompany’s allocable share of administrative costs and expenses incurred by CCA or Guggenheim that were reimbursable. Reimbursable costs and expenses include, but are not limited to, the Company'sCompany’s share of salaries, rent, office administration, costs associated with regulatory reporting and filings and costs related to the preparation for, and conducting of, meetings of the Company'sCompany’s Board. An investment advisory fee is only incurred by the Master Fund, although it is incurred indirectly by the Company.Company through its ownership of Master Fund common shares.
20
Beginning on July 1, 2017, the Company incurred an additional operating expense, specifically the Shareholder Servicing Component of the DSS Fee, to reimburse the Dealer Manager of the Company'sCompany’s Public Offering for costs incurred by participating broker-dealers and investment representatives for providing ongoing shareholder services. The Shareholder Servicing Component will accrueaccrues daily and will beis recorded on the statementstatements of operations. The Shareholder Servicing Component will beis computed at the daily rate of 0.000685% (i.e. annual rate of 0.25%) of the product of (i) the weighted average net price of Common Shares sold in the Public Offering, excluding DRP Shares and (ii) the number of Common Shares outstanding on each day of the recording period, excluding (a) DRP Shares and (b) Common Shares owned by the Company'sCompany’s shareholders that are not receiving shareholder services from an eligible participating broker-dealer. This operatingThe Shareholder Servicing Component expense when incurred, will beis borne equally among all of the Company'sCompany’s outstanding Shares.
Net Realized Gain (Loss) onGains (Losses) from Investment
For the three and ninesix months ended SeptemberJune 30, 2017,2023, we haddid not incur a realized gains of less than $0.1 milliongain. During the three and less than $0.1 million, respectively, as a result of our sale ofsix months ended June 30, 2023, there were no distributions received from the Master Fund Shares.
For the three and ninesix months ended SeptemberJune 30, 2016,2022, we did not sell any shares ofincur a realized gain. During the three and six months ended June 30, 2022, there were no distributions received from the Master Fund therefore we incurred no realized gains or losses on our investment.
Changes in Unrealized Appreciation
For the three and ninesix months ended SeptemberJune 30, 2017,2023, the total net change in unrealized appreciationdepreciation on our investment in the Master Fund was $0.1$(0.4) million and $1.2$(0.4) million, respectively. For the three and ninesix months ended SeptemberJune 30, 2016,2022, the total net change in unrealized appreciationdepreciation on our investment in the Master Fund was $1.4$(2.1) million and $2.1$(1.9) million, respectively.
Cash Flows for the Six Months Ended June 30, 2023 and June 30, 2022
For the ninesix months ended SeptemberJune 30, 2016,2023 and June 30, 2022, net cash provided by operating activities was $18.0 million and $26.3 million, respectively. During the six months ended June 30, 2023, distributions from the Maser Fund were the primary provider of cash. During the six months ended June 30, 2022, distributions from the Maser Fund was the primary source of cash.
For the six months ended June 30, 2023 and June 30, 2022, net cash used in operating activities was $74.1 million. Cash flows used in operating operating activities for the nine months ended September 30, 2016 was primarily due to the Company's investment in the Master Fund.
Financial Condition, Liquidity and Capital Resources
Our primary sources of cash include (i) the sale of our Common Shares (until the end of our Public Offering on April 28, 2017), (ii) our shareholders'shareholders’ reinvestment of their distributions, (iii)(ii) distributions, including capital gains, if any, received from our ownership of the Master Fund'sFund’s common shares, and (iv)(iii) expense reimbursementsupport payments from CCA (from July 2015 to August 2017) and Guggenheim pursuant to the Expense Support Agreement.Agreement and (iv) the sale of our owned Master Fund shares in conjunction with its share repurchase program. Our primary uses of cash include (i) investment in the Master FundFund’s common shares, (ii) payment of operating expenses and the DSS Fee Distribution Services Component, (iii) cash distributions to our shareholders, and (iv) periodic repurchases of our Common Shares pursuant to our share repurchase program.program and (v) reimbursement payments for prior period expense support payments. We are not permitted to issue any senior securities, including preferred securities.
We manage our assets and liabilities such that current assets are sufficient to cover current liabilities. All remainingliabilities, and excess cash, in excess of net working capital, if any, is invested in the acquisition of Master FundFund’s common shares.
21
Off-Balance Sheet Arrangements
We dodid not have any off-balance sheet arrangements as of SeptemberJune 30, 20172023 and December 31, 2016.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAPaccounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income, expense, gain and expenseloss during the reporting period. We believe that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. Our significant accounting policies are described in
Valuation of Investments
We invest substantially all of our equity capital in the purchase of Master Fund common shares of the Master Fund.shares. We determine the fair value of our investment in the Master Fund as the Master Fund'sFund’s net asset value per common share (as determined by the Master Fund) multiplied by the number of Master Fund common shares that we own.
Distribution and Shareholder Servicing Fee
The purpose of the DSS Fee is to reimburse the Dealer Manager of our Public Offering for costs incurred by selected dealers and investment representatives for services related to (i) the Distribution Services Component and (ii) the Shareholder Services Component.
Beginning in the third quarter of 2017 (the first calendar quarter after the close of the Company'sour Public Offering), we commenced recognition of the Shareholder Services Component as an expense on the Company's statementCompany’s statements of operations as the services are provided. We allocated 0.25% per annum of the average net purchase price per share sold in the Public Offering to this component.the Shareholder Services Component. As the Distribution Services Component, representing 0.65% per annum of the average net purchase price per share sold in the Public Offering, pertains to the sale of our Common Shares, we estimate the present value of all future Distribution Services Component payments, employing a discount rate equal to the prevailing effective yield on 5-year US Treasuries as observed on December 30, 2016. We record a liability equal to the estimated present value of the Distribution Services Component, recorded as "Due“Due to Dealer Manager"Manager” with an offsetting charge to “Paid-in-capital in excess of par value” on the statements of assets and liabilities, and recorded as a "Distribution“Distribution services charge"charge” on the statements of changes in net assets. The table below reconciles the change
Beginning in the Due to Dealer Manager from January 1,fourth quarter of 2017 to September 30, 2017 (in thousands):
| 2017 | ||||
| Balance as of January 1, | $ | 2,300 | ||
Accretion of discount (1) | 55 | |||
Incremental charge to paid-in-capital (2) | 1,253 | |||
| Shareholder Services Component | 97 | |||
| Payments | — | |||
| Balance as of September 30, | $ | 3,705 | ||
Contractual Obligations
Commitments
We have not entered into any agreements under which we have material future commitments that cannot otherwise be terminated within a reasonable time period.
| 2017 Record Dates | 2017 Payment Dates | Declared Distribution per Share per Record Date | ||||
| October 31 | November 1 | $ | 0.05453 | |||
| November 28 | November 29 | 0.05453 | ||||
| September 30, 2017 | ||||||||||||||||||||
| Total | < 1 year | 1-3 years | 3-5 years | > 5 years | ||||||||||||||||
| DSS Fee: Distribution Services Component | $ | 3,747 | $ | 1,014 | $ | 1,684 | $ | 1,049 | $ | — | ||||||||||
Related Party Agreements and Transactions
Expense Support and Conditional Reimbursement Agreement
We have entered into agreements with Guggenheim and one of its affiliates, whereby we agreed to (i) receive expense support payments (ii)and to conditionally reimburse certain expenses of, and toit for prior period expense support payments, (ii) pay for administrative services expense support, organization and offerings costs, and(iii) periodically pay DSS Fees incurred on our behalf,to the Dealer Manager, an affiliate of Guggenheim. See
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Reimbursement of CCA and Guggenheim for Organization and Offering Expenses
Under the terms of the O&O Agreement, we agreed to reimburse CCA and Guggenheim for our organization and offering expenses solely in connection with the capital raise of our Public Offering (see
Reimbursement of the Administrator for Administrative Services
We reimburse the Administrator for its expenses in connection with the provision of administrative services to us. These reimbursement expenses are periodically reviewed and approved by the Independent Trustees Committee of our Board of Trustees. See
Note 4. Related Party Agreements and Transactions for a summary of reimbursable expenses as related to administrative services.Obligation to Pay the Distribution Services Component of Distribution and Shareholder Servicing Fee
The Distribution Services Component of the DSS Fee represents reimbursement to the Dealer Manager for costs incurred by participating broker-dealers and investment representatives for the distribution of our Common Shares. (See Note 2. Significant Accounting Policies - Distribution and Shareholder Servicing Fees
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are subject to financial market risks, including changes in interest rates through our investment in the Master Fund. As of SeptemberJune 30, 2017, 90.4%2023, 99.9% of the Master Fund'sFund’s debt investments (98.4% of total investments), or $344.2$29.2 million measured at fair value, isare subject to variablefloating interest rates. The Master Fund's sole credit facility is also subject to changes in its 3-Month London Interbank Offered Rate (LIBOR) base rate. A rise in the general level of interest rates can be expected to lead to (i) higher interest income for the Master Fund's variableFund’s floating rate debt investments, (ii) value declines for fixed rate investments the Master Fund may hold and (iii) higher interest expense in connection with the Master Fund'sFund’s floating rate credit facility. To the extent that a majority of the Master Fund'sFund’s investments may be in variablefloating 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 the AdvisorsAdvisor to meet or exceed the quarterly threshold for a performance basedperformance-based incentive fee as described in
Based on our investment position in the Master Fund as of SeptemberJune 30, 2017,2023, the following table presents the approximate annualized increase
Basis Points (bps) Increase (Decrease) | Annualized Net Increase | Net Increase per Share | ||||||
| +50 bps | 65 | — | ||||||
| +100 bps | 171 | 0.01 | ||||||
| +150 bps | 279 | 0.02 | ||||||
| +200 bps | 388 | 0.02 | ||||||
The Master Fund regularly measures its exposure to interest rate risk. The Master Fund assesses interest rate risk and (iv)manages its interest rate exposure on an ongoing basis by comparing its interest rate sensitive assets to its interest rate sensitive liabilities. Based on that review, the Master Fund determines whether or not any hedging transactions are necessary to mitigate exposure to changes in the Master Fund's net investment income are immediately passed on to the Master Fund's shareholders, including us:
| Basis Points (bps) Increase | Net Increase per Share | |||
| +50 bps | $ | 0.03 | ||
| +100 bps | 0.06 | |||
| +150 bps | 0.09 | |||
| +200 bps | 0.12 | |||
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 officerChief Executive Officer and chief financial officer,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.
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Our chief executive officerChief Executive Officer and chief financial officer,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 SeptemberJune 30, 2017,2023, have concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, were effective as of SeptemberJune 30, 20172023 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 August 9, 2017,2023, we were not subject to any material legal proceedings, and, to our knowledge, there were no material legal proceedings threatened against us.
From time to time, we, or our administrator, 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 financial position or results of operations.
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, 2022, 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 six months ended June 30, 2017,2023, 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 dated April 17, 2017.
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.
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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) None
(c) The following table provides information concerning our repurchases of Common Shares pursuant to ourCompany had implemented a share repurchase program, duringwhereby it conducts tender offers each calendar quarter. In accordance with the quarter ended SeptemberLiquidation Plan, the Company’s share repurchase program has been suspended effective March 30, 2017:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |||||||||
| July 1, 2017 to July 31, 2017 | — | — | — | — | |||||||||
| August 1, 2017 to August 31, 2017 | — | — | — | — | |||||||||
| September 1, 2017 to September 30, 2017 | 119,167 | $ | 9.13 | 119,167 | — | ||||||||
| Total | 119,167 | 119,167 | — | ||||||||||
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 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 2016 T | |||||
| Date:August 9, 2023 | /s/ Matthew S. Bloom | ||||
| MATTHEW S. BLOOM | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| Date:August 9, 2023 | /s/ | ||||
| JAMES HOWLEY | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
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c. The following exhibits are filed or incorporated as part of this Report.
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| 32 | |||
| 99 | |||
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