| Significant Accounting Policies | Note
2. Significant Accounting Policies Basis
of Presentation The
company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”), which requires the use of estimates, assumptions and the exercise of subjective judgment as to future uncertainties.
Actual results could differ from those estimates, assumptions, and judgments. Significant items subject to such estimates will
include determining the fair value of investments, revenue recognition, income tax uncertainties, and other contingencies. The
consolidated financial statements of the company include the accounts of the LLC and its consolidated subsidiaries, GREC and GREC
Holdco. All intercompany accounts and transactions have been eliminated. The
company’s consolidated financial statements are prepared using the specialized accounting principles of Accounting Standards
Codification Topic 946, Financial Services—Investment Companies (“ASC Topic 946”). In accordance with this specialized
accounting guidance, the company recognizes and carries all of its investments at fair value with changes in fair value recognized
in earnings. Additionally, the company will not apply the consolidation or equity method of accounting to its investments. The
company carries its liabilities at amounts payable, net of unamortized premiums or discounts. The company does not currently plan
to elect to carry its non-investment liabilities at fair value. Net assets are calculated as the carrying amounts of assets, including
the fair value of investments, less the carrying amounts of its liabilities. The
financial information associated with the March 31, 2018 consolidated financial statements has been prepared by management and,
in the opinion of management, contains all adjustments and eliminations, consisting of only normal recurring adjustments, necessary
for a fair presentation in accordance with GAAP. The March 31, 2018 financial information has not been audited by the independent
registered public accounting firm and they do not express an opinion thereon. Cash
and Cash Equivalents Cash
consists of demand deposits at a financial institution. Such deposits may be in excess of the Federal Deposit Insurance Corporation
insurance limits. The company has not experienced any losses in any such accounts. The
company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Short-term investments that are cash equivalents, which are considered level 1 investments, are stated at cost, which approximates
fair value. There are no restrictions on the use of the company’s cash as of March 31, 2018 and December 31, 2017. Foreign
Currency Translation The
accounting records of the company are maintained in U.S. Dollars. The fair value of investments and other assets and liabilities
denominated in non-U.S. currencies are translated into U.S. Dollars using the exchange rate at the end of each reporting period.
Amounts related to the purchases and sales of investments, investment income and expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions. Net
unrealized currency gains and losses arising from valuing foreign currency denominated assets and liabilities at the current exchange
rate are reflected as part of net change in unrealized appreciation (depreciation) on translation of assets and liabilities denominated
in foreign currencies in the consolidated statements of operations. Foreign
security and currency translations may involve certain considerations and risks not typically associated with investing in U.S.
companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations
and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid
and prices more volatile than those of comparable U.S. companies or U.S. government securities. Valuation
of Investments at Fair Value Accounting
Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) defines fair value, establishes
a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value. The company recognizes
and accounts for its investments at fair value. The fair value of the investments does not reflect transaction costs that may
be incurred upon disposition of the investments. Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. Fair value is an exchange price notion under which fair value is the price in an orderly transaction
between market participants to sell an asset or transfer a liability in the market in which the reporting entity would transact
for the asset or liability. The
advisor has established procedures to estimate the fair value of its investments which the company’s board of directors
has reviewed and approved. The company will use observable market data to estimate the fair value of investments to the extent
that market data is available. In the absence of quoted market prices in active markets, or quoted market prices for similar assets
in markets that are not active, the company will use the valuation methodologies described below with unobservable data based
on the best available information in the circumstances, which incorporates the company’s assumptions about the factors that
a market participant would use to value the asset. For
investments for which quoted market prices are not available, which will comprise most of our investment portfolio, fair value
will be estimated by using the income or market approach. The income approach is based on the assumption that value is created
by the expectation of future benefits discounted to a current value and the fair value estimate is the amount an investor would
be willing to pay to receive those future benefits. The market approach compares recent comparable transactions to the investment.
Adjustments are made for any dissimilarity between the comparable transactions and the investments. These valuation methodologies
involve a significant degree of judgment on the part of our advisor. In
determining the appropriate fair value of an investment using these approaches, the most significant information and assumptions
may include, as applicable: available current market data, including relevant and applicable comparable market transactions, applicable
market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value
of any collateral, the investment’s ability to make payments, its earnings and discounted cash flows, the markets in which
the project does business, comparisons of financial ratios of peer companies that are public, comparable merger and acquisition,
the principal market and enterprise values, environmental factors, among other factors. The
estimated fair values will not necessarily represent the amounts that may be ultimately realized due to the occurrence or nonoccurrence
of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of the valuation of the investments,
the estimate of fair values may differ significantly from the value that would have been used had a broader market for the investments
existed. The
authoritative accounting guidance prioritizes the use of market-based inputs over entity-specific inputs and establishes a three-level
hierarchy for fair value measurements based upon the transparency of inputs to the valuation. The three levels of valuation hierarchy
are defined as follows:
Level
1: Unadjusted quoted
prices for identical assets or liabilities in active markets.
Level
2: Other significant
observable inputs that are sourced either directly or indirectly from publications or pricing services, including dealer or
broker markets, for identical or comparable assets or liabilities. Generally, these inputs should be widely accepted and public,
non-proprietary and sourced from an independent third party.
Level
3: Inputs derived from
a significant amount of unobservable market data and derived primarily through the use of internal valuation methodologies.
GREC utilizes primarily proprietary discounted cash flow pricing models which include the use of significant assumptions,
projections and professional judgment.
In
all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls will be determined
based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of an
input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. Calculation
of Net Asset Value Net
asset value by share class is calculated by subtracting total liabilities for each class from the total carrying amount of all
assets for that class, which includes the fair value of investments. Net asset value per share is calculated by dividing net asset
value for each class by the total number of outstanding common shares for that class on the reporting date. Earnings
(Loss) per Share In
accordance with the provisions of ASC Topic 260 — Earnings per Share (“ASC Topic 260”), basic earnings per share
is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during
the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings
per share on a diluted basis. The
following information sets forth the computation of the weighted average basic and diluted net increase in net assets attributed
to common stockholders per share for the three months ended March 31, 2018 and March 31, 2017.
For
the three For
the three
Basic and diluted
Increase
in net assets attributed to common stockholders $ 3,994,064 $ 1,080,650
Weighted
average common shares outstanding 24,177,255 15,849,356
Net
increase in net assets attributed to common stockholders per share $ 0.17 $ 0.07 Revenue
Recognition Interest
income is recorded on an accrual basis to the extent the company expects to collect such amounts. Interest receivable on loans
and debt securities is not accrued for accounting purposes if there is reason to doubt an ability to collect such interest. Original
issue discounts, market discounts or market premiums are accreted or amortized using the effective interest method as interest
income. Prepayment premiums on loans and debt securities are recorded as interest income when received. Any application, origination
or other fees earned by the company in arranging or issuing debt are amortized over the expected term of the loan. Loans
are placed on non-accrual status when principal and interest are past due 90 days or more or when there is a reasonable doubt
that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest
payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment.
Non-accrual loans are generally restored to accrual status when past due and principal and interest is paid and, in management’s
judgment, is likely to remain current. Dividend
income is recorded (1) on the ex-dividend date for publicly issued securities and (2) when received from private investments.
Dividends received from the company’s private investments, which generally reflect net cash flow from operations, are declared
and paid on a quarterly basis at a minimum. Net
Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation on Investments Realized
gains or losses will be measured as the difference between the net proceeds from the sale, repayment, or disposal of an asset
and the adjusted cost basis of the asset, without regard to unrealized appreciation or depreciation previously recognized. Net
change in unrealized appreciation or depreciation will reflect the change in investment values during the reporting period, including
any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized. Payment-in-Kind
Interest For
loans and debt securities with contractual payment-in-kind interest, any interest will be added to the principal balance of such
investments and be recorded as income, if the valuation indicates that such interest is collectible. Distribution
Policy Distributions
to members, if any, will be authorized and declared by our board of directors quarterly in advance and paid monthly. From time
to time, we may also pay interim special distributions in the form of cash or shares, with the approval of our board of directors.
Distributions will be made on all classes of shares at the same time. The cash distributions with respect to the Class C shares
will be lower than the cash distributions with respect to the company’s other publicly offered share classes because of
the distribution fee associated with the Class C shares, which is allocated specifically to Class C net assets. Amounts distributed
to each class are allocated amongst the holders of the shares in such class in proportion to their shares. Distributions declared
by our board of directors are recognized as distribution liabilities on the ex-dividend date. Organization
and Offering Costs Organization
and offering costs (“O&O costs”), other than sales commissions and the dealer manager fee, are initially being
paid by our advisor and/or dealer manager on behalf of the company. These O&O costs include all costs previously paid or to
be paid by the company in connection with its formation and the offering of its shares pursuant to now terminated Registration
Statement on Form S-1 (File No. 333-178786-01), the current Registration Statement on Form S-1 (File No. 333-211571) and a private
placement memorandum, including legal, accounting, printing, mailing and filing fees, charges of the company’s escrow holder,
transfer agent fees, due diligence expense reimbursements to participating broker-dealers included in detailed and itemized invoices
and costs in connection with administrative oversight of the offering and marketing process, and preparing supplemental sales
materials, holding educational conferences, and attending retail seminars conducted by broker-dealers. While the total O&O
costs for each public offering shall be reasonable and shall in no event exceed an amount equal to 15% of the gross proceeds of
such offering and the DRP, the company is targeting no more than 4.0% of the gross proceeds for O&O costs other than sales
commissions and dealer manager fees in the current Registration Statement. The company is obligated to reimburse our advisor for
O&O costs that it incurs on behalf of the company, in accordance with the advisory agreement, but only to the extent that
the reimbursement would not cause the selling commissions, the dealer manager fee and the other organization and offering expenses
borne by the company to exceed 15% of gross offering proceeds as of the date of reimbursement. Total O&O costs related to
the terminated Registration Statement amounted to approximately $7,556,000 or 4.8% of gross offering proceeds raised pursuant
to such Registration Statement. The
costs incurred by our advisor and/or dealer manager are recognized as a liability of the company to the extent that the company
is obligated to reimburse our advisor and/or dealer manager, subject to the 15% of gross offering proceeds limitation described
above. When recognized by the company, organizational costs are expensed and offering costs, excluding selling commissions and
dealer manager fees, are recognized as a reduction of the proceeds from the offering. The
following table provides information in regard to the status of O&O costs (in 000’s) as of March 31, 2018 and December
31, 2017:
March
31, December
31,
Total O&O
Costs Incurred by the Advisor and Dealer Manager $ 8,948 $ 8,671
Amounts previously
reimbursed to the Advisor/Dealer Manager by the company 8,543 8,381
Amounts payable to
Advisor/Dealer Manager by the company 12 10
Amounts
of the contingent liability subject to payment by the company only upon adequate gross offering proceeds being raised 393 280 Financing
Costs Financing
costs related to debt liabilities incurred by the company, GREC or any wholly-owned holding company formed specifically to be
a credit agreement counterparty are presented on the consolidated statements of assets and liabilities as a direct deduction from
the carrying amount of that debt liability. Financing costs are deferred and amortized using the straight-line method over the
life of the debt liability. Capital
Gains Incentive Allocation and Distribution Pursuant
to the terms of the LLC’s amended and restated limited liability company agreement, a capital gains incentive fee will be
earned by an affiliate of our advisor on realized gains (net of realized and unrealized losses) since inception from the sale
of investments from the company’s portfolio during operations prior to a liquidation of the company. While the terms of
the advisory agreement neither include nor contemplate the inclusion of unrealized gains in the calculation of the capital gains
incentive fee, the company will include unrealized gains in the calculation of the capital gains incentive distribution pursuant
to an interpretation of an American Institute for Certified Public Accountants Technical Practice Aid for investment companies.
This amount reflects the incentive distribution that would be payable if the company’s entire portfolio was liquidated at
its fair value as of the consolidated statements of assets and liabilities date even though the advisor is not entitled to an
incentive distribution with respect to unrealized gains unless and until such gains are realized. Thus, on each date that net
asset value is calculated, the company calculates for the capital gains incentive distribution by calculating such distribution
as if it were due and payable as of the end of such period and reflected as an allocation of equity between common stockholders
and Special unitholder. As of March 31, 2018 and December 31, 2017, a capital gains incentive distribution allocation in the amounts
of $1,726,723 and $1,236,243, respectively, was recorded in the consolidated statements of assets and liabilities as Special unitholder’s
equity. Deferred
Sales Commissions The
company defers certain costs, principally sales commissions and related compensation, which are paid to the dealer manager and
may be reallowed to financial advisors and broker/dealers in the future in connection with the sale of Class C shares sold with
a reduced front-end load sales charge. The costs expected to be incurred at the time of the sale of Class C shares are recorded
as a liability on the date of sale and are amortized on a straight-line basis over the period beginning at the time of sale and
ending on the date which approximates an expected liquidity event for the company. As of March 31, 2018 and December 31, 2017,
the company recorded a liability for deferred sales commissions in the amount of $238,360 and $249,858, respectively. Reclassifications Certain
prior year amounts have been reclassified to conform with current year presentation. Derivative
Instruments The
company may utilize interest rate swaps to modify interest rate characteristics of certain liabilities to manage its exposure
to interest rate fluctuations. Changes in the fair value of the interest rate swaps during the period are recognized in the accompanying
consolidated statements of operations where the company, GREC or any wholly-owned holding company formed specifically to be a
credit agreement counterparty is the counterparty and in the change in fair value of investments if a subsidiary of the company
is the counterparty. The
fair value of interest rate swap contracts open as of March 31, 2018 is included on the schedules of investments by contract.
For the three months ended March 31, 2018, the company’s average monthly notional exposure to interest rate swap contracts
was $57,158,415. Consolidated
Statement of Assets and Liabilities - Values of Derivatives at March 31, 2018
Asset
Derivatives Liability Derivatives
Risk Exposure Consolidated Statement of Assets
and Liabilities Location Fair Value Consolidated Statement of Assets
and Liabilities Location Fair Value
Swaps
Interest
Rate Risk Swap
contracts, at fair value $ 731,606 Swap
contracts, at fair value $ 77,800
$ 731,606 $ 77,800 The
effect of derivative instruments on the Consolidated Statement of Operations
Risk
Exposure Change
in net unrealized appreciation on derivative transactions for the three months ended March 31, 2018
Swaps
Interest
Rate Risk $ 497,738
$ 497,738 By
using derivative instruments, the company is exposed to the counterparty’s credit risk — the risk that derivative
counterparties may not perform in accordance with the contractual provisions offset by the value of any collateral received. The
company’s exposure to credit risk associated with counterparty non-performance is limited to collateral posted and the unrealized
gains inherent in such transactions that are recognized in the consolidated statement of assets and liabilities. The company minimizes
counterparty credit risk through credit monitoring procedures and managing margin and collateral requirements, as appropriate. In
regard to our investment in the Canadian Northern Lights Portfolio, we have foreign currency risk related to our revenue and operating
expenses which are denominated in the Canadian Dollars as opposed to the U.S. Dollars. While we are currently of the opinion that
the currency fluctuation between the Canadian and U.S. Dollar will not have a material impact on our operating results, we may
in the future hedge this risk through the use of currency swap transactions or other financial instruments if the impact on our
results of operations becomes material. Income
Taxes The
LLC intends to operate so that it will qualify to be treated as a partnership for U.S. federal income tax purposes under the Internal
Revenue Code. As such, it will not be subject to any U.S. federal and state income taxes. In any year, it is possible that the
LLC will not meet the qualifying income exception and will not qualify to be treated as a partnership. If the LLC does not meet
the qualifying income exception, the members would then be treated as stockholders in a corporation and the company would become
taxable as a corporation for U.S. federal income tax purposes under the Internal Revenue Code. The LLC would be required to pay
income tax at corporate rates on its net taxable income. Distributions to members from the LLC would constitute dividend income
taxable to such members, to the extent of the company’s earnings and profits and the payment of the distributions would
not be deductible by the LLC. The
LLC plans to conduct substantially all its operations through its wholly-owned subsidiary, GREC, which is a corporation that is
subject to U.S. federal, state and local income taxes. Accordingly, most of its operations will be subject to U.S. federal, state
and local income taxes. Income
taxes are accounted for under the assets and liabilities method. Deferred tax assets and liabilities are recorded for the estimated
future tax consequences attributable to differences between items that are recognized in the consolidated financial statements
and tax returns in different years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. For
income tax benefits to be recognized including uncertain tax benefits, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. The amount recognized is measured as the largest amount of the benefit that is more likely
than not to be realized upon ultimate settlement. A valuation allowance is established against net deferred tax assets if, based
on the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties
associated with income taxes, if any, will be recognized in general and administrative expense. The
company does not consolidate its investments for financial statements, rather it accounts for its investments at fair value under
the specialized accounting of ASC Topic 946. The tax attributes of the individual investments will be considered and incorporated
in the company’s fair value estimates for those investments. The amounts recognized in the consolidated financial statements
for unrealized appreciation and depreciation will result in a difference between the consolidated financial statements and the
cost basis of the assets for tax purposes. These differences will be recognized as deferred tax assets and liabilities. Generally,
the entities that hold the company’s investments will be included in the consolidated tax return of GREC and the differences
between the amounts recognized for financial statement purposes and the tax return will be recognized as additional deferred tax
assets and liabilities. The
company follows the authoritative guidance on accounting for uncertainty in income taxes and concluded it has no material uncertain
tax positions to be recognized at this time. The
company assessed its tax positions for all open tax years as of March 31, 2018 for all U.S. federal and state tax jurisdictions
for the years 2014 through 2017. The results of this assessment are included in the company’s tax provision and deferred
tax assets as of March 31, 2018. Tax
Reform New
tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted on December 22, 2017.
ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment
even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain
other provisions, January 1, 2018. Given
the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants
to record provisional amounts during a one year “measurement period” similar to that used when accounting for business
combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed
the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded
at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and
adjusted as information becomes available, prepared or analyzed. The
SAB summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the
effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts)
for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a
reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Act. The
major provisions under the Act are discussed below: Corporate
Tax Rate The
law reduces the corporate tax rate to 21% effective January 1, 2018. A company must remeasure its deferred tax assets and liabilities
to reflect the effects of enacted changes in tax laws or rates at the date of enactment, i.e., the date the President signed the
law, even though the changes may not be effective until future periods. The effect of the remeasurement is reflected entirely
in the interim period that includes the enactment date and allocated directly to income tax expense (benefit) from continuing
operations. Repatriation
of existing earnings and profits Under
the Act, a company’s foreign earnings and profits (E&P) accumulated in controlled foreign corporations (CFCs) under
legacy tax laws are deemed repatriated for the last taxable year of a CFC that begins before January 1, 2018. E&P are determined
as the higher of the balance at November 2 or December 31, 2017. The tax on those deemed repatriated earnings is no longer indefinitely
deferred but may be paid over eight years with no interest charged:
— 8%
in each of Years 1 to 5;
— 15%
in Year 6;
— 20%
in Year 7; and
— 25%
in Year 8. The
Company has one Canadian CFC. This CFC has negative E&P at the end of December 31, 2017. As such, no mandatory repatriation
is required. Cost
Recovery Under
the Act, a company can expense 100% of investments in depreciable property other than real property or certain utility property
and certain businesses with floor plan indebtedness. The new rules apply to original or used property. The new rules apply to
investments after September 27, 2017 and before January 1, 2023 and will phase-out beginning January 1, 2023 through December
31, 2026. The
Company expects to opt out of the 100% deduction on its eligible assets acquired in 2017. Interest
Expense Limitation Under
the Act, effective January 1, 2018, a company can only deduct interest expense up to 30% of “adjusted taxable income”.
For taxable years beginning after December 31, 2017 and before January 1, 2022, the definition of adjusted taxable income is computed
without regard to the deduction for depreciation, amortization, or depletion. Beginning in 2022, depreciation, amortization, and
depletion must be considered when calculating adjusted taxable income. The disallowed interest expense can be carried forward
indefinitely. Certain businesses with average gross receipts of $25 million or less are exempt from the rule. Net
Operating Losses (NOL) Under
the Act, for NOL generated after December 31, 2017, it can only offset up to 80% of taxable income. The unused NOL can be carried
forward indefinitely. The NOL generated before January 1, 2018 remains subject to the old rules (i.e., 100% utilization and 20
year expiration). When scheduling out future NOL utilization for the valuation reserve analysis, the Company applied the NOL limitation
rules. Recently
Issued Accounting Pronouncements In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 outlines a new model for
accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized
and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with
the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model
and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable
to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02,
as amended by ASU 2017-13, is effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years; for all other entities, the final lease standard will be effective for fiscal years
beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application
will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance
and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest
comparative period presented. At this time, management is evaluating the impact of ASU No. 2016-02 on its consolidated financial
statements and disclosures. In
December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606-Revenue from Contracts with Customers
(ASU 2014-09). The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised
goods or services to customers in an amount that reflect |
