Equity Method Investments

9 Months Ended

Sep. 30, 2023

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments

Note 6 – Equity Method Investments

In November 2018, CPFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets among partners in a joint venture. In March 2020, HGC Origination I LLC and HGC Funding I LLC were formed as joint ventures with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In April 2022, KNFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets and machinery and equipment among partners in a joint venture. In December 2022, DHC8 LLC, of which the Company holds a 13.33% share, was formed to provide funding and receive principal and interest payments as a result of the initial investment. In May 2023, HGC MPG Funding LLC, of which the Company holds a 25% share, was formed as a joint venture with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. CPFH LLC, KNFH LLC and DHC8 LLC are joint ventures formed in connection with the Company’s Industrial Assets Division, whereas HGC Origination I LLC, HGC Funding I LLC, and HGC MPG Funding LLC were formed in connection with the Financial Assets Division. The Company has significant influence over the operations and financial policies of each of its equity method investments.

In accordance with ASC 326, the Company performs a review of notes receivable on a quarterly basis for each of its specialty lending investments. During the nine months ended September 30, 2023, the Company’s share of the joint venture’s provision for credit losses was approximately $0.5 million. As of September 30, 2023, the Company's share of the reserve for credit losses was approximately $0.7 million, which was primarily related to HGC Origination I LLC and HGC MPG Funding LLC. The provision for credit losses was primarily driven by weakening economic conditions for the underlying charged-off and nonperforming portfolio collections and increases in loan balances. As of September 30, 2023, the Company has recorded no actual credit losses through its equity method investments.

The table below details the Company’s joint venture revenues and earnings during the nine months ended September 30, 2023 and 2022 (in thousands):

	Nine Months Ended September 30,
	2023			2022
Revenues:
CPFH LLC	$	—		$	31,072
KNFH LLC		303			16,882
DHC8 LLC		1,183			—
HGC Origination I LLC and HGC Funding I LLC		3,769			1,611
HGC MPG Funding LLC		552			—
Total revenues	$	5,807		$	49,565
Operating income (loss):
CPFH LLC	$	—		$	15,357
KNFH LLC		(144	)		6,915
DHC8 LLC		1,009			—
HGC Origination I LLC and HGC Funding I LLC		2,374			1,589
HGC MPG Funding LLC		548			—
Total operating income	$	3,787		$	23,861

The table below details the summarized components of assets and liabilities of the Company’s joint ventures, as of September 30, 2023 and December 31, 2022 (in thousands):

	September 30,		December 31,
	2023		2022
Assets:
KNFH LLC	$	294	$	—
DHC8 LLC		7,497		8,561
HGC Origination I LLC and HGC Funding I LLC		43,412		53,385
HGC MPG Funding LLC		18,402		—
Total assets	$	69,605	$	61,946
Liabilities:
KNFH LLC	$	285	$	47
DHC8 LLC		1,144		1,028
HGC Origination I LLC and HGC Funding I LLC		—		1,504
HGC MPG Funding LLC		—		—
Total liabilities	$	1,429	$	2,579