Company: HGBL
Filing Date: 2025-03-13
Form Type: 10-K
Source: 0000950170-25-038691
Chunk: 61

Company: Heritage Global Inc.
Filing Date: 2025-03-13
Form: 10-K
Item: Item 1
Chunk 61
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 $68.1 million. Our income from secured lending consists of upfront fees, interest income, monthly monitoring fees and backend profit share. As of December 31, 2024, our net balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $29.0 million, of which $9.6 million is classified as notes receivable and $19.4 million is classified as equity method investments. 

5

Specialty Lending - Concentration and credit risk 

As of December 31, 2024, we held a gross balance of investments in notes receivable of $30.2 million, recorded in both notes receivable and equity method investments. Our portfolio includes our largest borrower’s gross notes receivable balance of approximately $22.2 million, representing 74% of our total gross notes receivable balance as of December 31, 2024, as compared to 62% as of December 31, 2023. As discussed further in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Nonaccrual Loans, our largest borrower is in default. As a result, the balance of the loans outstanding with our largest borrower were in nonaccrual status as of December 31, 2024. Whether we will realize any return with respect to the impacted loans is uncertain. We do not intend to hold highly concentrated balances due from one borrower as part of our long-term strategy but will in the short term have concentration risk on our path to an established and diversified portfolio. 

We do not evaluate concentration risk solely based on balance due from specific borrowers, but also consider the number of portfolio purchases, type of charged off accounts within the portfolio, and the seller of the portfolio when determining the overall risk. Of the balance due from one borrower of $22.2 million, there are 11 distinct loan agreements, the underlying portfolio of accounts are diversified throughout FinTech loans, installment loans and credit card accounts, and further diversified amongst six separate sellers of these charged off portfolios.

We mitigate this concentration risk by requiring, and monitoring, security from each borrower consisting of their charged off and nonperforming receivable portfolios. We engage in a due diligence process that leverages our valuation expertise, knowledge and experience in the underlying nonperforming receivable portfolios marketplace. In the event of default, we are entitled to call the unpaid interest and principal balances and receive all net collections directly. We may also recover our investment by engaging a third party to