Business Context and Reporting Period
This Form 8-K, dated October 1, 2024, reports material events for Chicago Atlantic BDC, Inc. (formerly Silver Spike Investment Corp.). The filing details the consummation of a joint venture between the Company's investment adviser and Chicago Atlantic, the completion of a significant loan portfolio acquisition, and changes to the Company's executive leadership.
Key Financial Metrics and Portfolio Data
Loan Portfolio Acquisition: The Company acquired a portfolio of loans from Chicago Atlantic Loan Portfolio, LLC (CALP) in exchange for 16,605,372 newly issued shares of common stock. The fair value of the acquired portfolio was determined to be $219,621,125 as of September 28, 2024.
Net Asset Value (NAV): As of September 28, 2024, the estimated NAV per share was $13.23. Following the acquisition, there were 22,820,360 shares of common stock outstanding.
Portfolio Composition: The combined portfolio includes debt securities with a total transaction fair value of $276,298,085 and equity securities with a fair value of $676,000. The gross weighted-average Yield to Maturity (YTM) of the loan portfolio is estimated at approximately 19%.
Ownership Structure: Following the transaction, CALP owns approximately 72.8% of the Company's outstanding common stock.
Operating Expenses: A new Expense Limitation Agreement caps the Company's operating expenses (excluding base management fees, incentive fees, acquisition-related expenses, and litigation costs) at an annualized rate of 2.15% of net assets through September 30, 2025.
Material Changes Versus Prior Period
- Acquisition of Assets: The Company completed the acquisition of the CALP Loan Portfolio, significantly expanding its asset base and changing its ownership structure.
- Management Changes: Andreas Bodmeier replaced Scott Gordon as Chief Executive Officer. Scott Gordon became Executive Chairman and Co-Chief Investment Officer. Umesh Mahajan was named Co-Chief Investment Officer in addition to his roles as CFO and Secretary. Dino Colonna was appointed President.
- Advisory Agreements: The prior investment advisory agreement was terminated and replaced with a new agreement that maintains the same base management and incentive fee structure. A new license agreement was also executed for the use of the "Chicago Atlantic" name.
Guidance, Outlook, and Risks
Outlook: The Company estimates a gross weighted-average YTM of approximately 19% for its combined loan portfolio. This calculation includes fees and features such as original issue discounts and exit fees but excludes cash holdings and expenses.
Risks and Contingencies:
- Unaudited Data: The NAV, transaction fair values, and YTM estimates provided are unaudited and were prepared solely for the purposes of the Loan Portfolio Acquisition. They may differ materially from final fiscal quarter results.
- Commitments: The Company has net delayed draw loan commitments of $6.5 million (specifically $5.0 million to Deep Roots Harvest, Inc. and $1.5 million to Workbox Holdings, Inc.), which are subject to closing conditions and borrowing base restrictions.
- Concentration: The portfolio is heavily concentrated in the Cannabis industry, with significant exposure to issuers such as STIIIZY, Inc., Verano Holdings Corp., and Dreamfields Brands, Inc.
Investor Verification Checklist
- Verify the final audited financial statements for the quarter ended September 30, 2024, to confirm if the unaudited NAV of $13.23 per share holds.
- Review the full text of the New Investment Advisory Agreement (Exhibit 10.1) to confirm fee structures and termination rights.
- Monitor the funding status of the $6.5 million in net delayed draw loan commitments and any associated covenant restrictions.
- Assess the credit quality and performance of the newly acquired loan portfolio, particularly given the high concentration in the Cannabis sector.
- Confirm the impact of the 72.8% ownership stake held by CALP on future corporate governance and strategic decisions.