Business Context and Reporting Period
Company: Silver Spike Investment Corp. (SSIC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2022
Business Overview: SSIC is an externally managed, closed-end, non-diversified Business Development Company (BDC) and Regulated Investment Company (RIC). It focuses on investing in the cannabis ecosystem, primarily through secured debt, unsecured debt, and equity-related investments in private leveraged middle-market cannabis companies. The company completed its IPO in February 2022 and began deploying capital in the second quarter of fiscal 2023.
Key Financial Metrics
| Metric | Six Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2022 | As of Sep 30, 2022 |
|---|---|---|---|
| Total Investment Income | $1,990,108 | $1,180,517 | - |
| Total Expenses | $1,218,448 | $630,102 | - |
| Net Investment Income | $771,660 | $550,415 | - |
| Net Increase in Net Assets (Operations) | $771,660 | $559,923 | - |
| Net Asset Value (NAV) per Share | - | - | $13.73 |
| Cash & Cash Equivalents | - | - | $61,055,847 |
| Total Portfolio Investments (Fair Value) | - | - | $24,467,466 |
| Total Liabilities | - | - | $571,897 |
| Debt/Indebtedness | - | - | $0 |
Material Changes vs. Prior Period
- Portfolio Deployment: As of March 31, 2022, the company held no portfolio investments. By September 30, 2022, it had deployed approximately $24.5 million into two senior secured first lien term loans (Shryne Group, Inc. and PharmaCann, Inc.).
- Revenue Generation: Investment income increased from $0 in the prior year periods to $1.99 million for the six months ended September 30, 2022, driven by interest income ($1.58M) and fee income ($0.41M).
- Profitability: The company transitioned from a net investment loss of $292,248 in the six months ended September 30, 2021 (due to organizational expenses with no revenue) to a net investment income of $771,660 in the current period.
- Cash Position: Cash and cash equivalents decreased from $84.8 million at March 31, 2022, to $61.1 million at September 30, 2022, primarily due to the purchase of investments totaling approximately $24.4 million.
Guidance, Outlook, Risks, and Unusual Items
- Subsequent Investments: Following the reporting period, the company made three new investments totaling approximately $27.4 million in principal (Curaleaf Holdings Inc., AYR Wellness Inc., and Verano Holdings Corp.) between October and November 2022.
- Fiscal Year Change: On November 8, 2022, the Board approved a change in the fiscal year-end from March 31 to December 31.
- Market Discount: As of November 8, 2022, the common stock traded at $10.40, representing a discount of approximately 24.3% to the NAV of $13.73.
- Risk Factors: Key risks include the concentration of the portfolio (one company represents 83.6% of investments), regulatory risks specific to the cannabis industry, interest rate sensitivity (83.2% of debt is floating rate), and the potential for portfolio companies to prepay loans.
- Outlook: Management targets a debt-to-equity ratio of 0.50x and maintains an active pipeline of over $1.36 billion in potential investments.
Investor Verification Checklist
- Portfolio Concentration: Verify the creditworthiness of Shryne Group, Inc., which comprises 83.6% of the total portfolio fair value.
- Valuation Methodology: Confirm the fair value of Level 3 assets (private debt), which relies on unobservable inputs and discounted cash flow models with discount rates ranging from 14.8% to 17.5%.
- Related Party Transactions: Review the Investment Advisory Agreement with Silver Spike Capital, LLC (SSC), which holds approximately 72% of voting stock and receives a 1.75% base management fee plus incentive fees.
- Liquidity and Capital: Assess the impact of the significant cash deployment ($24.4M) on the company's ability to meet future investment opportunities without leverage, given the current $0 debt position.
- Regulatory Compliance: Monitor the company's ability to maintain RIC status and the implications of the cannabis industry's regulatory environment on asset collateralization.