Filing identity and reporting period
Important mismatch: The supplied filing is Silver Spike Investment Corp. (NASDAQ: SSIC), not Chicago Atlantic BDC, Inc. This summary therefore describes Silver Spike’s unaudited Form 10-Q for the quarter ended March 31, 2023, filed May 12, 2023.
Silver Spike is an externally managed business development company focused on debt and equity investments in cannabis-related businesses. The company reported a change in fiscal year-end to December 31, so the March 2022 comparison is an early operating period and is not fully comparable.
Financial results and condition
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Investment income | $2.46 million | $10,073 in Q1 2022 |
| Total expenses | $1.09 million | $225,604 in Q1 2022 |
| Net investment income (loss) | $1.37 million; $0.22 per share | $(215,531); $(0.06) per share in Q1 2022 |
| Unrealized appreciation | $986,357 | None reported in Q1 2022 |
| Increase in net assets from operations | $2.36 million; $0.38 per share | $(215,531); $(0.06) per share in Q1 2022 |
| Total assets / liabilities | $89.99 million / $1.16 million | At March 31, 2023 |
| Net assets / NAV per share | $88.83 million / $14.29 | $86.48 million / $13.91 at December 31, 2022 |
| Cash and cash equivalents | $32.54 million | $35.13 million at December 31, 2022 |
| Debt | No indebtedness | No indebtedness at December 31, 2022 |
| Operating cash flow | $(2.58) million | $(509,110) in Q1 2022 |
The reported expense ratio was 1.26% of average net assets and the net investment income ratio was 1.58%; ratios are not annualized. The filing reports no portfolio repayments or investment sales during the quarter. No distributions were paid in Q1 2023 or in 2022.
Portfolio and material changes
- Investment fair value grew to $55.62 million from $50.25 million at year-end. The portfolio increased from five to six companies, including a $4.23 million investment in MariMed.
- All portfolio investments were secured debt and classified as Level 3 fair value measurements. First-lien term loans represented 82.2% of portfolio fair value; senior secured notes represented 17.8%.
- Floating-rate investments were 82.3% of portfolio amortized cost; fixed-rate investments were 17.7%. The portfolio was 100% classified as wholesale trade and invested in cannabis-related companies.
- Portfolio concentration remained high: two companies represented 74.5% of portfolio fair value, and the largest represented 37.6%. All investments were rated Grade 2, and none were on non-accrual.
- Fair value appreciation of $986,357 contributed to reported operating results. The company’s valuation inputs are unobservable; reported fair values may differ materially from realizable proceeds.
Outlook, commentary, and risks
Management reported an active pipeline of more than $673 million of potential investments under review and a target debt-to-equity ratio of 0.50x. The company said it expects to enter into a credit facility in the future, but had no debt at quarter-end. It provided no specific earnings or distribution guidance and stated that distributions remain subject to Board discretion and available earnings.
- Key risks include concentration in the cannabis sector, borrower credit and default risk, illiquidity, interest-rate sensitivity, prepayment risk, and uncertainty in Level 3 valuations. Cannabis regulation and restrictions on using certain borrower assets as collateral add sector-specific exposure.
- Substantially all investment fair values rely on significant unobservable inputs. Management’s valuation process uses discounted cash flow methods and discount-rate assumptions.
- The adviser, Silver Spike Capital, held approximately 72% of voting stock and may sell shares; substantial sales could pressure the stock price and affect future capital raising.
- At May 9, 2023, the stock closed at $8.62, a reported 39.7% discount to March 31 NAV per share of $14.29.
- Subsequent event: on May 3, 2023, the company invested $4.32 million in Dreamfields Brand, Inc. senior secured debt for net consideration of $4.21 million.
- Management reported effective disclosure controls, no material changes to internal control over financial reporting, no material legal proceedings, and no material risk-factor changes during the quarter.
Most important facts for investors to verify
- Confirm the issuer identity: this document is Silver Spike Investment Corp. (SSIC), not Chicago Atlantic BDC, Inc.
- Review the credit quality and borrower concentration behind the 74.5% exposure to two portfolio companies, as well as the Grade 2 ratings and lack of non-accruals.
- Assess the reliability and sensitivity of Level 3 valuations, including the effect of discount-rate assumptions on reported appreciation and NAV.
- Verify the timing, terms, and funding of the announced Dreamfields investment and any subsequent investments or credit-facility plans.
- Consider the substantial discount of the share price to NAV, the adviser’s voting control and potential share sales, and the absence of declared distributions.