Filing summary
Entity mismatch: The supplied filing is Silver Spike Investment Corp. (NASDAQ: SSIC), not Chicago Atlantic BDC, Inc. The figures below summarize the filing actually provided and should not be attributed to Chicago Atlantic without verification.
Business context and reporting period
Unaudited Form 10-Q for the quarter and six months ended June 30, 2023. Silver Spike is an externally managed business development company focused on lending to cannabis-related businesses. Its fiscal year ends December 31.
Financial and portfolio highlights
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Investment income | $2.894 million | $5.352 million |
| Net investment income | $1.899 million | $3.270 million |
| Net increase in net assets from operations | $1.211 million | $3.568 million |
| Net investment income per share | $0.31 | $0.53 |
- Quarterly net investment income was approximately 65.6% of investment income; six-month net investment income was approximately 61.1% (calculated from reported figures).
- At June 30, total assets were $91.336 million, liabilities $1.292 million, net assets $90.044 million, and NAV $14.49 per share. NAV was $13.91 at December 31, 2022.
- Cash and cash equivalents were $32.896 million, down from $35.125 million at year-end. The company reported no debt.
- Portfolio fair value was $57.669 million across six portfolio companies, versus $50.255 million across five at year-end. Investments were entirely secured debt and all classified Level 3; 86.2% of portfolio fair value was first-lien term loans.
- Operating cash flow was negative $2.230 million for the six months, compared with negative $24.657 million in the 2022 period. The filing attributes cash use principally to investment purchases; no common stock was issued during the 2023 period.
Changes versus comparable periods
- Second-quarter investment income rose to $2.894 million from $0.810 million in 2022, primarily as the larger debt portfolio generated more interest. Six-month investment income increased to $5.352 million from $0.820 million.
- Second-quarter net investment income rose to $1.899 million from $0.221 million. Higher management and incentive fees contributed to expenses increasing to $0.994 million from $0.588 million.
- Second-quarter operations included a $0.211 million realized investment loss and $0.477 million unrealized depreciation. For the first half, unrealized appreciation of $0.509 million more than offset the same realized loss.
- Portfolio fair value increased by $7.415 million from December 31, reflecting purchases, income accretion and unrealized appreciation, partly offset by repayments/sales and a realized loss.
Outlook, risks and unusual items
- Management reported an active pipeline of more than $589 million of potential investments under review. It stated a target debt-to-equity ratio of 0.50x and expects to consider a credit facility in the future; no borrowing was outstanding at quarter-end.
- On August 10, the board approved a $0.40-per-share special dividend and a $0.23-per-share regular dividend, payable September 29 to holders of record September 15. No distributions were made in the first half of 2023.
- On August 9, shares closed at $8.76, a reported 39.5% discount to June 30 NAV. The filing cautions that share price can trade at a discount or premium to NAV.
- Portfolio and valuation risks are material: all investment valuations were Level 3 and depend on significant unobservable inputs. Two borrowers represented 71.6% of portfolio fair value; the largest represented 35.9%. All loans were rated risk grade 2 and none was on non-accrual.
- The filing reports non-qualifying assets of $24.608 million, or 26.9% of total assets, against the BDC requirement that qualifying assets generally comprise at least 70% of total assets when acquiring non-qualifying assets.
- Other disclosed risks include cannabis-sector concentration and regulation, borrower credit/default risk, illiquidity, interest-rate and prepayment risk, and uncertainty in fair-value estimates. SSC, the adviser, held approximately 72% of voting stock and could exercise substantial control over shareholder matters.
- Management said disclosure controls were effective and reported no material changes in internal control, material legal proceedings, or material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing identifies Silver Spike Investment Corp. (SSIC), not Chicago Atlantic BDC, Inc.
- Review the six borrower exposures, borrower credit performance, collateral, and the assumptions behind the Level 3 valuations.
- Verify the declared dividends’ payment and tax characterization, including whether any distribution represents return of capital.
- Assess the discount of the market price to NAV, the adviser’s voting control and potential share sales, and the company’s planned use of leverage.
- Check ongoing BDC qualifying-asset compliance and the effect of cannabis-related legal and regulatory developments.