425: Silver Spike Investment Corp. Announces First Quarter 2024 Earnings and Provides Update on Loan Portfolio Acquisition

Silver Spike Investment Corp. reports its Q1 2024 financial results and provides an update on the proposed acquisition of the Chicago Atlantic Loan Portfolio.

Summary

• Silver Spike Investment Corp. (SSIC) reported its financial results for the first quarter of 2024.
• Gross investment income was $2.8 million, compared to $2.5 million in the same quarter of the previous year.
• Expenses excluding loan portfolio acquisition expenses were $0.8 million, down from $1.1 million.
• Investment income excluding loan portfolio acquisition expenses increased to $2.0 million from $1.4 million.
• Loan portfolio acquisition expenses amounted to $2.1 million.
• Net investment income was $(0.1) million, compared to $1.4 million in the prior year.
• Net assets at the end of the period were $84.5 million, compared to $88.8 million the previous year.
• Investment income excluding loan portfolio acquisition expenses per share was $0.33, while net investment income per share was $(0.01).
• Net asset value at the end of the period was $13.60 per share.
• A cash dividend of $0.25 per share was declared, payable on June 28, 2024, to stockholders of record on June 20, 2024.
• SSIC is externally managed by Silver Spike Capital, LLC (SSC), an SEC-registered investment adviser focused on the cannabis industry.
• As of March 31, 2024, SSC has reviewed over 430 debt deals and led or co-led in $240 million in senior-secured credit facilities.
• SSIC announced a definitive agreement on February 20, 2024, to acquire a portfolio of loans from Chicago Atlantic Loan Portfolio, LLC (CALP) in exchange for newly issued shares of SSIC's common stock.
• The acquisition is expected to close in mid-2024, subject to customary closing conditions.
• Pro forma net assets post-acquisition are estimated at approximately $212 million, including $184 million of portfolio investments and $28 million of cash.
• The pro forma combined gross weighted-average yield to maturity (YTM) of loans is approximately 19.03%.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While net income is down due to acquisition costs, the company highlights growth in gross investment income and the potential benefits of the upcoming acquisition. The long-term outlook for the cannabis industry is also presented as positive.

Positives

• Gross investment income increased to $2.8 million in Q1 2024 from $2.5 million in Q1 2023.
• Expenses excluding loan portfolio acquisition expenses decreased to $0.8 million from $1.1 million.
• Investment income excluding loan portfolio acquisition expenses increased to $2.0 million from $1.4 million.
• The proposed acquisition of the CALP loan portfolio is expected to increase scale and liquidity, enhance portfolio diversification, and improve access to capital markets.
• The company has a significant pipeline of potential debt investments, with $425 million in active debt pipeline across 14 transactions.
• The weighted average yield to maturity of loans is 18.01%.

Negatives

• Net investment income decreased to $(0.1) million from $1.4 million due to loan portfolio acquisition expenses.
• Net assets at the end of the period decreased to $84.5 million from $88.8 million.
• The company incurred $2.1 million in loan portfolio acquisition expenses.

Risks

• The timing or likelihood of the Loan Portfolio Acquisition closing is uncertain.
• The ability to realize the anticipated benefits of the Loan Portfolio Acquisition is not guaranteed.
• Stockholder litigation in connection with the Loan Portfolio Acquisition may result in significant costs.
• Changes in the economy, financial markets, and political environment could impact the company's performance.
• Elevating levels of inflation could impact the company and its portfolio companies.
• The ability of the Adviser to locate suitable investments for the Company and to monitor and administer its investments is not guaranteed.
• The performance of the loans included in the CALP Loan Portfolio is not guaranteed.

Future Outlook

The company anticipates closing the Loan Portfolio Acquisition in mid-2024, subject to customary closing conditions, which is expected to provide various benefits to SSIC and its stockholders.

Management Comments

• Management believes the cannabis lending opportunity will persist for many years, regardless of near-term federal regulatory action.
• Management has experience founding and operating in the cannabis industry since 2014.
• SSIC's present officers will continue to be a part of SSIC's management team following the Loan Portfolio Acquisition.

Industry Context

The document highlights the attractive lending opportunity in the cannabis industry due to the favorable supply and demand imbalance for debt capital, as well as the complex regulatory environment that creates barriers to entry for traditional capital providers. The U.S. legal cannabis market is projected to reach ~$68 billion by 2030, representing an ~11.5% CAGR from 2023.

Comparison to Industry Standards

• The document compares SSIC's loan yields (13.1% 20.2%) to the US Leveraged Loan Yield Index (11.2%) and the US High Yield Index (3.6%), indicating a significant premium for cannabis lending.
• The document mentions that SSIC is the only public BDC focused on direct-lending to the cannabis sector, giving it a competitive advantage.
• The document references TD Cowen's Ahead of the Curve Series, noting that cannabis sales are growing as a percentage of alcohol sales.

Stakeholder Impact

• Shareholders will receive a cash dividend of $0.25 per share.
• The Loan Portfolio Acquisition is expected to benefit stockholders through increased scale and liquidity, enhanced portfolio diversification, and improved access to capital markets.
• The company's investments support operators in the cannabis industry.

Next Steps

• Closing the Loan Portfolio Acquisition in mid-2024, subject to customary closing conditions.
• Seeking stockholder approval for the proposals related to the business combination involving the Company and CALP.

Key Dates