425: Silver Spike Investment Corp. Eyes Growth with Chicago Atlantic Loan Portfolio Acquisition

Silver Spike Investment Corp. is set to acquire a loan portfolio from Chicago Atlantic Loan Portfolio, LLC, aiming to boost scale, diversification, and access to capital markets.

Summary

• Silver Spike Investment Corp. (SSIC) is planning to acquire a loan portfolio from Chicago Atlantic Loan Portfolio, LLC (CALP) in exchange for newly issued SSIC shares.
• The acquisition is projected to enhance SSIC's scale and liquidity, diversify its portfolio, improve access to capital markets, and increase net investment income.
• Pro forma net assets post-acquisition are estimated at $213 million, including $187 million in portfolio investments across 27 companies and $25 million in cash.
• The pro forma combined gross weighted-average yield to maturity (YTM) of loans is expected to be approximately 19.1%.
• SSIC's current management team will remain in place after the acquisition.
• The closing of the acquisition is anticipated in mid-2024, pending customary closing conditions.
• SSIC's gross investment income for the year ended December 31, 2023, was $11.9 million, with net investment income at $6.6 million, or $1.07 per share.
• As of December 31, 2023, SSIC's net assets were $85.6 million, with a net asset value per share of $13.77.
• The company declared a cash dividend of $0.25 per share, payable on March 28, 2024, to stockholders of record on March 20, 2024.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with the planned acquisition and high yield to maturity, but also acknowledges risks and expenses.

Positives

• The acquisition is expected to increase SSIC's scale and liquidity.
• The acquisition is expected to enhance portfolio diversification.
• The acquisition is expected to improve access to debt and equity capital markets.
• The acquisition is expected to increase net investment income.
• The pro forma combined gross weighted-average YTM of loans is estimated at a high 19.1%.

Negatives

• Loan Portfolio Acquisition expenses of $0.7 million were incurred during the year ended December 31, 2023.
• Net asset value per share decreased from $13.91 to $13.77 during 2023.

Risks

• The closing of the Loan Portfolio Acquisition is subject to customary closing conditions and may not occur as anticipated.
• The anticipated benefits of the Loan Portfolio Acquisition may not be fully realized.
• The company faces risks related to changes in the economy, financial markets, and political environment, including inflation and rising interest rates.
• The company faces risks associated with possible disruption in the operations of the Company or the economy generally due to terrorism, war or other geopolitical conflict (including the current conflict between Russia and Ukraine), natural disasters or global health pandemics, such as the COVID19 pandemic.
• The company faces risks related to future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities).
• The company faces risks related to changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets that could result in changes to the value of the Company's assets.
• The company faces risks related to elevating levels of inflation, and its impact on the Company, on its portfolio companies and on the industries in which it invests.
• The company faces risks related to the ability of Chicago Atlantic Loan Portfolio, LLC (CALP) to obtain the necessary consents for, or otherwise identify and obtain additional loans for including in the CALP Loan Portfolio (as defined below).
• The company faces risks related to the regulatory requirements applicable to the transaction and any changes to the transaction necessary to comply with such requirements.
• The company faces risks related to the satisfaction or waiver of the conditions to the consummation of the transaction, and the possibility in that in connection that the closing will not occur or that it will be significantly delayed.
• The company faces risks related to the performance of the loans included in the CALP Loan Portfolio, and the possibility of defects or deficiencies in such loans notwithstanding the diligence performed by the Company and its advisors.
• The company faces risks related to the ability of the Company to realize cost savings and other management efficiencies in connection with the transaction as anticipated.
• The company faces risks related to the reaction of the trading markets to the transaction and the possibility that a more liquid market or more extensive analyst coverage will not develop for the Company as anticipated.
• The company faces risks related to the reaction of the financial markets to the transaction and the possibility that the Company will not be able to raise capital as anticipated.
• The company faces risks related to the diversion of management's attention from the Company's ongoing business operations.
• The company faces risks related to the risk of stockholder litigation in connection with the transaction.
• The company faces risks related to the strategic, business, economic, financial, political and governmental risks and other risk factors affecting the business of the Company and the companies in which it is invested as described in the Company's public filings with the SEC.

Future Outlook

The company anticipates closing the Loan Portfolio Acquisition in mid-2024, subject to customary closing conditions, and expects the acquisition to provide various benefits, including increased scale and liquidity, enhanced portfolio diversification, improved access to debt and equity capital markets, and accretion to net investment income.

Industry Context

The document highlights the attractive lending opportunity within the cannabis industry due to a supply and demand imbalance for debt capital, with the U.S. legal cannabis market estimated to reach ~$68 billion by 2030. The document notes that complex regulatory, operational, and legal frameworks create high barriers of entry to traditional capital providers.

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%) as of December 31, 2023, indicating a significant premium.
• The document references TD Cowen's 'Ahead of the Curve Series: Cannabis Beats Booze December 15, 2023' to support the claim that cannabis is growing as a percentage of alcohol sales.

Stakeholder Impact

• Shareholders are expected to benefit from increased scale, diversification, and potential accretion to net investment income.
• The acquisition could improve access to debt and equity capital markets, benefiting the company's long-term growth prospects.

Next Steps

• Obtain stockholder approval for the proposed business combination.
• Satisfy customary closing conditions for the Loan Portfolio Acquisition.
• Close the Loan Portfolio Acquisition in mid-2024.

Key Dates