425: Silver Spike Investment Corp. Reports Second Quarter 2024 Earnings and Announces Loan Portfolio Acquisition

Silver Spike Investment Corp. (SSIC) announces its Q2 2024 earnings, highlighting investment income and providing updates on its proposed acquisition of the Chicago Atlantic Loan Portfolio (CALP).

Summary

• Silver Spike Investment Corp. (SSIC) reported a gross investment income of $3.1 million for the quarter ended June 30, 2024, compared to $2.9 million for the same period in 2023.
• Expenses excluding loan portfolio acquisition expenses remained consistent at $1.0 million.
• Net investment income decreased from $1.9 million to $1.5 million year-over-year, impacted by $0.6 million in loan portfolio acquisition expenses.
• Net assets at the end of the period were $84.3 million, with a net asset value per share of $13.56.
• The company declared a cash dividend of $0.25 per share, payable on September 27, 2024, to stockholders of record on September 19, 2024.
• SSIC is externally managed by Silver Spike Capital, LLC (SSC), focusing on direct lending to the cannabis industry and other niche sectors.
• SSC has raised over $600 million in public and private capital and reviewed over 450 debt deals.
• 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 Q4 2024, subject to customary closing conditions.
• Pro forma net assets post-acquisition are estimated at approximately $210 million, including $183 million in portfolio investments and $31 million in cash (as of March 31, 2024).
• The pro forma combined gross weighted-average yield to maturity (YTM) of loans is approximately 19.4%.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there's positive growth in gross investment income and a promising acquisition on the horizon, the decrease in net investment income and inherent risks in the cannabis industry temper the overall outlook.

Positives

• Gross investment income increased year-over-year.
• The company maintains a strong pipeline of potential debt investments.
• The proposed acquisition of the Chicago Atlantic Loan Portfolio (CALP) is expected to increase scale and liquidity, enhance portfolio diversification, improve access to capital markets, and accrete to net investment income.
• The company has a high weighted average yield to maturity of loans (gross) at 17.97%.

Negatives

• Net investment income decreased year-over-year due to loan portfolio acquisition expenses.
• The company incurred $0.6 million in loan portfolio acquisition expenses, impacting net investment income.

Risks

• The forward-looking statements involve risks and uncertainties, including the timing and likelihood of the Loan Portfolio Acquisition closing.
• There are risks associated with the ability to realize the anticipated benefits of the Loan Portfolio Acquisition.
• Changes in the economy, financial markets, and political environment, including the impacts of inflation and rising interest rates, could affect the company's performance.
• The company faces risks associated with possible disruption in operations due to terrorism, war, natural disasters, or global health pandemics.
• The company's performance is subject to changes in laws or regulations, particularly those affecting the cannabis industry.
• 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.

Future Outlook

The company anticipates closing the Loan Portfolio Acquisition in Q4 2024, subject to customary closing conditions. The acquisition is expected to increase scale and liquidity, enhance portfolio diversification, improve access to capital markets, and accrete to net investment income.

Management Comments

• SSIC focuses on opportunities that are time-sensitive, complex, or in dislocated sectors where SSC believes risk is fundamentally mispriced and the opportunities present attractive risk-adjusted returns.
• Management believes the cannabis lending opportunity will persist for many years, regardless of any near-term federal regulatory action.

Industry Context

The document highlights the attractive lending opportunity within the cannabis industry due to a favorable supply and demand imbalance for debt capital. It notes that complex regulatory, operational, and legal frameworks create high barriers of entry for traditional capital providers, allowing lenders to demand structural protections and pricing power.

Comparison to Industry Standards

• The document compares SSIC's cannabis 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 references TD Cowen's Ahead of the Curve Series, noting that cannabis sales are growing as a percentage of alcohol sales and are expected to continue outperforming alcohol sales growth in legal cannabis states.
• The document positions SSIC as the only public BDC focused on direct lending to the cannabis sector, differentiating it from REITs that have limitations on their investable universe.

Stakeholder Impact

• Shareholders will be impacted by the cash dividend of $0.25 per share.
• Shareholders are urged to read the Joint Proxy Statement/Prospectus for important information about the company, the loan portfolio acquisition, and the proposals.
• The Loan Portfolio Acquisition is expected to provide various benefits to SSIC and its stockholders, including increased scale and liquidity, enhanced portfolio diversification, improved access to debt and equity capital markets, and accretion to net investment income.

Next Steps

• Closing the Loan Portfolio Acquisition in Q4 2024, subject to customary closing conditions.
• Seeking stockholder approval for the proposals related to the business combination involving the Company and CALP.

Key Dates