Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Silver Spike Investment Corp reported an increase in gross investment income to $2.8 million in Q1 2024 from $2.5 million in the same quarter last year.
- Investment income, excluding transaction expenses, improved to $2 million, up from $1.4 million in the previous year.
- The company declared a regular quarterly cash dividend of $0.25 per share, demonstrating ongoing shareholder returns.
- Silver Spike Investment Corp has a strong deal pipeline with an active dialogue with many top operators in the industry, totaling over $425 million.
- The portfolio's gross yield of 18% is favorable compared to the broader listed BDC universe, with over 90% of the portfolio in floating rate loans.
Negative Points
- Net investment income was negative at $0.1 million due to transaction-related expenses of $2.1 million.
- Net assets decreased to $84.5 million, down from the previous year, influenced by dividend payments and transaction expenses.
- The net investment income per share was negative at $0.01.
- The ongoing regulatory processes and the uncertainty around the timeline for the DEA's rescheduling of cannabis could impact the industry's financial landscape.
- Potential capital constraints in the cannabis industry may persist despite legislative changes, possibly affecting borrowing costs and capital availability.
Q & A Highlights
Q: Regarding the transaction, can you just touch on how it's progressing? And maybe if there's any regulatory review updates or just your sense of what we should expect as far as that moves along?
A: (Umesh Mahajan - CFO) We have submitted an N-14 statement to the SEC for review on April 15. This document will be used as a proxy and provide information on the transaction. We expect the review process to take another month or two, followed by a shareholder vote. Everything is proceeding as anticipated, and we expect to close the transaction this summer.
Q: Can you give a sense of what the implications would be for you guys in particular regarding the rescheduling of cannabis, and how the ramifications might look for you?
A: (Umesh Mahajan - CFO) The rescheduling of cannabis, particularly the elimination of the 280E tax effect, would positively impact our portfolio companies' cash flows and credit metrics. However, we do not anticipate a significant change in the competitive dynamics or the overall demand for capital in the cannabis industry in the near term.
Q: Of course, the 280E news and rescheduling is positive, but does that mean that a lot of operators maybe go on a wait and hold pattern for now and don't engage until there's more clarity on when that's implemented under 280E benefits?
A: (Scott Gordon - CEO) Since the initial announcement, we've seen some companies adopt a wait-and-see approach, hoping for better terms. However, many operators, recognizing the historical disappointments in legislative changes, are likely to proceed with available capital. We expect a mixed impact, with some companies possibly delaying decisions for three to six months.
Q: In terms of the transaction structure, maybe just to clarify, is the idea that Chicago Atlantic becomes a bit of a sister company for you, that you work together, you coordinate? Or that's just a top of a separate organization, and your transaction is really with a holding company?
A: (Umesh Mahajan - CFO) The transaction with Chicago Atlantic is completely separate from the REIT. They are independent entities, and our transaction is solely with the holding company.
Q: What are the expected financial impacts of the recent loan portfolio acquisition from Chicago Atlantic Loan Portfolio LLC?
A: (Umesh Mahajan - CFO) The acquisition is expected to close in mid-2024. It involves exchanging newly issued shares of our common stock for the loan portfolio. This strategic move is anticipated to enhance our asset base and diversify our investment portfolio.
Q: How has the potential rescheduling of cannabis to Schedule III influenced your market strategy and borrower interactions?
A: (Scott Gordon - CEO) The potential rescheduling has led to a cautious optimism in the market. While it may reduce borrowing costs and improve capital availability in the long term, we remain realistic about the immediate impacts and continue to support our borrowers' growth and capital needs amidst these regulatory changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
