Q4 2023 Silver Spike Investment Corp Earnings Call

Participants

Umesh Mahajan; Chief Financial Officer; Silver Spike Investment Corp

Scott Gordon; Chairman of the Board, Chief Executive Officer; Silver Spike Investment Corp

Michael Lavery; Analyst; Piper Sandler Companies

William Carter; Analyst; Stifel Nicolaus and Company, Incorporated

Presentation

Operator

Good day and thank you for standing by. Welcome to the Silver Spike Investment Corp fiscal year end 2023 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Umesh Mahajan. Please go-ahead sir.

Umesh Mahajan

Thank you, Sharon. Good morning. This is Umesh Mahajan, Chief Financial Officer of Silver Spike Investment Corp. With me here today is Scott Gordon, CEO of Silver Spike Investment Corp. Welcome to Silver Spike's earnings conference call and live webcast for the fiscal year end 2023. Silver Spikes financial results for the fiscal year ended December 31, 2023, were released yesterday and can be accessed from our website at ssic.silverspikecap.com. A replay of this call will also be available on our website later.
Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements related to financial guidance, may be deemed forward-looking statements under federal securities laws. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors.
Silver Spike assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, March 28, 2024. Therefore, you're advised that time-sensitive information may no longer be accurate at the time of any replay or transcript reading.
With that said, good morning again, and thank you all for joining. Today we released our earnings yesterday and there is a management presentation deck attached to the 8-K that was filed yesterday evening. Those who have joined us on this earnings call webcast should also see a link to the slides. We may refer to the slides by numbers for your reference as we walk through those pages. I'll cover the presentation slides to start and then turn it over to Scott Gordon for his thoughts and remarks.
Turning to page three of our presentation, financial highlights for the quarter ended December 31, 2023. The very first column shows the results for the quarter. Gross investment income of $3.6 million, compared to $2.9 million in the previous quarter. Expenses of approximately $1.2 million, excluding expenses related to the loan portfolio acquisition, a transaction that we have previously announced, but has not closed yet. Scott will discuss the transaction in more detail later in this presentation. We then have the loan portfolio acquisition expenses of $0.7 million, essentially legal expenses for the transaction incurred so far.
We have net investment income of $1.7 million for the quarter. Again, this net investment income would have been higher if we exclude the impact of the loan portfolio acquisition expenses. Net investment income per share of $0.28 this quarter. Net assets of $85.6 million at the end of the period, down slightly from last quarter due to the payment of dividend. And our net asset value per share at December 31 is $13.77.
There were no new investments this quarter, we'll discuss our origination efforts and our portfolio in more detail in subsequent slides. Also, our Board declared a regular quarterly dividend of $0.25 per share. This dividend will be payable on March 28 today to shareholders on record as of March 20.
On page four, we show the financial highlights for the full year 2023. Please note that this was the first full year of operations for us. The comparison for the previous year is for nine months from April 1, '22, till December 31, '22.
So for the fiscal year ended 2023, the first column, gross investment income of $11.9 million. Total expenses of $5.3 million, which includes the $0.7 million expenses related to the loan portfolio acquisition. Net investment income of $6.6 million. Again, this net investment income would have been higher if we exclude the impact of the loan portfolio acquisition expenses. Net investment income per share of $1.07. And we have paid a total dividend of $1.33 during the year ended 2023.
We'll not be covering the next few slides in the slide deck in detail as most of the investors are already familiar with our story. But turning to page 10, I would like to talk a little bit about the origination and the deal pipeline.
Our deal pipeline remains very strong. In general, the last quarter of '23 was a slow period for loan transactions in the cannabis sector as a whole. To a large extent there was an expectation among the cannabis operators that some progress on the rescheduling of cannabis is imminent and that these borrowers should wait.
At this point, many of those potential borrowers have figured it may be best to not necessarily wait for an update on the rescheduling front and have begun to reengage with lenders like us. So we expect activity to pick up, in fact the discussions have already picked up, and we have an active pipeline of over $420 million. We have used the slow period in the industry productively via working on the loan portfolio acquisition transaction.
So turning to page 12. These are our portfolio summary as of December 31. Companies A and B are Shryne and PharmaCann, the two investments we made last year in the summer. Company C is Curaleaf, 8% secured bonds that we had purchased a significant discount to the par value last year. Company D is one of our large positions in Verano, it's a first-lien term loan transaction done in the last quarter of last year.
And company E represents Dreamfields Brands or Jeeter, one of our portfolio companies management prepaid the loan along with a prepayment premium in the quarter ending December 31, '23. So overall, if you look at the top of the page, our total investment value is a little over $54 million. Average yield to maturity across loans is 18%.
And a few additional points that we like to highlight about this portfolio and reminding investors to consider when they compare SSIC with other listed BDCs. First, our positions are first-lien bonds or first-lien loans are secured bonds. Second, none of our loans or bonds are nonaccrual status. Third, all of -- or 90% of our portfolio is in floating rate notes and our gross portfolio yield of 18% compares quite favorably to the other listed BDC universe. And we believe each of these portfolio companies is extremely well positioned in the industry for the longer term. With that, let me pass it on to Scott for his remarks.

Scott Gordon

Thank you, Umesh. Good morning, everybody. Just wanted to take a few moments to discuss the proposed loan portfolio acquisition. SSIC announced on February 20 for this year, that it entered into a definitive agreement to purchase from Chicago Atlantic Loan Portfolio a portfolio of loans in exchange for newly issued shares of SSIC's common stock. This 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.
Pro forma information following the closing of the Loan Portfolio Acquisition based on SSIC data as of December 31, 2023, and the CALP Loan Portfolio data as of January 1, 2024, is the following, Pro forma net assets of approximately $213 million, including approximately $187 million of portfolio investments across 27 portfolio companies and approximately $25 million of cash, approximately 19.1% pro forma combined gross weighted yield to maturity of the loan portfolio.
SSIC's present officers will continue to be part of the SSIC management team following the Loan Portfolio Acquisition. And anticipated closing is mid-2024, subject to satisfaction of customary closing conditions. In February, we also announced that our Board of Directors unanimously approved an expansion of our investment strategy to permit investments in companies outside of the cannabis and health and wellness sectors that otherwise meet our investment criteria. The investment strategy change is expected to become effective on or about April 22 of this year. With that, I'll pass it back to Umesh.

Umesh Mahajan

Thank you, Scott. That's all we actually had in our prepared remarks. We are ready for Q&A, Sharon.

Question and Answer Session

Operator

(Operator Instructions) Michael Lavery, Piper Sandler.

Michael Lavery

Good morning. Thank you.

Umesh Mahajan

Good morning, Michael.

Michael Lavery

Some of your comments in the release about some improving market conditions in at least some certain states. Could you give a little bit more color on what you're seeing and how that looks?

Umesh Mahajan

Let me start, and then I'll pass it on to Scott. Yes, definitely. I think the -- we can talk about the states but overall if we step back and look at the market as a whole. The first thing that we have observed here is that the industry is poised for growth. Overall, the inflation concerns are abating. The economy seems to be resilient. The consumer's feeling good. The sentiment is improving. And the demand for cannabis as a product continues to remain strong. So that's the backdrop.
And if you look at the development of various states, we have seen a lot of improvement or positive development across multiple states. We saw several states launch their recreational use this year. Some of the states were a little disappointing in terms of the way they -- the market has grown compared to expectation in New Jersey and New York, but many other states have done fabulously well. Missouri is a great example, that it has really exceeded expectations in every way.
We have seen a lot of movement in terms of updates and expected adult-use legislation getting past. We're very excited about Pennsylvania, about Ohio, about something that we are hopefully waiting to hear on Florida today. So there are a lot of these developments across the various states. If you look at the key markets of California and Michigan, prices have stabilized. Yes, there is a lot of change happening within the California retail market. But again, these are slow but improving trends in those markets. And there are new states that are coming up.
And so overall, when we look at the landscape, the operators who have successfully executed their strategy are definitely feeling better and are reengaging with us on all their growth plans. And we are here to support them with all of their growth plans and their capital needs.

Michael Lavery

Okay, that's great. Thanks so much.

Umesh Mahajan

Thank you.

Operator

William Carter, Stifel.

William Carter

Hey thanks, good morning. I wanted to ask about this transaction. I mean, do you see any material risk to this not closing, not getting approval, potentially even taking longer than expected? And in that case, I mean, what options would you consider? Because I think with your acquisition announcement, I think you suggested the current scale is not tenable. So just kind of understand a plan B, if there is one, no matter how low the probability there is.

Scott Gordon

Sure, I'll start with that and then pass it over to Umesh. Thanks, Andrew. So the transaction is obviously subject to SEC review. We'll be filing an N-14 shortly for the SEC to review and apply upon covering all aspects of the transaction. Obviously, our hope and expectation is that we pass the review process with the SEC. Unclear sort of how long that will be, we've estimated and stated that we're anticipating to close the transaction sometime this summer.
In terms of a plan B. Obviously, we acknowledge that a BDC of our size is suboptimal but, our hope and expectation, Andrew, is that this transaction is sound, it makes a lot of sense for our shareholders and will be able to pass through the SEC review process. So I think premature at this point for us to truly talk about a plan B, our focus is on plan A for the moment.

William Carter

Thanks. I'll pass it on.

Operator

Thank you. There are currently no further questions. I will hand the call back to you.

Umesh Mahajan

Thank you, Sharon. Thank you, everyone, for joining. If you have any questions, please reach out to us or our investor relations department. We would be happy to answer your questions. Thank you again for joining the call today. Thank you.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.