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Silver Spike Investment (SSIC) - 2024 Q4 - Annual Report
SSICSilver Spike Investment (SSIC)2025-03-31 10:03

Company Overview - The company completed its IPO on February 8, 2022, raising approximately 83.3millionfromthesaleof6,071,429sharesat83.3 million from the sale of 6,071,429 shares at 14.00 per share[20]. - The company has been renamed "Chicago Atlantic BDC, Inc." with a new ticker symbol "LIEN" effective October 2, 2024[29]. - As of December 31, 2024, Chicago Atlantic managed 1.9billioninCapitalUnderManagement,whichincludestotalcommittedinvestorcapitalandavailableleverage[48].−Thecompanyisclassifiedasanemerginggrowthcompanyandexpectstoremainsoforuptofiveyearsoruntilcertainrevenueormarketvaluethresholdsaremet[191][192].−ThecompanyisregulatedasaBusinessDevelopmentCompany(BDC)underthe1940Act,whichimposesrestrictionsontransactionswithaffiliatesandrequiresamajorityofindependentdirectors[195][196].InvestmentStrategy−Thecompanyhasanactivepipelineofinvestments,currentlyreviewingapproximately1.9 billion in Capital Under Management, which includes total committed investor capital and available leverage[48]. - The company is classified as an emerging growth company and expects to remain so for up to five years or until certain revenue or market value thresholds are met[191][192]. - The company is regulated as a Business Development Company (BDC) under the 1940 Act, which imposes restrictions on transactions with affiliates and requires a majority of independent directors[195][196]. Investment Strategy - The company has an active pipeline of investments, currently reviewing approximately 644 million in potential investments[35]. - The company has expanded its investment strategy to include companies outside the cannabis and health and wellness sectors, effective April 22, 2024[22]. - The company focuses on investing in private leveraged lower middle-market and middle-market companies with up to 100millioninEBITDA[35].−Thecompany’sinvestmentstrategyincludessecureddebt,unsecureddebt,equitywarrants,anddirectequityinvestments[32].−ChicagoAtlantic′sinvestmentstrategiesfocusonopportunisticprivatecreditandequity,particularlyinesotericindustriesandspecialtyasset−basedloans[48].−Theinvestmentstrategyincludesgeneratingcurrentincomefromdebtinvestmentsandcapitalappreciationfromequity−relatedinvestments[75].MarketConditions−TheU.S.state−legalcannabisretailsalesareestimatedtoreach100 million in EBITDA[35]. - The company’s investment strategy includes secured debt, unsecured debt, equity warrants, and direct equity investments[32]. - Chicago Atlantic's investment strategies focus on opportunistic private credit and equity, particularly in esoteric industries and specialty asset-based loans[48]. - The investment strategy includes generating current income from debt investments and capital appreciation from equity-related investments[75]. Market Conditions - The U.S. state-legal cannabis retail sales are estimated to reach 32 billion in 2024 and approximately 58billionby2030,indicatingsignificantgrowthpotentialinthecannabismarket[52].−In2024,thecapitalraisingenvironmentforprivatecreditfinishedwith58 billion by 2030, indicating significant growth potential in the cannabis market[52]. - In 2024, the capital raising environment for private credit finished with 209 billion in final closes, a 5% increase over 2023, highlighting strong momentum in the market[62]. - The cannabis industry has seen a significant reliance on debt financing, with debt capital increasing as a percentage of total capital raised, reflecting a shift from equity funding[56]. - In 2024, public and private cannabis equity raised only 0.5billionwhiledebtraisedincreasedto0.5 billion while debt raised increased to 1.2 billion, showing a growing preference for debt solutions[58]. - The number of cannabis mergers and acquisitions decreased to 45 in 2024, down from 67 in 2023, indicating a potential slowdown in market activity[59]. - Chicago Atlantic expects demand for credit-based solutions to increase as companies prefer less dilutive forms of growth capital amid a scarcity of equity capital[61]. - The lower middle-market and certain parts of the middle-market are expected to provide better risk-adjusted return potential due to reduced competition from banks and large funds[64]. - The cannabis industry remains fragmented and subject to complex regulations, creating significant barriers to entry for new businesses[52]. Management and Operations - The company has restructured its board and management team following the Loan Portfolio Acquisition and Joint Venture[28]. - The management team possesses extensive expertise in cannabis-related and non-cannabis industries, enhancing the company's ability to evaluate investment opportunities[76]. - The company does not have any employees; day-to-day management is handled by the Adviser and its Investment Committee[125]. - The Adviser is responsible for determining fair value, with oversight from the Board of Directors, and utilizes independent third-party valuation firms when necessary[111][112]. - The Adviser provides administrative services, including maintaining financial records and preparing reports to stockholders[170]. Investment Process - The investment process involves a multi-channel sourcing strategy, focusing on strong management teams and direct negotiations with potential portfolio companies[89]. - The company employs a rigorous due diligence process, including preliminary and confirmatory due diligence phases before final investment approval[92][93]. - Investment criteria include targeting businesses with durable competitive advantages and consistent operational performance[87]. - The investment rating system is used to monitor the credit profile and expected returns on each investment, with a five-level numeric rating scale[104]. Financial Management - The company has entered into an Expense Limitation Agreement, capping operating expenses at an annualized rate of 2.15% of net assets through September 30, 2025[26]. - The base management fee is calculated at an annual rate of 1.75% of the company's gross assets, excluding cash and cash equivalents[135]. - The incentive fee on income is based on the company's "Pre-Incentive Fee Net Investment Income," with a hurdle rate of 1.75% per quarter (7% annualized)[136]. - The incentive fee on capital gains equals 20% of cumulative realized capital gains, less cumulative realized capital losses and unrealized capital depreciation[139]. - The company’s liabilities include accrued management fees and incentive fees based on realized capital gains, affecting the NAV calculation[118]. Compliance and Ethics - The company has a formal code of ethics governing the conduct of its officers and directors[182]. - The investment allocation policy aims to manage conflicts of interest in allocating investment opportunities among funds managed by the Company and its affiliates[178][180]. - Compliance policies and procedures are in place to prevent violations of federal securities laws, with annual reviews for adequacy and effectiveness[209]. - Proxy voting responsibility has been delegated to the Adviser, which will vote in the best interest of stockholders[210]. - The company is subject to periodic examination by the SEC for compliance with the 1940 Act[216].