Q1 2023 Silver Spike Investment Corp Earnings Call

[music].

Speaker 1: Good afternoon, my name is Bobby and I will be your conference operator today.

Good afternoon, My name is Bobby and I will be your conference operator today.

Speaker 1: At this time, I would like to welcome everyone to Silver Spike Investment Court's first quarter fiscal 2023 earnings conference call.

At this time I would like to welcome everyone to silver Spike investment Corp's first quarter fiscal 2023 earnings conference call.

Speaker 1: Our hosts for today's call are Greg Gentile, Chief Financial Officer, Chief Compliance Officer and Secretary, Frank Cotton, Head of Credit at Silver Spike Capital LLC, the company's investment advisor, and Bill Healey, Head of Capital Formation at Silver Spike.

Our host for today's call are Gregg <unk>, Chief Financial Officer, Chief Compliance Officer, and Secretary, Frank Hudson head of credit at silver spot capital LLC, the company's investment adviser and Bill Haley.

Head of capital formation at Silver Spike capital Scott.

Speaker 1: Scott Gordon, CEO and the investment team from Silver Spike Capital are also present.

Scott Gordon CEO and the investment team from silver Spike capital are also present today.

Speaker 1: Today's call is being recorded and will be made available for replay at 6pm Eastern Time. Details can be found on the press release page.

Today's call is being recorded and will be made available for replay at six P. M. Eastern time details can be found on the press release, a replay of the call will also be available on the SaaS IC website.

Speaker 1: A replay of the call will also be available on the SSIC website. At this time, all participants have been placed in a listen-only mode, and the floor will open for your questions following the presentation. You may register to ask a question at any time by pressing star and one on your touchtone phone. You may withdraw yourself from the queue by pressing star two. It is now my pleasure to turn the conference over to Bill Healey.

At this time, all participants have been placed in a listen only mode and the floor will open for your questions. Following the presentation you.

You May register to ask a question at any time by pressing star and one on your Touchtone phone you may withdraw yourself from the queue by pressing star two it.

It is now my pleasure to turn the conference over to Bill Healy.

Speaker 2: Thank you, operator, and welcome everyone to Silver Spike Investment Corps, or I'll refer to them as SSIC, or Earnings Conference Call for the first quarter of fiscal 2023.

Thank you operator, and welcome everyone to silver Slack investment Corp's for al referred to them as FSIC earnings conference call for the first quarter of fiscal 2023.

Speaker 2: SSIC's first quarter fiscal 2023 financial results were released last Friday and can be accessed from the website at ssis.soberspikecap.com.

Fsic's first quarter fiscal 2023 financial results were released last Friday and can be accessed from the website.

FSIC Dawn silver Spike cap Dot com.

Speaker 2: 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 relating to financial guidance, may be deemed forward looking statements under federal securities law.

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 relating to financial guidance may be deemed forward looking statements under federal Securities laws.

Speaker 2: 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.

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.

Speaker 2: We encourage you to refer to our most recent SEC filings for information on some of these risk facts.

We encourage you to refer to our most recent SEC filings for information on some of these risk factors. So we're spike assumes no obligation or responsibility to update any forward looking statements. So please note that the information reported on this call speaks only as of today August 18 2022.

Speaker 2: Silver spike assumes no obligation or responsibility to update any forward looking statements. So please note that the information reported on this call speaks only as of today, August 18th, 2020.

Speaker 2: Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay or transcript.

Before you are advised that time sensitive information may no longer be accurate at the time of any replay or transcript excuse me transcript reading.

Speaker 2: Now allow me to introduce SSIC CFO Greg Denton.

Let me allow now allow me to introduce FSIC CFO , Greg that Julie Greg.

Speaker 3: Thank you, Bill. I think what we'll do is just give a quick summary of quarterly results, and then I'll turn it over to Frank Coatson, who will elaborate more on the activity for the quarter in our investment program.

Thank you Bill.

I think what we'll do is just give a quick summary of quarterly results and then I'll turn it over to Frank <unk>, who will elaborate more on the activity for the quarter and our investment program.

Speaker 3: So for the previous quarter, we achieved total investment income of $809,591. This was comprised of two components, approximately $400,000 of interest income, as well as $410,000 of fee-based income related to loans closed during the quarter.

So for the previous quarter, we achieved total investment income of $809591. This was comprised of two components approximately $400000 of interest income as well as $410000.

Fee based income related to loans closed during the quarter.

Speaker 3: Our total expenses were approximately $588,000, of which 222,000 were ordinary course legal expenses.

Our total expenses were approximately 588000.

Which 222000 were ordinary course legal expenses.

Speaker 3: But this being our first quarter really up and running, we expect this to be materially lower in future quarters. A lot of those legal expenses related to start-up issues and general ramping up of things like compliance programs, policies and procedures, et cetera.

But this being our first quarter really up and running we expect this to be materially lower.

In future quarters, a lot of those legal expenses related to just startup issues and general general ramping up of things.

Things like compliance programs policies and procedures et cetera.

Speaker 3: This resulted in an increase in net assets of approximately $211,000.

This resulted in net.

Net increase and net assets of approximately $211000.

<unk>.

Speaker 3: which translates to an increase in NAV from 13.61 in the previous quarter to 13.64 in the most recent quarter. Just to give you some color around the NAV number, as of the close of the quarter on June 30th, SSIC common stock was trading at 9.78.

Which translates to an increase in <unk> from <unk>, it's about six one in the previous quarter 2013 spot six four.

In the most recent quarter just to give you some color around the <unk> number as of the close of the quarter on June 30 at FSIC common stock was trading at nine spot 78.

Speaker 3: So this equates to a discount of approximately 28.3% of NAV.

This equates to a discount of approximately 28, 3% of.

Speaker 3: So just to give you an overview, a little bit of history, we completed our IPO in February , which was a blind pool offering. So we launched essentially with a pool of cash and we're very excited to have just begun our ramp up period and having just made two new, two investments this quarter, which Frank will elaborate upon shortly.

So just to give you an overview.

A little bit of history, we completed our IPO in February which was a blind pool offering. So we launched essentially with a with a pool of cash.

And we're very excited to have just begun our ramp up period end.

Having just made two new two investments this quarter, which Frank will elaborate upon shortly.

Speaker 3: So it's very important to note that our first loan position was entered into on May 26, which was more than halfway through the quarter.

Very important to note that our first loan position was entered into on May 26th which was more than halfway through the quarter. So while only on the books for approximately 36 days.

Speaker 3: So while only on the books for approximately 36 days, the interest income from this position alone was able to overcome expenses and surpass break even from an operational standpoint. Our second loan position was entered into the last day of the quarter, June 30th.

Income from disposition alone was able to overcome expenses and.

And surpass breakeven from an operational standpoint, our second loan.

<unk> has entered into the last day of the quarter June 30.

Speaker 3: and thus did not materially affect results. So with almost 30% invested as of June 30th, we expect this full coming quarter of interest income to easily surpass this prior quarter's results.

And thus did not materially affect results so with almost 30% invested as of June 30, we expect full coming quarter of interest income to easily surpass those prior quarters' results.

Speaker 3: And with that, I'll turn it over to Frank for a call around the portfolio.

And with that I'll turn it over to Frank for color on the portfolio.

Speaker 4: Thanks, Greg. My name is Frank Coats and I'm the head of credit at Silver Spike Capital. So first, I'd like to start by discussing the activity in the quarter. As Greg mentioned, we executed two transactions in the quarter, the details of which are in the 10Q, which was filed on August 12th.

Thanks, Greg My.

My name is Frank coats and I'm the head of credit its oversight capital. So first I'd like to start by discussing the activity in the quarter.

As Greg mentioned, we executed two transactions in the quarter the details of which are in the 10-Q, which was filed on August 12.

Speaker 4: During the quarter, we deployed approximately $24.4 million of cash across these two investments.

During the quarter, we deployed approximately $24 4 million of cash across these two investments. Both of these are first lien senior secured term loans one loan was to the shrine group and one was to pharma can we believe that both of these loans have from a lender's perspective.

Speaker 4: Both of these are first lien senior secured term loans. One loan was to the Shrine Group and one was to FarmaKen. We believe that both of these loans have from the lender's perspective, the following favorable asset coverage, favorable loans, loan to values, and attractive interest rates which fairly compensate the lender for the credit risk.

Boeing favorable asset coverage favorable loans loan to values and attractive interest rates, which fairly compensate the lender.

For the credit risks, we're particularly excited that we were able to successfully co lead the shrine group loan, which along with another co lender, we structured and syndicated to other lenders and which we believe we were compensated not only by favorable loan characteristics to us as a lender, but we were also compensated with considerable fee income.

Speaker 4: We're particularly excited that we were able to successfully co-lead the Shrine Group.

Speaker 4: which along with another colander we structured and syndicated to other lenders in which we believe we were compensated not only by favorable loan characteristics to us as a lender, but we were also compensated with considerable fee income for our efforts.

Our efforts.

Speaker 4: as a co-lender. The loan across all these lenders, all the lenders that it was syndicated to, can be drawn up to 170 million dollars, of course subject to certain requirements, and we believe this loan to be one of the largest loans ever executed for a private cannabis company.

As a co lender the loan across all of these lenders all the lenders that it was syndicated to can be drawn up to a $170 million.

Of course subject to certain requirements and we believe this to be this loan.

One of the largest loans.

Ever executed.

Private cannabis company.

Speaker 4: Next, I'll talk just for a moment about market conditions. So as I'm sure everyone knows, the global debt and equity markets sold off meaningfully.

Next I'll talk just for a moment about just market conditions. So as I'm sure everyone knows that global debt and equity markets sold off meaningfully.

Speaker 4: throughout the first half of the year. As of the end of the quarter, June 30th, globally interest rates had ended considerably higher than where they started at the beginning of the year. High yield and leverage loan spreads ended the first half of the year, several hundred basis points wider. And most global equity indices experienced meaningful sell-offs.

Throughout the first half of the year as at the end of the quarter June 30th globally interest rates. It ended considerably higher than where they started at the beginning of the year high yield and leveraged loan spreads ended the first half of the year several hundred basis points wider than most global equity indices experienced meaningful sell us.

Speaker 4: you know, throughout the first two quarters of the year. The cannabis sector was not immune to this sell-off and existing observable cannabis loans and bonds, many of which were executed last year.

Throughout the first two quarters of the year the cannabis sector was not immune to the sell up an existing observable cannabis loans and bonds.

Many of which were executed last year.

Speaker 4: Also experienced considerable sell-offs from their highs in the first half of the year. Fortunately, we closed the SSIC IPO in February of this year and our first appointment was not until May and that was the Shrine loan and our second was in June .

Also experienced considerable sell ups from their highs in the first half of the year.

Fortunately, we closed DSS IC IPO in February of this year and our first appointment was not until May and that was a triangle and our second was in June farm again.

Speaker 4: At the time, these lines were executed the bulk of the first half of 2022's debt and equity market sell-offs had already occurred.

At the time these loans were executed the bulk of the first half of 2020 twos debt and equity market. So upset already occurred.

Speaker 4: And we believe that the spreads we're able to achieve in these loans reflected existing market conditions in the quarter. And also believe we're in a fortunate position of having, as Greg mentioned it as of the end of the quarter, over 70% of our assets in cash. Our strategy is to take advantage of these higher interest rates, wider spreads, and favorable lending market conditions as we make more loans.

We believe that the spreads we are able to achieve on these loans reflected existing market conditions in the quarter and also believe we are in a fortunate position of having.

As Greg mentioned it.

As of the end of.

The quarter over 70% of our assets in cash our strategy is to take advantage of these higher interest rates wider spreads and favorable lending market conditions as we make more loans going forward.

Speaker 4: Lastly, I'd like to discuss our underwriting pipeline and opportunity.

Lastly, I would like to discuss our underwriting pipeline and opportunities so as I mentioned.

Speaker 4: So as I mentioned, we are fortunate to have over 70% of our assets in cash at the end of the quarter. Our underwriting process is a robust one and we spend considerable time with management, the management of our borrowers and potential borrowers understanding their competitive positions.

We are fortunate to have over 70% of our assets in cash as of the end of the quarter.

Our underwriting processes are robust Lauren and we spent considerable time with management the management of our borrowers and potential borrowers understanding their competitive positions the competitive dynamics of the markets in which they operate and compete.

Speaker 4: dynamics of the markets in which they operate and compete and their ability to create value and as well as their funds.

And their ability to create value.

As well as their funding needs.

Speaker 4: We are incredibly demanding with our borrowers and potential borrowers regarding diligence, non-structuring, and reporting.

We are incredibly demanding with our borrowers and potential borrowers regarding diligence loan structuring and reporting requirements.

Speaker 4: And we continue to experience a very robust pipeline. We're in active conversation.

We continue to experience a very robust pipeline. We're in active conversations active conversations with many potential borrowers and we believe we're well positioned positioned to pursue our strategy of both capturing the yieldco market as offer.

Speaker 4: active conversations with many potential borrowers and we believe we're well positioned to pursue our strategy of both capturing the yields the market has to offer as well as structuring our loans and learn documents.

As well as structuring loans and loan documents to meet our standards.

Speaker 4: At this point, that concludes our prepared remarks, and I'll pass it over to the moderator, and we'll open up the line for questions. Thanks.

At this point that concludes our prepared remarks, and I'll pass it over to the moderator and we will open up the line for questions. Thank you.

Speaker 1: And at this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. We'll pause for a moment to allow questions to queue.

And at this time, if you would like to ask a question. Please press star and one on your Touchtone phone.

You may where maybe yourself from the queue at any time by pricing start to.

Once again that is star one to ask a question.

We'll pause for a moment to allow questions to queue.

We will take our first question from Andrew Carter with Stifel.

Speaker 5: Hey, thanks. Good afternoon. First question I wanted to ask, you did say that the legal expenses were going to come down. I guess I could go with this one or two ways. You underwrote a pretty significant loan this quarter and got $410,000 of fees from it. So how many expenses were related to that and can you tell us where you think the OpEx will kind of land over the next two or three quarters? Thanks.

Hey, Thanks. Good afternoon first question I wanted to ask you did say that the legal expenses were going to come down I guess I can go at this one or two ways you underwrote a pretty significant loan this quarter and got in got 410000 of fees from it. So how many expenses were related to that and can you can you tell us where you think.

The Opex will kind of land over the next two or three quarters. Thanks.

Sure Andrew This is Greg.

Speaker 3: I think it's important to note that none of those legal expenses were directly related to the closing of the Shrine loan. In fact, we typically require our borrowers to pay for legal expenses.

I think it's important to note that none of those legal expenses were directly related to the closing of the shrine loan.

In fact, we typically require our borrowers to pay for the legal expenses.

Speaker 3: surrounding the closing of the loans. So most of those really related to Silver Spike Investment Corp as a corporate structure itself.

Surrounding the closing of the loans. So most of those really related to silver silver stake investment Corp.

Is it corporate structure itself.

Speaker 3: given that it was our first quarter really going full steam with operations. We just had a lot of general corporate overhead to take care of things like compliance manuals, policies, procedures, various SEC filings, etc. So none of that was loan specific. It's really corporate expense.

Given that it was our first quarter really going full steam with operations.

Just had a lot of.

General corporate overhead to take care of things like compliance manuals policies procedures.

Various SEC filings et cetera, so none of that was loan specific it's really it's really corporate expense.

Speaker 5: Okay, gotcha. So just in terms of kind of where it kind of shakes out as a run rate?

Okay got you. So just in terms of kind of where it kind of shakes out as a run rate.

Any guidance there.

Speaker 3: Yeah, I don't want to commit to an exact figure, but I can tell you that there were a lot of expenses also related to the 10K. So given that that's the heavy lift in terms of filing, the queues are a lot less expensive. So without, again, without quoting a figure, I think you should expect something significantly less than what you saw last time.

Yes.

I don't want to commit to an exact figure, but I can tell you that.

There were a lot of expenses also related to the 10-K, so given that that's the heavy lift in terms of filing.

The queues are a lot less expensive.

So without again without quoting a figure I think you should expect something.

Significantly less than what you saw last quarter.

Speaker 5: The second question I wanted to ask in terms of the pharma can loan, correct me if I'm wrong, it looks like you purchased a portion of that loan from another group because those terms were identical to a loan that was underwrite written earlier this year. So a couple questions of that. First, did you get it at a discount?

Understood second question I wanted to ask in terms of the pharma can loan correct me if im wrong. It looks like you purchased a portion of that loan.

From another group because that those terms were identical to a loan that was underwrite written early this year a couple of questions that first did you get it at a discount.

Speaker 5: At what the original loan was and could you would you in this environment kind of think a little differently about opportunistically looking to get exposure elsewhere, given there's a lot of loan portfolios out there that it's kind of deployed and conditions have changed quite a bit for the worst.

At what the original loan was and could you would you in this environment kind of think a little differently about opportunistically looking to get exposure elsewhere. Given there is a lot of loan portfolios out there, but it kind of deployed and conditions have changed quite a bit for the worse.

Speaker 4: Yeah, Andrew, thanks. That's a great question. It's Frank, I'll answer that. We actually did not buy that in the secondary market that was actually a tack on to an existing but but you're right, it has the same characteristics of the existing loan.

Yes, Andrew Thanks, that's a great question, it's Frank I'll answer that.

We actually did not buy that in the secondary market that was actually a tack onto an exist, but youre right. It has the same characteristics of the existing law.

Speaker 4: So it was a tack on and it was done in conjunction with another another lender

So it was a tack on and it was done in conjunction with another another lender.

Speaker 4: And it was done at a discount and the details of which are are in the

And it was done at a discount.

The details of which are already in the.

Speaker 4: are in the queue.

Are in the queue.

And I think it is.

Speaker 4: I think it's a really, really good question. It's something that we talk about. We are, you know, we're primarily going to be deploying assets in loans that we structure.

I think it's a really really good question, it's something that we talk about.

We are we're primarily going to be deploying assets in loans that we structure.

Speaker 4: And that'll be our strategy. That's our strategy going forward.

That will be our strategy.

That's our strategy going forward.

Speaker 4: at least for the time being, but they don't proceed to change in the near term. We are looking at the public markets. And we, as I mentioned earlier, we have noticed that some of them have sold off considerably.

At least for the time being but proceeded to change in the near term.

Looking at the public markets.

As I mentioned earlier, we have noticed that some of them have sold off considerably we use the public markets.

Speaker 4: We use the public markets in this industry is a good benchmark and a good understanding of where we think credit risk should price for the private companies we're looking at.

And this industry is a good benchmark and a good understanding of where we think credit risk should price for the private companies. We're looking at it.

Speaker 4: But we are opening to doing secondary transactions. We don't think it will ever be.

But we are opening to doing secondary transactions, we don't think it will ever be.

Speaker 4: you know, the bulk of the portfolio. Um, and we are cognizant of, you know,

The bulk of the portfolio.

We are cognizant of.

Speaker 4: We're cognizant of tactical pressures. Many of us spent decades in the capital markets businesses, so we're going to be cautious about those types of things, but we are looking. We're noticing even as recently as the last couple of weeks.

We're cognizant of tactical pressures many of us spent.

Decades in the capital markets businesses, So we're going to be cautious about those types of things, but we are looking we're noticing even even as recently as the last couple of weeks.

Speaker 4: some selling pressure and some of the public names. If anything from the private side it helps.

Some selling pressure in some of the public names if anything from the private side. It helps justify that we get generous.

Speaker 4: justify that we get generous credit spreads, generous overall yields, generous loan documentation that's favorable to us as a lender, and due diligence as well.

Credit spreads generous overall yields generous.

Our loan documentation, that's favorable to us as a lender and due diligence as well.

Thank you Les.

Speaker 5: Yeah, last question I'll ask, just any kind of update on the kind of...

Last question I'll ask just any kind of update on the kind of deployment and if I understand it correctly from looking at what the kind of minimum.

Speaker 5: deployment and if I understand it correctly from looking at what the kind of minimum interest income you're going to get from two loans on hand.

Interest expense just income youre going to get from two loans on hand, plus or plus your organization expenses going down it sounds like from here there is not going to be NAV drag, but with that respect is like.

Speaker 5: plus your organization expenses going down. It sounds like from here there's not gonna be a nav drag, but with that respect is like, there's no nav drag going forward. Just wanna make sure I understand that. And number two, just any kind of update on your kind of deployment target, how that shifted. And I'm assuming also loans from here would be in the two to $4 million range. Thanks.

Are there is no doubt no doubt a drag going forward just want to make sure I understand that and number two just any kind of update on your kind of deployment.

Target, how that shifted and I'm, assuming also loans from here would be in the $2 million to $4 million range. Thanks.

Okay.

Speaker 4: Sure, I'll talk about the deployment for a sec. So given BDC rules, we can do up to two loans up to 25%.

Sure I'll talk about the deployment for a SEC so given BDC rules.

Can do up to two loans up to 25%.

Speaker 4: The rest will be smaller positions, as you mentioned, and so we would expect that going forward. And yeah, our strategy is still to deploy the majority of assets in the next couple of quarters.

The rest will be smaller positions as you mentioned and so we would expect that going forward.

Yeah.

Still our strategy is still to deploy the majority of assets in the next couple of quarters.

Speaker 4: I can't talk about specifically what we're working on or what we may or may not have done this quarter on a go-forward basis, but I would say, as I mentioned before, the pipeline is incredibly robust. I think it's a great idea to have a robust pipeline, and I think it's a great idea to

I can't talk about specifically, what we're working on and what we may or may not have done this quarter and on a go forward basis, but I would say mentioned before the pipeline is incredibly robust.

Speaker 4: We're seeing new opportunities weekly if not daily. So we're very optimistic about the opportunities that lie ahead and that is our strategy to try to deploy the bulk of our assets, the majority, let me say the majority of our assets.

We're seeing new opportunities.

Weekly if not daily.

So we're very optimistic about.

<unk> that lie ahead.

That is our strategy to try to deploy the bulk of our US the majority let me say the majority of our assets.

A couple of quarters.

Speaker 5: And then I'm also right to assume that for now, it's, I mean, it looks like with the income you have in hand and the organizational expenses, it looks like that covered. So there's really, there's not a risk here of nav drag against a slower deployment. That's kind of what I was kind of also kind of getting at there. Yeah. Greg, do you want to comment on that?

And then I'm also right to assume that from now it's I mean, it looks like what the income you have in hand, and the organizational expenses. It looks like that covered so there's really there's not a risk Matt here of NAV drag against the slower deployment, that's kind of what I was kind of also kind of getting out there.

Yes, Greg do you want to comment on that.

Yeah, I apologize I missed the connected.

Speaker 3: Andrew, can you repeat the question? I apologize. Yeah, sure. What I'm ultimately getting at, you kind of, just to make sure, just looking at the minimum interest income that's going to be coming in from the two loans, plus your kind of guidance, soft guidance around organizational expenses, it looks like from here, there's not going to be nav drag. And so it's only going to go positive. So it is a little, you don't have, you don't bear as much risk of having to get your portfolio out there. Is that correct? Am I reading that right? Kind of the modeling?

Andrew can you repeat the question I apologize, yes sure.

I'm ultimately getting at and you kind of just to make sure just looking at the minimum interest income that's going to be coming in from the two loans.

Plus you are kind of kind of guidance soft guidance around organizational expenses. It looks like from here, there's not going to be NAV drag and so it's only going to go positive.

You don't have as you know there is.

As much risk of half may get your portfolio out there that is that correct am I reading that right kind of a modeling.

Speaker 3: Yeah, that's exactly right. So I think the highlight of this quarter, although the NAV increase was only 3 cents a share, if you think about it, if I frame it such that

Yes, that's exactly right. So I think the the highlight of this quarter, although the NAV increase was only three a share.

If you think about it in if I frame it such that less.

Speaker 3: less than 30% of the portfolio was invested and really only for a fraction of the quarter, and we were still able to surpass.

Less than 30% of the portfolio was invested.

And really only for a fraction of the quarter and we were still able to surpass.

Speaker 3: expenses and break even. So next quarter you're going to see, I mentioned the shrine was, shrine lobe was on the books for 36 days.

<unk> and breakeven so next quarter youre going to see.

I mentioned the shrine was trying loans on the books for 36 days right. So barring any change in fair value.

Speaker 3: Right. So barring any change in fair value. So I'm going to ignore any mark to market that that may occur at the end of next quarter. But you're going to see the interest income on that loan more than double. But just simple.

Nor any mark to market that.

May occur at the end of next quarter, but you're going to see the interest income on that loan more than doubled.

Just simple arithmetic and then none of the interest from pharma can save save for one day June 30 have showed up in.

Speaker 3: And then none of the interest from pharmacan, save for one day, June 30th, showed up.

Speaker 3: in the results. CLC's that next quarter combined with decreased expenses should give us quite the opposite of a drag on NAV but a consistent quarterly boost.

And the results so you'll see that next quarter combined with decreased expenses should should give us.

Quite the opposite about <unk>.

Drag on NAV, but.

Consistent quarterly boost.

Got it thanks I'll pass it on.

Okay.

Speaker 1: And our next question comes from Michael Lavery with Piper Sandler.

And our next question comes from Michael Lavery with Piper Sandler.

Thank you good afternoon.

Speaker 2: Just was curious, following up on the question about the pipeline, how have you seen that evolve? And you've mentioned that it's robust. I understand you can't get too specific or really specific much at all. But. Have you seen it evolve as the market has has kind of. Turned or evolved and.

Just was curious following up on the.

A question about the pipeline how have you seen that evolve and.

You've mentioned that it does it's robust.

And you can't get too specific or really specific much at all but.

Have you seen it evolve as the market has kind of turned or evolved.

And.

Speaker 2: Do you expect maybe more sort of secondaries or things that you don't structure yourself than you might have initially? Just any of that color might be helpful. And partly, I would love to understand along with that how you've had the one time fee income here that's gonna be erratic or unpredictable. But as you look ahead at what's in the pipeline, would you expect more to be coming or is it different types of deals? Any of that color would be.

Do you expect maybe more.

Sort of secondaries.

Things that you don't structure yourself than you might have initially just any of that color might be helpful and partly we'd love to understand is it along with that.

How <unk> had the one time fee income here.

Going to be erratic or.

Unpredictable, but.

As you look ahead at what's in the pipeline would you expect more to be coming or is it different types of deals any of that color would be helpful.

Speaker 4: Sure, I can take that. Thanks for the question. Like, yeah, I would say that the markets evolved quite a bit, you know, since since last fall, a lot of several deals got done.

Sure I can take that.

For the question Mike.

Yes, I would say that as the markets evolved quite a bit since since last fall a lot of.

Several deals got done and as I mentioned earlier in my commentary some of those deals.

Speaker 4: And as I mentioned earlier in my commentary, some of those deals have traded off. Some of them had traded up actually quite a bit.

Traded off some of them had traded up actually quite a bit.

Speaker 4: you know, five to seven points, it just depends on the name. Those are loans and bonds in this space. They've sold off with the rest of the market. And, you know, there was some institutional money that was raised at the end of the last year and the beginning of this year. It feels to us given the dynamics that we're seeing, that a lot of that money has been spent. Because we are seeing, we've seen, in many cases, deals come back a second or third time.

Five to seven points it just depends on the name.

Those are loans and bonds in this space.

Sold off with the rest of the market and you know there was some institutional money that was raised at the end of the last year and the beginning of this year.

Feels to us given the dynamics that we're seeing that a lot of that money has been spent on <unk>.

Because we're seeing we've seen them in many cases deals come back a second or third time.

Speaker 4: We've seen a lot of companies that were interested in much tighter yields come back to us. We're in conversation daily with many, many companies.

We've seen.

A lot of.

A lot of companies that.

We're interested in much tighter yields come back to us.

We're in conversations daily with many many companies and I think the market just.

Speaker 4: And, you know, I think the market just not just similar to the kind of high yield and the credit mark.

Not just similar to the kind of high yield and the credit markets.

Speaker 4: have really repriced considerably. And I think, as I mentioned before, that's definitely to our advantage as a lender and as.

Have really repriced considerably.

I think as I mentioned before that's definitely too to our advantage as a lender and us as a lender that has a lot of cash. So we are seeing.

Speaker 4: as a lender that has a lot of cash. So we are seeing some companies that are back for the second or third try, and we're seeing some other companies that have successfully executed their strategy and need growth capital, and we're thinking of funding it maybe with equity, and the equity markets have been challenging. And so some of the folks who thought three to six to nine months ago they were gonna fund themselves with equity have come into the debt market as potential borrowers.

Some companies that are that are back for the second or third or third try it and we're seeing some other companies that have successfully execute our strategy and we had growth capital and we're thinking of funding it maybe with equity in the equity markets have been challenging and so some of the folks who thought.

Three to six to nine months ago, they were going to find themselves with equity have come into the debt market as potential borrowers.

Speaker 4: I would say that for those folks, and there are many of them that haven't borrowed, haven't had an institutional borrowing before, it's a bit of a learning problem.

I would say that for those folks and there are many of them that haven't borrowed and haven't had an institutional.

Borrowing before it's a bit of a learning process, we have a very detailed.

Speaker 4: we have a very detailed due diligence process, very rigorous. And it does take a while to get the deals done. It takes a while to do the due diligence, the financial modeling, understanding the sources and uses and all that. So it is a incredibly complex process, but we think it's...

Due diligence process and very rigorous.

It does take a while to get the deals done and it takes a while to do the due diligence.

Initial modeling understanding the sources and uses and all that so it is a.

Credibly.

Complex process, but we think it's.

Speaker 4: It's a good one and it's something that we have a good competitive advantage in. So I would say yeah the pipeline has evolved quite a bit.

It's a good one.

Something that we have a good competitive advantage and so I would say the pipeline has evolved quite a bit.

Speaker 4: got more interesting and I think more and more borrowers are realizing that the cost of debt where we're getting deals priced and where prices are talking in many cases mid to high teens is just you know It's just the proper cost of debt in this space at this point in time.

Got more interesting and I think more and more borrowers are realizing that the cost of that where we're getting deals priced in where prices are talking in many cases mid to high teens is just.

The proper cost of debt in this space at this point in time.

Speaker 4: In terms of your secondaries, I mentioned when Andrew has asked the question, we definitely would consider it, but we also want to be cognizant of technicals.

In terms of your secondary as I mentioned when Andrew asked the question, we definitely would consider it but we also want to be cognizant of.

Technicals.

Speaker 4: So something we would look at, but we think the bulk of our portfolio or strategy is to execute in private loans.

So it's something we would look at but we think that the bulk of our portfolio. Our strategy is to execute in private loans.

Speaker 4: um you know I think attack on like we like you know like we did.

I think a tack on like we like like we did.

Speaker 4: one of which we did in the quarter, is something that we consider to be a little bit different because there can be some conversations in pricing, et cetera, because it depends on what price gets done. So that we view a little bit different, but then just a secondary, just buying from someone else.

One of which we did.

In the quarter is something that we consider to be a little bit different because there can be some conversations and pricing et cetera, because it depends on what price. It gets done so that we view a little bit different but.

Then just a secondary just buying from from someone else.

Speaker 4: And then in terms of, you know, you're exactly right on the fee income. It's just hard to model. It's hard to judge. You know, our goal is, you know, we, as this space continues to evolve, our goal and our strategy is to be a premier lender in the space.

And then in terms of.

Youre exactly right on the fee income.

Just hard to model, but it is hard to judge our goal as we as the space continues to evolve our goal and our strategy is to be.

Premier lender in this space and to be able to help companies achieve their financial goals.

Speaker 4: in to be able to help companies achieve their financial goals.

Speaker 4: and help them with understanding what they can borrow and at what levels and under what conditions, and that we get paid for that. So it is our hope that...

And to help them with understanding what they can borrow and at what levels and under what conditions and that we get paid for that so it is our hope that.

Speaker 4: you know, that we can generate more fee income over time, but it's very hard to predict. And of course, it'll be somewhat a function of, you know, new loans and deployment and the size of the loan.

That we can generate more fee income over time, but it's very hard to predict.

And of course, it will be somewhat a function of new loans and deployment and the size of the loans.

Speaker 4: When we do bigger loans and we help structure them and originate them and all that, I think we'll have the opportunity for more fee income. If it's a TACON, it's really more about what price are we executing the TACON at. If it's just a small or private, we'll do whatever is fair and we expect to have some fee income. This shrine loan was particularly exciting because of the size of the loan.

When we do bigger loans.

Help structure them and originate them and all of that I think we will.

I think we will have the opportunity for more fee income.

If it's.

Tack on it's really more about what price are we executing the tack on that and if it's just a smaller private.

We will do whatever is fair and we expect to have some fee income.

Try and learn was particularly exciting because of the size of the loan.

Speaker 4: you know, given the amount, obviously the finite amount of capital we have, but to be able to co-lead such a big loan was exciting.

And given given the obviously the finite amount of capital, we have but to be able to co lead.

Such a big loan was what's exciting for us.

Speaker 2: Oh, that's a great color and all makes sense. Just one follow up. Obviously you've talked about how spreads have evolved in the...

Oh, that's great color and all makes sense just one follow up.

Obviously, you've talked about how spreads have evolved and it's clear what that means for you but any.

Speaker 2: clear what that means for you, but any other components of that in terms of just covenants or you know things that have also sort of shifted in terms of it sounds like it's a little bit more you know you the pendulum swung back to you you know more in your direction in terms of being able to be choosy or just you know is that correct and what does that mean in terms of how you structure loans maybe differently than you might have a few months ago.

Any other components of that in terms of just covenants or things that have also sort of shifted in terms of it sounds like it's a little bit more.

The pendulum swung back to you called them up more in your direction in terms of being able to be choosy or just is.

Is that correct and what does that mean in terms of how you structure loans, maybe differently than you might have a few months ago.

Speaker 4: Yeah, I think that's a great question. Michael, we think about that a lot. And I think that's exactly right. It enables us to be choosier.

Yes, I think that's a good that's a great question, Mike when we think about that a lot.

And I think that's exactly right.

<unk> has to be choosy.

Speaker 4: And the things that would factor into our loans would be not only the spread, but also the kind of the loan to value for the amount of the size of the loan, the leverage, the amount of debt to EBITDA.

And the things that would factor into our loans would be not only the spread.

But also the kind of loan to value so the amount of the <unk>.

<unk> of the loan.

The leverage the amount of it.

Debt to EBITDA.

Speaker 4: the LTV, the Covenant, the reporting requirements, it's all shifted. It's really incredible where the market was.

The LTV covenants.

Porting requirements all shifted its really incredible where the market was.

Speaker 4: last year because remember last year towards the end of the year we actually had in this marketplace you know in some cases just traditional Hyolduk

Last year, because remember last year towards the end of the year, we actually had.

In this market place.

In some cases.

Traditional high yield accounts and loan accounts that were that had <unk>.

Speaker 4: and loan accounts that were that had never been in this lending in this industry before were coming in because yields were so tight you know the high yield market was probably trading at four and a half percent um and so the yield got to be almost double that early this year so those participants largely had left the market.

Never been in this lending in this industry before.

Coming in because yields were sort of towards the high yield market was probably trading at four 5%.

Something that youll get to be almost double that early this year. So those participants largely had left the market.

Speaker 4: So the supply demand imbalances has tilted, you know very much in favor of the lender And so that's exactly right So we'll look so we think it's exciting not to you know, not just to have higher yields or bigger discounts You know bigger OID or higher fees, but also a less risky one.

So the supply demand imbalances is tilted very much in favor of the lender.

That's exactly right. So we will look so we think it's exciting not not just to have higher yields or bigger discounts, you know bigger OID or higher fees, but also a less risky loan so less leverage less LTV and.

Speaker 4: So less leverage, less LPV, and better covenants, better control. So whereas nine months ago, some people we spoke with said, yeah, I'm being quoted alone with no covenants, we just would typically say pass. We're not interested in doing a loan with zero covenants or with high LPV or what have you. Now it's definitely in our favor as a lender to get lower LPVs.

And better covenants better control so.

Whereas nine months ago. Some people when we spoke we said, yes being quoted alone with no covenants. We would typically say past, we're not interested in doing alone with zero covenants are with high LTV or what have you.

No it's definitely in our favor as a lender.

Two to get lower Ltvs.

Speaker 4: and just a better overall package for the lender.

And just better overall package for the lender.

Yeah.

Okay, great. Thanks, so much.

Sure. Thank you.

Speaker 1: And as a reminder, if you would like to ask a question, please dial star 1 on your telephone keypad.

And as a reminder, if you would like to ask a question. Please dial star one on your telephone keypad.

Speaker 1: We'll take our next question from the line of Pablo Zenick with Cantra Fitzgerald.

We will take our next question from the line of Pablo <unk> with Cantor Fitzgerald.

Yeah.

Speaker 6: You know, regarding safe banking, I'm just trying to understand what you're saying about more favorable conditions for the lenders and that you are in a much better position than six months ago in terms of demand supply.

Regarding the safe banking I'm, just trying to I understand what youre, saying about more favorable conditions for the lenders that you are in a much better position than six months ago in them. So the demand supply dynamic.

Speaker 6: But are any companies, are there any credits pretty much saying, you know what, I'm going to hold on, I'm going to wait until I have more visibility and save, maybe get better terms in six months' time, or people just can't afford the luxury of waiting? Can you give some color around that? Is that even part of the discussion when you're talking some of this potential...

But are there any company so that any credits are pretty much saying you know what I'm going to hold on I'm going to wait until I have more visibility than say, maybe get better terms you know in six months time, where people just can't afford the luxury of waiting because you give some color around that you said you went back to a discussion when you were talking in some ways potential pipeline opportunities.

Speaker 4: Yeah, that's a fair question. Some folks are waiting, some folks feel like the gilds are just too wide.

Yeah.

Sure.

Fair question.

Some folks are waiting some folks feels like the yields are just too wide.

Speaker 4: or the all in debt cost is too high, but we always experience that, we even experienced that last year. I think some folks are waiting. Some folks also frankly view it as an opportunity to take advantage of the fact. So some of the folks, I believe, that are in maybe even stronger financial positions than some of their competitors are viewing. Okay, so debt.

Are the are the only debt cost is too high but you always experience.

Haven't experienced that last year.

I think some folks are waiting.

Some folks.

Also frankly viewed as an opportunity to take advantage of the fact, so some of the folks I believe that or and maybe even stronger financial.

Positions in some of their competitors are viewing okay. So so that.

Speaker 4: Is more expensive but some of their competitors are having a harder time accessing both the debt markets and the equity markets

This is more expensive, but some of their competitors are having a harder time accessing both the debt markets and the equity markets. So some of them are saying Hey, I think this is actually a good time to borrow for instance for growth for M&A to buy assets. There's been there are some assets that have come up for sale. There will be some that continue to come up for sale.

Speaker 4: So some of them are saying, hey, I think this is actually a good time to borrow, for instance, for growth, you know, for M&A.

Speaker 4: to buy assets. There's been there are some assets that have come up for sale. There will be some that continue to come up for sale, we believe. So I actually think that some of the folks that didn't, you know, we're seeing more inquiry.

We believe so I actually think that some of the folks that didn't were seeing more inquiry from some of the folks who didn't look to fund themselves.

Speaker 4: from some of the folks who didn't look to fund themselves, you know, as you know, many folks haven't funded themselves with debt in this space. And some of them are saying, hey, now might be an opportunity to kind of continue to build a moat around my business and buy some assets at a good level. So I actually think it's playing, you know, in favor that way. There's always people who are gonna say, let's just wait and see what legislation. But I feel it's like a lot of people have given up on that because people were more, you know, very hopeful the last couple of years and just haven't.

As you know many folks have it funded themselves with debt in this space and some of them are saying, hey, now might be an opportunity to kind of continue to build a moat around my business and buy some assets at a good level. So I actually think it's playing.

In favor of that way, there's always people, who are going to say, let's just wait and see what legislation that feels like a lot of people have given up on that because people were.

Very helpful last couple of years and it just hasn't materialized right.

Speaker 6: Just to follow up in terms of the demand, so you have Oktoberforce, Shrine and Pharma and I think most of us would think of them as best quality in the private sector. You know I can probably think of two or three other names that would fit that bill. I'm just wondering now that you only have this ammunition of four million dollar size loans after making the two big size loans, it's like those top quality borrowers out there that you could access you wouldn't be able to get.

Just to follow up in terms of you know the demand I mean, so you have a fortune trying in front of my God I think most of US would think of them as you know best quality in the private sector.

You know I can probably can go two or three other names that would fit that build but I'm. Just wondering now that you already have these ammunition.

And a 4 million dollar size loans after making it two week size loans.

Those top quality borrowers. So there that you could access you won't be able to and they may end up going up to some of them maybe going for someone else. I mean can you give some context around that or what are the potential for the big size loans is still there.

Speaker 6: may end up going up to someone else. Can you give some context around that? Or the potential for big size launch is still there?

Speaker 6: some company yeah more than for me I'm not gonna have a company mind that I'm gonna mention but just just in quarter

If I'm company, Yeah, Yeah, no that's right.

More than $40 million.

Company mind, I don't know, what I mentioned, but just some color there. Thanks.

Speaker 4: Yeah, no, that's a great question. Look, the Farmacans is a good example because there was another one, actually, both of our first two loans were good examples because they both can, you know, we weren't big enough to do either.

Yes, no. That's a great question look the farm Mccann is a good example, because there was another Linda actually both of our.

First two loans were good examples because they.

Both.

We're big enough to do either of them.

Speaker 4: And so it's really, you know, exciting to have these companies have the faith and confidence in us, you know, as a lender, knowing that we have a finite amount of capital, right? It's an argument.

And so it's really you know.

Exciting to have these companies have the faith and confidence in us.

As a lender knowing that we have a finite.

Amount of capital right, it's instead of our Qs and K you can see how they can they can sell and we tell them what are where capital is I think they really look to us whether they are big companies or small companies.

Speaker 4: Q's and K's, you can see how they can tell them what our capital is. I think they really look to us whether they're big companies or small companies.

Speaker 4: as professionals in the industry and to help them think about their financing needs.

As professionals.

In the industry and to help them think about their financing needs.

And.

Speaker 4: Honestly, the reception's been really positive, whether we're going to do a big loan or just a four or five million set type size loan given our capital.

Honestly the reception has been really positive whether we're going to do a big loan or just the $45 million type size loans given our.

Given our capital.

Speaker 4: It feels to me like most of the companies we talk to, you know, are interested. Well, I know there aren't that many institutional lenders out there, so they mostly seem to be interested in having conversations with us. There, we often many of these companies in our pipeline, we have multiple conversations.

Feels to me like most of the companies we talk to.

Our interested I know there aren't that many institutional lenders out there so they're mostly seem to be interested in having conversations with us they're often many of these companies in our pipeline we have multiple conversations.

Speaker 4: And, you know, we have great market color for them. I think they're excited about the, you know, the loans that we've done that have been announced, particularly the first one, because there's a press release on that. That was one of the biggest.

And.

We have great market color for them I think they're excited about the loans that we've done that have been announced particularly the first one because there was a press release on that and so it was one of the biggest private loans ever ever done so I don't view that as a barrier.

Speaker 4: private loans ever, ever done. So yeah, I don't view that as a barrier. You know, we, of course, over time, you know, we'd love to have more capital and write bigger loans and help support the industry because there's a lot of exciting opportunities that meet our strategy. But yeah, we've had very good reception from companies big and small, regardless of our ticket.

We of course over time it will.

I have more capital and bigger loans and help support the industry, because there's a lot of exciting opportunities.

That meet our strategy, but.

We've had very good reception from companies big and small regardless of our ticket size.

Speaker 6: and then just to follow up, maybe I should know this, but just a reminder why the focus on private versus public, just the economics are better there for you or just to remind you.

Okay, and then just a follow up maybe I should know this but just a reminder, why the focus on private versus public or just just the economics are better there for your just to remind them that.

Speaker 4: Yeah, well, we have limited as a BDC, we have limitations. So the bulk of our assets have to be in, you know, in in private companies that are less than a certain market capsize. So that's that's that's the.

Yeah, well, we have limited the BDC, we have limitations so the bulk of our assets have to be in.

In private companies that are less in a certain market cap size. So that's the main reason.

Speaker 6: And the last one, just modeling, so in the case of Shrine, they haven't made use of the 170 million facility, I forgot the exact number they borrowed from you on the syndicate, but can you remind us about the mechanics, if it were to take on another, I don't know, 40 million, what's your fear, what's your cut on that?

Okay, then the last one bdcs.

Got it and the last one just modeling so.

So and that gives a shrine they haven't made use of the 170 million facility I forgot the exact number they they borrow from you on the syndicate, but can you remind us of what the mechanics, if it where do they go into now that I don't know 40 million, what what's your fee or whats your gut on that if you can give some color over there.

Speaker 4: Yeah, you know, unfortunately, we can't because that hasn't been publicly disclosed. But, you know, like in many loans that are that have, you know, an ability to, to grow, they're usually certain metrics that they have to meet in order to, in order to draw that down. But we haven't we haven't disclosed the, you know, the size or the condition. So, given that it's private, I think it's it's best that I don't discuss that.

Yes.

Unfortunately, we can't because that hasnt been publicly disclosed.

But you know like.

Like in many loans that are that have.

And our ability to to grow they're usually in certain.

Metrics that they have to meet in order to.

In order to draw that down, but we haven't disclosed the.

The size or the condition, so given that its private.

It's best that I don't discuss that.

Alright, thank you.

Sure. Thank you Paul.

Speaker 1: In speakers, there are no further questions at this time. I'll turn the floor back over to you for closing remarks.

And speakers there are no further questions at this time I will turn the floor back over to you for closing remarks.

Speaker 4: Well, thank you very much everyone for participating. We appreciate the interest. Please feel free to reach out to me, Bill Healey, at the bill as silver spike cap calm if you have any questions.

Well, thank you very much everyone for participating.

We appreciate the interest please feel free to reach out to me Bill Healey at Bill at Silver Spike capped dot com if you have any questions.

Speaker 4: Otherwise, we look forward to hearing from you in our next quarterly call. Thank you very much.

Otherwise, we look forward to hearing from you in our next quarterly call. Thank you very much.

Speaker 1: And thank you everyone for joining these Silver Spike Investment Corporation's first quarter fiscal 2023 earnings conference call. This does conclude our program. You may now disconnect. Have a great day.

And thank you everybody for joining these silver Spike investment corporations first quarter fiscal 2023 earnings Conference call. This does conclude our program you may now disconnect have a great day.

Speaker 7: Music

Okay.

Sure.

[music].