Q2 2023 Silver Spike Investment Corp Earnings Call
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
[music].
Okay.
Operator: Hello. Thank you for standing by and welcome to the Silver Spike Investment Corp second quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Greg Gentile, President of Silver Spike Capital. Please go ahead.
session, you will need to press star one one on your telephone. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Greg Gentile, President of Silver Spike Capital. Please go ahead.
Greg Gentile: Thank you Josh. This is Greg. Welcome to Silver Spike's Earnings Conference call live webcast for the second quarter of fiscal year 2023. Silver Spike's second quarter of fiscal 2023 financial results were released soon to be accessed from Silver Spike's website. That's ssic.silverspikecap.com. A replay of the call will also be available on Silver Spike's website.
Silver Spike's second quarter of fiscal 2023 financial results were released soon to be accessed from Silver Spike's website. That's ssic.silverspikecap.com.
were released soon to be accessed from Silver Spike's website. That's ssic.silverspikecap.com.
Greg Gentile: accessed from Silver Spike's website. That's ssic.silverspikecap.com.
that's ssic.silverspikecap.com.
A replay of the call will also be available on Silver Spike's website.
Greg Gentile: 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. 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.
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.
Greg Gentile: We encourage you to refer to our most recent SEC filings for more 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, November 10, 2022. Therefore, you are advised that any time-sensitive information may no longer be accurate at the time of any replay or transcript reading.
that any time-sensitive information may no longer be accurate at the time of any replay or transcript reading.
Okay.
Greg Gentile: Thank you all for joining. As you know, we just released our results. There is a management presentation deck attached to the materials. Those of you on the webcast should see it live. Otherwise, please find the link to the deck in the 8-K that was filed approximately 15 minutes ago. We may refer to some slides by numbers just for reference and for your convenience.
As you know, we just released our results. There is a management presentation deck attached to the materials. Those of you on the webcast should see it live. Otherwise, please find the link to the deck in the 8-K that was filed approximately 15 minutes ago.
Greg Gentile: We may refer to some slides by numbers just for reference and for your convenience.
Greg Gentile: Second quarter, 2023 highlights, which you can find on page three of the management presentation, including gross investment income of $1.2 million versus $1.8 million last quarter. Expenses of approximately $0.6 million roughly equal to last quarter. Net investment income of $0.6 million versus $0.2 million last quarter. Net investment income per share of $0.09 this quarter versus $0.04 last quarter, and net assets of $85.3 million versus $84.8 million last quarter. Our net asset value per share is $13.73 versus $13.64.
gross investment income of $1.2 million versus $1.8 million last quarter. Expenses of approximately $0.6 million roughly equal to last quarter. Net investment income of $0.6 million versus $0.2 million last quarter.
versus $0.2 million last quarter.
Net investment income per share of $0.09 this quarter versus $0.04 last quarter, and net assets of $85.3 million versus $84.8 million last quarter. Our net asset value per share is $13.73 versus $13.64. this quarter versus $0.04 last quarter, and net assets of $85.3 million versus $84.8 million last quarter. Our net asset value per share is $13.73 versus $13.64.
this quarter versus $0.04 last quarter, and net assets of $85.3 million versus $84.8 million last quarter. Our net asset value per share is $13.73 versus $13.64.
versus $13.64.
Greg Gentile: The increase in gross investment income is due to the fact that we had our first two investments which were made last quarter on the books for the entirety of the quarter ending September 30th. As you may recall, we made those investments late in the previous quarter and did not get a full quarter of interest accrual.
As you may recall, we made those investments late in the previous quarter and did not get a full quarter of interest accrual.
Greg Gentile: Although we have no new investments to report for the quarter, we have been very busy and have invested in three new assets in October of this year, which Frank will elaborate on further. So it's very important to note that we put over $26 million to work just in the past month, more than doubling the size of the invested portion of the portfolio as of the reporting date, September 30, 2022.
past month, more than doubling the size of the invested portion of the portfolio as of the reporting date, September 30, 2022.
invested portion of the portfolio as of the reporting date, September 30, 2022.
as of the reporting date, September 30, 2022.
Greg Gentile: Just to back up, I'd like to discuss a little bit of our story in general. As you know, we are a Business Development Corporation. We're registered under the Investment Company Act of 1940. And we're currently still the first and only BDC that's publicly traded focused on direct lending in the cannabis sector. And we've spent a lot of time discussing what structure is best for the market opportunity and what we're seeing now, I think we're in a fantastic position to take advantage of what you'll hear Frank talk about in just a few minutes.
discuss a little bit of our story in general. As you know, we are a Business Development Corporation. We're registered under the Investment Company Act of 1940.
a little bit of our story in general. As you know, we are a Business Development Corporation. We're registered under the Investment Company Act of 1940.
And we're currently still the first and only BDC that's publicly traded focused on direct lending in the cannabis sector. And we've spent a lot of time discussing what structure is best for the market opportunity and what we're seeing now, I think we're in a fantastic position to take advantage of what you'll hear Frank talk about in just a few minutes.
And we've spent a lot of time discussing what structure is best for the market opportunity and what we're seeing now, I think we're in a fantastic position to take advantage of what you'll hear Frank talk about in just a few minutes.
and what we're seeing now, I think we're in a fantastic position to take advantage of what you'll hear Frank talk about in just a few minutes.
what you'll hear Frank talk about in just a few minutes.
Greg Gentile: As a reminder, we did look closely at the REIT structure. REIT as you may know are required to have 75% of their portfolio invested in real estate or mortgage assets. That's not the case for Silver Spike. As a BDC, our only material restrictions are that we must invest 70% of the portfolio in U.S. private companies or U.S. public companies with market caps of less than $250 million. We can lend against cash flows, we can lend against virtually any type of collateral including real estate. Equipment, cash receivables, inventory, equities and subsidiaries, which often hold any cannabis licenses.
in U.S. private companies or U.S. public companies with market caps of less than $250 million. We can lend against cash flows, we can lend against virtually any type of collateral including real estate. Equipment, cash receivables, inventory, equities and subsidiaries, which often hold any cannabis licenses.
We can lend against cash flows, we can lend against virtually any type of collateral including real estate. Equipment, cash receivables, inventory, equities and subsidiaries, which often hold any cannabis licenses.
Equipment, cash receivables, inventory, equities and subsidiaries, which often hold any cannabis licenses.
Cash flow lending.
Greg Gentile: Cash flow lending is just a much larger tam than real estate lending. So as you see companies evolve, I think Silver Spike is positioned to really build a portfolio of high quality, multi-collateral, multi-security package type instruments, which our competitors cannot necessarily offer. of high quality, multi-collateral, multi-security package type instruments, which our competitors cannot necessarily offer. of high quality, multi-collateral, multi-security package type instruments, which our competitors cannot necessarily offer.
of high quality, multi-collateral, multi-security package type instruments, which our competitors cannot necessarily offer.
multi-collateral, multi-security package type instruments, which our competitors cannot necessarily offer.
multi-security package type instruments, which our competitors cannot necessarily offer.
Greg Gentile: With that we will expand on the market opportunity I'll turn it over to Frank Kotsen, our Head of Credit who will discuss the portfolio in detail and elaborate further on the investments made subsequent to September 30th. Frank?
Frank Kotsen: Thanks, Greg. My name is Frank Kotsen. I'm the Head of dredit as Greg mentioned at Silver Spike Capital. And thanks to everyone for joining us today.
My name is Frank Kotsen. I'm the Head of dredit as Greg mentioned at Silver Spike Capital. And thanks to everyone for joining us today.
for joining us today.
Frank Kotsen: So just for a quick guidepost, I will loosely follow the next four or five slides, for those of you who have the slides up. For those who don't, I'll try to be as self explanatory as possible. I will go through the market opportunity. I'll just briefly touch on our investment process.
next four or five slides. For those of you who have the slides up. For those who don't, I'll try to be as
For those of you who have the slides up. For those who don't, I'll try to be as
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self explanatory as possible. I will go through the market opportunity. I'll just briefly touch on our investment process.
Frank Kotsen: I'll talk about sourcing and origination and then most importantly, probably talk about the portfolio summary of where we are as of the end of October. So we will include the end of previous quarter and then also just talk a little bit -- just expand on what Greg talked a little bit about what we did in the month of October.
as of the end of October. So we will include the end of previous quarter and then also just talk a little bit -- just expand on what Greg talked a little bit about what we did in the month of October.
So we will include the end of previous quarter and then also just talk a little bit -- just expand on what Greg talked a little bit about what we did in the month of October.
then also just talk a little bit -- just expand on what Greg talked a little bit about what we did in the month of October.
expand on what Greg talked a little bit about what we did in the month of October.
Frank Kotsen: So as you see on slide six, there's really four key points about the market opportunity. Many people ask why now? Why is the right time now? And first of all, cannabis is an emerging market secular growth and it's a very attractive lending opportunity. This growth story as you see on this bar chart on the right shows the U.S. legal cannabis retail sales to grow from an estimated $33 billion this year to up to $72 billion by 2030. So more than doubling over the next eight years.
Many people ask why now? Why is the right time now? And first of all, cannabis is an emerging market secular growth and it's a very attractive lending opportunity. This growth story as you see on this bar chart on the right shows the U.S. legal cannabis retail sales to grow from an estimated $33 billion this year to up to $72 billion by 2030. So more than doubling over the next eight years.
why now? Why is the right time now? And first of all, cannabis is an emerging market secular growth and it's a very attractive lending opportunity. This growth story as you see on this bar chart on the right shows the U.S. legal cannabis retail sales to grow from an estimated $33 billion this year to up to $72 billion by 2030. So more than doubling over the next eight years.
And first of all, cannabis is an emerging market secular growth and it's a very attractive lending opportunity. This growth story as you see on this bar chart on the right shows the U.S. legal cannabis retail sales to grow from an estimated $33 billion this year to up to $72 billion by 2030. So more than doubling over the next eight years.
it's a very attractive lending opportunity. This growth story as you see on this bar chart on the right shows the U.S. legal cannabis retail sales to grow from an estimated $33 billion this year to up to $72 billion by 2030. So more than doubling over the next eight years.
this bar chart on the right shows the U.S. legal cannabis retail sales to grow from an estimated $33 billion this year to up to $72 billion by 2030. So more than doubling over the next eight years.
U.S. legal cannabis retail sales to grow from an estimated $33 billion this year to up to $72 billion by 2030. So more than doubling over the next eight years.
by 2030. So more than doubling over the next eight years.
So more than doubling over the next eight years.
Frank Kotsen: The second point is really -- lending in this space really presents compelling opportunities to profit from this supply demand imbalance. We talk about this all the time. There really just is -- the debt servicing capacity of these companies goes far beyond the available supply of institutional debt capital and Greg mentioned there are some cannabis rates, a few that are publicly traded, there's some private money in this space.
profit from this supply demand imbalance. We talk about this all the time. There really just is -- the debt servicing capacity of these companies goes far beyond the available supply of institutional debt capital and Greg mentioned there are some cannabis rates, a few that are publicly traded, there's some private money in this space.
There really just is -- the debt servicing capacity of these companies goes far beyond the available supply of institutional debt capital and Greg mentioned there are some cannabis rates, a few that are publicly traded, there's some private money in this space.
goes far beyond the available supply of institutional debt capital and Greg mentioned there are some cannabis rates, a few that are publicly traded, there's some private money in this space.
Frank Kotsen: The amount of demand that we see far dwarfs the supply of institutional capital that we see for this space. And that's why we're seeing the types of yields we are. And in fact, if you look at the chart on the lower right hand corner, cannabis lending really offers a significant premium to traditional -- other forms of leveraged finance. The chart shows U.S. leveraged loan index and their various footnotes of the dates and the sources for these. And obviously, the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and I'm sure spreads were quite a bit tighter but some of the sources that we use that other folks use show U.S. leveraged loan index, yielding about 6.5%, direct lending index yielding about 8.3%, U.S. high yield index, yielding 8.9%. Now those numbers are as of the end of a certain quarter, they actually went probably wider intra quarter and then they were much tighter today. So just take those numbers.
supply of institutional capital that we see for this space. And that's why we're seeing the types of yields we are. And in fact, if you look at the chart on the lower right hand corner, cannabis lending really offers a significant premium to traditional -- other forms of leveraged finance. The chart shows U.S. leveraged loan index and their various footnotes of the dates and the sources for these. And obviously, the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and I'm sure spreads were quite a bit tighter but some of the sources that we use that other folks use show U.S. leveraged loan
And in fact, if you look at the chart on the lower right hand corner, cannabis lending really offers a significant premium to traditional -- other forms of leveraged finance. The chart shows U.S. leveraged loan index and their various footnotes of the dates and the sources for these. And obviously, the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and I'm sure spreads were quite a bit tighter but some of the sources that we use that other folks use show U.S. leveraged loan
leveraged finance. The chart shows U.S. leveraged loan index and their various footnotes of the dates and the sources for these. And obviously, the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and I'm sure spreads were quite a bit tighter but some of the sources that we use that other folks use show U.S. leveraged loan
and their various footnotes of the dates and the sources for these. And obviously, the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and I'm sure spreads were quite a bit tighter but some of the sources that we use that other folks use show U.S. leveraged loan
sources for these. And obviously, the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and I'm sure spreads were quite a bit tighter but some of the sources that we use that other folks use show U.S. leveraged loan
some of the sources that we use that other folks use show U.S. leveraged loan
index, yielding about 6.5%, direct lending index yielding about 8.3%, U.S. high yield index, yielding 8.9%. Now those numbers are as of the end of a certain quarter, they actually went probably wider intra quarter and then they were much tighter today. So just take those numbers.
much tighter today. So just take those numbers.
Frank Kotsen: Let's just say the range for leverage lending is kind of like 7% to 9% plus or minus. we [technical issue] past couple of months. And our current SSIC loan yields range from 13.1% to 20.8%. And we will talk about the average of our portfolio yield later, but suffice to say, we're close to double our portfolio is yielding close to double what traditional leveraged lending indices are. And we are lending at a first lien senior secured basis, so it's important to note that. So we think in addition, look at the last bullet point. Lenders can demand various structural protections and have significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
we [technical issue] past couple of months. And our current SSIC loan yields range from 13.1% to 20.8%. And we will talk about the average of our portfolio yield later, but suffice to say, we're close to double our portfolio is yielding close to double what traditional leveraged lending indices are. And we are lending at a first lien senior secured basis, so it's important to note that. So we think in addition, look at the last bullet point. Lenders can demand various structural protections and have significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
And our current SSIC loan yields range from 13.1% to 20.8%. And we will talk about the average of our portfolio yield later, but suffice to say, we're close to double our portfolio is yielding close to double what traditional leveraged lending indices are. And we are lending at a first lien senior secured basis, so it's important to note that. So we think in addition, look at the last bullet point. Lenders can demand various structural protections and have significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
suffice to say, we're close to double our portfolio is yielding close to double what traditional leveraged lending indices are. And we are lending at a first lien senior secured basis, so it's important to note that. So we think in addition, look at the last bullet point. Lenders can demand various structural protections and have significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
traditional leveraged lending indices are. And we are lending at a first lien senior secured basis, so it's important to note that. So we think in addition, look at the last bullet point. Lenders can demand various structural protections and have significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
so it's important to note that. So we think in addition, look at the last bullet point. Lenders can demand various structural protections and have significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
look at the last bullet point. Lenders can demand various structural protections and have significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
significant pricing power. So not only do we believe that you're getting -- we know that you're getting yield that's close to double what we see in other kind of traditional, not other, but traditional kind of lending in leveraged lending products. We also think in many cases, we're able to demand and borrowers are willing to give us, given the scarcity of debt capital in this space, better structural protections.
given the scarcity of debt capital in this space, better structural protections.
Frank Kotsen: And then the -- sorry, it's a little out of sequence, but the third bullet point of the four line is that we believe -- we strongly believe this opportunity is going to exist for many years. People ask all the time, is safe banking going to change this? Is safe banking going to bring in banks to compete against you and have spreads go two to 400 basis points tighter for instance. And no, that's not the case. We do not believe that that is the case, that banks will come in into this.
is that we believe -- we strongly believe this opportunity is going to exist for many years. People ask all the time, is safe banking going to change this? Is safe banking going to bring in banks to compete against you and have spreads go two to 400 basis points tighter for instance. And no, that's not the case. We do not believe that that is the case, that banks will come in into this.
And no, that's not the case. We do not believe that that is the case, that banks will come in into this.
Frank Kotsen: When federal legalization happens, which is probably not going to be part of safe banking,
Federal legalization happens, which is probably not going to be part of safe banking.
then banks over many years, will start to look at the space, but I think the key point is the private credit market today is $1.3 trillion of
lending that is done primarily away from the banks and that's in other industries, right.
And so, in general banks, because of regulatory capital rules that have happened post
Frank Kotsen: Dodd Frank Volker after the financial crisis, banks do not do a lot of direct lending for the most part and most in the U.S. and most of the direct lending comes from alternative asset managers. And so whether it goes -- whether it happens or not, this opportunity is going to exist for many years in our fleet.
Frank Kotsen: If we go to the next slide, I'm not going to dwell on this, but for your reference slide seven talks about our investment and underwriting process. I spent almost 25 years at a major U.S. bank. Some of our -- many of our colleagues supporting capital markets for 20, 25 to 35 years, we spent a lot of time developing what we think is kind of best in class investment and underwriting process. So you can read that at your leisure. If you go to the following slide, slide 8, we talk about sourcing and origination.
I spent almost 25 years at a major U.S. bank. Some of our -- many of our colleagues supporting capital markets for 20, 25 to 35 years, we spent a lot of time developing what we think is kind of best in class investment and underwriting process. So you can read that at your leisure. If you go to the following slide, slide 8, we talk about sourcing and origination.
developing what we think is kind of best in class investment and underwriting process. So you can read that at your leisure. If you go to the following slide, slide 8, we talk about sourcing and origination.
Frank Kotsen: I came from a bank background, where we spent a tremendous amount of time looking for opportunities, looking for deals, very structured. Knowing what the landscape is, knowing who the borrowers are making connections with our borrowers. In addition to kind of having that kind of DNA many of us have from our from our past lives, we also benefit from Silver Spike's network in this space. So Silver Spike is founded by some folks who invested early. Investors in the cannabis space. So we have a tremendous network and I think some of the big deals that we either structured like the shrine deal in our first full quarter or other deals that we participated in, and just our market presence prior to raising SSIC as an IPO in which we raised in February .
very structured.
Knowing what the landscape is, knowing who the borrowers are making connections with our borrowers. In addition to kind of having that kind of DNA many of us have from our from our past lives, we also benefit from Silver Spike's network in this space. So Silver Spike is founded by some folks who invested early. Investors in the cannabis space. So we have a tremendous network and I think some of the big deals that we either structured like the shrine deal in our first full quarter or other deals that we participated in, and just our market presence prior to raising SSIC as an IPO in which we raised in February .
by some folks who invested early. Investors in the cannabis space. So we have a tremendous network and I think some of the big deals that we either structured like the shrine deal in our first full quarter or other deals that we participated in, and just our market presence prior to raising SSIC as an IPO in which we raised in February .
Investors in the cannabis space. So we have a tremendous network and I think some of the big deals that we either structured like the shrine deal in our first full quarter or other deals that we participated in, and just our market presence prior to raising SSIC as an IPO in which we raised in February .
our first full quarter or other deals that we participated in, and just our market presence prior to raising SSIC as an IPO in which we raised in February .
First full quarter or other deals that we participated in.
and just our market presence prior to raising SSIC as an IPO in which we raised in February .
raising SSIC as an IPO in which we raised in February .
as an IPO in which we raised in February .
Frank Kotsen: This kind of market presence, our reputation, the connectivity that we have in the industry really is an important important competitive advantage to source and originate, because we focus on direct deal sourcing and that's through our network. We've looked at -- as the slide shows, we've reviewed over $6 billion of deals, close to 300 debt transactions that we've reviewed.
the connectivity that we have in the industry really is an important important competitive advantage to source and originate, because we focus on direct deal sourcing and that's through our network. We've looked at -- as the slide shows, we've reviewed over $6 billion of deals, close to 300 debt transactions that we've reviewed.
and that's through our network. We've looked at -- as the slide shows, we've reviewed over $6 billion of deals, close to 300 debt transactions that we've reviewed.
we've reviewed.
Frank Kotsen: And we have an active pipeline of over $1 billion across 31 different transactions. That changes regularly because deals come and go and new information comes up all the time with diligence in multiple deals at any given point in time.
Frank Kotsen: But that pipeline is range from about $1 billion to $1.5 billion. I'd say for most, if not all of this year and the point on the right is that management's experience and deep relationships really do create a differentiated sourcing ability. So we talk to management teams all the time, who are interested in working with us, which is exciting and then if we just jump ahead to page nine. As Greg mentioned, this is -- slide nine has our SSIC portfolio summary. And Greg mentioned -- and this is through October of this year. And Greg mentioned that we did no new loans in the quarter, but we were quite busy in the quarter and we were diligently many different loans. As you know, the quarter was pretty volatile in the financial markets and we're pretty picky. We turned down but the vast majority of our deals. So we ended up participating in investing in three deals in October. The bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September in the fall previous quarter.
I'd say for most, if not all of this year and the point on the right is that management's experience and deep relationships really do create a differentiated sourcing ability. So we talk to management teams all the time, who are interested in working with us, which is exciting and then if we just jump ahead to page nine. As Greg mentioned, this is -- slide nine has our SSIC portfolio summary. And Greg mentioned -- and this is through October of this year. And Greg mentioned that we did no new loans in the quarter, but we were quite busy in the quarter and we were diligently many different loans. As you know, the quarter was pretty volatile in the financial markets and we're pretty picky. We turned down but the vast majority of our deals. So we ended up participating in investing in three deals in October. The bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September in the fall previous quarter.
this is -- slide nine has our SSIC portfolio summary. And Greg mentioned -- and this is through October of this year. And Greg mentioned that we did no new loans in the quarter, but we were quite busy in the quarter and we were diligently many different loans. As you know, the quarter was pretty volatile in the financial markets and we're pretty picky. We turned down but the vast majority of our deals. So we ended up participating in investing in three deals in October. The bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September in the fall previous quarter.
And Greg mentioned, And this is through October of this year. And Greg mentioned that we did no new loans in the quarter, but we were quite busy in the quarter and we were diligently many different loans. As you know, the quarter was pretty volatile in the financial markets and we're pretty picky. We turned down but the vast majority of our deals. So we ended up participating in investing in three deals in October. The bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September in the fall previous quarter.
And this is through October of this year. And Greg mentioned that we did no new loans in the quarter, but we were quite busy in the quarter and we were diligently many different loans. As you know, the quarter was pretty volatile in the financial markets and we're pretty picky. We turned down but the vast majority of our deals. So we ended up participating in investing in three deals in October. The bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September in the fall previous quarter.
So we ended up participating in investing in three deals in October. The bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September in the fall previous quarter.
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Participating in investing in three deals in October the bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September and default previous quarter.
Frank Kotsen: We bought -- we did, also I'll point out we did two secondary transactions. We bought public bonds of Ayr wellness which has a fixed rate at 12.5%. We also bought fixed rate 8% bonds of Curaleaf Holdings. The first was a $1.8 million approximate investment value of the Ayr. The Curaleaf was approximately $3.9 million investment value. And lastly, we participated in Verano Holdings, which was the bulk of the work that was done throughout the quarter. It priced at the end of October. Remember the markets are pretty volatile in September and October. That loan is priced at prime plus 6.5% with a six quarter percent prime floor. And that was our second large position of $20.37 million.
we did, also I'll point out we did two secondary transactions. We bought public bonds of Ayr wellness which have a fixed rate at 12.5%. We also bought fixed rate 8% bonds of Curaleaf Holdings.
secondary transactions. We bought public bonds of Ayr wellness which have a fixed rate at 12.5%. We also bought fixed rate 8% bonds of Curaleaf Holdings.
Ayr wellness which have a fixed rate at 12.5%. We also bought fixed rate 8% bonds of Curaleaf Holdings.
which have a fixed rate at 12.5%. We also bought fixed rate 8% bonds of Curaleaf Holdings.
8% bonds of Curaleaf Holdings.
Frank Kotsen: The first was a $1.8 million approximate investment value of the Ayr. The Curaleaf was approximately $3.9 million investment value. And lastly, we participated in Verano Holdings, which was the bulk of the work that was done throughout the quarter. It priced at the end of October. Remember the markets are pretty volatile in September and October. That loan is priced at prime plus 6.5% with a six quarter percent prime floor. And that was our second large position of $20.37 million.
The Curaleaf was approximately $3.9 million investment value. And lastly, we participated in Verano Holdings, which was the bulk of the work that was done throughout the quarter. It priced at the end of October. Remember the markets are pretty volatile in September and October. That loan is priced at prime plus 6.5% with a six quarter percent prime floor. And that was our second large position of $20.37 million.
And lastly, we participated in Verano Holdings, which was the bulk of the work that was done throughout the quarter. It priced at the end of October. Remember the markets are pretty volatile in September and October. That loan is priced at prime plus 6.5% with a six quarter percent prime floor. And that was our second large position of $20.37 million.
in Verano Holdings, which was the bulk of the work that was done throughout the quarter. It priced at the end of October. Remember the markets are pretty volatile in September and October. That loan is priced at prime plus 6.5% with a six quarter percent prime floor. And that was our second large position of $20.37 million.
That loan is priced at prime plus 6.5% with a six quarter percent prime floor. And that was our second large position of $20.37 million.
second large position of $20.37 million.
$20.37 million.
Frank Kotsen: So where does that leave us? That leaves us as of the end of October with a total investment invested portfolio, and this is coming from the slide 9 of $50.73 million, which means that 59.45% of our portfolio, our funds have been invested. And I think it's important to note that the weighted average yield of the loans is 15.7%. So that's the weighted average gross yield of our portfolio.
and this is coming from the slide 9 of $50.73 million, which means that 59.45% of our portfolio, our funds have been invested. And I think it's important to note that the weighted average yield of the loans is 15.7%. So that's the weighted average gross yield of our portfolio.
means that 59.45% of our portfolio, our funds have been invested. And I think it's important to note that the weighted average yield of the loans is 15.7%. So that's the weighted average gross yield of our portfolio.
59.45% of our portfolio, our funds have been invested. And I think it's important to note that the weighted average yield of the loans is 15.7%. So that's the weighted average gross yield of our portfolio.
And I think it's important to note that the weighted average yield of the loans is 15.7%. So that's the weighted average gross yield of our portfolio.
Frank Kotsen: And then I just want to emphasize, we spend -- we're very excited to participate in these loans and to work on these transactions and the transactions that are in our pipeline currently. And what's really interesting to us versus when we contemplated this concept a couple of years back, is that we really are lending to some of the biggest, some of the biggest by revenue, by brand, by dispensary count, by stake, they come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity to lend to smaller companies as well, but I would say given the dislocation in the markets we've been very excited to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
we spend -- we're very excited to participate in these loans and to work on these transactions and the transactions that are in our pipeline currently. And what's really interesting to us versus when we contemplated this concept a couple of years back, is that we really are lending to some of the biggest, some of the biggest by revenue, by brand, by dispensary count, by stake, they come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity to lend to smaller companies as well, but I would say given the dislocation in the markets we've been very excited to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
in these loans and to work on these transactions and the transactions that are in our pipeline currently. And what's really interesting to us versus when we contemplated this concept a couple of years back, is that we really are lending to some of the biggest, some of the biggest by revenue, by brand, by dispensary count, by stake, they come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity to lend to smaller companies as well, but I would say given the dislocation in the markets we've been very excited to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
contemplated this concept a couple of years back, is that we really are lending to some of the biggest, some of the biggest by revenue, by brand, by dispensary count, by stake, they come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity to lend to smaller companies as well, but I would say given the dislocation in the markets we've been very excited to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
some of the biggest by revenue, by brand, by dispensary count, by stake, they come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity to lend to smaller companies as well, but I would say given the dislocation in the markets we've been very excited to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
by brand, by dispensary count, by stake, they come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity to lend to smaller companies as well, but I would say given the dislocation in the markets we've been very excited to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
by dispensary count, by stake, they come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity to lend to smaller companies as well, but I would say given the dislocation in the markets we've been very excited to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
Dispensary count by state come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity for Linda smaller companies as well, but I would say given the dislocation in the markets we've been very.
to lend to some of the biggest and what we think some of the best quality -- credit quality companies are.
and what we think some of the best quality -- credit quality companies are.
Frank Kotsen: Any industry at yields that are I would say on average, as a rough guide, 400 to 600 basis points wider are greater yield than they would've been at approximately a year ago. So mid-teens yields and higher for this quality of company and the size and scale of company, we think is a very exciting opportunity for our investors.
I would say on average, as a rough guide, 400 to 600 basis points wider are greater yield than they would've been at approximately a year ago. So mid-teens yields and higher for this quality of company and the size and scale of company, we think is a very exciting opportunity for our investors.
as a rough guide, 400 to 600 basis points wider are greater yield than they would've been at approximately a year ago. So mid-teens yields and higher for this quality of company and the size and scale of company, we think is a very exciting opportunity for our investors.
are greater yield than they would've been at approximately a year ago. So mid-teens yields and higher for this quality of company and the size and scale of company, we think is a very exciting opportunity for our investors.
quality of company and the size and scale of company, we think is a very exciting opportunity for our investors.
size and scale of company, we think is a very exciting opportunity for our investors.
opportunity for our investors.
Frank Kotsen: So that's all I had with the slides. At this point, unless Greg has anything else to add, I'm going to pass it over to Josh who is going to open it up for questions.
At this point.
At this point, unless Greg has anything else to add, I'm going to pass it over to Josh who is going to open it up for questions.
Operator: Thank you. As a reminder, to ask a question you will need to press star one one on your telephone. Please standby while we compile the Q&A roster.
Operator: Our first question comes from Michael Lavery with Piper Sandler. You may proceed.
Thank you and good evening.
Michael Lavery: Thank you and good evening. Just was trying to reconcile slide 9 with the 13% to 20.8% yields. And I feel pretty sure it's just the discount to par you might have bought some of the bonds at, but can you just help us understand how to take the breakdown on slide 9 and put it into that bracket?
Just was trying to reconcile slide 9 with the 13% to 20.8% yields. And I feel pretty sure it's just the discount to par you might have bought some of the bonds at, but can you just help us understand how to take the breakdown on slide nine and put it into that bracket?
to reconcile slide 9 with the 13% to 20.8% yields. And I feel pretty sure it's just the discount to par you might have bought some of the bonds at, but can you just help us understand how to take the breakdown on slide nine and put it into that bracket?
13% to 20.8% yields. And I feel pretty sure it's just the discount to par you might have bought some of the bonds at, but can you just help us understand how to take the breakdown on slide nine and put it into that bracket?
And I feel pretty sure it's just the discount to par you might have bought some of the bonds at, but can you just help us understand how to take the breakdown on slide nine and put it into that bracket?
put it into that bracket.
Yes.
Frank Kotsen: Yes, that's right, Michael. That's exactly right. The two public bonds that we bought in the secondary market, and let me just say too, we've watched -- those were our first forays into the public markets for SSIC. But we watch them very closely. Many of us have capital markets background. So we were watching as these bonds were steadily selling off throughout the course of the year. And I won't get into exact prices because those numbers will not be in the queue that we're just posting. They will be in the next quarter's queue. But they were all bought in the context of the market and for a rough guide, public bonds in this space drops and public loans as well or in private loans, from our observation, so I would say deals that have gotten -- that were getting done mostly in the last two years, that certain brokers trade or at least quote. On average -- well I won't say on average, but the range of drop in price was kind of like 10 to 20 points. So that is exactly how you guys can get if you look at an 8% fixed rate or prime or a 12.5% fixed rate. Those bonds were trading at -- and still are -- we're trading at decent discounts to par. And that's exactly what we're running at on a yield to maturity. And that's how we get this yield range that you see on the earlier slide and that's how we get to the weighted average yield of [indiscernible].
The two public bonds that we bought in the secondary market, and let me just say too, we've watched -- those were our first four A's into the public markets for SSIC. But we watch them very closely. Many of us have capital markets background. So we were watching as these bonds were steadily selling off throughout the course of the year.
and let me just say too, we've watched -- those were our first four A's into the public markets for SSIC. But we watch them very closely. Many of us have capital markets background. So we were watching as these bonds were steadily selling off throughout the course of the year.
four A's into the public markets for SSIC. But we watch them very closely. Many of us have capital markets background. So we were watching as these bonds were steadily selling off throughout the course of the year.
for SSIC. But we watch them very closely. Many of us have capital markets background. So we were watching as these bonds were steadily selling off throughout the course of the year.
Frank Kotsen: And I won't get into exact prices because those numbers will not be in the queue that we're just posting. They will be in the next quarter's queue. But they were all bought in the context of the market and for a rough guide, public bonds in this space drops and public loans as well or in private loans, from our observation, so I would say deals that have gotten -- that were getting done mostly in the last two years, that certain brokers trade or at least quote. On average -- well I won't say on average, but the range of drop in price was kind of like 10 to 20 points. So that is exactly how you guys can get if you look at an 8% fixed rate or prime or a 12.5% fixed rate. Those bonds were trading at -- and still are -- we're trading at decent discounts to par. And that's exactly what we're running at on a yield to maturity. And that's how we get this yield range that you see on the earlier slide and that's how we get to the weighted average yield of [indiscernible].
those numbers will not be in the queue that we're just posting. They will be in the next quarter's queue.
But.
But they were all bought in the context of the market and for a rough guide, public bonds in this space drops and public loans as well or in private loans, from our observation, so I would say deals that have gotten -- that were getting done mostly in the last two years, that certain brokers trade or at least quote.
public bonds in this space drops and public loans as well or in private loans, from our observation, so I would say deals that have gotten -- that were getting done mostly in the last two years, that certain brokers trade or at least quote.
from our observation, so I would say deals that have gotten -- that were getting done mostly in the last two years, that certain brokers trade or at least quote.
that certain brokers trade or at least quote.
Frank Kotsen: On average -- well I won't say on average, but the range of drop in price was kind of like 10 to 20 points. So that is exactly how you guys can get if you look at an 8% fixed rate or prime or a 12.5% fixed rate. Those bonds were trading at -- and still are -- we're trading at decent discounts to par. And that's exactly what we're running at on a yield to maturity. And that's how we get this yield range that you see on the earlier slide and that's how we get to the weighted average yield of [indiscernible].
how you guys can get if you look at an 8% fixed rate or prime or a 12.5% fixed rate. Those bonds were trading at -- and still are -- we're trading at decent discounts to par. And that's exactly what we're running at on a yield to maturity. And that's how we get this yield range that you see on the earlier slide and that's how we get to the weighted average yield of [indiscernible].
still are -- we're trading at decent discounts to par. And that's exactly what we're running at on a yield to maturity. And that's how we get this yield range that you see on the earlier slide and that's how we get to the weighted average yield of [indiscernible].
And that's exactly what we're running at on a yield to maturity. And that's how we get this yield range that you see on the earlier slide and that's how we get to the weighted average yield of [indiscernible].
And that's how we get this yield range that you see on the earlier slide and that's how we get to the weighted average yield of [indiscernible].
No that's great. Thanks Thats helpful.
Michael Lavery: That's great, thanks. That's helpful. And just one more and looking ahead, You've got just a hair shy of 60% investors now. What's your expectations for timing as far as getting to 100 and what might come next after that?
investors now.
What's your expectations for timing as far as getting to 100 and what might come next after that?
Great question. So we.
Frank Kotsen: Great question. So we -- I think, I believe we said in the previous quarter, the kind of range -- we were shooting for approximately getting 70% deployed by the end of the year. So I'd say we're on track for that but we can't really comment on what we have done or may have done or are doing for this quarter. But with over $1 billion in our pipeline, there's definitely the opportunity for us to get up to 70% or more by the end of the year.
kind of range -- we were shooting for approximately getting 70% deployed by the end of the year. So I'd say we're on track for that but we can't really comment on what we have done or may have done or are doing for this quarter. But with over $1 billion in our pipeline, there's definitely the opportunity for us to get up to 70% or more by the end of the year.
-- we were shooting for approximately getting 70% deployed by the end of the year. So I'd say we're on track for that but we can't really comment on what we have done or may have done or are doing for this quarter. But with over $1 billion in our pipeline, there's definitely the opportunity for us to get up to 70% or more by the end of the year.
But with over $1 billion in our pipeline, there's definitely the opportunity for us to get up to 70% or more by the end of the year.
there's definitely the opportunity for us to get up to 70% or more by the end of the year.
Frank Kotsen: It's all dependent on the market conditions and the due diligence and all. And then if we kind of think of the pace that we're growing at, that we're deploying at, that would be just move that forward. You can imagine that throughout the course of next year. I mean it's always hard as you know to get to a 100% or 98% order, or even possibly 96%. But throughout the course of next year, we will be most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obviously are, a lending facility or raising more equity. As you know, we haven't declared a dividend yet. So we believe once the dividend gets declared, hopefully that's what we don't believe but we hope that the stock markets will take notice that the portfolio as long as it continues to perform, which we believe it will. Then the markets will take notice, but to issue equity we need to be at or above NAV, which we're not now.
And then if we kind of think of the pace that we're growing at, that we're deploying at, that would be just move that forward. You can imagine that throughout the course of next year. I mean it's always hard as you know to get to a 100% or 98% order, or even possibly 96%. But throughout the course of next year, we will be most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obviously are,
at, that would be just move that forward. You can imagine that throughout the course of next year. I mean it's always hard as you know to get to a 100% or 98% order, or even possibly 96%. But throughout the course of next year, we will be most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obviously are,
Move that forward you can imagine that.
throughout the course of next year. I mean it's always hard as you know to get to a 100% or 98% order, or even possibly 96%. But throughout the course of next year, we will be most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obviously are,
or even possibly 96%. But throughout the course of next year, we will be most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obviously are,
we will be most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obviously are,
No.
Most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obvious they are.
a lending facility or raising more equity. As you know, we haven't declared a dividend yet. So we believe once the dividend gets declared, hopefully that's what we don't believe but we hope that the stock markets will take notice that the portfolio
As you know, we haven't declared a dividend yet. So we believe once the dividend gets declared, hopefully that's what we don't believe but we hope that the stock markets will take notice that the portfolio
So we believe once the dividend gets declared, hopefully that's what we don't believe but we hope that the stock markets will take notice that the portfolio
we hope that the stock markets will take notice that the portfolio
We will take notice that the portfolio is long.
as long as it continues to perform, which we believe it will. Then the markets will take notice, but to issue equity we need to be at or above NAV, which we're not now.
Frank Kotsen: The whole industry of BDCs are not. Actually interesting, I think we're in, but we're probably not too dissimilar to other BDCs, but we haven't declared a dividend yet in terms of where it's trading. The whole market has been under pressure this year as all stock market it. But anyway, most likely a debt facility would come first. That would be traditional.
we're in, but we're probably not too dissimilar to other BDCs, but we haven't declared a dividend yet in terms of where it's trading. The whole market has been under pressure this year as all stock market it. But anyway, most likely a debt facility would come first. That would be traditional.
not too dissimilar to other BDCs, but we haven't declared a dividend yet in terms of where it's trading. The whole market has been under pressure this year as all stock market it. But anyway, most likely a debt facility would come first. That would be traditional.
Not too dissimilar to other bdcs, but we havent declared a dividend yet in terms of where where it's trading home market has been under pressure. This year as all stock market highs, but anyway, most likely a debt facility would come first that would be traditional.
Multiple speakers: [Frank Kotsen] We are -- I believe, one of the only, if not the only BDC that doesn't have a debt facility. That's because we raised a blind pool and lenders to us -- potential lenders to us want to see our portfolio, which we now have, which we're excited about. So we hope to get a debt facility in the coming next couple of quarters. We are in discussions with different folks, that may or may not happen, but we hope it does. And with the debt facility, we could deploy more funds and then over time if this stock reflects the opportunity of getting good dividends, et cetera, then hopefully we can issue equity and grow from there. I think that would be the sequence. [Greg Gentile] And Mike, Michael, if I may add, we feel that given the amount of cash we've had through the year, it's actually been very fortuitous, right. If we were to -- if we would have deployed much faster after we IPO last February, it could have gone two ways; we would've had a portfolio with roughly the same yield and a much lower credit quality or to get this credit quality, the yield would have been much much lower. So I think the timing was somewhat low key, to be perfectly honest. But we were very fortunate to be sitting on a lot of cash during the sell off and we're able to pick up much higher quality assets at probably the most attractive prices we've seen in quite some time.
that doesn't have a debt facility. That's because we raised a blind pool and lenders to us -- potential lenders to us want to see
because we raised a blind pool and lenders to us -- potential lenders to us want to see
lenders to us -- potential lenders to us want to see
our portfolio, which we now have, which we're excited about. So we hope to get a debt facility in the coming next couple of quarters. We are in discussions with different folks, that may or may not happen, but we hope it does. And with the debt facility, we could deploy more funds and then over time if this stock reflects the opportunity of getting good dividends, et cetera, then hopefully we can issue equity and grow from there.
coming next couple of quarters. We are in discussions with different folks, that may or may not happen, but we hope it does. And with the debt facility, we could deploy more funds and then over time if this stock reflects the opportunity of getting good dividends, et cetera, then hopefully we can issue equity and grow from there.
next couple of quarters. We are in discussions with different folks, that may or may not happen, but we hope it does. And with the debt facility, we could deploy more funds and then over time if this stock reflects the opportunity of getting good dividends, et cetera, then hopefully we can issue equity and grow from there.
stock reflects the opportunity of getting good dividends, et cetera, then hopefully we can issue equity and grow from there.
the opportunity of getting good dividends, et cetera, then hopefully we can issue equity and grow from there.
then hopefully we can issue equity and grow from there.
and grow from there.
I think that would be the sequence. [Greg Gentile] And Mike, Michael, if I may add, we feel that
given the amount of cash we've had through the year, it's actually been very fortuitous, right. If we were to -- if we would have deployed much faster after we IPO last February, it could have gone two ways; we would've had a portfolio with roughly the same yield and a much lower credit quality or to get this credit quality, the yield would have been much much lower. So I think the timing was somewhat low key, to be perfectly honest. But we were very fortunate to be sitting on a lot of cash during the sell off and we're able to pick up much higher quality assets at probably the most attractive prices we've seen in quite some time.
it could have gone two ways; we would've had a portfolio with roughly the same yield and a much lower credit quality or to get this credit quality, the yield would have been much much lower. So I think the timing was somewhat low key, to be perfectly honest. But we were very fortunate to be sitting on a lot of cash during the sell off and we're able to pick up much higher quality assets at probably the most attractive prices we've seen in quite some time.
low key, to be perfectly honest. But we were very fortunate to be sitting on a lot of cash during the sell off and we're able to pick up much higher quality assets at probably the most attractive prices we've seen in quite some time.
much higher quality assets at probably the most attractive prices we've seen in quite some time.
probably the most attractive prices we've seen in quite some time.
quite some time.
Michael Lavery: That's helpful. Thank you so much. I'll pass it on.
Operator: Thank you. And as a reminder, to ask a question you will need to press star one one on your telephone.
Operator: Our next question comes from Andrew Carter with Stifel. You may proceed.
Andrew Carter: Hey. Thanks. Good evening. What I wanted to ask is, I guess I'm a little confused here because the thesis here is behind the BDC and behind what you're doing is making loans into smaller companies and kind of, if you will aggregating credits at scale, things that are hard. And to date, the money has been put into Ayr, Curaleaf, Verano. Those that investors have easier access to this. So I want to ask about this. Is this something that's temporary that gives you some scale, both in terms of the management fee to support the organization as well as kind of the SG&A to your point to give it, to make it a little mammering? Are you going to trade out of this? And just kind of help us understand that a little better.
What I wanted to ask is, I guess I'm a little confused here because the thesis here is behind the BDC and behind what you're doing is making loans into smaller companies and kind of, if you will aggregating credits at scale, things that are hard. And to date, the money has been put into Ayr, Curaleaf, Verano. Those that investors have easier access to this.
credits at scale, things that are hard. And to date, the money has been put into Ayr, Curaleaf, Verano. Those that investors have easier access to this.
And to date, the money has been put into Ayr, Curaleaf, Verano. Those that investors have easier access to this.
Curaleaf, Verano. Those that investors have easier access to this.
investors have easier access to this.
So I want to ask about this. Is this something that's temporary that gives you some scale, both in terms of the management fee to support the organization as well as kind of the SG&A to your point to give it, to make it a little mammering? Are you going to trade out of this? And just kind of help us understand that a little better.
Frank Kotsen: Sure. Thanks for the question, Andrew. I'll start and then Greg, if you want to add anything. But yes. As you know, the BDCs are allowed to have a certain percentage of the portfolio in public companies that have market caps of 250 or bigger. So we adhere to those guidelines. And -- but you're exactly right. We worked diligently throughout the quarter, throughout the whole year since we've raised the IPO. Looking at private companies, working on private company direct loan transactions, we wanted to follow the public companies because Andrew, in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot. We heard that a lot, that well wait a minute. Why would this price at X yield if public companies are now 300 or 500 wider? We have the cash to deploy.
But yes. As you know, the BDCs are allowed to have a certain percentage of the portfolio in public companies that have market caps of 250 or bigger. So we adhere to those guidelines.
So we adhere to those guidelines.
And -- but you're exactly right.
But youre exactly right.
We worked diligently throughout the quarter, throughout the whole year since we've raised the IPO. Looking at private companies, working on private company direct loan transactions, we wanted to follow the public companies because Andrew, in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot. We heard that a lot, that well wait a minute. Why would this price at X yield if public companies are now 300 or 500 wider? We have the cash to deploy.
working on private company direct loan transactions, we wanted to follow the public companies because Andrew, in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot. We heard that a lot, that well wait a minute. Why would this price at X yield if public companies are now 300 or 500 wider? We have the cash to deploy.
direct loan transactions, we wanted to follow the public companies because Andrew, in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot. We heard that a lot, that well wait a minute. Why would this price at X yield if public companies are now 300 or 500 wider? We have the cash to deploy.
we wanted to follow the public companies because Andrew, in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot. We heard that a lot, that well wait a minute. Why would this price at X yield if public companies are now 300 or 500 wider? We have the cash to deploy.
Andrew, in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot. We heard that a lot, that well wait a minute. Why would this price at X yield if public companies are now 300 or 500 wider? We have the cash to deploy.
Have the cash to deploy.
Frank Kotsen: We looked at all the various factors, the risk factors, the size of the company. The management team, et cetera. We thought these really offered the best value in the market, but we don't have a lot of additional capacity for public bonds. So just really by definition of the rules, we just don't have a lot of capacity to add public bonds or public loans.
The.
The management team, et cetera. We thought these really offered the best value in the market, but we don't have a lot of additional capacity for public bonds. So just really by definition of the rules, we just don't have a lot of capacity to add public bonds or public loans.
So just really by definition of the rules, we just don't have a lot of capacity to add public bonds or public loans.
definition of the rules, we just don't have a lot of capacity to add public bonds or public loans.
a lot of capacity to add public bonds or public loans.
Public loans.
Frank Kotsen: So I suspect that we -- It'll be, not I suspect. Sorry. The other thing I would add is, to Michael's previous question, the two public bonds were done at very deep discounts. Those are just public, that's public knowledge, because they're just public levels and where the bonds are trading. We view that as an opportunistic shot at getting some really good credits with really good yield with good convexity. So if the market stabilizes, we can see these trade up. If you issue a loan at $0.95 or par or somewhere in between, a little bit of OID. You don't have the same convexity. So we compare that to loans that we're working on the private side, but just given the rules that we can only do a certain amount of public. I would imagine that the bulk of the additional loans moving forward in the future will be from the private. We haven't really made a determination if we'll trade out of these or not.
It'll be not I suspect.
The other thing I would add is.
The other thing I would add is, to Michael's previous question, the two public bonds were done at very deep discounts. Those are just public, that's public knowledge, because they're just public levels and where the bonds are trading. We view that as an opportunistic shot at getting some really good credits.
Michael's previous question, the two public bonds were done at very deep discounts. Those are just public, that's public knowledge, because they're just public levels and where the bonds are trading. We view that as an opportunistic shot at getting some really good credits.
the two public bonds were done at very deep discounts. Those are just public, that's public knowledge, because they're just public levels and where the bonds are trading. We view that as an opportunistic shot at getting some really good credits.
Two public bonds were done at very deep disc.
discounts. Those are just public, that's public knowledge, because they're just public levels and where the bonds are trading. We view that as an opportunistic shot at getting some really good credits.
We view that as an opportunistic shot at getting some really good credits.
shot at getting some really good credits.
Some really good credits.
with really good yield with good convexity. So if the market stabilizes, we can see these trade up. If you issue a loan at $0.95 or par or somewhere in between, a little bit of OID. You don't have the same convexity. So we compare that to loans that we're working on the private side, but just given the rules that we can only do a certain amount of public. I would imagine that the bulk of the additional loans moving forward in the future will be from the private. We haven't really made a determination if we'll trade out of these or not.
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we can see these trade up. If you issue a loan at $0.95 or par or somewhere in between, a little bit of OID. You don't have the same convexity. So we compare that to loans that we're working on the private side, but just given the rules that we can only do a certain amount of public. I would imagine that the bulk of the additional loans moving forward in the future will be from the private. We haven't really made a determination if we'll trade out of these or not.
of the additional loans moving forward in the future will be from the private. We haven't really made a determination if we'll trade out of these or not.
We haven't really made a determination if we'll trade out of these or not.
Frank Kotsen: But we reserve the right to trade out of them, whatever is going to be best for our shareholders. In particular Ayr has a December 24 maturities, so there's always a chance there that gets refinanced because prior to the maturity, which would result in an even a better IRR. And the reason I will focus on that -- Verano is a refinancing and Verano -- some people say that really kind of repriced the market. That was at $350 million refinancing. So when you're looking at a loan of a company of that scale that has public financials and has been kind of dreaded for several years in the marketplace, pricing in a really difficult time in the market to price. That risk reward looked really good compared to the private opportunities are out there and that's why it's in the portfolio.
Reserve the right to trade out of them whatever we're just going to be best for our shareholders. In particular AOR has a December 24 maturities, so theres always a chance.
that gets refinanced because prior to the maturity, which would result in an even a better IRR.
prior to the maturity, which would result in an even a better IRR.
an even a better IRR.
Frank Kotsen: And the reason I will focus on that -- Verano is a refinancing and Verano -- some people say that really kind of repriced the market. That was at $350 million refinancing. So when you're looking at a loan of a company of that scale that has public financials and has been kind of dreaded for several years in the marketplace, pricing in a really difficult time in the market to price. That risk reward looked really good compared to the private opportunities are out there and that's why it's in the portfolio.
and Verano -- some people say that really kind of repriced the market. That was at $350 million refinancing. So when you're looking at a loan of a company of that scale that has public financials and has been kind of dreaded for several years in the marketplace, pricing in a really difficult time in the market to price.
kind of repriced the market. That was at $350 million refinancing. So when you're looking at a loan of a company of that scale that has public financials and has been kind of dreaded for several years in the marketplace, pricing in a really difficult time in the market to price.
So when you're looking at a loan of a company of that scale that has public financials and has been kind of dreaded for several years in the marketplace, pricing in a really difficult time in the market to price.
has public financials and has been kind of dreaded for several years in the marketplace, pricing in a really difficult time in the market to price.
pricing in a really difficult time in the market to price.
That risk reward looked really good compared to the private opportunities are out there and that's why it's in the portfolio.
Andrew Carter: Fair enough. Second thing I would ask in terms of kind of the scaling the organization, could you give us an update on how many people you have right now supporting the BDC directly and therefore kind of what your bandwidth is for diligence in deals right now?
Multiple speakers: [Greg Gentile] Sure sure. [Frank Kotsen] Greg do you want to take that yes, [Greg Gentile] Yeah, I can handle it.
Greg Gentile: Andrew, we have 10 people right now with Silver Spike Capital, the investment advisor. Four of which are dedicated to underwriting. So the team -- I would say the team is well suited for our portfolio multiple the size of our current vehicle and we purposely built this for scale. We believe we have some of the best underwriters on the street. Some of the deepest cannabis experience industry, and hav built this thing for scale.
Four of which are dedicated to underwriting.
So the team -- I would say the team is well suited for our portfolio multiple the size of our current vehicle and we purposely built this for scale. <unk>.
I would say the team is well suited for our portfolio multiple the size of our current vehicle and we purposely built for.
scale. <unk>.
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We believe we have some of the best underwriters on the street.
Some of the deepest cannabis experience industry, and hav built this thing for scale.
Some of the some of the deepest cannabis experience industry.
and hav built this thing for scale.
<unk> built this thing for scale.
Andrew Carter: To that question, just to help us -- okay if you've got four people dedicated, how many deals then do you think they could -- I hate to say execute because you never want to force somebody to do, but maybe its diligence. However, you look about -- however, you would think about their bandwidth for the number of deals because from here, it's ones and twos that you have to do at this level. Won't be like that forever, but from here right now.
I hate to say execute because you never want to force somebody to do, but maybe its diligence. However, you look about -- however, you would think about their bandwidth for the number of deals because from here, it's ones and twos that you have to do at this level. Won't be like that forever, but from here right now.
that you have to do at this level. Won't be like that forever, but from here right now.
Greg Gentile: When you say ones and twos, I think -- so we can do --
Multiple speakers: [Andrew Carter] Yes, the smaller loans. Maybe I'm a little off, but the smaller it's got to be chunkier portfolio from hereon out. That's kind of what I was saying on the private side. [Greg Gentile] Yes, exactly four to five is the sweet spot for size at this point, but no we have plenty of capacity. It's perfect. Just a number of deals as you know, the size of a deal doesn't matter. It takes the same amount of work to underwrite a $4 million loan as it does a $20 million. But I don't know, maybe Frank, do you want to try to put a number on it in terms of --?
sweet spot for size at this point, but no we have plenty of capacity.
It's perfect. Just a number of deals as you know, the size of a deal doesn't matter. It takes the same amount of work to underwrite a $4 million loan as it does a $20 million. But I don't know, maybe Frank, do you want to try to put a number on it in terms of --?
a $4 million loan as it does a $20 million. But I don't know, maybe Frank, do you want to try to put a number on it in terms of --?
But I don't know, maybe Frank, do you want to try to put a number on it in terms of --?
Frank Kotsen: Sure. I mean, one way to look at it is we IPO in February, the markets have been fairly dislocated throughout the course of the year, but we're on track to do what we do We've done five deals for October so we can clearly handle -- that equates to about one a month, right. We could do more. We could also put a lot more money to work on some of these deals. We're limited really, Andrew at the moment, by just our amount of capital. So, many of these deals could have been much bigger. Shrine that we co-led, Verano was a sizeable position. Could have been much bigger. The secondary, is like I said, we're not going to be doing necessarily tons of secondary. We don't even have the capacity to do it so by definition. But those could evolve and bigger. So yes, so it's hard to put a number on it. Every deal is different. I would emphasize and I think this is part of the reason these loans yield where they do.
we IPO in February, the markets have been fairly dislocated throughout the course of the year, but we're on track to do what we do We've done five deals for October so we can clearly handle -- that equates to about one a month, right.
we can clearly handle -- that equates to about one a month, right.
Operator: that equates to about one a month, right.
We could do more. We could also put a lot more money to work on some of these deals. We're limited really, Andrew at the moment, by just our amount of capital.
Andrew at the moment, by just our amount of capital.
Frank Kotsen: So, many of these deals could have been much bigger. Shrine that we co-led, Verano was a sizeable position. Could have been much bigger. The secondary, is like I said, we're not going to be doing necessarily tons of secondary. We don't even have the capacity to do it so by definition. But those could evolve and bigger. So yes, so it's hard to put a number on it. Every deal is different. I would emphasize and I think this is part of the reason these loans yield where they do.
Any of these deals could have been much bigger.
Shrine that we co-led, Verano was a sizeable position. Could have been much bigger.
Verano was a sizeable position. Could have been much bigger.
was a sizeable position. Could have been much bigger.
The secondary, is like I said, we're not going to be doing necessarily tons of secondary. We don't even have the capacity to do it so by definition. But those could evolve and bigger.
is like I said, we're not going to be doing necessarily tons of secondary. We don't even have the capacity to do it so by definition. But those could evolve and bigger.
But those could evolve and bigger.
Frank Kotsen: So yes, so it's hard to put a number on it. Every deal is different. I would emphasize and I think this is part of the reason these loans yield where they do.
Frank Kotsen: It takes a tremendous amount of time to diligence these. We like to ask for 30 to 45 days. Not like too, we do ask for 30 to 45 days exclusivity in our term sheets, that's kind of industry standard. And it can take longer than 45 days to diligence and frankly for the benefit of our shareholders, we're okay. It will take as long as it takes and if it means that it's going to bleed into the next month or the next quarter, that's okay, because we would rather pass on a deal. And when we did the term sheets, these are non-binding. These are effectively best efforts. We don't intend to ever walk away from a customer. And a borrower if everything checks out, but remember they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
We like to ask for 30 to 45 days. Not like too, we do ask for 30 to 45 days exclusivity in our term sheets, that's kind of industry standard. And it can take longer than 45 days to diligence and frankly for the benefit of our shareholders, we're okay. It will take as long as it takes and if it means that it's going to bleed into the next month or the next quarter, that's okay, because we would rather pass on a deal. And when we did the term sheets, these are non-binding. These are effectively best efforts. We don't intend to ever walk away from a customer. And a borrower if everything checks out, but remember they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
Four 3% to 40 to 45 days not like too we do ask for 30 to 45 days exclusivity in our term sheets, that's kind of industry standard.
And it can take longer than 45 days to diligence and frankly for the benefit of our shareholders, we're okay. It will take as long as it takes and if it means that it's going to bleed into the next month or the next quarter, that's okay, because we would rather pass on a deal. And when we did the term sheets, these are non-binding. These are effectively best efforts. We don't intend to ever walk away from a customer. And a borrower if everything checks out, but remember they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
It will take as long as it takes and if it means that it's going to bleed into the next month or the next quarter, that's okay, because we would rather pass on a deal. And when we did the term sheets, these are non-binding. These are effectively best efforts. We don't intend to ever walk away from a customer. And a borrower if everything checks out, but remember they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
that's okay, because we would rather pass on a deal. And when we did the term sheets, these are non-binding. These are effectively best efforts. We don't intend to ever walk away from a customer. And a borrower if everything checks out, but remember they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
best efforts. We don't intend to ever walk away from a customer. And a borrower if everything checks out, but remember they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
And a borrower if everything checks out, but remember they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
they are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
and you never know where that's going to go. So we have capacity. We could scale this thing much bigger. And if we get to the point where we need more resources,
And if we get to the point where we need more resources,
Frank Kotsen: We will get them. I came from an organization where I had a tremendous number of desk analysts working for me. we built a lending business, et cetera. And many of the other partners have done the same in terms of working at large scale, building large scale organizations. So for the time being, we have more than enough resources for the amount of capital. We're about 60% invested. We're working on active deals now. Like I said, our goal is to get to about 70% by the end of the year. It's achievable whether or not it happens. Just depends on the market and the diligence process. And then into next year, we should be able to deploy the majority of the funds into next year. So yeah. So that's easily handled by the group of folks that we have. And then, we'll just see as we raise more capital out over time.
I came from an organization where I had a tremendous number of desk analysts working for me. we built a lending business, et cetera. And many of the other partners have done the same in terms of working at large scale, building large scale organizations. So for the time being, we have more than enough resources for the amount of capital. We're about 60% invested. We're working on active deals now. Like I said, our goal is to get to about 70% by the end of the year.
a tremendous number of desk analysts working for me. we built a lending business, et cetera. And many of the other partners have done the same in terms of working at large scale, building large scale organizations. So for the time being, we have more than enough resources for the amount of capital. We're about 60% invested. We're working on active deals now. Like I said, our goal is to get to about 70% by the end of the year.
Et cetera. So.
And many of the other partners have done the same in terms of working at large scale, building large scale organizations. So for the time being, we have more than enough resources for the amount of capital. We're about 60% invested. We're working on active deals now. Like I said, our goal is to get to about 70% by the end of the year.
in terms of working at large scale, building large scale organizations. So for the time being, we have more than enough resources for the amount of capital. We're about 60% invested. We're working on active deals now. Like I said, our goal is to get to about 70% by the end of the year.
organizations. So for the time being, we have more than enough resources for the amount of capital. We're about 60% invested. We're working on active deals now. Like I said, our goal is to get to about 70% by the end of the year.
So for the time being, we have more than enough resources for the amount of capital. We're about 60% invested. We're working on active deals now. Like I said, our goal is to get to about 70% by the end of the year.
For the time being we have more than enough resources for the amount of capital right. We're about 60% invested were working on active deals now like I said, our goal is to get to about 70% by the end of the year.
Frank Kotsen: It's achievable whether or not it happens. Just depends on the market and the diligence process. And then into next year, we should be able to deploy the majority of the funds into next year. So yeah. So that's easily handled by the group of folks that we have. And then, we'll just see as we raise more capital out over time.
And then into next year, we should be able to deploy the majority of the funds into next year.
So yeah. So that's easily handled by the group of folks that we have. And then, we'll just see as we raise more capital out over time.
And then, we'll just see as we raise more capital over time.
Andrew Carter: Next thing I would ask is just kind of looking at your year to date EPS if I have this right, I think $0.12. I know there's a little bit of flexibility around the dividend about it's a 97.5% payout. How much would you expect to pay out because I think you said it well. Once you put a dividend out there that will put a support level in the stock and that's so -- help us understand where or what you could be targeting.
Andrew Carter: I know there's a little bit of flexibility around the dividend about it's a 97.5% payout. How much would you expect to pay out because I think you said it well. Once you put a dividend out there that will put a support level in the stock and that's so -- help us understand where or what you could be targeting.
It's a 97, 5% payout how much would you expect to pay out because I think you said it well once you put a dividend out there that will put a support level.
and that's so -- help us understand where or what you could be targeting.
Frank Kotsen: Yes without going into specific targets, look what we don't want to do is declare a small dividend, invest more of the portfolio, bump it up a little bit and play that game. So we're waiting until we're nearly fully invested and then we will declare a dividend that we believe we can support for the long term. So why don't you give us another quarter and with next quarter's results, it will be a much different picture and maybe we'll be able to give an accurate estimate of what we forecast that to be.
waiting until we're nearly fully invested and then we will declare a dividend that we believe we can support for the long term. So why don't you give us another quarter and with next quarter's results, it will be a much different picture and maybe we'll be able to give an accurate estimate of what we forecast that to be.
So why don't you give us another quarter and with next quarter's results, it will be a much different picture and maybe we'll be able to give an accurate estimate of what we forecast that to be.
with next quarter's results, it will be a much different picture and maybe we'll be able to give an accurate estimate of what we forecast that to be.
an accurate estimate of what we forecast that to be.
Andrew Carter: Fair enough. Last question, on the operating cost at the BDC level, how should we think about those kind of growing forward? Like from the run rate you had in the quarter, I think 470,000, does that grow with the assets from here? Does that stay the same? Just anything you can give us on that number.
at the BDC level, how should we think about those kind of growing forward? Like from the run rate you had in the quarter, I think 470,000, does that grow with the assets from here? Does that stay the same? Just anything you can give us on that number.
Yes.
Frank Kotsen: Yes, those are for the most part, fixed. So we have a tremendous amount of scalability. The operating expenses were a little bit mixed. We spent less money on legal fees this quarter, but there were slightly higher management fees because the investment portion of the portfolio was higher. But other than the management fee scaling linearly, obviously with assets, the rest of our expenses, we are much closer to fixed than variable. So we expect to get, as we increase the size and raise AUM or -- and/or debt. That should give us quite a lot of operating scale.
a little bit mixed. We spent less money on legal fees this quarter, but there were slightly higher management fees because the investment portion of the portfolio was higher. But other than the management fee scaling linearly, obviously with assets, the rest of our expenses, we are much closer to fixed than variable.
the rest of our expenses, we are much closer to fixed than variable.
Variable so we expect to get.
So we expect to get, as we increase the size and raise AUM or -- and/or debt. That should give us quite a lot of operating scale.
AUM or -- and/or debt. That should give us quite a lot of operating scale.
That should give us quite a lot of operating scale.
quite a lot of operating scale.
Andrew Carter: That's all I got. I'll pass it on. Thank you.
Multiple speakers: [Frank Kotsen] Thanks, Andrew. [Greg Gentile] Thanks a lot, Andrew.
Operator: Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Greg Gentile for any closing remarks.
Multiple speakers: [Greg Gentile] Thank you, Josh. I just want to thank you all for joining. Thanks for your time. And we look forward to seeing you again next quarter and enjoy the weekend. [Operator] Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
I just want to thank you all for joining. Thanks for your time. And we look forward to seeing you again next quarter and enjoy the weekend.
enjoy the weekend.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Reflects. The. We are getting good dividends et cetera. Then hopefully we can issue equity. And grow from there.
The conference will begin shortly.
Raise your hand during Q&A you can dial one one.
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Hello, Thank you for standing by and welcome to the Silver Spike Investment Corp, second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your telephone please.
Be advised that today's conference maybe recorded I would now like to hand, the conference over to your speaker today, Greg <unk> President of silver slight capital. Please go ahead. Thank you Josh this is Greg.
Thank you Josh this is Greg.
Welcome to silver spikes earnings conference call a live webcast for the second quarter of fiscal year 2023. Silver Spike second quarter of fiscal 2023 financial as well. Were released and can be accessed from silver spikes website at. I see. Silver Spike cap Dot com. A replay of the call will also be available on silver spikes website. 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. 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 more 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 November 10 2022. Therefore, you are advised that any time sensitive information may no longer be accurate at the time of any replay or transcript reading. Okay. Yeah. Thank you all for joining.
Silver Spike second quarter of fiscal 2023 financial as well.
Were released and can be accessed from silver spikes website at.
I see.
Silver Spike cap Dot com.
A replay of the call will also be available on silver spikes website.
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.
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 more 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 November 10 2022.
Therefore, you are advised that any time sensitive information may no longer be accurate at the time of any replay or transcript reading.
Okay.
Yeah.
Thank you all for joining.
As you know, we just released our results there is a management presentation deck attached to the materials. Those of you on the webcast should should see alive. Otherwise. Please please find the link to the deck in the 8-K that was filed approximately 15 15 minutes ago. We may refer to some slides by numbers just for reference and for your convenience. Second quarter, 2023 highlights, which you can find on page three of the management presentation. <unk> gross investment income of $1 2 million versus $1 8 million last quarter <unk>. Expenses of approximately $6 million roughly equal to last quarter net investment income of $1 6 million. <unk> <unk> 2 million last quarter. Net investment income per share of nine.
Otherwise. Please please find the link to the deck in the 8-K that was filed approximately 15 15 minutes ago.
We may refer to some slides by numbers just for reference and for your convenience.
Second quarter, 2023 highlights, which you can find on page three of the management presentation.
<unk> gross investment income of $1 2 million versus $1 8 million last quarter <unk>.
Expenses of approximately $6 million roughly equal to last quarter net investment income of $1 6 million.
<unk> <unk> 2 million last quarter.
Net investment income per share of nine.
This quarter versus four since last quarter, and net assets of $85 3 million versus $84 8 million last quarter, our net asset value per share is $13 73 versus. <unk> was $13.64. The increase in gross investment income is due to the fact that we had our first two investments which were made last quarter on the books for the entirety of the quarter ending September 30th. As you May recall, we made those investments late in the previous quarter and did not get a full quarter of interest accrual. Although we have no no new investments to report for the quarter, we have been very busy and. <unk> invested a three new assets in October of this year, which Frank will elaborate on further so it's very important to note that we put over $26 million to work just in the past month more than doubling the size. The invested portion of the portfolio. As of the reporting date September 32022. Okay. Just to back up. Discuss our. What Youll hear Frank talk about in just a few minutes as a reminder.
<unk> was $13.64.
The increase in gross investment income is due to the fact that we had our first two investments which were made last quarter on the books for the entirety of the quarter ending September 30th.
As you May recall, we made those investments late in the previous quarter and did not get a full quarter of interest accrual.
Although we have no no new investments to report for the quarter, we have been very busy and.
<unk> invested a three new assets in October of this year, which Frank will elaborate on further so it's very important to note that we put over $26 million to work just in the past month more than doubling the size.
The invested portion of the portfolio.
As of the reporting date September 32022.
Okay.
Just to back up.
Discuss our.
A little bit of our story in general as you know we are a business development Corporation were registered under the investment Company Act of $90 40, and we're currently still the first and only BDC. That's publicly traded focused on direct lending in the cannabis sector and we spent. A lot of time discussing what structure is best for the market opportunity. And what we're seeing now I think were reported. Fantastic position to take advantage of.
A lot of time discussing what structure is best for the market opportunity.
And what we're seeing now I think were reported.
Fantastic position to take advantage of.
What Youll hear Frank talk about in just a few minutes as a reminder.
We did didn't look closely at the REIT structure. As you may know are required to have 75% of their portfolio invested in real estate or mortgage assets. That's not the case for for silver Spike at the BDC, our OLED material restrictions or that we must invest 70% of the portfolio. In the U S private companies or U S public companies with market caps of less than $250 million. We can lend against cash flows we can lend against virtually any type of collateral including real estate. <unk> cash receivables inventory equities and subsidiaries, which often own candidates licenses. And cash flow lending. Just a much larger much larger tam than real estate lending. So as we as you see companies evolve I think we silver spike is positioned to really really build a portfolio of high quality. Multi collateral multi unit.
In the U S private companies or U S public companies with market caps of less than $250 million. We can lend against cash flows we can lend against virtually any type of collateral including real estate.
<unk> cash receivables inventory equities and subsidiaries, which often own candidates licenses.
And cash flow lending.
Just a much larger much larger tam than real estate lending. So as we as you see companies evolve I think we silver spike is positioned to really really build a portfolio of high quality.
Multi collateral multi unit.
Multi security package type instruments, which our competitors Ken can not necessarily offer. With that we'll expand on the market opportunity I'll turn it over to Frank <unk>, our head of credit who will discuss the portfolio in detail and elaborate further on the investments made subsequent to September 30, frankly. Thank you Greg. My name is Frank Hudson I'm, the head of credit as Greg mentioned at Silver Slipper capital and thanks for everyone to everyone for joining us today. So just for a quick guidepost I will loosely follow the next four or five slides. For those of you have the slides up for those who don't I'll try to be as. So we will include the end of previous quarter.
With that we'll expand on the market opportunity I'll turn it over to Frank <unk>, our head of credit who will discuss the portfolio in detail and elaborate further on the investments made subsequent to September 30, frankly.
Thank you Greg.
My name is Frank Hudson I'm, the head of credit as Greg mentioned at Silver Slipper capital and thanks for everyone to everyone for joining us today. So just for a quick guidepost I will loosely follow the next four or five slides.
For those of you have the slides up for those who don't I'll try to be as.
Self explanatory as possible I will go through the market opportunity I'll, just briefly touch on our investment process. I'll talk about sourcing and origination and then most importantly, probably talk about the portfolio summary of where we are. As of the end of October .
I'll talk about sourcing and origination and then most importantly, probably talk about the portfolio summary of where we are.
As of the end of October .
So we will include the end of previous quarter.
Then also just talk a little bit. Expand on what Greg talked a little bit about what we did in the month of October . So as you see on slide six there's really four key points about the market opportunity. Many people ask. Why now why is the right time now. And first of all cannabis as an emerging market secular growth and. And it is a very very attractive lending opportunities this growth story. The bar chart on the right shows the. U S legal cannabis retail sales to grow from an estimated $33 billion this year to up to 72 billion. By 2030. So more than doubling over the next eight years.
Expand on what Greg talked a little bit about what we did in the month of October .
So as you see on slide six there's really four key points about the market opportunity.
Many people ask.
Why now why is the right time now.
And first of all cannabis as an emerging market secular growth and.
And it is a very very attractive lending opportunities this growth story.
The bar chart on the right shows the.
U S legal cannabis retail sales to grow from an estimated $33 billion this year to up to 72 billion.
By 2030.
So more than doubling over the next eight years.
The second point is really lending in this space really presents compelling opportunities to profit from this supply demand imbalance, we talk about this all the time. There really just is the debt servicing capacity of these companies. It goes far beyond the available supply of institutional debt capital and Greg mentioned there are some candidates rates a few that are publicly traded theres some private money in this space. Demand that we see far dwarfs. Supply of institutional capital that we see for this space and that's why we're seeing the types of yields we are. And in fact, if you look at the chart on the lower right hand corner candidates lending really offers a significant premium to traditional other forms of lift.
There really just is the debt servicing capacity of these companies.
It goes far beyond the available supply of institutional debt capital and Greg mentioned there are some candidates rates a few that are publicly traded theres some private money in this space.
Demand that we see far dwarfs.
Supply of institutional capital that we see for this space and that's why we're seeing the types of yields we are.
And in fact, if you look at the chart on the lower right hand corner candidates lending really offers a significant premium to traditional other forms of lift.
Leveraged finance the chart shows U S leveraged loan index in their various footnotes of the dates and the. Sources for these and obviously the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and im sure spreads were quite a bit tighter but. Some of the sources that we use that other folks use show U S leveraged loan. Index, yielding about six 5% direct lending index, yielding about eight 3% of U S high yield index, yielding eight 9% now those numbers are as of the end of a certain quarter. They actually went probably wider intra quarter and then there were much tighter today. So just take those numbers.
Sources for these and obviously the market's been very volatile so take this for what it is the market. These numbers change every day, particularly on a day like today, where the markets were up quite a bit and im sure spreads were quite a bit tighter but.
Some of the sources that we use that other folks use show U S leveraged loan.
Index, yielding about six 5% direct lending index, yielding about eight 3% of U S high yield index, yielding eight 9% now those numbers are as of the end of a certain quarter. They actually went probably wider intra quarter and then there were much tighter today. So just take those numbers.
Let's just say the range for leveraged lending, it's kind of like 7% to 9% plus or minus. For the past couple of months. At our current Ssi see loan yields range from 13, 1% to 28%. We'll talk about the average of our portfolio yield later, but. Suffice to say, we're close to double our portfolio portfolio is yielding close to double. What traditional leveraged lending indices are and we are lending on a first lien senior secured basis. So it's important to note that so we think. Edition. Look at the last bullet point lenders can demand various structural protections. And have significant pricing power so not only do we believe that youre getting we know that youre getting yield thats close to double what we see in other kind of traditional not other but traditional kind of lending and levered lending products. We also think in many cases, we're able to demand and our borrowers are willing to give us. Lending is done primarily away from the banks and Thats in other industries right and so.
For the past couple of months.
At our current Ssi see loan yields range from 13, 1% to 28%.
We'll talk about the average of our portfolio yield later, but.
Suffice to say, we're close to double our portfolio portfolio is yielding close to double.
What traditional leveraged lending indices are and we are lending on a first lien senior secured basis.
So it's important to note that so we think.
Edition.
Look at the last bullet point lenders can demand various structural protections.
And have significant pricing power so not only do we believe that youre getting we know that youre getting yield thats close to double what we see in other kind of traditional not other but traditional kind of lending and levered lending products. We also think in many cases, we're able to demand and our borrowers are willing to give us.
Given the scarcity of that capital in this space better structural protections. And then the. Sorry, it's a little out of sequence, but the third bullet point of the four points. Is that we believe we strongly believe this opportunity is going to exist for many years people ask all the time is safe banking going to change. This is setback in going to bring in banks to compete against you and have spreads go two to 400 basis points tighter for instance. And no that's not the case, we do not believe that that is the case that the banks will come in into this. When. Federal legalization happens, which is probably not going to be part of safe banking. Then thanks over many years, we'll start to look at the space, but I think the key point is the private credit market today is one three trillion dollars.
And then the.
Sorry, it's a little out of sequence, but the third bullet point of the four points.
Is that we believe we strongly believe this opportunity is going to exist for many years people ask all the time is safe banking going to change. This is setback in going to bring in banks to compete against you and have spreads go two to 400 basis points tighter for instance.
And no that's not the case, we do not believe that that is the case that the banks will come in into this.
When.
Federal legalization happens, which is probably not going to be part of safe banking.
Then thanks over many years, we'll start to look at the space, but I think the key point is the private credit market today is one three trillion dollars.
Lending is done primarily away from the banks and Thats in other industries right and so.
In general banks because of regulatory capital rules that have happened post. Dodd Frank Bulker after the financial crisis banks do not do a lot of direct lending for the most part and most of that in the U S and most of the direct lending comes from alternative asset managers and so whether it goes whether it happens or not this opportunity is going to exist for many years and our belief. If we go to the next slide Im not going to dwell on this but for your reference slide seven talks about our investment and underwriting process. I spent almost 25 years at a major U S bank some of our many of our colleagues supporting capital markets for 2025 to 35 years, we spent a lot of time. Investors in the cannabis space. So we have a tremendous network and I think some of the big deals that we either structured like the shrine deal.
Dodd Frank Bulker after the financial crisis banks do not do a lot of direct lending for the most part and most of that in the U S and most of the direct lending comes from alternative asset managers and so whether it goes whether it happens or not this opportunity is going to exist for many years and our belief.
If we go to the next slide Im not going to dwell on this but for your reference slide seven talks about our investment and underwriting process.
I spent almost 25 years at a major U S bank some of our many of our colleagues supporting capital markets for 2025 to 35 years, we spent a lot of time.
Developing what we think is kind of best in class investment and underwriting process that you can read that at your leisure. If you go to the following slide slide eight we talk about sourcing and origination. I came from a bank background, where we spent a tremendous amount of time looking for opportunities looking for deals. Very structured. Knowing what the landscape is knowing who the borrowers are making connections with our borrowers. In addition to kind of having that kind of DNA. Many of us have from our from our past lives. We also benefit from silver spikes network in this space So silver spike. <unk> by some folks who have invested early.
I came from a bank background, where we spent a tremendous amount of time looking for opportunities looking for deals.
Very structured.
Knowing what the landscape is knowing who the borrowers are making connections with our borrowers. In addition to kind of having that kind of DNA. Many of us have from our from our past lives. We also benefit from silver spikes network in this space So silver spike.
<unk> by some folks who have invested early.
Investors in the cannabis space. So we have a tremendous network and I think some of the big deals that we either structured like the shrine deal.
Our first full quarter or other deals that we participated in and. And just our market presence prior to <unk>. <unk> FSIC. As an IPO in which we raised in February . This kind of market presence our reputation. The connectivity that we have in the industry really is an important important competitive advantage to source and originate because we focus on direct deal sourcing. And that's through our network we've looked at. Slide shows we've reviewed over $6 billion 6 billion of deals close to 300 debt transactions that we've reviewed. And we have an active pipeline of over $1 billion across 31 different transactions that changes regularly because deals come and go and new information comes up all the time, we're diligence in multiple deals at any given point in time. And Greg mentioned.
And just our market presence prior to <unk>.
<unk> FSIC.
As an IPO in which we raised in February .
This kind of market presence our reputation.
The connectivity that we have in the industry really is an important important competitive advantage to source and originate because we focus on direct deal sourcing.
And that's through our network we've looked at.
Slide shows we've reviewed over $6 billion 6 billion of deals close to 300 debt transactions that we've reviewed.
And we have an active pipeline of over $1 billion across 31 different transactions that changes regularly because deals come and go and new information comes up all the time, we're diligence in multiple deals at any given point in time.
But that that pipeline is range from about 1 billion to a $1 billion five. I would say for most if not all of this year and the point on the right is that management's experience and deep relationships really do create a differentiated sourcing ability. So we took the management teams. All the time, who are interested in working with US which is exciting and then if you just jump ahead to page nine as Greg mentioned this. Slide nine is our FSIC portfolio summary.
I would say for most if not all of this year and the point on the right is that management's experience and deep relationships really do create a differentiated sourcing ability. So we took the management teams. All the time, who are interested in working with US which is exciting and then if you just jump ahead to page nine as Greg mentioned this.
Slide nine is our FSIC portfolio summary.
And Greg mentioned.
And this is through October of this year and Greg mentioned that we did no new loans in the quarter, but we were quite busy in the quarter and we were diligence diligence ing. Many different loans as you know the quarter was pretty volatile financial markets and we're pretty picky, we turned down the vast majority of our deals. So we ended up. Participating in investing in three deals in October the bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September . And the fault previous quarter. We bought. We did also I'll point out we did. Our second large position of 'twenty.
So we ended up.
Participating in investing in three deals in October the bulk of the reason we're talking about them today is the bulk of the work was done on these three names in September .
And the fault previous quarter.
We bought.
We did also I'll point out we did.
Secondary transactions, we bought public bonds of a Y our wellness. <unk>. And which have a fixed rate at 12, 5%. We also bought fixed rate. 8% bonds are currently of holdings. The first was a $1 8 million approximate investment value that <unk> the cure. Approximately $3 9 million investment value. And lastly, we participated. In Varano holdings, which was the bulk of the work that was done throughout the quarter. It priced at the end of October remember the markets were pretty volatile September October that loan is priced at prime plus six 5% with a six quarter percent prime floor and that was our.
<unk>.
And which have a fixed rate at 12, 5%. We also bought fixed rate.
8% bonds are currently of holdings.
The first was a $1 8 million approximate investment value that <unk> the cure.
Approximately $3 9 million investment value.
And lastly, we participated.
In Varano holdings, which was the bulk of the work that was done throughout the quarter. It priced at the end of October remember the markets were pretty volatile September October that loan is priced at prime plus six 5% with a six quarter percent prime floor and that was our.
Our second large position of 'twenty.
$3 7 million. So where does that leave us that leaves us as of the end of October with a total investment invested portfolio. And this is coming from the slide nine up $50 $73 million. Which means that. 50, 945% of our portfolio our funds have been invested. And I think it's important to note that the weighted average yield of the loans is 15, 7%. So that's the weighted average gross yield of our portfolio. And then I just want to emphasize. We spend we're very excited to participate in. So that's all I had with the slides.
So where does that leave us that leaves us as of the end of October with a total investment invested portfolio.
And this is coming from the slide nine up $50 $73 million.
Which means that.
50, 945% of our portfolio our funds have been invested.
And I think it's important to note that the weighted average yield of the loans is 15, 7%. So that's the weighted average gross yield of our portfolio.
And then I just want to emphasize.
We spend we're very excited to participate in.
And these loans and to work on these transactions and the transactions that are in our pipeline. Currently and what's what's really interesting to us versus when we. Contemplated this concept a couple of years back is that we really are lending to some of the biggest. Some of the biggest by revenue. By brand. Bye. Dispensary count by state come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity for Linda smaller companies as well, but I would say given the dislocation in the markets we've been very <unk>. Cited to lend to some of the biggest.
Currently and what's what's really interesting to us versus when we.
Contemplated this concept a couple of years back is that we really are lending to some of the biggest.
Some of the biggest by revenue.
By brand.
Bye.
Dispensary count by state come in many different metrics. These are some of the biggest and we believe some of the highest credit qualities of cannabis companies in the industry and there is a tremendous opportunity for Linda smaller companies as well, but I would say given the dislocation in the markets we've been very <unk>.
Cited to lend to some of the biggest.
And what we think some of the best quality credit quality companies are. Any industry at yields that are <unk>. I'd say on average as a rough guide 400 to 600 basis points wider. Our greater yield than they would've been approximately a year ago, so mid teens yields and higher for this quality of the company and the size and scale of company. We think is a very exciting. Opportunity for our investors.
Any industry at yields that are <unk>.
I'd say on average as a rough guide 400 to 600 basis points wider.
Our greater yield than they would've been approximately a year ago, so mid teens yields and higher for this quality of the company and the size and scale of company. We think is a very exciting.
Opportunity for our investors.
So that's all I had with the slides.
At this point. Greg has anything else to add I'm going to pass it over to Josh who is going to open it up for questions. Thank you as a reminder to ask a question you will need to press star one one on your telephone please stand by while we compile the Q&A roster. Our first question comes from Michael Lavery with Piper Sandler You May proceed. Okay. Thank you and good evening. Okay. Just was. Trying to reconcile slide nine with the <unk>. 13% to 28% yields. Those numbers will not be in the Q that were just posting there'll be in the next quarters Q.
Greg has anything else to add I'm going to pass it over to Josh who is going to open it up for questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone please stand by while we compile the Q&A roster.
Our first question comes from Michael Lavery with Piper Sandler You May proceed.
Okay. Thank you and good evening.
Okay.
Just was.
Trying to reconcile slide nine with the <unk>.
13% to 28% yields.
Im pretty sure its just the discount to par you might have bought some of the bonds that but can you just help us understand how to take the breakdown on slide nine and put it into that that bracket. Yes. Michael Thats exactly right there. Two public bonds that we bought in the secondary market. Let me just say too we've watched those were our first. For us into the public markets for. For FSIC, but we watch them very closely we many of us at the capital markets background. So we were watching as these bonds. We are steadily selling off throughout the course of the year. And I won't get into exact prices because this.
Yes.
Michael Thats exactly right there.
Two public bonds that we bought in the secondary market.
Let me just say too we've watched those were our first.
For us into the public markets for.
For FSIC, but we watch them very closely we many of us at the capital markets background. So we were watching as these bonds. We are steadily selling off throughout the course of the year.
And I won't get into exact prices because this.
Those numbers will not be in the Q that were just posting there'll be in the next quarters Q.
But. They were all bought in the context of the market and for rough for a rough guide. Public bonds in this space drops and public loans as well are in private loans. From our observation so I would say deals that have gotten that were getting done mostly in the last two years. Certain brokers trade or at least quote on average one answer on average, but the range of drop in price was kind of like 10 to 20 points. So. That is exactly how. Great question. So we.
They were all bought in the context of the market and for rough for a rough guide.
Public bonds in this space drops and public loans as well are in private loans.
From our observation so I would say deals that have gotten that were getting done mostly in the last two years.
Certain brokers trade or at least quote on average one answer on average, but the range of drop in price was kind of like 10 to 20 points. So.
That is exactly how.
How you guys can get if you look at 8%. Right or prime or a 12, 5% fixed rate those bonds were trading at. Still our we're trading at decent discounts. And that's exactly what we're running that on a yield to maturity. And that so we get this yield range that you see on the on the earlier slide and Thats, how we get to the weighted average yield of 15 seven. No that's great. Thanks Thats helpful. Just one more looking ahead, you've got just a hair shy of 60%. Now. Whats your expectations for timing as far as getting to 100 and what. What might come next after that.
Right or prime or a 12, 5% fixed rate those bonds were trading at.
Still our we're trading at decent discounts.
And that's exactly what we're running that on a yield to maturity.
And that so we get this yield range that you see on the on the earlier slide and Thats, how we get to the weighted average yield of 15 seven.
No that's great. Thanks Thats helpful.
Just one more looking ahead, you've got just a hair shy of 60%.
Now.
Whats your expectations for timing as far as getting to 100 and what.
What might come next after that.
Great question. So we.
Yes, I think we I believe we said in the previous quarter. And our kind of range. We were shooting for approximately getting 70% deployed by the end of the year. So I'd say, we're on track for that but we can't really comment on what we have done or may have done or are doing for this quarter. But with over $1 billion pipeline. Definitely the opportunity for us to get up to 70% or more by the end of the year. But we don't believe but we hope that the stock markets.
And our kind of range.
We were shooting for approximately getting 70% deployed by the end of the year. So I'd say, we're on track for that but we can't really comment on what we have done or may have done or are doing for this quarter.
But with over $1 billion pipeline.
Definitely the opportunity for us to get up to 70% or more by the end of the year.
It's all dependent on the market conditions in the due diligence and all. And then if we kind of think of the pace that we're growing at that we're deploying. Debt. Move that forward you can imagine that. Throughout the course of next year I mean, it's always hard as you know to get to a 100% or 98% of it or even possibly 96%, but throughout the course of next year. We will be. Most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obvious they are. Our lending facility or raising more equity. As you know, we haven't declared a dividend yet. So we believe once the dividend declared hopefully.
And then if we kind of think of the pace that we're growing at that we're deploying.
Debt.
Move that forward you can imagine that.
Throughout the course of next year I mean, it's always hard as you know to get to a 100% or 98% of it or even possibly 96%, but throughout the course of next year.
We will be.
Most likely we plan to be we intend to be close to fully invested at some point next year. So the typical next steps obvious they are.
Our lending facility or raising more equity.
As you know, we haven't declared a dividend yet.
So we believe once the dividend declared hopefully.
But we don't believe but we hope that the stock markets.
We will take notice that the portfolio. As long as it continues to perform which we believe it will the markets will take notice but to issue equity we need to be at or above NAV, which we're not now. The whole industry of Bdcs are not actually interesting I think where we're in but we're probably. Not. Not too dissimilar to other bdcs, but we havent declared a dividend yet in terms of where where it's trading the whole market has been under pressure. This year as all stock market highs, but anyway, most likely a debt facility would come first that would be traditional. Duck.
As long as it continues to perform which we believe it will the markets will take notice but to issue equity we need to be at or above NAV, which we're not now.
The whole industry of Bdcs are not actually interesting I think where we're in but we're probably.
Not.
Not too dissimilar to other bdcs, but we havent declared a dividend yet in terms of where where it's trading the whole market has been under pressure. This year as all stock market highs, but anyway, most likely a debt facility would come first that would be traditional.
We are I believe one of the only if not the only BDC. That doesn't have a debt facility, that's because we raised a blind pool. Lenders to us potential lenders to us want to see. Our portfolio, which we now have which we're excited about so we hope to get at that facility in the coming <unk>. Couple of quarters, we are in discussions with different folks that may or may not happen, but we hope it does and with the debt facility, we could deploy more funds and then over time.
That doesn't have a debt facility, that's because we raised a blind pool.
Lenders to us potential lenders to us want to see.
Our portfolio, which we now have which we're excited about so we hope to get at that facility in the coming <unk>.
Couple of quarters, we are in discussions with different folks that may or may not happen, but we hope it does and with the debt facility, we could deploy more funds and then over time.
Duck.
Reflects. The.
The.
We are getting good dividends et cetera.
Then hopefully we can issue equity.
And grow from there.
I think that will get out of sequence and Michael if I, if I may add we feel that. Given the amount of cash we've had through the year, it's actually been very fortuitous right. If we were if we would have deployed much faster. After we IPO last February we.
Given the amount of cash we've had through the year, it's actually been very fortuitous right. If we were if we would have deployed much faster. After we IPO last February we.
Could've gone two waves, we would've had a portfolio with roughly the same yield and a much lower credit quality or to get this credit quality of the yield would have been much much lower so I think the time timing was somewhat. To be perfectly honest, but we were very fortunate to be sitting on a lot of cash during the sell off and we're able to pick up. Much higher quality assets. Probably the most attractive prices weak season. Quite some time. <unk> clearly murano.
To be perfectly honest, but we were very fortunate to be sitting on a lot of cash during the sell off and we're able to pick up.
Much higher quality assets.
Probably the most attractive prices weak season.
Quite some time.
That's helpful. Thank you so much I'll pass it on. Thank you and as a reminder to ask a question you will need to press star one one on your telephone. Our next question comes from Andrew Carter with Stifel. You May proceed. Hey, yes, thanks, good evening. To ask is I guess I'm a little confused here because the thesis here is behind <unk> and behind what Youre doing is making loans to smaller companies and kind of if you will aggregating AG. Aggregating credits at scale things that are hard and to date the money has been put into <unk>.
Thank you and as a reminder to ask a question you will need to press star one one on your telephone.
Our next question comes from Andrew Carter with Stifel. You May proceed.
Hey, yes, thanks, good evening.
To ask is I guess I'm a little confused here because the thesis here is behind <unk> and behind what Youre doing is making loans to smaller companies and kind of if you will aggregating AG.
Aggregating credits at scale things that are hard and to date the money has been put into <unk>.
<unk> clearly murano.
Investors have easier access to this. So I want to ask about this is this something thats temporary that gives you some scale both in terms of the management fee to support the organization as well as kind of the SG&A to your point to give it to make it make it a little mammal ring you can trade out of this and just kind of help us help us understand that a little better. Sure. Thanks for the question Andrew I'll start and then Greg if you want to add anything.
So I want to ask about this is this something thats temporary that gives you some scale both in terms of the management fee to support the organization as well as kind of the SG&A to your point to give it to make it make it a little mammal ring you can trade out of this and just kind of help us help us understand that a little better.
Sure. Thanks for the question Andrew I'll start and then Greg if you want to add anything.
But yes as you know the Bdcs are allowed to have a certain percentage of the portfolio and public companies that have market caps of 250 or bigger. So we adhere to those guidelines. And. But youre exactly right. Worked diligently throughout the quarter throughout throughout the whole year since we've raised the IPO looking at private companies. Working on private company private company. Direct loan transactions. A lot of capacity to add public bonds.
So we adhere to those guidelines.
And.
But youre exactly right.
Worked diligently throughout the quarter throughout throughout the whole year since we've raised the IPO looking at private companies.
Working on private company private company.
Direct loan transactions.
Wanted to follow the public companies because. Andrew in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot we heard about a lot, but we will wait a minute why would this price at X yield if public companies are now three or 500 wider. Had the cash to deploy. We looked at we look at all the various factors that risk factors the size of the company. The. The management team et cetera, we thought these really offer the best value in the market, but we don't have a lot of additional capacity for public bonds. So just really by that. Definition of the rules, we just don't have.
Andrew in an interesting way like a lot of the pricing of the privates was driven off the publics as the entire market got worse and we saw that a lot we heard about a lot, but we will wait a minute why would this price at X yield if public companies are now three or 500 wider.
Had the cash to deploy.
We looked at we look at all the various factors that risk factors the size of the company.
The.
The management team et cetera, we thought these really offer the best value in the market, but we don't have a lot of additional capacity for public bonds. So just really by that.
Definition of the rules, we just don't have.
A lot of capacity to add public bonds.
Or public loans. So I suspect that that will. It'll be not I suspect. The other thing I would add is. These. Jim Michael his previous question. The. Two public bonds were done at very deep disc. Discounts those are just public that's public knowledge, because theyre, just public levels and where the bonds are trading. We view that as an opportunistic. Shot at getting.
So I suspect that that will.
It'll be not I suspect.
The other thing I would add is.
These.
Jim Michael his previous question.
The.
Two public bonds were done at very deep disc.
Discounts those are just public that's public knowledge, because theyre, just public levels and where the bonds are trading.
We view that as an opportunistic.
Shot at getting.
Some really good credits. With really good yield with good convexity, so if the market <unk>. <unk>. We can see these trade up if you issue alone at 95 or par or somewhere in between a little bit of OID. You don't have the same convexity. So we compare that to loans that were working on the private side, but just given the rules that we can we can only do a certain amount of public I would imagine that the. Of the additional loans moving forward in the future will be from the private. Haven't really made a determination of fault trade out of these or not. So when youre looking at a loan of a company of that scale.
With really good yield with good convexity, so if the market <unk>.
<unk>.
We can see these trade up if you issue alone at 95 or par or somewhere in between a little bit of OID. You don't have the same convexity. So we compare that to loans that were working on the private side, but just given the rules that we can we can only do a certain amount of public I would imagine that the.
Of the additional loans moving forward in the future will be from the private.
Haven't really made a determination of fault trade out of these or not.
But we. Reserve the right to trade out of them whatever it was going to be best for our shareholders. In particular <unk> has a December 24 maturities, so theres always a chance. That gets refinanced because. Prior to the maturity, which would which would result in even a better IRR. The reason I will focus on that <unk> was a refinancing. And Bruno some people say that really. Kind of repriced the market that was at $350 million refinancing.
Reserve the right to trade out of them whatever it was going to be best for our shareholders. In particular <unk> has a December 24 maturities, so theres always a chance.
That gets refinanced because.
Prior to the maturity, which would which would result in even a better IRR.
The reason I will focus on that <unk> was a refinancing.
And Bruno some people say that really.
Kind of repriced the market that was at $350 million refinancing.
So when youre looking at a loan of a company of that scale.
It has public financials and has been kind of dead. It for several years in the marketplace. Pricing in a really difficult time in the market to price. That risk reward looked really good compared to the private opportunities are out there and thats why its in the portfolio. Fair enough second thing I would ask in terms of kind of the scale and the organization could you give us an update on how many people you have right now supporting the BDC directly and therefore kind of what your bandwidth is for diligence ing deals right now. Sure sure Greg do you want to take that yes, I can handle it.
Pricing in a really difficult time in the market to price.
That risk reward looked really good compared to the private opportunities are out there and thats why its in the portfolio.
Fair enough second thing I would ask in terms of kind of the scale and the organization could you give us an update on how many people you have right now supporting the BDC directly and therefore kind of what your bandwidth is for diligence ing deals right now.
Sure sure Greg do you want to take that yes, I can handle it.
Andrew we have we have 10 people right now with silver's by capital investment advisor. Four of which are dedicated to to underwriting. So the team. I would say the team is well suited for our portfolio multiple of the size of our current vehicle and we purposely built this for. For scale. We believe we have some of the best underwriters on the Street. The. Some of the some of the deepest cannabis experience industry. Our. <unk> built this thing for scale.
Four of which are dedicated to to underwriting.
So the team.
I would say the team is well suited for our portfolio multiple of the size of our current vehicle and we purposely built this for.
For scale.
We believe we have some of the best underwriters on the Street.
The.
Some of the some of the deepest cannabis experience industry.
Our.
<unk> built this thing for scale.
To that question just to help US okay. If you've got four people dedicated how many deals then do you think they could. I hate to say execute because you never want to force somebody to but maybe its diligence. However, you look about look however, you would think about their bandwidth for the number of deals because from here its ones and twos. You have to do at this level wont be like that forever, but from here right now. When you say ones and twos I think so we can get. We can we can clearly handle.
I hate to say execute because you never want to force somebody to but maybe its diligence. However, you look about look however, you would think about their bandwidth for the number of deals because from here its ones and twos.
You have to do at this level wont be like that forever, but from here right now.
When you say ones and twos I think so we can get.
Yes, the smaller loans, maybe im a little off but the smaller it's got to be chunkier portfolio from here on out that's kind of what I was saying on the private side, yes, exactly 40 of four for four to five initiatives. The sweet spot for size at this point, but no. We have we have plenty of capacity. And just a number of deals as you know the size of the deal doesn't matter. It takes the same amount of work to underwrite. $4 million low as it does a 20. But I don't know, maybe maybe Frank do you want to try to put a number on it in terms of sure I mean, one way to look at is we. The IPO in February the markets have been fairly dislocated throughout the course of the year, but we're on track to do what we did we've done five deals through October so.
The sweet spot for size at this point, but no. We have we have plenty of capacity.
And just a number of deals as you know the size of the deal doesn't matter. It takes the same amount of work to underwrite.
$4 million low as it does a 20.
But I don't know, maybe maybe Frank do you want to try to put a number on it in terms of sure I mean, one way to look at is we.
The IPO in February the markets have been fairly dislocated throughout the course of the year, but we're on track to do what we did we've done five deals through October so.
We can we can clearly handle.
That equates to about one a month right. We could do more we could also we could also put a lot more money to work on some of these deals we're limited really. Andrew at the moment by just our amount of capital. So many of these deals could have been much bigger. Shrine that we co led. <unk>. Was a sizeable position could have been could have been much bigger. The secondary is. Like I said, we're not going to be doing necessarily tons of secondary we don't even have the capacity to do so by definition, we cant, but those could evolve and bigger. Effectively best efforts.
We could do more we could also we could also put a lot more money to work on some of these deals we're limited really.
Andrew at the moment by just our amount of capital.
So many of these deals could have been much bigger.
Shrine that we co led.
<unk>.
Was a sizeable position could have been could have been much bigger.
The secondary is.
Like I said, we're not going to be doing necessarily tons of secondary we don't even have the capacity to do so by definition, we cant, but those could evolve and bigger.
So yes, so it's hard to put a number on it every deal is different. Emphasize and I think this is part of the reason these loans yield where they do. It takes a tremendous amount of time to diligence fees. We like to ask. For 30 to 45 days not like too we do ask for 30 to 45 days exclusivity in our term sheets, that's kind of industry standard. And it can take longer than 45 days to diligence and frankly for the benefit our shareholders. We're okay. Take will take as long as it takes and if it means that it's going to bleed into the next month or the next quarter. That's okay, because we would rather pass on a deal when we did the term sheets. These are these are non binding these are.
Emphasize and I think this is part of the reason these loans yield where they do.
It takes a tremendous amount of time to diligence fees.
We like to ask.
For 30 to 45 days not like too we do ask for 30 to 45 days exclusivity in our term sheets, that's kind of industry standard.
And it can take longer than 45 days to diligence and frankly for the benefit our shareholders. We're okay.
Take will take as long as it takes and if it means that it's going to bleed into the next month or the next quarter.
That's okay, because we would rather pass on a deal when we did the term sheets. These are these are non binding these are.
Effectively best efforts.
Don't intend to ever walk away from a customer. Borrower, if everything checks out, but remember you are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space. And you never know where thats going to go so we have capacity we could scale this thing much bigger. And if we get to the point, where we need more resources. We will get them. And then into next year, we should be able to deploy the majority of the funds into next year.
Borrower, if everything checks out, but remember you are offering to do these deals based on the information we have before the extensive due diligence is done and so many things come up through the process as they do in the normal direct lending space.
And you never know where thats going to go so we have capacity we could scale this thing much bigger.
And if we get to the point, where we need more resources.
We will get them.
From an organization, where I had. A tremendous number of desk analysts working for me, we built a lending business. So. We and many of the other partners have done the same. In terms of working at large scale building large scale. Organizations. No. For the time being we have more than enough resources for the amount of capital right. We're about 60% invested were working on active deals now like I said, our goal is to get to about 70% by the end of the year. Stephen will whether or not it happens just depends on the market and the diligence process.
A tremendous number of desk analysts working for me, we built a lending business.
So.
We and many of the other partners have done the same.
In terms of working at large scale building large scale.
Organizations.
No.
For the time being we have more than enough resources for the amount of capital right. We're about 60% invested were working on active deals now like I said, our goal is to get to about 70% by the end of the year.
Stephen will whether or not it happens just depends on the market and the diligence process.
And then into next year, we should be able to deploy the majority of the funds into next year.
So yeah. So that's that's easily handled by the group of folks that we have. And then we'll just see as we raise more capital over time. Next week I would ask is just kind of looking at your year to date EPS I have this right I think 12 cents. I know theres, a little bit of flexibility around the dividend about. It's a 97, 5% payout how much would you expect to pay out because I think you said it well once you put a dividend out there that will put a support level in the stock and we will that's so help us understand where you what you could be targeting.
And then we'll just see as we raise more capital over time.
Next week I would ask is just kind of looking at your year to date EPS I have this right I think 12 cents.
I know theres, a little bit of flexibility around the dividend about.
It's a 97, 5% payout how much would you expect to pay out because I think you said it well once you put a dividend out there that will put a support level in the stock and we will that's so help us understand where you what you could be targeting.
Yes without going into specific targets look what we don't want to do is declare a small dividend invest more of the portfolio bump it up a little bit and could play that game. So we are. We're waiting until we're nearly fully invested and then we will declare a dividend that we believe we can support for the for the long term. So once you give us another quarter and. With next quarter's results it will be a much different picture and maybe we'll be able to give.
We're waiting until we're nearly fully invested and then we will declare a dividend that we believe we can support for the for the long term.
So once you give us another quarter and.
With next quarter's results it will be a much different picture and maybe we'll be able to give.
An accurate estimate of what we forecast that to be. Fair enough last question on the operating cost. At the BDC level, how should we think about those kind of growing forward like from the run rate you had in the quarter I think 470000 does that grow with the assets from here does that stay the same just anything you can give us on that number. Yes. For the most part fixed so we have tremendous amount of scalability the operating expenses were. We're a little bit mixed we spent less money on legal fees this quarter, but there were slightly higher management fees because. <unk> portion of the portfolio was higher but others other than the management fee scaling linearly obviously with assets. The rest of our expenses. Much closer to fix than variable so we expect to get.
Fair enough last question on the operating cost.
At the BDC level, how should we think about those kind of growing forward like from the run rate you had in the quarter I think 470000 does that grow with the assets from here does that stay the same just anything you can give us on that number.
Yes.
For the most part fixed so we have tremendous amount of scalability the operating expenses were. We're a little bit mixed we spent less money on legal fees this quarter, but there were slightly higher management fees because. <unk> portion of the portfolio was higher but others other than the management fee scaling linearly obviously with assets. The rest of our expenses. Much closer to fix than variable so we expect to get.
We're a little bit mixed we spent less money on legal fees this quarter, but there were slightly higher management fees because.
<unk> portion of the portfolio was higher but others other than the management fee scaling linearly obviously with assets.
The rest of our expenses.
Much closer to fix than variable so we expect to get.
As we increase the size and. AUM board and toward that. That should give us. Quite a lot of operating scale. That's all I got I will pass it on thank you. Thanks Andrew. Thanks, a lot Andrew. Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Gregg <unk> for any closing remarks. Thank you Josh. I want to thank you all for joining thanks for your time and we look forward to seeing you again next quarter end. Enjoy the weekend.
AUM board and toward that.
That should give us.
Quite a lot of operating scale.
That's all I got I will pass it on thank you. Thanks Andrew.
Thanks, a lot Andrew.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Gregg <unk> for any closing remarks.
Thank you Josh.
I want to thank you all for joining thanks for your time and we look forward to seeing you again next quarter end.
Enjoy the weekend.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.