Q3 2025 Chicago Atlantic BDC Inc Earnings Call
Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements related to financial guidance, may be deemed forward-looking statements under Federal Security laws because such statements involve known and unknown risk and uncertainties that could cause actual results to differ materially from those expressed or implied to lease forward-looking statements.
We encourage you to refer to our most recent SEC filings for information on some of these risk factors.
Target Atlantic, BDC 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 13th 2025, therefore, you are advised. That time-sensitive information, May no longer be accurate at the time of any replay or transcript reading, and I'll turn the call over to Peterson. Please go ahead.
Thank you Tripp. Good morning, everyone.
During the third quarter, the results continued to demonstrate that the Chicago anti BDC is a uniquely positioned BDC with the experience and expertise to capture above market returns while protecting principal.
We Remain the only BDC focused on and able to lend to cannabis companies together with a focus on the lower Middle Market commonly underserved by Capital providers.
We believe that this differentiation provides uncorrelated distinct credit opportunities.
Net investment income per share was 42 cents for the third quarter of 2025, demonstrating the potential of the business model to generate a 12.5% yield to book value.
For the third quarter, we are excited to announce that we executed on our Pipeline and funded 66.7 million to 13, new Investments of which 7 were new borrowers, which improved diversification of the portfolio and allowed us to utilize our credit facility.
I'm proud to say that's a new originations record for us.
I believe we're all familiar with the issues that are arising in the broader. Private credit markets borrowers, defaulting interest rate, sensitivity dividend coverage and in some cases outright fraud
With our company seeming to trade. As if these issues apply to us equally as well, it's worth pointing out some specifics. When we say Chicago, Atlantic is a differentiated BDC.
the public, BDC industry data points that I'm about to mention are taken from aenar industry update as of August 20th 2025 except for the average yield, which was taken from Raymond James, BDC weekly, insights, as of October 3rd, 2025
Our weighted average yield on debt Investments as of September 30th 2025 was 15.8%. Compared to 11.4% for the average BDC
999.5% of our portfolio is senior secured compared to other pdc's who have an average of 19.5% exposure to support in a debt equity and JV Investments.
The balance of fixed to floating interest rates of the portfolio has improved with 31% of the debt portfolio, fixed and 69% floating.
Better positioning the company against a drop in interest rates.
We calculate that 100 basis point. Drop in rates, only impacts 17% of the portfolio, which demonstrates the impact of high interest rate floors.
Our unique investment strategy is focused on underserved markets. Providing no overlap in Investments made by any other public, BDC that we are aware of.
We conduct full due diligence on new credits ourselves instead of relying on underwriting conducted by Banks or co-investors and we carefully monitor the performance of each of our companies ourselves.
The portfolio is under levered with only 11 million of debt as of quarter and compared with the BDC average of 1.2 times debt to equity.
Assuming full utilization of our hundred million dollar credit facility during the year. We would still be well below industry averages.
Industry, average of 3.5% of costs.
Today we announced a 34 Cent dividend marking the fifth consecutive quarter at that rate. This dividend is also. Well covered this quarter with net investment income per share of 42 cents.
As we continue executing our strategy, we will focus on further diversifying, their portfolio, utilizing the credit facility and managing interest rate sensitivity, while maintaining the overall strength of the portfolio, now I'll turn it over to Tom to discuss the numbers in Greater detail.
Good morning. Thanks Peter.
I want to highlight our investor presentation that we filed with the FCC. This morning that serves as our earning supplemental.
I'll start with the Investment Portfolio.
We have 37 portfolio company Investments.
24% of the portfolio is invested in non-cancer companies across multiple sectors.
The average credit investment size is approximately 2.4% of our debt portfolio.
69% of the portfolio has floating interest rates, and 58% of these loans have already reached their respective interest rate, floors.
The gross weighted average yield of the company's credit Investment Portfolio is 15.8%.
And all loans are performing.
As of September 30th 2025 the company had 11 million of debt outstanding all of which was drawn from the new credit facility.
as of November 12th, 2025 the company had approximately 97.8 million of liquidity comprised of 92.5 million of borrowing, capacity and 5.3 million of cash on the balance sheet, which is available to deploy,
This gives us ample liquidity to deploy additional Capital over the remainder of the Year while remaining relatively under levered compared to other bdcs.
Financial highlights with the third quarter were gross investment income totaling 15.1 million compared to 13.1 million for the second quarter.
Interest income included, 1.9 million of 1-time prepayment and make whole fees from unscheduled repayments.
Net expenses were 5.6 million which is net of the expense limitation agreement compared to 5.4 million of net expenses in the second quarter.
Net investment income, was 9.5 million or 42 cents per share up from 7.7 million or 34 cents per share in the second quarter.
Net assets totaled, 302.9 million at quarter end and the net asset value per share was 1327 up from 1323 in the second quarter.
At quarter end, there were 22.8 million common shares issued and outstanding on a basic and fully diluted basis.
I will now turn it over to dino to talk about our origination efforts.
Thanks Tom.
During the third quarter, we funded 66.3 million in new debt Investments to 11 portfolio. Companies a record quarter for Lee.
7 of these Investments are new borrowers to BDC
Of these new debt Investments, 100% of them are senior secured and 84% are either fixed or floating rate loans at their respective floors as of quarter end.
During the third quarter, we also had loan repayments and amortization totaling approximately $62.7 million, which included early principal payoffs of $59.6 million.
As of the end of the third quarter, there was approximately 27 million in total unfunded commitments for the portfolio.
To date in the fourth quarter, we have funded 5 million to 1 new borrower.
We expect additional deployment activity between now and year end. But at a more measured Pace than the robust gross originations activity. We have seen in the last 2 quarters.
The pipeline across the Chicago Atlantic platform as of quarter end which includes cannabis and non-cancerous opportunities total approximately 610 million in potential debt transactions.
The breakdown of the opportunity set includes a proximately, 40050 million in cannabis opportunities and approximately 195 million in non-cancerous Investments.
As Tom mentioned, we have approximately 98 million of dry powder to grow the portfolio, but we will maintain our high bar when it comes to underwriting and structuring Investments that deliver above Market risk, adjust the returns.
We've had to show patients in the past when the markets around us seem to underpriced risk and we will continue to adhere to that discipline when needed.
Peter, noted earlier, this is in contrast to some middle and upper middle Market. Credit lenders, which are experiencing growing credit issues, where there is some overlap among lenders. And even certain challenges maintaining existing dividends
At Chicago. Atlantic our focus is always been on building credit portfolios with attractive risk, adjusted returns
We believe our approach to lending is unique and our results thus far, have highlighted our ability to create Alpha and the private credit markets.
As a result of our direct origination model, 84% of our portfolio company Investments are agent internally.
This model allows us to be highly selective and not dependent on syndicated deals which tend to have overlap among other public bdcs.
Lastly, our rigorous approach to underwriting and structuring Loans. While maintaining pricing discipline has allowed us to craft a differentiated portfolio with strong credit metrics.
Thank you for your continued support and we look forward to updating you again. Next quarter operator. We're now ready for questions.
We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone, if you are using a speaker-phone please pick up your handset before pressing the keys. If at any time your question is been addressed and you would like to withdraw your question, please press star. Then 2 at this time we will pause momentarily to assemble our roster.
Our first question comes from Pablo zuanic with zuanic and Associates, please go ahead.
Thank you and good morning everyone. Um, we're coming congratulations on deploying. You know, that, that large amount of new loans in the quarter. Uh, I think it's a 6566 million. I I, I guess.
the question is more about,
The the repayments of loans in the quarter, you know, where they in line with your expectations or where there's some repayments that were unexpected and did that in a way, you know, force you to be more aggressive in lending in the quarter to show some some book growth, if you can comment on that. And then, and then the second question,
in the context of other lenders out, there are sounding pretty bearish about the Cannabis industry Outlook. Um, it, it seems to me that you have a, a more, uh, a more constructive view about the industry and and that's allowing you um to to increase your your book. Um, but if you can comment on that, thank you.
Sure, thank you, Pablo.
Uh, you know, our pipeline our pipeline.
Is, is more longer takes a long time to develop.
A long time to mature into deployment. And these are relationships that are uh, nurtured uh, over many months and sometimes years.
And so while we had, we had a larger amount of repayments in Q3 than expected.
That does not impact the pace of our deployment because our, our our, our Pipeline and deployment is is simply not that reactive to to liquidity For Better or Worse.
Um, I think we had or extremely proud of our deployment, we executed 13 new Investments. That's almost 1 investment for a week in the quarter uh to which 7 were new were new borrowers. Um, I think that's, I think that's a testament to the work to build relationships uh and nurture relationships across the industry. That goes back in time. Way way before this quarter.
um,
With regards to our outlook on the industry as a whole I think from from the start, from the start of our involvement in the Cannabis industry, we haven't, we haven't viewed the industry as a monolith.
The industry there, it's challenging to speak to the industry as 1 National Industry, because it's really a collection of 40 or 41 different jurisdictions in which adult use and medical markets are active.
Uh, and each of those
Reflects its own supply and demand, Dynamics, its own growth, expectations, its own competitive Dynamics.
And our Focus within each of those jurisdictions evolves over time.
As as as certain markets are growing, certain markets are declining. Certain markets are facing
Pressure and, and certain markets are facing less difficult margin pressure or none at all.
And so I think this is where the investment in a very wholesome. Originations platform. A very wholesome underwriting platform pays off.
It's the ability to be able to pivot.
From.
Challenging markets to less challenging markets, to be constantly developing relationships with the strongest borrowers possible and to maintain the broadest pipeline possible.
And pipeline is Pipeline and relationships as as the lifeblood of our industry. We've ultimately the quality.
Of our deployments is determined by the quality of this, by of our ultimate deployments is determined by the quality of the relationships that we can Garner at the beginning of the process in the development of that pipeline.
Right. Thank you. Thank you for that. And again, congratulations on all the deployment in the quarter. Um, look, this is again a bigger picture industry question. And I know, you know, the bill was only signed last night, but, um, you know, some people have estimated the hymn, derivatives industry to be, you know, north of 20 billion. I don't know if I totally agree with that number, but if that's the right number, you know, and that's about and that where to flow to the kind of this industry, that that would be a big, uh, uh, a big lift, uh, for the industry that we are all involved in. Right? The do, do you see it that way? Do you see a lot of that? Uh, uh, with a lot of him derivatives being recognized, that, that type of volume, uh, flow.
Going into kind of. These players are benefiting the industry and and I know that this is has just happened. But how do you think about that in terms of the industry Outlook?
Mhm.
Part of price compression.
that we're seeing in many, in many cannabis markets, over the last year, while data is difficult to ascertain, I suspect that part of that price compression is driven by competition with uh, the hemp derived THC markets,
And so um the uh the closing of the hemp related loophole, I suspect is going to support.
State regulated markets, um, is going to support state, regulated markets, and be, and be a positive Catalyst for most of our, for most of our borrowers, the um,
I think they're I think on the flip side, there are some negatives that are worth recognizing. I think that um the hemp hemp direct beverage Market in particular
Uh, was successful in expanding the p and the market of of users of of the THC ecosystem. I think it brought consumers into the THC ecosystem that we're not
Uh, consumers previously. And um, it's a I think there is. There it is. Somewhat unfortunate that um
That this area of the market that was not necessarily well served by by dispensaries in the state licensed Market won't exist anymore. Um, but I think I think overall this is a this is overall it's an unequivocal positive for our Target markets and for our investment based,
Okay. And then 1, 1 more uh, in terms of what you can share publicly, um, I know we've talked about 280 many times before what we are here in is that? I mean, obviously truly in their thank you disclose that there's a penalty being charged, but the IRS, um, because of the, you know, they they are uncertain tax provisions, and of course you're going to contest that. Um, that's the only company that is closed out so far. We are hearing that. Other companies are starting to negotiate terms on those long-term uncertain tax Provisions with the IRS and they're beginning to pay them over time, uh, without interest without penalties but paying them over time. Uh, I don't know if you can comment in very general terms about what you are hearing in terms of how companies are starting to deal, uh, with paying back those long-term, AC uncertain tax, Provisions, that are in most companies balance sheets again, in terms of where you can share,
Peter.
Sure. Um,
I think our our Outlook is our Outlook and views on this are a little bit different in that we assume that on certain tax liabilities unpaid tax liabilities, we view them as indebtedness that ultimately will have to be paid when and under what terms is difficult to forecast. But we view it in no uncertain terms as as a liability and obligation of of our borrowers in in our loan documents, we aim to limit the incurrence of such of of such liability, as it does add ultimate risk to to the balance sheet.
And so, I'm I'm not surprised by by, by, by such articles.
Want to reduce the liabilities on their balance sheet because it leads to a it leads to a healthier healthy more sustainable Enterprise.
But I don't have, I don't have any. I don't have additional information beyond what you've put, beyond what you've been reading, Pablo?
Right. Look, and I apologize if there are more people in the queue here, but I'm going to ask a couple more.
um,
you know, obviously because of BDC structure, you are able to land against cash flow and not just uh uh uh uh real estate back uh loans. But um, you know, a lot of the the these loans are to medium-size maybe smaller private companies, right? There's very few large public and Source here. Obviously Bono is a large 1, there's a new loan to Cresco. I'm looking here in the 10q uh but in general they are mostly uh smaller mid-size uh companies in which we don't have a Rob visibility.
I don't know if you want to comment on that. I mean, from my perspective that would imply a little bit more risk, but maybe I'm reading it. Wrongly, I mean interpreting the wrongly,
Mhm. I think in addition with with smaller companies, we also have
We also have more leverage and bargaining. Power in our negotiate greater aspects of downside protection in our loans. And so with smaller companies, we also find the ability to limit leverage, uh, have greater have greater negotiation power and structuring our loan documents. In structuring covenants and structuring portfolio monitoring activities.
and so,
I think we try to balance, we try to balance the risk of lending to smaller Enterprises by with
With lower leverage and a stronger portfolio, we are monitoring characteristics.
uh and with a very strong focus on the markets in which we're Lending
Right. Understood that. That's all for me. Thank you.
again, if you have
Please press star, then 1.
This concludes our question and answer session, I would like to turn the conference back over to Peter sack for any closing remarks.
Thank you, Pablo for your questions. Uh, and thank you to our investors for your support. We look forward to finishing out.
The year on a strong note and Reporting earnings in the first quarter. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect