Chicago Atlantic BDC Q2 Earnings Call Highlights

Key Points

• Second-quarter net investment income fell to $7.7 million, or $0.34 per share, from $10 million in Q1 as loan repayments reduced the portfolio and originations and fee income declined. The company maintained its quarterly dividend at $0.34 per share.
• The investment portfolio declined to $334.8 million after $32.2 million in paydowns, but management reported stable credit quality, no non-accrual loans and no realized losses. The portfolio remains 100% senior secured, with an approximately 16% gross yield.
• Chicago Atlantic reported a nearly $1.1 billion lending pipeline and expects its proposed all-stock merger with Chicago Atlantic Real Estate Finance to close in the fourth quarter of 2026, subject to approvals. Management expects the combination to create a larger, better-capitalized BDC with more than $600 million in book equity.

Chicago Atlantic BDC NASDAQ: LIEN reported second-quarter net investment income of $7.7 million, or $0.34 per share, as loan repayments exceeded new originations and reduced the size of its investment portfolio.

The company declared a quarterly dividend of $0.34 per share, its eighth consecutive quarter at that level. Net investment income declined from $10 million, or $0.44 per share, in the first quarter, which management attributed to a smaller portfolio, lower fee income from originations and, in part, lower income-based incentive fees.

Chief Executive Officer Peter Sack described the quarter as strong but said comparisons with the prior quarter were difficult because originations and repayments can vary materially from period to period.

Portfolio Declines on Paydowns, While Credit Quality Remains Stable

The fair value of Chicago Atlantic BDC’s portfolio was $334.8 million as of June 30, down $29.1 million from March 31. The decline primarily reflected $32.2 million of gross paydowns, including three full loan payoffs, partly offset by $2.7 million in new originations during the quarter.

The paydowns included $26.7 million from three borrowers that fully repaid their loans, plus $5.5 million of amortization and unscheduled payments. Sack said the loans were repaid at par, with no realized losses, and had generated a weighted-average contractual yield in the high teens over their lives.

Interim Chief Financial Officer Tom Geoffroy said the decline in portfolio value did not result from deterioration in credit quality. Fair value continued to track closely with principal outstanding, he said, and the company reported no loans on non-accrual status.

• Portfolio fair value: $334.8 million as of June 30
• Portfolio companies: 37
• Weighted-average gross yield on debt investments: approximately 16%
• Debt portfolio that is fixed rate or at applicable rate floors: approximately 93%
• Debt investments that are senior secured: 100%
• Non-cannabis investments: 26% of the portfolio

Sack said 81% of the debt portfolio would benefit from a 100-basis-point increase in benchmark interest rates, while the fixed-rate structures and interest-rate floors offer protection in a declining-rate environment.

The company had $27 million of debt outstanding at quarter-end, all drawn on its revolving credit facility, resulting in a debt-to-equity ratio of 0.09 times. Geoffroy said the company had approximately $47.2 million of liquidity as of Aug. 12, including $46.5 million of borrowing capacity under its $100 million credit facility and about $0.7 million of cash.

Origination Pipeline Expands Following Modest Quarter

President Dino Colonna said second-quarter deployment was modest due to transaction timing rather than a reduction in market activity or deal flow. Several investments expected to close during the quarter required additional time and moved into the third quarter, he said.

After the quarter ended, the company funded a $25 million senior-secured, floating-rate debt investment to a new portfolio company. Colonna said the investment had characteristics similar to other cannabis loans originated this year.

Chicago Atlantic’s platform-wide pipeline was just under $1.1 billion in potential debt transactions at quarter-end, including approximately $649 million in cannabis opportunities and about $440 million in non-cannabis opportunities. Sack characterized the mix as roughly 60% cannabis and 40% diversified direct lending.

Management said it remains focused on selective lending and direct origination rather than pursuing growth for its own sake. Colonna said the company sources most new investments directly and has minimal reliance on syndicated transactions, allowing it to retain control over loan structures, pricing and covenant protections.

Merger With Chicago Atlantic Real Estate Finance Remains Targeted for Fourth Quarter

Chicago Atlantic BDC continues to expect its proposed all-stock, net-asset-value merger with Chicago Atlantic Real Estate Finance Inc., or REFI, to close in the fourth quarter of 2026, subject to shareholder and regulatory approvals and other customary conditions.

The companies filed a preliminary Form N-14 registration statement and joint proxy materials on July 31. Sack said the SEC review process is the most significant uncertain variable in the closing timeline, though he said there were no significant state regulatory hurdles.

Management said the combination would create a larger and better-capitalized BDC, potentially improving access to capital, trading liquidity, market visibility and future earnings capacity. Sack said the combined company would have book equity of more than $600 million and would rank among the top 25 BDCs by book equity.

Cannabis Policy Developments Seen as Supportive, but Not Included in Underwriting Assumptions

Sack also pointed to continued developments in federal cannabis policy, including the Department of Justice’s announcement regarding the proposed rescheduling of state-licensed medical cannabis products from Schedule I to Schedule III. He said the company views regulatory developments as positive for borrowers’ credit quality but does not incorporate anticipated regulatory changes into its projections or underwriting standards.

While management expects evolving cannabis policy and broader investor interest in cannabis-related businesses to support the company’s market narrative, Sack said the merger’s potential to increase scale and liquidity could be more important for attracting larger institutional investors.

For the quarter, gross investment income was $14 million, compared with $16.7 million in the first quarter. Total expenses declined to $6.3 million from $6.7 million. Chicago Atlantic BDC recorded a $1.6 million net unrealized loss, primarily due to reversals of prior unrealized gains on loans that repaid at par. Net assets were $302.5 million, and net asset value per share was $13.26, compared with $13.33 at the end of the first quarter.

About Chicago Atlantic BDC (NASDAQ:LIEN)

Chicago Atlantic BDC NASDAQ: LIEN is a closed-end management investment company organized as a business development company (BDC). It focuses on providing debt and equity financing solutions to U.S. middle-market companies that demonstrate strong growth potential. Through its public listing, the company offers investors exposure to a diversified portfolio of private credit and equity investments aimed at delivering attractive risk-adjusted returns.

The company's investment strategy centers on structuring customized credit facilities, including senior secured loans, unitranche loans, mezzanine debt and equity co-investments.

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