Chicago Atlantic BDC, Inc. Q2 FY2025 earnings call

• During the second quarter, $39.1 million of new investments were funded, with 3 new borrowers. - Weighted average yield on debt investments was 16.1% vs. industry average 11.8%. - Debt investments are all senior secured vs. industry average 18% in second lien/subordinated debt/equity. - Weighted average secured net leverage for portfolio companies is 1.9x and interest coverage ratio is 3.2x. - Announced a $0.34 dividend, fourth consecutive quarter at that rate. - Pipeline totaled approximately $780 million in potential debt transactions, with $649 million cannabis and $131 million non-cannabis opportunities. - Funded $24.7 million in new debt investments in Q3 to 6 borrowers, 4 new borrowers.

In the second quarter, Chicago Atlantic BDC funded $39.1 million of new investments. 22% of the portfolio is invested in non-cannabis companies across multiple sectors, while the remaining is in cannabis. The weighted average yield on debt investments as of June 30 was 16.1%. The pipeline as of quarter end totaled approximately $780 million in potential debt transactions to 43 unique potential borrowers, with approximately $649 million in cannabis opportunities and $131 million in potential non-cannabis investments. The average debt investment position size is 3% of the investment portfolio, 76% of the portfolio has floating interest rates, and 46% of these loans have reached their interest rate floors.

• Expect originations to remain active into year-end and achieve net portfolio growth for the year. - Deployment activity should continue at a brisk pace into year-end as there is ample liquidity and a large pipeline.

• Uncertainty around cannabis regulatory status, with continued ambiguity creating challenges for U.S. public listings and access to debt markets for cannabis operators. - Potential impacts of tariffs on existing portfolio companies, though monitoring is ongoing and confidence in limited direct impact on overall portfolio.

Q: Give an overview on market sentiment about the BDC sector in general, power macro teams, interest rates and alternative lending solutions including crypto base ones impacting the BDC sector in general and stock sentiments in the group?

A: The BDC sector has been impacted by uncertainty around tariffs and macro considerations. Chicago Atlantic's strategy and portfolio is somewhat insulated, with largely floating rate and high interest rate floors, and borrower group with limited exposure to tariffs.

Q: How has your pipeline and opportunities change from the time you were diverse like BDC to now be part of a larger group as the Chicago Atlantic BDC?

A: Since formation of joint venture, gained access to broader non-cannabis opportunities. In cannabis sector, saw larger cannabis companies in restructuring selling assets and ESOP transactions as new opportunities.

Q: With the rescheduling, have you seen your potential new clients hit the pause button as they take away and see attitude towards funding, maybe hoping for the cost of capital with the new rescheduling to lower the kind of cost of capital in the cannabis sector?

A: Seen operators more optimistic about executing on growth strategies, seeking capital earlier rather than later. Industry and operators have had past head fakes, so not stopping in tracks waiting for rescheduling outcome