Chicago Atlantic BDC (NASDAQ:LIEN) reported higher third-quarter net investment income after funding $72 million in loans to two new borrowers, while executives said a proposed merger with Chicago Atlantic Real Estate Finance is now expected to extend into 2027.
Net investment income rose to $8.3 million, or $0.36 per share, from $7.7 million, or $0.34 per share, in the second quarter of 2026. The company announced a $0.34 dividend, marking the ninth consecutive quarter at that rate, CEO Peter Sack said.
Interim Chief Financial Officer Tom Geoffroy said gross investment income increased to $15.4 million from $14 million in the prior quarter, primarily because higher originations generated more fee income. Interest income was relatively flat because the loans were originated late in the quarter, he said, adding that the full benefit is expected to appear in fourth-quarter results.
Quarterly expenses rose to $7.1 million from $6.3 million, reflecting higher management and incentive fees, interest expense and operating costs, Geoffroy said. Net asset value per share edged up to $13.27 at September 30 from $13.26 at the end of the second quarter.
Portfolio reaches approximately $400 million
The portfolio’s fair value rose by $64.8 million during the quarter to $399.6 million, largely because of new investments. It included 39 portfolio company investments, with 78% in the cannabis industry and 22% in diversified direct lending across multiple sectors, Geoffroy said.
President Dino Colonna said the two new debt investments were senior secured, carried floating rates with high floors and had strong covenants. Gross originations for the year reached approximately $167 million, a company record, he said.
Quarterly repayments and amortization totaled about $5.1 million, and the company sold part of a position with $3 million of par value. After quarter end, it funded a $2 million debt investment to an existing portfolio company.
The weighted average gross yield on debt investments was approximately 15.5%, down from 16% in the second quarter. Geoffroy attributed the decline to an increase in the portfolio’s weighted average maturity. The company reported no loans on non-accrual status, and Sack said its debt portfolio was entirely senior secured.
Colonna said 95% of the portfolio by fair value was rated 2 and 5% was rated 3, with no investments rated 4 or 5. One small loan moved from a rating of 2 to 3 during the quarter.
Liquidity and merger timing
Chicago Atlantic BDC had $91 million drawn on its revolving credit facility at September 30. As of November 11, it had approximately $6.7 million of liquidity, consisting of $1.2 million in cash and $5.5 million of borrowing capacity under its $100 million facility, subject to borrowing-base and other restrictions, Geoffroy said.
With the company approaching the capacity of its credit line, Colonna said closings could slow in the fourth quarter. Geoffroy said the company was exploring new sources of liquidity and that an effective shelf registration allows it to issue up to $500 million in securities, including debt.
Asked whether the company must wait for its proposed merger to close before using the shelf or securing additional debt capacity, Sack said it does not, but declined to comment on the likelihood of obtaining additional financing.
The all-stock, net-asset-value-for-net-asset-value merger with Chicago Atlantic Real Estate Finance was announced in June. Sack said the companies continue to work with the Securities and Exchange Commission as it reviews the transaction documents. Once the forms are approved, the companies can proceed with a final proxy and shareholder vote, he said.
A first-quarter 2027 closing is possible, Sack said, but the approval process and shareholder vote carry uncertainty outside the company’s control.
Executives see continued lending demand
Colonna described the cannabis and diversified direct lending pipelines as healthy, although the overall pipeline declined from the prior quarter partly because deals closed. He said activity had been robust since quarter end.
Sack said the company’s core cannabis market consists primarily of private multistate operators and successful, scaled single-state operators, rather than the largest public multistate operators. Its origination activity is not correlated with activity among the largest public operators, he said.
Sack also said management purchased approximately 68,000 company shares on the open market during the quarter. He said the company underwrites investments based on the current cannabis regulatory framework rather than anticipated changes.
About Chicago Atlantic BDC (NASDAQ:LIEN)
Chicago Atlantic BDC, Inc. is a business development company that provides financing to middle-market businesses. It is externally managed by an affiliate of Chicago Atlantic, an alternative investment manager focused on private credit. The company primarily invests in debt issued by U.S. cannabis businesses and companies that support the cannabis industry. Its financing can include secured loans and other credit investments tailored to borrowers’ business needs. Chicago Atlantic BDC operates in a sector where many businesses have limited access to traditional banking services.
