SILVER SPIKE INVESTMENT CORP. The following discussion and analysis or our financial condition and results of operations should be read together with the financial statements and the related notes that are included in Item 1 of Part I of this quarterly report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section entitled "Item 1A. Risk Factors" in our annual report on Form 10-K, as amended on Form 10-K/A, for the fiscal year endedMarch 31, 2022 and elsewhere in this quarterly report on Form 10-Q. Please also see the section entitled "Special Note Regarding Forward-Looking Statements."
Overview
We were formed inJanuary 2021 as aMaryland corporation and structured as an externally managed, closed-end, non-diversified management investment company. We have elected to be treated as a BDC under the 1940 Act. In addition, forU.S. federal income tax purposes we have elected to be treated, and intend to qualify annually to be treated, as a RIC under Subchapter M of the Code, commencing with our taxable year endedMarch 31, 2022 . We are a specialty finance company that may invest across the cannabis ecosystem through investments in the form of direct loans to, and equity ownership of, privately held cannabis companies. All of our investments are designed to be compliant with all applicable laws and regulations within the jurisdictions in which they are made or to which we are otherwise subject, includingU.S. federal laws. We will make equity investments only in companies that are compliant with all applicable laws and regulations within the jurisdictions in which they are located or operate, includingU.S. federal laws. We may make loans to companies that we determine based on our due diligence are licensed in, and complying with, state-regulated cannabis programs, regardless of their status underU.S. federal law, so long as the investment itself is designed to be compliant with all applicable laws and regulations in the jurisdiction in which the investment is made or to which we are otherwise subject, includingU.S. federal law. We are externally managed by SSC and seek to expand the compliant cannabis investment activities of SSC's leading investment platform in the cannabis industry. We primarily seek to partner with private equity firms, entrepreneurs, business owners and management teams to provide credit and equity financing alternatives to support buyouts, recapitalizations, growth initiatives, refinancings and acquisitions across cannabis companies, including cannabis-enabling technology companies, cannabis-related health and wellness companies, and hemp and CBD distribution companies. Under normal circumstances, each such cannabis company derives at least 50% of its revenues or profits from, or commits at least 50% of its assets to, activities related to cannabis at the time of our investment in the cannabis company. We are not required to invest a specific percentage of our assets in such cannabis companies, and we may make debt and equity investments in other companies in the health and wellness sector. Our investment objective is to maximize risk-adjusted returns on equity for our shareholders. We seek to capitalize on what we believe to be nascent cannabis industry growth and drive return on equity by generating current income from our debt investments and capital appreciation from our equity and equity-related investments. We intend to achieve our investment objective by investing primarily in secured debt, unsecured debt, equity warrants and direct equity investments in privately held businesses. We intend that our debt investments will often be secured by either a first or second priority lien on the assets of the portfolio company, can include either fixed or floating rate terms and will generally have a term of between three and six years from the original investment date. To date, we have invested in first lien secured, fixed and floating rate debt with terms of three and four years. We expect our secured loans to be secured by various types of assets of our borrowers. While the types of collateral securing any given secured loan will depend on the nature of the borrower's business, common types of collateral we expect to secure our loans include real property and certain personal property, including equipment, inventory, receivables, cash, intellectual property rights and other assets to the extent permitted by applicable laws and the regulations governing our borrowers. Certain attractive assets of our borrowers, such as cannabis licenses and cannabis inventory, may not be able to be used as collateral or transferred to us. See "Item 1A. Risk Factors-Risks Relating to Our Investments-Certain assets of our borrowers may not be used as collateral or transferred to us due to applicable state laws and regulations governing the cannabis industry, and such restrictions could negatively impact our profitability" in our annual report on Form 10-K, as amended on Form 10-K/A, for the fiscal year endedMarch 31, 2022 . In some of our portfolio investments, we expect to receive nominally priced equity warrants and/or make direct equity investments in connection with a debt investment. In addition, a portion of our portfolio may be comprised of derivatives, including total return swaps. Generally, the loans in which we invest will have a complete set of financial maintenance covenants, which are used to proactively address materially adverse changes in a portfolio company's financial performance. However we have invested in "covenant-lite" loans. We use the term "covenant-lite" to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, "covenant-lite" loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower's financial condition. Accordingly, to the extent we invest in "covenant-lite" loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with a complete set of financial maintenance covenants. The loans in which we tend to invest typically pay interest at rates which are determined periodically on the basis of the London-Interbank Offered Rate ("LIBOR"), Secured Overnight Financing Rate ("SOFR"), or PRIME plus a premium. The loans in which we have invested and expect to invest are typically made toU.S. and, to a limited extent, non-U.S. (including emerging market) corporations, partnerships and other business entities which operate in various industries and geographical regions. These loans typically are rated below investment grade. Securities rated below investment grade are often referred to as "high-yield" or "junk" securities, and may be considered a higher risk than debt instruments that are rated above investment grade. 18
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SILVER SPIKE INVESTMENT CORP. We have invested in and expect to continue to invest in loans made primarily to private leveraged middle-market companies with approximately$5 million to$100 million of earnings before interest, taxes, depreciation and amortization, or "EBITDA." Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. We expect that our investments will generally range between$4 million and$40 million each, although we expect that this investment size will vary proportionately with the size of our capital base. We have an active pipeline of investments and are currently reviewing over$1.25 billion of potential investments in varying stages of underwriting. We are externally managed bySilver Spike Capital, LLC ("SSC"). SSC also provides the administrative services necessary for us to operate. We believe that our ability to leverage the existing investment management platform of SSC enables us to operate more efficiently and with lower overhead costs than other newly formed funds of comparable size.
Revenues
We intend to generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. Our debt investments typically have a term of three to six years. Our loan portfolio will bear interest at a fixed or floating rate, subject to interest rate floors in certain cases. Interest on our debt investments will generally be payable either monthly or quarterly, but may be semi-annually. Our investment portfolio consists of fixed and floating rate loans, and our credit facilities will bear interest at floating rates. Macro trends in base interest rates like LIBOR may affect our net investment income over the long term. However, because we generally originate loans to a small number of portfolio companies each quarter, and those investments vary in size, our results in any given period, including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period, often will be idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macro trends. Loan origination fees, OID, closing fees and market discount or premium are capitalized, and we accrete or amortize such amounts under accounting principles generally accepted inthe United States of America ("U.S. GAAP") as interest income, using the effective yield method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments will reduce interest income in future periods. The frequency or volume of these repayments may fluctuate significantly. We will record prepayment premiums on loans as interest income. We may also generate revenue in the form of commitment, structuring, or due diligence fees, fees for providing managerial assistance to our portfolio companies, and consulting fees.
Dividend income on equity investments, if applicable, will be recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded companies.
Our portfolio activity may also reflect the proceeds from sales of investments. We will recognize realized gains or losses on sales of investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to unrealized gains or losses previously recognized. We will record current-period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments on the statements of operations.
Expenses
Our primary operating expenses are a base management fee and any incentive fees under the Investment Advisory Agreement and the allocable portion of overhead and other expenses incurred by SSC in performing its obligations under the Administration Agreement. Our investment management fee compensates our Adviser for its work in identifying, evaluating, negotiating, executing, monitoring, servicing and realizing our investments. Except as specifically provided below, all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory and management services to us, the base compensation, bonus and benefits, and the routine overhead expenses of such personnel allocable to such services, are provided and paid for by the Adviser. We may bear our allocable portion of the compensation paid by the Adviser (or its affiliates) to our CFO and CCO and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to our business affairs). We may bear any other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:
• the cost of our organization and offerings;
• the cost of calculating our NAV, including the cost of any third-party
valuation services;
• the cost of effecting sales and repurchases of shares of our common stock and
other securities;
• fees and expenses payable under any underwriting agreements, if any;
• debt service and other costs of borrowings or other financing arrangements;
• costs of hedging;
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• expenses, including travel expenses, incurred by the Adviser, or members of the
investment team, or payable to third-parties, performing due diligence on
prospective portfolio companies and, if necessary, enforcing our rights;
• management and incentive fees payable pursuant to the Investment Advisory
Agreement;
• fees payable to third-parties relating to, or associated with, making
investments and valuing investments (including third-party valuation firms);
• costs, including legal fees, associated with compliance under cannabis laws;
• transfer agent and custodial fees;
• fees and expenses associated with marketing efforts (including attendance at
industry and investor conferences and similar events);
• federal and state registration fees;
• any exchange listing fees and fees payable to rating agencies;
• federal, state and local taxes;
• independent directors' fees and expenses, including travel expenses;
• cost of preparing financial statements and maintaining books and records and
filing reports or other documents with the
other reporting and compliance costs, and the compensation of professionals
responsible for the preparation of the foregoing;
• the cost of any reports, proxy statements or other notices to our stockholders
(including printing and mailing costs), the costs of any stockholder or director meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;
• brokerage commissions and other compensation payable to brokers or dealers;
• research and market data;
• fidelity bond, directors' and officers' errors and omissions liability
insurance and other insurance premiums;
• direct costs and expenses of administration, including printing, mailing and
staff;
• fees and expenses associated with independent audits, and outside legal and
consulting costs; • costs of winding up;
• costs incurred in connection with the formation or maintenance of entities or
vehicles to hold our assets for tax or other purposes;
• extraordinary expenses (such as litigation or indemnification); and
• costs associated with reporting and compliance obligations under the 1940 Act
and applicable federal and state securities laws.
We expect, but cannot assure, that our general and administrative expenses will increase in dollar terms during periods of asset growth, but will decline as a percentage of total assets during such periods.
Hedging
To the extent that any of our investments are denominated in a currency other thanU.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in connection with settling them will be borne by us. Portfolio Composition and Investment Activity Portfolio Composition As ofJune 30, 2022 , our investment portfolio had an aggregate fair value of approximately$24.4 million and was comprised of approximately$24.4 million in secured loans, across two portfolio companies. As ofMarch 31, 2022 , we had no investments. 20
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A summary of the composition of our investment portfolio at cost and fair value
as a percentage of total investments are shown in the following table as of June
30, 2022 . As of March 31, 2022 , we had no investments.
June 30, 2022
Type Amortized Cost Fair Value
Senior Secured Term Loan 100.00 % 100.00 %
Total 100.00 % 100.00 %
The following table shows the composition of our investment portfolio by
geographic region of the United States at cost and fair value as a percentage of
total investments as of June 30, 2022 . The geographic composition is determined
by the location of the corporate headquarters of the portfolio company. As of
March 31, 2022 , we had no investments.
June 30, 2022
Geographic Region Amortized Cost Fair Value
Midwest 16.36 % 16.36 %
West 83.64 % 83.64 %
Total 100.00 % 100.00 %
Set forth below is a table showing the industry composition of our investment
portfolio at cost and fair value as a percentage of total investments as of June
30, 2022 . As of March 31, 2022 , we had no investments.
June 30, 2022
Industry Amortized Cost Fair Value
Wholesale Trade 100.00 % 100.00 %
Total 100.00 % 100.00 %
Concentrations of Credit Risk
Credit risk is the risk of default or non-performance by portfolio companies,
equivalent to the investment's carrying amount. Industry and sector
concentrations will vary from period to period based on portfolio activity.
As of June 30, 2022 , our two largest portfolio companies represented 100.0%, of
the total fair value of our investments in portfolio companies. As of June 30,
2022 , we had one portfolio company that represented 5% or more of our net
assets.
Investment Activity
During the three months ended June 30, 2022 , we made an aggregate of
approximately $25.25 million of investments in two new portfolio companies,
excluding fees. During the three months ended June 30, 2022 , we received $0 in
proceeds from repayments and sales of our investments.
During the year ended
The following table provides a summary of the changes in the investment
portfolio for the three months ended
Three Months Ended Three Months Ended
June 30, 2022 June 30,2021
Beginning Portfolio, at fair value $ - $ -
Purchases 24,417,500 -
Amortization of premium (accretion of discount and fees), net 9,508 -
PIK interest - -
Principal payments received on investments - -
Proceeds from early debt repayments - -
Sale of investments - -
Accretion of OID - -
Net realized gain/(loss) - -
Net change in unrealized appreciation/(depreciation) (9,508 ) -
Ending Portfolio, at fair value $ 24,417,500 $ -
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SILVER SPIKE INVESTMENT CORP. Portfolio Asset Quality Our portfolio management team uses an ongoing investment risk rating system to characterize and monitor our outstanding loans. Our portfolio management team monitors and, when appropriate, recommends changes to the investment risk ratings. Our Adviser's Valuation Committee reviews the recommendations and/or changes to the investment risk ratings, which are submitted on a quarterly basis to the Board of Directors and its Audit Committee.
Investment
Performance
Risk Rating Summary Description
Grade 1 Investment is performing above expectations. Full return of
principal, interest and dividend income is expected.
Grade 2 Investment is performing in-line with expectations. Risk factors
remain neutral or favorable compared with initialunderwriting. All
investments are given a "2" at the time of origination
Grade 3 Investment is performing below expectations. Capital impairment or
payment delinquency is not anticipated. The investment may also be
out of compliance with certain financial covenants.
Grade 4 Investment is performing below expectations. Quantitative or
qualitative risks have increased materially. Delinquency of interest
and / or dividend payments is anticipated. No loss of principal
anticipated.
Grade 5 Investment is performing substantially below expectations. It is
anticipated that the Company will not recoup its initial cost basis
and may realize a loss upon exit. Most or all of the debt covenants
are out of compliance. Amortization, interest and / or dividend
payments are substantially delinquent.
The following table shows the distribution of our loan investments on the 1 to 5
investment risk rating scale at fair value as of
June 30, 2022
Investments at Fair Percentage of Total
Investment Performance Risk Rating Value Investments
1 $ - - %
2 24,417,500 100.00
3 - -
4 - -
5 - -
Total $ 24,417,500 100.00 %
Debt Investments on Non-Accrual Status
As of June 30, 2022 , there were no loans in our portfolio placed on non-accrual
status. As of March 31, 2022 , there were no loans in our portfolio.
Results of Operations
The following discussion and analysis of our results of operations encompasses
our results for the three months ended June 30, 2022 and 2021.
Investment Income
The following table sets forth the components of investment income:
Three Months
Ended June 30, Three Months Ended
2022 June 30,2021
Stated interest income $ 390,083 $ -
Accretion of premium 9,508 -
Acceleration of amortization of original issue discount - -
Payment in-kind interest - -
Prepayment penalty and related fees - -
Other fee income 410,000 -
Total investment income $ 809,591 $ -
We generate revenues primarily in the form of investment income from the
investments we hold, generally in the form of interest income from our debt
securities. Investment income represents interest income recognized as earned in
accordance with the contractual terms of the loan agreement. Interest income
from original issue discount ("OID") and market discount represent the accretion
into interest income over the term of the loan as a yield enhancement. Interest
income from payment-in-kind ("PIK") represents contractually deferred interest
added to the loan balance recorded on an accrual basis to the extent such
amounts are expected to be collected.
The Company also recognizes certain fees as one-time fee income, including, but not limited to, structuring fees.
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SILVER SPIKE INVESTMENT CORP. For the three months endedJune 30, 2022 , total investment income was approximately$0.8 million , which is attributable to$0.4 million of fee income related to structuring fees and$0.4 million of interest income. The weighted average interest rate as ofJune 30, 2022 is 12.42%. For the three months endedJune 30, 2021 , we had made no investments. Operating Expenses Our operating expenses for the three months endedJune 30, 2022 are comprised of professional fees for legal, administration, audit and directors, and our management fees. For the three months endedJune 30, 2021 , our expenses are comprised of organizational expenses. Our operating expenses totaled approximately$0.6 million and$0.2 million for the three months endedJune 30, 2022 and 2021. Net Investment Income As a result of approximately$0.8 million in total investment income as compared to$0.6 in total expenses, net investment income for the three months endedJune 30, 2022 was approximately$0.2 million . As a result of$0 in total investment income as compared to approximately$0.2 million in total expenses, net investment loss for the three months endedJune 30, 2021 was approximately$0.2 million . The fluctuation in income is due to the initial public offering of the Company occurring onFebruary 8, 2022 . Prior toFebruary 8, 2022 , we had no operations, except for matters relating to the Company's formation and organization as a BDC. Net Realized Gains and Losses Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period.
The net realized gains (losses) from the sales, repayments, or exits of investments were comprised of the following:
Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021
Net realized gain (loss) on investments:
Gross realized gains $ - $ -
Gross realized losses - -
Total net realized gains/(losses) on investments $ - $ -
Net Change in Unrealized Appreciation / (Depreciation) from Investments
Net change in unrealized appreciation/(depreciation) from investments primarily
reflects the net change in the fair value as of the last business day of the
reporting period, including the reversal of previously recorded unrealized gains
or losses with respect to investments realized during the period. We record
current-period changes in fair value of investments that are measured at fair
value as a component of the net change in unrealized gains (losses) on
investments on the Statements of Operations.
Net unrealized appreciation and depreciation on investments for the three months
ended
Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021
Gross unrealized appreciation $ - $ -
Gross unrealized depreciation (9,508 ) -
Total net unrealized gains (losses) on investments $ (9,508 ) $ -
During the three months ended
Net Increase (Decrease) in Net Assets Resulting from Operations
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SILVER SPIKE INVESTMENT CORP. Net increase (decrease) in net assets resulting from operations during the three months endedJune 30, 2022 andJune 30, 2021 , was approximately$0.2 million and$(0.2) million , respectively. Net Increase (Decrease) in Net Assets Resulting from Operations and Earnings Per Share For the three months endedJune 30, 2022 andJune 30, 2021 , basic net increase (decrease) in net assets per common share was$0.03 and ($425.03 ), respectively. The increase in 2022 is the result of increased net investment income.
Financial Condition, Liquidity and Capital Resources
We generate cash primarily from the net proceeds of offerings of securities and
cash flows from operations, including interest earned from the temporary
investment of cash in
In addition, we expect to enter into a credit facility in the future. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. We are currently targeting a debt-to-equity ratio of 0.50x (i.e., we aim to haveone dollar of equity for each$0.50 of debt outstanding).
Our primary use of funds will be investments in portfolio companies, cash
distributions to holders of our common stock, and the payment of operating
expenses. As of
U.S. Federal Income Taxes We elected to be treated, and intend to qualify annually to be treated, as a RIC under Subchapter M of the Code for federal income tax purposes. As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders from our tax earnings and profits. To obtain and maintain our RIC tax treatment, we must, among other things, meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Critical Accounting Policies Basis of Presentation The Company's financial statements are prepared in accordance with generally accepted accounting principles inthe United States of America ("U.S. GAAP") and pursuant to Regulation S-X under the Securities Act of 1933, as amended (the "Securities Act"). The Company follows accounting and reporting guidance as determined by theFinancial Accounting Standards Board ("FASB"), The preparation of financial statements in accordance withU.S. GAAP requires management to make certain estimates and assumptions affecting amounts reported in our financial statements. We will continuously evaluate our estimates, including those related to the matters described below. These estimates will be based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. For additional information, please refer to "Note 2 -Significant Accounting Policies" in the notes to the financial statements included with this quarterly report on Form 10-Q. Valuation of investments, income recognition, realized / unrealized gains or losses andU.S. federal income taxes are considered to be our critical accounting policies and estimates. A discussion of our critical accounting policies follows. Investment Valuation Investments for which market quotations are readily available will typically be valued at the bid price of those market quotations. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by our Board of Directors, based on, among other things, the input of the Adviser and our Audit Committee. As part of the valuation process, the Board of Directors takes into account relevant factors in determining the fair value of our investments, including: the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company's debt and equity), the nature and realizable value of any collateral, the portfolio company's ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company's securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board of Directors considers whether the pricing indicated by the external event corroborates its valuation.
The Board of Directors undertakes a multi-step valuation process, which includes, among other procedures, the following:
- With respect to investments for which market quotations are readily available,
those investments will typically be valued at the bid price of those market
quotations;
- With respect to investments for which market quotations are not readily
available, the valuation process begins with the preliminary valuation of each
investment prepared by the Adviser;
- The Adviser's valuation committee presents its valuation recommendations to the
Audit Committee;
- The Audit Committee reviews the valuation recommendations and recommends values
for each investment to the Board of Directors; and
- The Board of Directors reviews the recommended valuations and determines the
fair value of each investment.
We conduct this valuation process on a quarterly basis.
We apply ASC 820, which establishes a framework for measuring fair value in accordance withU.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, we consider the principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below: 24
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• Level 1 - Valuations based on quoted prices in active markets for identical
assets or liabilities that we have the ability to access at the measurement
date;
• Level 2 - Valuations based on quoted prices for similar assets or liabilities
in active markets, or quoted prices for identical or similar assets or
liabilities in markets that are not active or for which all significant inputs
are observable, either directly or indirectly; and
• Level 3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If we were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected previously.
InDecember 2020 , theSEC adopted Rule 2a-5 under the 1940 Act, which is intended to address valuation practices and the role of the board of directors with respect to the fair value of the investments held by a fund registered under the 1940 Act or held by a BDC. Among other things, Rule 2a-5 will permit a fund's board to designate the fund's primary investment adviser to perform the fund's fair value determinations, which will be subject to board oversight and certain reporting and other requirements intended to ensure that the board receives the information it needs to oversee the investment adviser's fair value determinations. Compliance with Rule 2a-5 will not be required untilSeptember 2022 . We continue to review Rule 2a-5 and its impact on our valuation policies and related practices. Revenue Recognition Interest and Dividend Income Interest income is recorded on the accrual basis and includes accretion and amortization of discounts or premiums. Discounts and premiums to par value on securities purchased are accreted and amortized, respectively, into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion and amortization of discounts or premiums, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period. Interest income on securities and debt investments are recorded on the accrual basis to the extent that such amounts are payable by issuers and are expected to be collected. When a debt security becomes 90 days or more past due, or if management otherwise does not expect that principal, interest, and other obligations due will be collected in full, the Company will generally place the debt security on non-accrual status and cease recognizing interest income on that debt security until all principal and interest due has been paid or the Company believes the borrower has demonstrated the ability to repay its current and future contractual obligations. Any uncollected interest is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the Company may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection. As ofJune 30, 2022 , there were no loan investments in the portfolio placed on non-accrual status. AtMarch 31, 2022 , there were no investments held by the Company. We also typically receive debt investment origination or closing fees in connection with investments. Such debt investment origination and closing fees are capitalized as unearned income and offset against investment cost basis on our Statements of Assets and Liabilities and accreted into interest income over the term of the investment. Upon the prepayment of a debt investment, any unaccreted debt investment origination and closing fees are accelerated into interest income. Interest income earned, excluding accretion of discount, was$390,083 and$0 , for the quarter endedJune 30, 2022 and for the quarter endedJune 30, 2021 , respectively. As ofJune 30, 2022 andMarch 31, 2022 ,$66,090 and$9,215 , respectively were recorded as interest receivable. Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Certain investments may have contractual PIK interest or dividends. PIK interest or dividends represents accrued interest or dividends that is added to the principal amount of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity. If PIK interest is not expected to be realized by the Company, the investment generating PIK interest will be placed on non-accrual status. When an investment with PIK is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest income. 25
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Fee Income
All transaction fees earned in connection with our investments are recognized as
fee income and are generally non-recurring. Such fees typically include fees for
services, including structuring and advisory services, provided to portfolio
companies. We recognize income from fees for providing such structuring and
advisory services when the services are rendered or the transactions are
completed. Upon the prepayment of a debt investment, any prepayment penalties
are recorded as fee income when earned.
For the quarter ended
Other Contractual Obligations We will have certain commitments pursuant to our Investment Advisory Agreement that we have entered into with SSC. We have agreed to pay a fee for investment advisory services consisting of two components: a base management fee and an incentive fee. Payments under the Investment Advisory Agreement will be equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee, as described in "Item 1. Financial Statements-Notes to Financial Statements (Unaudited)-Note 5 -Related Party Transactions." We have also entered into a contract with SSC to serve as our administrator. Payments under the Administration Agreement will equal an amount based upon our allocable portion of our administrator's overhead in performing its obligation under the agreement, including rent, fees and other expenses inclusive of our allocable portion of the compensation of our CFO and CCO and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to our business affairs). Common Stock Our common stock began trading on the Nasdaq Global Market onFebruary 4, 2022 under the symbol "SSIC" in connection with our IPO of shares of our common stock. The following table lists the net asset value per share of our common stock, the range of high and low closing sales prices of our common stock reported on the Nasdaq Global Market, the closing sale prices as a premium (or discount) to our net asset value per share and dividends per share for each fiscal quarter since our common stock began trading on the Nasdaq Global Market. OnAugust 9, 2022 , the last reported closing sales price of our common stock on the Nasdaq Global Market was$9.31 per share, which represented a discount of approximately 31.7 % to our net asset value per share of$13.64 as ofJune 30, 2022 . Price Range High Sales Low Sales Price Price Premium Premium (Discount) to (Discount) to Cash Net Asset Net Asset Net Asset Dividend Per Class and Period Value(1) High Low Value(2) Value(2) Share(3) Year EndedMarch 31, 2023 Second Quarter (through August 9, 2022) *$ 9.98 $ 9.25 * * * First Quarter$ 13.64 $ 13.50 $ 7.80 -1.0 % -42.8 % - Year EndedMarch 31, 2022 Fourth Quarter(4)$ 13.61 $ 14.41 $ 12.57 5.9 % -7.6 % $ -
(1) Net asset value per share is determined as of the last day in the relevant
quarter and therefore may not reflect the net asset value per share on the
date of the high and low closing sales prices. The net asset values shown are
based on outstanding shares at the end of the relevant quarter.
(2) Calculated as the respective high or low closing sales price less net asset
value, divided by net asset value (in each case, as of the end of the
applicable quarter).
(3) Represents the dividend or distribution declared in the relevant quarter.
(4) Shares of our common stock began trading on the Nasdaq Global Market on
* Not determined at time of filing.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. At times, our shares of common stock have traded at prices both above and below our net asset value per share. The possibility that our shares of common stock will trade at a discount from net asset value per share or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value per share will decrease. It is not possible to predict whether our common stock will trade at, above, or below net asset value per share.
Holders
As ofAugust 9, 2022 , there were approximately 2 holders of record of our common stock, which does not include stockholders for whom shares are held in "nominee" or "street name." 26
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SILVER SPIKE INVESTMENT CORP.
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