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    LIEN
    Earnings call· Jun 2026(Q2 FY26)

    Chicago Atlantic BDC Q2 FY26 earnings call LIEN

    Aug 13, 2026 Source

    Executive summary

    Chicago Atlantic BDC Q2 FY26 — Strong Credit Quality and Merger Progress

    Chicago Atlantic BDC maintained strong credit quality and a unique market position in cannabis lending during Q2 FY26, with a high-yielding, fully senior secured portfolio and no non-accruals. The company is progressing with its merger with Chicago Atlantic Real Estate Finance, which is expected to close in Q4 2026, aiming to enhance scale, capital access, and market visibility. Despite a temporary slowdown in originations and a decrease in net investment income, the firm's disciplined underwriting and robust pipeline position it for future deployment.

    Highlights

    5

    • Net investment income for Q2 FY26 was $7.7 million, or $0.34 per share.

    • Weighted average yield on debt investments was 16% as of June 30, 2026, significantly higher than the 10.8% average for public BDCs.

    • The debt portfolio is 100% senior secured, with only 1.4% exposure to sub-debt, equity, or JV investments, compared to a BDC average of 25.8%.

    • The company reported no non-accruals, contrasting with an industry average of 3.8% of costs.

    • Liquidity totaled $73.9 million at quarter end, providing additional capacity for investments.

    Concerns

    3

    • Gross investment income decreased to $14 million from $16.7 million QoQ, primarily due to lower fee income reflecting lower origination activity.

    • Net investment income decreased to $7.7 million ($0.34 per share) from $10 million ($0.44 per share) in Q1 FY26.

    • The fair value of the portfolio decreased by $29.1 million to $334.8 million, mainly due to gross paydowns and a slower pace of deployment.

    Guidance & targets

    2
    CategoryTargetConfidence
    Merger closing
    Q4 2026
    high materiality
    High
    Deployment activity
    increased deployment activity
    medium materiality
    Medium

    Operational metrics

    28
    Net investment income
    $7.7 milliondown from $10 million QoQ
    Q2 FY26

    Decreased due to lower fee income from origination activities and smaller portfolio size.

    Net investment income per share
    $0.34down from $0.44 QoQ
    Q2 FY26

    Decreased due to lower fee income from origination activities and smaller portfolio size.

    Dividend per share
    $0.34eighth consecutive quarter at this rate
    Q2 FY26

    Announced for Q2 FY26.

    Fair value of portfolio
    $334.8 milliondown $29.1 million from March 31
    June 30, 2026

    Decline mainly due to gross paydowns and slower deployment.

    Gross paydowns
    $32.2 million
    Q2 FY26

    Included three full payoffs, validating credit selection.

    New originations
    $2.7 million
    Q2 FY26

    Funded to an existing borrower.

    Liquidity
    $73.9 million
    June 30, 2026

    Additional capacity to pursue opportunistic investments.

    Weighted average yield on debt investments
    16%compared to 10.8% for average public BDC
    June 30, 2026

    In line with last quarter's yield of 15.8%.

    Debt portfolio senior secured
    100%
    Q2 FY26

    All debt investments are senior secured.

    Exposure to sub-debt, equity, or JV investments
    1.4%compared to 25.8% BDC average
    Q2 FY26

    Percentage of total investment portfolio.

    Debt portfolio fixed rate or floating rate at floor
    93%
    Q2 FY26

    Insulates the company against a drop in interest rates.

    Debt portfolio positive impact from 100 bps rate increase
    81%
    Q2 FY26

    Percentage of the debt portfolio that would see a positive impact from a 100 basis point increase in benchmark rates.

    Debt outstanding
    $27 million
    June 30, 2026

    All drawn from the revolving line of credit.

    Debt to equity ratio
    0.09xcompared with BDC average of 1.3x
    Q2 FY26

    Indicates an underlevered portfolio with ample room for expansion.

    Non-accruals
    0%compared with industry average of 3.8% of costs
    Q2 FY26

    No loans on non-accrual status.

    Borrowing capacity under credit facility
    $46.5 million
    August 12, 2026

    Remaining capacity under the $100 million credit facility.

    Cash on balance sheet
    $0.7 million
    August 12, 2026

    As of August 12, 2026.

    Gross investment income
    $14 milliondecreased from $16.7 million QoQ
    Q2 FY26

    Primarily due to lower fee income reflecting lower origination activity.

    Total expenses
    $6.3 millioncompared to $6.7 million QoQ
    Q2 FY26

    Decrease driven by lower income-based incentive fees.

    Net unrealized loss
    $1.6 million
    Q2 FY26

    Driven primarily by a reversal of prior period unrealized gains for loans that paid off at par.

    Net assets
    $302.5 million
    June 30, 2026

    Total net assets at quarter end.

    Net asset value per share
    $13.26compared to $13.33 QoQ
    June 30, 2026

    NAV per share at quarter end.

    Common shares issued and outstanding
    22.8 million
    June 30, 2026

    On a basic and fully diluted basis.

    Subsequent funding
    $25 million
    subsequent to Q2 FY26

    Debt investment to a new portfolio company, senior secured, floating rate, M&A related.

    Total pipeline
    $1.1 billionexpanded meaningfully since last quarter
    Q2 FY26

    Across the Chicago Atlantic platform, includes cannabis and non-cannabis opportunities.

    Cannabis pipeline
    $649 million
    Q2 FY26

    Part of the total pipeline.

    Non-cannabis pipeline
    $440 million
    Q2 FY26

    Part of the total pipeline.

    Average debt investment size
    $8.3 million
    Q2 FY26

    Average size of debt investments. Transcription note: The transcript had a garbled phrase 'or $2.3 million' which was omitted as an ASR error.

    Deals & partnerships

    1
    Chicago Atlantic Real Estate Finance Inc. (ReFi)All-stock NAB for NAB transaction to combine two highly complementary portfolios, creating a larger and better capitalized BDC.

    A preliminary registration statement on Form N-14, including a joint proxy statement, has been filed with the SEC and is subject to review. Closing is subject to required stockholder approvals, regulatory approvals, and customary closing conditions.

    Risks & headwinds

    3
    Merger closing timeline uncertaintyQ4 2026

    difficult to tell if it will take longer or shorter

    Mitigation: Iteration with the SEC on Form N14 and proxy statements is the most significant and uncertain variable, but management expects Q4 2026 close based on current information.

    Volatility in originations and repaymentsquarter over quarter

    Originations ($2.7 million) and repayments ($32.2 million) were volatile in Q2 FY26.

    Mitigation: Repayments are a validation of credit selection, and capital is redeployed into new originations. A strong pipeline is expected to drive increased deployment activity in future periods.

    Regulatory uncertainty in cannabis industryongoing

    Not quantified as a negative impact, but as a potential for increased competition.

    Mitigation: Maintain rigorous underwriting standards based on today's regulatory framework, not potential future reform. Do not include assumptions of regulatory changes in projections.

    What to watch in Q3 FY26

    3

    Merger closing with Chicago Atlantic Real Estate Finance

    Q4 2026
    CurrentPreliminary registration statement filed, subject to SEC review.
    TargetMerger closes.

    Why it matters

    Creates a larger, better-capitalized BDC with enhanced market visibility and access to capital, significantly impacting the investment thesis.

    We still expect the merger to close in the fourth quarter of 2026, subject to the required lien and refi stockholder approvals, regulatory approvals, and customary closing conditions.

    Q&A highlights

    5

    Why is the merger timeline (Q4 2026) faster than typical BDC/REIT mergers, and what are the specific regulatory approvals needed?

    The process involves SEC review of Form N14 and proxy statements, with comments expected soon. This iteration with the SEC is the most significant variable. No significant state regulatory hurdles.

    “That process of iteration with the SEC is the most significant and uncertain variable. And until we receive comments back and begin that process of engagement, It's difficult to tell if it will take longer or shorter, but given what we know today, we expect Q4 2026.”

    asked by Pablo Zwanek · answered by Peter Sack

    2 min read6 chapters

    Detailed Narrative

    01

    Unique Market Positioning

    Chicago Atlantic BDC remains uniquely positioned as the first publicly listed BDC focused primarily on cannabis lending, operating in an underserved lower middle market segment. This allows for idiosyncratic opportunities not available to other BDCs, resulting in a weighted average yield on debt investments of 16%, significantly higher than the 10.8% average for public BDCs. The company's focus on non-sponsored transactions further differentiates its approach.

    02

    Strong Credit Quality

    The company's debt portfolio is 100% senior secured, with minimal exposure (1.4%) to sub-debt, equity, or JV investments, compared to an industry average of 25.8%. It reported no non-accruals, contrasting with the BDC industry average of 3.8% of costs, reflecting disciplined underwriting and credit selection. Credit quality remained stable throughout the quarter, with internal risk ratings unchanged.

    03

    Merger with Chicago Atlantic Real Estate Finance

    The proposed all-stock merger with Chicago Atlantic Real Estate Finance Inc. (ReFi) is on track to close in Q4 2026, subject to shareholder and regulatory approvals. This transaction is expected to create a larger, better-capitalized BDC with over $600 million in book equity, improving access to capital, supporting earnings growth, and enhancing trading liquidity and market visibility. A preliminary registration statement on Form N-14 has been filed and is under SEC review.

    04

    Regulatory Developments in Cannabis

    Federal cannabis policy saw momentum with the Department of Justice announcing rescheduling of medical cannabis to Schedule 3, and an administrative hearing concluding for recreational cannabis rescheduling. While these developments are viewed as positive for borrower credit quality and wider acceptance within capital markets, the company maintains rigorous underwriting standards based on current regulations, not potential future reforms, and does not include these assumptions in its projections.

    05

    Origination and Pipeline

    Deployment activity was modest in Q2 FY26, with $2.7 million in new debt investments partially offset by $32.2 million in loan repayments and amortization. However, the company maintains a strong pipeline of approximately $1.1 billion in potential debt transactions, split 60% cannabis and 40% diversified direct lending. Subsequent to quarter end, a $25 million debt investment was funded to a new portfolio company, indicating increased deployment activity ahead.

    06

    Liquidity and Capital Structure

    The company reported $73.9 million in liquidity at quarter end, including $46.5 million of borrowing capacity under its $100 million credit facility and $0.7 million cash as of August 12, 2026. With only $27 million of debt outstanding and a low debt-to-equity ratio of 0.09x (compared to a BDC average of 1.3x), the company is underlevered and has ample room to expand liquidity and leverage.

    AI-generated summary of the company’s earnings call. Not investment advice.