CION Investment Corp. 8-K Summary
Business Context and Reporting Period
Date of Report: December 17, 2012
Company: CION Investment Corporation (CION)
Event: Entry into a Material Definitive Agreement (Item 1.01)
Counterparty: Citibank, N.A.
Instrument: Total Return Swap (TRS) entered into by Flatiron Funding, LLC, a wholly-owned special purpose financing subsidiary of CION.
Key Financial Metrics and Structure
This filing describes a financing structure rather than reporting period-end financial results. Key structural metrics include:
- Maximum Portfolio Amount: The lesser of $150.0 million or 140% of the aggregate cash contributed to CION's equity capital during the first nine months of the TRS (not withdrawn).
- Collateral Requirements: Flatiron must initially cash collateralize generally 25% of the market value of each loan. Additional collateral may be required on a dollar-for-dollar basis if loan values depreciate below specified thresholds.
- Financing Cost: Flatiron pays Citibank interest at a rate equal to the floating rate index specified for the loan plus 1.25% per annum.
- Liquidity Impact: Cash collateral posted is restricted and cannot be used for other financings or operating requirements prior to TRS termination.
Material Changes and Operational Impact
The TRS enables CION to obtain the economic benefit of owning loans without physical custody, effectively adding leverage to the portfolio. The obligations of Flatiron are non-recourse to CION; CION's exposure is limited to its investment in Flatiron (the cash collateral). The filing notes that CION has no contractual obligation to post additional collateral, though it may choose to increase its investment in Flatiron to meet obligations.
Guidance, Risks, and Contingencies
Termination Provisions:
- Call Date: Citibank may terminate on or after December 17, 2013.
- Early Termination Fee: Termination prior to the Call Date triggers a fee equal to the present value of monthly payments (60% of Maximum Portfolio Amount x 1.25% per annum) from the termination date through the Call Date.
- Events of Default: Includes failure to meet portfolio criteria for 30 days, failure to post collateral, default on indebtedness exceeding the lesser of $10 million or 2% of CION's net asset value, and revocation of CION's Business Development Company (BDC) status.
Regulatory Treatment: For asset coverage ratio tests under the Investment Company Act of 1940, CION will treat the outstanding notional amount of the TRS (less initial cash collateral) as a senior security. The filing notes that future SEC interpretations could alter this treatment.
Investor Verification Checklist
- Verify the exact amount of cash collateral currently posted by Flatiron to determine the current leverage ratio.
- Confirm the credit ratings of the underlying loans to ensure compliance with the TRS portfolio criteria (Moody's and S&P ratings required).
- Review the specific terms of the early termination fee calculation in the attached exhibits (10.1 and 10.2) to assess potential exit costs.
- Monitor CION's net asset value to assess the threshold for the $10 million/2% default trigger.
- Check for any subsequent SEC guidance regarding the treatment of TRS instruments for BDC asset coverage ratios.