CION Investment Corp. 10-Q Summary (Period Ended September 30, 2020)
Business Context and Reporting Period
CION Investment Corporation (CION) is an externally managed, non-diversified closed-end management investment company regulated as a Business Development Company (BDC) under the 1940 Act. The company invests primarily in senior secured debt of private and thinly-traded U.S. middle-market companies. This report covers the quarterly period ended September 30, 2020. The company is managed by CION Investment Management, LLC (CIM).
Key Financial Metrics
| Metric | Q3 2020 (Three Months) | YTD 2020 (Nine Months) | Q3 2019 (Three Months) | YTD 2019 (Nine Months) |
|---|---|---|---|---|
| Total Investments (Fair Value) | $1,569,905 | $1,569,905 | $1,775,154 | $1,775,154 |
| Net Asset Value (NAV) per Share | $7.62 | $7.62 | $8.34 | $8.34 |
| Net Investment Income | $21,420 | $56,997 | $21,662 | $64,862 |
| Net Realized Losses | ($42,511) | ($57,693) | ($316) | ($3,650) |
| Net Change in Unrealized Appreciation/Depreciation | $52,178 | ($57,542) | ($23,568) | ($38,871) |
| Net Increase/(Decrease) in Net Assets from Operations | $31,087 | ($58,238) | ($2,222) | $22,341 |
| Total Financing Arrangements Outstanding | $719,419 | $719,419 | $837,397 | $837,397 |
| Cash and Short-Term Investments | $57,238 | $57,238 | $39,674 | $39,674 |
Note: Cash includes $4,214 in cash and $53,024 in short-term investments.
Material Changes vs. Prior Period
- Portfolio Valuation: Total investments decreased by approximately $205 million from September 30, 2019, to September 30, 2020, driven by principal repayments and sales exceeding new purchases.
- Investment Income: Investment income declined to $38.9 million in Q3 2020 from $49.8 million in Q3 2019. This decrease is attributed to a smaller average portfolio size and lower LIBOR rates.
- Realized Losses: The company recorded a significant net realized loss of $42.5 million in Q3 2020, compared to a loss of only $0.3 million in Q3 2019. Management attributes this to realized losses on the restructuring of certain investments.
- Unrealized Gains: Q3 2020 saw a net unrealized appreciation of $52.2 million, a reversal from the $23.6 million depreciation in Q3 2019, driven by the recovery of loan prices and the realization of previously recorded unrealized losses.
- Debt Levels: Total financing arrangements decreased to $719.4 million from $837.4 million in the prior year period, reflecting lower average borrowings.
Guidance, Outlook, and Risks
- COVID-19 Impact: Management states that the pandemic has negatively impacted business operations and portfolio companies. While some restrictions have loosened, the company expects continued economic distress, potential restructurings, and illiquidity in certain market areas. The full impact on future financial condition remains uncertain.
- Distributions: Distributions were temporarily suspended from April 2020 through July 2020 to preserve liquidity. Payments recommenced in August 2020. Future distributions will be reevaluated based on circumstances.
- Share Repurchases: The share repurchase program was suspended for Q2 and Q3 2020 but was recommenced for Q4 2020.
- Financing: The company has significant unfunded commitments of $60.5 million as of September 30, 2020. Management monitors liquidity daily to ensure these can be funded.
- Interest Rate Risk: Approximately 89.1% of the portfolio pays variable interest rates. A rise in rates would increase investment income but also increase borrowing costs.
Investor Verification Checklist
- Restructuring Details: Verify the specific portfolio companies involved in the $42.5 million realized loss and the terms of the restructurings.
- Non-Accrual Status: Confirm the 4.1% of the portfolio on non-accrual status and the specific borrowers involved.
- Liquidity Coverage: Assess the sufficiency of the $57.2 million in cash/short-term investments against the $60.5 million in unfunded commitments.
- NAV Decline: Analyze the drivers behind the NAV per share decline from $8.40 (Dec 31, 2019) to $7.62 (Sep 30, 2020).
- Debt Covenants: Review compliance with asset coverage ratios and other covenants in the JPM and UBS facilities given the market volatility.