CION Investment Corp. 10-Q Summary (Period Ended September 30, 2018)
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 Investment Company Act of 1940. The company's objective is to generate current income and, to a lesser extent, capital appreciation by investing primarily in senior secured debt of private and thinly-traded U.S. middle-market companies. This report covers the quarterly period ended September 30, 2018, and the nine months ended on that date.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2018 | Nine Months Ended Sept 30, 2018 | As of Sept 30, 2018 |
|---|---|---|---|
| Total Investment Income | $51.8 million | $132.2 million | N/A |
| Net Investment Income | $22.3 million | $61.7 million | N/A |
| Net Increase in Net Assets (Operations) | $15.4 million | $53.1 million | N/A |
| Net Asset Value (NAV) per Share | N/A | N/A | $9.06 |
| Total Assets | N/A | N/A | $1.96 billion |
| Total Investments (Fair Value) | N/A | N/A | $1.91 billion |
| Financing Arrangements (Debt) | N/A | N/A | $892.8 million |
| Cash and Cash Equivalents | N/A | N/A | $15.5 million |
| Asset Coverage Ratio | N/A | N/A | 2.13x |
| Portfolio Turnover Rate | N/A | 41.65% | N/A |
Material Changes vs. Prior Period
- Investment Income: Increased significantly to $51.8 million for the quarter (from $38.4 million in Q3 2017) and $132.2 million for the nine-month period (from $101.8 million in 2017), driven by portfolio growth and deployment of capital from financing and offerings.
- Operating Expenses: Rose to $29.5 million for the quarter (from $17.0 million in Q3 2017) and $70.4 million for the nine-month period (from $43.7 million in 2017). This increase was primarily due to higher interest expense ($12.9 million vs. $6.9 million in Q3) from increased leverage and the recognition of a $5.6 million subordinated incentive fee on income, which was not present in the prior year periods.
- Unrealized Gains/Losses: The company recorded a net change in unrealized depreciation of $10.0 million for the quarter and $8.7 million for the nine-month period, contrasting with unrealized appreciation of $1.7 million and $11.1 million, respectively, in the prior year periods. Management attributed this to widening credit spreads in the middle-market loan sector.
- Share Repurchases: The company repurchased 8.96 million shares for $81.5 million during the nine months ended September 30, 2018, compared to 3.32 million shares for $30.2 million in the prior year period.
Guidance, Outlook, and Risks
- Outlook: Management expects the investment portfolio to continue growing due to capital available from the follow-on continuous public offering and financing arrangements. The company resumed admitting shareholders on October 4, 2018, following a temporary suspension from May to September 2018 to process a post-effective amendment to its registration statement.
- Liquidity: As of September 30, 2018, the company had $15.5 million in cash and $100.0 million in short-term investments. Unfunded commitments totaled $67.7 million.
- Financing: The company maintains four primary financing facilities (Citibank, JPM, UBS, and Morgan Stanley) with a total outstanding balance of approximately $900 million. The Citibank facility requires repayment of 50% of outstanding borrowings by September 15, 2019.
- Risks: Key risks include the impact of rising interest rates on fixed-rate investments, credit risk associated with portfolio companies (1.4% of the portfolio was on non-accrual status), and the potential for additional leverage under recent legislative changes to the 1940 Act, which the company has not yet determined to utilize.
Key Facts for Investor Verification
- NAV Decline: Verify the impact of widening credit spreads on the $8.7 million unrealized depreciation recorded year-to-date and its effect on the NAV per share decline from $9.14 to $9.06.
- Debt Maturity: Confirm the company's plan to amend or refinance the Citibank Credit Facility, which requires a 50% principal repayment by September 15, 2019.
- Incentive Fees: Note the $5.6 million subordinated incentive fee recorded in Q3 2018, which significantly impacted net investment income compared to the prior year.
- Offering Status: Verify the resumption of the continuous public offering and the current offering price relative to the NAV to ensure compliance with the 2.5% discount limit.
- Non-Accrual Assets: Review the specific portfolio companies contributing to the 1.4% non-accrual status to assess credit quality risks.