CION Investment Corp quarterly report, Q1 FY2018

CION Investment Corp. Q1 2018 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2018. CION Investment Corp. is an externally managed, non-diversified closed-end management investment company regulated as a Business Development Company (BDC). The Company's investment objective is to generate current income and, to a lesser extent, capital appreciation, primarily through senior secured debt investments in U.S. middle-market companies. As of March 31, 2018, the Company had 116,108,932 shares of common stock outstanding.

Key Financial Metrics

Metric Q1 2018 Q1 2017
Net Investment Income $19,086 $16,545
Net Increase in Net Assets from Operations $19,733 $15,879
Net Asset Value (NAV) per Share $9.13 $9.07
Total Investments (Fair Value) $1,761,516 $1,714,195
Total Financing Arrangements (Debt) $706,050 $705,447
Cash and Cash Equivalents $13,738 $56,354
Asset Coverage Ratio 2.49 3.16
Portfolio Turnover Rate 16.41% 12.50%

Note: All dollar amounts are in thousands, except per share data.

Material Changes vs. Prior Period

  • Revenue Growth: Total investment income increased to $38,386 from $28,045 in the prior year quarter, driven by a larger investment portfolio size ($1.54 billion average vs. $1.20 billion).
  • Expense Increase: Total operating expenses rose to $19,300 from $11,500. This was primarily due to higher interest expense ($8,918 vs. $2,926) resulting from new financing arrangements and increased management fees ($7,939 vs. $6,482) due to higher gross assets.
  • Realized Gains: Net realized gains on investments improved significantly to $2,097 compared to a net realized loss of $13,385 in Q1 2017. The prior year loss was heavily influenced by a $14,269 realized loss on the Total Return Swap (TRS), which expired in April 2017.
  • Liquidity: Cash balances decreased significantly from $56,354 to $13,738, reflecting active deployment of capital into the portfolio (purchases of $322,156) and share repurchases ($18,379).
  • Unfunded Commitments: Increased from $48,259 to $110,181, indicating a pipeline of potential future investments.

Guidance, Outlook, and Risks

  • Offering Status: The Company has temporarily suspended the sale of shares of its common stock while engaging with the SEC to have a post-effective amendment to its registration statement declared effective.
  • Leverage Capacity: Recent legislation (March 2018) allows BDCs to reduce the minimum asset coverage ratio from 200% to 150%, potentially permitting a debt-to-equity ratio of 2:1. The Company has not yet determined if it will utilize this additional leverage.
  • Interest Rate Risk: Approximately 91.9% of the portfolio pays variable interest rates. A 100 basis point increase in rates is projected to increase net interest income by 7.2%, while a 100 basis point decrease would reduce it by 6.3%.
  • Portfolio Quality: Investments on non-accrual status represented 1.3% of the portfolio. The majority of the portfolio (82.8%) is rated "2" (similar risk to origination), with 15.3% rated "3" (increased risk but full return expected).
  • Expense Support: The Company has an expense support agreement with its adviser, CIM, but received no expense support during the quarter.

Investor Verification Checklist

  • Offering Resumption: Verify the status of the SEC post-effective amendment and the timeline for resuming the continuous public offering.
  • Leverage Strategy: Monitor announcements regarding the potential adoption of the new 150% asset coverage ratio to increase leverage.
  • Cash Position: Review the low cash balance ($13.7M) relative to unfunded commitments ($110.2M) to assess liquidity management and reliance on financing facilities.
  • Non-Accrual Trends: Track the 1.3% non-accrual rate and specific portfolio company performance (e.g., Charming Charlie, F+W Media) to gauge credit risk.
  • Distribution Sustainability: Confirm that distributions ($0.1829 per share) continue to be covered by net investment income (90% coverage in Q1 2018) without reliance on expense support or return of capital.