CION Investment (CION) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements For the quarter ended March 31, 2021, the company reported a net increase in net assets from operations of $49.7 million, a significant turnaround from a net decrease of $105.9 million in the same period of 2020, driven by unrealized appreciation on investments Consolidated Balance Sheets As of March 31, 2021, total assets increased to $1.68 billion from $1.61 billion, primarily due to increased investment fair value, leading to total shareholders' equity of $912.9 million and a net asset value per share of $8.06 Consolidated Balance Sheet Summary (in thousands) | Metric | March 31, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Investments, at fair value | $1,621,641 | $1,569,371 | | Total Assets | $1,681,280 | $1,614,795 | | Total Liabilities | $768,338 | $736,539 | | Total Shareholders' Equity | $912,942 | $878,256 | | Net Asset Value Per Share | $8.06 | $7.75 | Consolidated Statements of Operations Despite lower investment income, a significant positive swing in unrealized gains led to a net increase in net assets of $49.7 million for Q1 2021, a reversal from a $105.9 million net decrease in Q1 2020 Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 (unaudited) | Three Months Ended March 31, 2020 (unaudited) | | :--- | :--- | :--- | | Total Investment Income | $36,303 | $45,748 | | Total Operating Expenses | $18,704 | $24,087 | | Net Investment Income | $17,599 | $21,661 | | Net Realized and Unrealized Gains (Losses) | $32,115 | ($127,573) | | Net Increase (Decrease) in Net Assets | $49,714 | ($105,912) | | Net Increase (Decrease) in Net Assets Per Share | $0.44 | ($0.93) | Consolidated Statements of Changes in Net Assets Net assets increased by $34.7 million during Q1 2021 to $912.9 million, driven by a $49.7 million net gain from operations, partially offset by $15.0 million in shareholder distributions Changes in Net Assets for the Three Months Ended March 31, 2021 (in thousands) | Description | Amount | | :--- | :--- | | Net Assets at Beginning of Period | $878,256 | | Net Increase from Operations | $49,714 | | Distributions to Shareholders | ($15,029) | | Net Increase from Capital Share Transactions | $1 | | Net Assets at End of Period | $912,942 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $1.1 million, while net cash used in financing activities was $19.4 million, resulting in a net decrease in cash of $18.3 million for Q1 2021 Cash Flow Summary for the Three Months Ended March 31, 2021 (in thousands) | Activity | Amount | | :--- | :--- | | Net Cash Provided by Operating Activities | $1,149 | | Net Cash Used in Financing Activities | ($19,422) | | Net Decrease in Cash | ($18,273) | | Cash at Beginning of Period | $19,914 | | Cash at End of Period | $1,641 | Consolidated Schedules of Investments The total investment portfolio's fair value grew to $1.62 billion, with 81.8% concentrated in senior secured first lien debt and significant exposure to Healthcare & Pharmaceuticals and Business Services Investment Portfolio Composition by Type (as of March 31, 2021) | Investment Type | Fair Value (in thousands) | Percentage of Portfolio | | :--- | :--- | :--- | | Senior secured first lien debt | $1,255,426 | 81.8% | | Senior secured second lien debt | $154,626 | 10.1% | | Equity | $104,663 | 6.8% | | Other | $19,333 | 1.3% | | Subtotal | $1,534,048 | 100.0% | | Short term investments | $87,593 | N/A | | Total Investments | $1,621,641 | N/A | Top 5 Industry Concentrations by Fair Value (as of March 31, 2021) | Industry | Fair Value (in thousands) | Percentage of Portfolio | | :--- | :--- | :--- | | Healthcare & Pharmaceuticals | $287,329 | 18.7% | | Services: Business | $212,278 | 13.8% | | Chemicals, Plastics & Rubber | $124,555 | 8.1% | | Media: Diversified & Production | $113,208 | 7.4% | | Media: Advertising, Printing & Publishing | $108,664 | 7.1% | Notes to Consolidated Financial Statements The notes detail accounting policies, share transactions, related-party dealings, financing, and investment valuations, highlighting the issuance of $125 million in senior unsecured notes and increased unfunded commitments - In Q1 2021, the company repurchased 675,440 shares for $5.3 million under its share repurchase program[144][154] - The CION SOF joint venture was fully wound down in Q1 2021, with final cash distributions made on March 19, 2021[194] - In February 2021, the company issued $125 million of 4.50% senior unsecured notes due 2026, using the proceeds to repay secured debt[219] - Unfunded commitments increased significantly from $43.1 million at year-end 2020 to $75.7 million as of March 31, 2021[282] - Subsequent to the quarter end, on April 14, 2021, the company entered into a new $30 million unsecured term loan agreement maturing in September 2024 with a 5.20% interest rate[290][291] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2021's improved results to positive investment fair value impacts from tightening credit spreads and increased equity multiples, despite lower investment income due to reduced LIBOR rates and portfolio size - The net increase in net assets of $49.7 million in Q1 2021 was primarily driven by a $36.2 million net change in unrealized appreciation, a stark contrast to the $123.4 million in unrealized depreciation in Q1 2020, which was impacted by the onset of the COVID-19 pandemic[337] - Investment income decreased from $45.7 million in Q1 2020 to $36.3 million in Q1 2021, attributed to a smaller average investment portfolio and lower LIBOR rates[330] Investment Portfolio Rating by Fair Value | Investment Rating | March 31, 2021 (%) | December 31, 2020 (%) | | :--- | :--- | :--- | | 1 (Least Risk) | 3.5% | 0.2% | | 2 (Similar Risk) | 77.1% | 78.5% | | 3 (Increased Risk) | 18.8% | 20.7% | | 4 (Significant Risk) | 0.5% | 0.6% | | 5 (Material Risk) | 0.1% | 0.0% | - The company's total investment return, based on net asset value, was 5.73% for the three-month period ended March 31, 2021[340] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk, with 85.1% of investments having variable rates, and a 100 basis point rate increase would result in a $1.5 million net decrease in annual net interest income - As of March 31, 2021, 85.1% of the company's investments paid variable interest rates, making its income sensitive to interest rate changes[376] Interest Rate Sensitivity Analysis (as of March 31, 2021) | Basis Point Change in Interest Rates | (Decrease) Increase in Net Interest Income (in thousands) | Percentage Change in Net Interest Income | | :--- | :--- | :--- | | Up 50 basis points | ($1,662) | (1.7)% | | Up 100 basis points | ($1,478) | (1.5)% | | Up 200 basis points | $5,271 | 5.3% | | Up 300 basis points | $12,727 | 12.8% | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The Co-Chief Executive Officers and the Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[380] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[383] PART II – OTHER INFORMATION Legal Proceedings The company is not currently subject to any material legal proceedings, nor is it aware of any material legal proceedings being threatened against it - The company reports no material legal proceedings as of the filing date[386] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020 have been reported[387] Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities during Q1 2021 but repurchased 675,440 shares of common stock at an average price of $7.83 per share Share Repurchases for Q1 2021 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | March 1 to March 31, 2021 | 675,440 | $7.83 | | Total Q1 2021 | 675,440 | $7.83 | Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period Mine Safety Disclosures Not applicable Other Information Not applicable Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements related to financing, investment advisory services, and officer certifications