CION Investment (US:CION)2021-08-12 16:00PART I - FINANCIAL INFORMATION Financial Statements This section presents CĪON Investment Corporation's unaudited consolidated financial statements as of June 30, 2021, reflecting increased total assets and net assets due to investment appreciation Consolidated Balance Sheets As of June 30, 2021, total assets increased to $1.76 billion from $1.61 billion at year-end 2020, primarily due to a rise in the fair value of investments, leading to an increase in total shareholders' equity and NAV per share Consolidated Balance Sheet Highlights (in thousands, except per share data) | Metric | June 30, 2021 (unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Total Investments, at fair value | $1,724,038 | $1,569,371 | | Total Assets | $1,755,314 | $1,614,795 | | Total Liabilities | $829,434 | $736,539 | | Total Shareholders' Equity | $925,880 | $878,256 | | Net Asset Value per Share | $8.17 | $7.75 | Consolidated Statements of Operations Net assets from operations increased to $28.0 million in Q2 2021, driven by higher net investment income and positive gains, reversing a prior-year decrease for the six-month period Key Operating Results (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | 6 Months 2021 | 6 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $38,021 | $35,808 | $74,324 | $81,556 | | Total Operating Expenses | $19,335 | $21,892 | $38,039 | $45,979 | | Net Investment Income | $18,686 | $13,916 | $36,285 | $35,577 | | Net Realized/Unrealized Gains (Losses) | $9,283 | $2,671 | $41,398 | $(124,902) | | Net Increase (Decrease) in Net Assets | $27,969 | $16,587 | $77,683 | $(89,325) | | Net Increase (Decrease) in Net Assets per Share | $0.25 | $0.15 | $0.68 | $(0.79) | Consolidated Statements of Changes in Net Assets For the six months ended June 30, 2021, net assets increased by $47.6 million to reach $925.9 million, primarily driven by a $77.7 million net increase from operations, partially offset by distributions to shareholders Changes in Net Assets for the Six Months Ended June 30, 2021 (in thousands) | Description | Amount | | :--- | :--- | | Net Assets at beginning of period | $878,256 | | Net increase from operations | $77,683 | | Distributions to shareholders | $(30,029) | | Net decrease from capital share transactions | $(30) | | Net Assets at end of period | $925,880 | Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash used in operating activities was $63.0 million, while net cash provided by financing activities was $44.6 million, resulting in a net decrease in cash of $18.4 million Cash Flow Summary for the Six Months Ended June 30, 2021 (in thousands) | Activity | Amount | | :--- | :--- | | Net cash (used in) operating activities | $(62,975) | | Net cash provided by financing activities | $44,557 | | Net (decrease) in cash | $(18,418) | | Cash, beginning of period | $19,914 | | Cash, end of period | $1,496 | Consolidated Schedules of Investments As of June 30, 2021, the company's $1.72 billion investment portfolio is diversified across debt and equity, heavily weighted towards Senior Secured First Lien Debt and various industries Portfolio Composition by Investment Type (June 30, 2021) | Investment Type | Fair Value (in thousands) | % of Total Investments | | :--- | :--- | :--- | | Senior Secured First Lien Debt | $1,407,224 | 81.6% | | Senior Secured Second Lien Debt | $141,710 | 8.2% | | Equity | $107,017 | 6.2% | | Collateralized Securities | $14,095 | 0.8% | | Unsecured Debt | $5,508 | 0.3% | | Short Term Investments | $48,484 | 2.8% | | Total Investments | $1,724,038 | 100.0% | - The company holds investments in affiliated companies (owning 5% to 25% of voting securities) with a total fair value of $152.4 million as of June 30, 2021, up from $116.9 million at year-end 202043 - As of June 30, 2021, several investments contained a Paid-in-Kind (PIK) interest provision, allowing the issuer to make interest payments with additional securities instead of cash4849 Notes to Consolidated Financial Statements This section details the company's accounting policies and financial results, covering BDC organization, investment valuation, share repurchases, related-party transactions, and financing - The company is an externally managed BDC with an investment objective to generate current income and capital appreciation, primarily through investments in senior secured debt of U.S. middle-market companies8485 - The company is managed by CION Investment Management, LLC (CIM), a joint venture with an affiliate of Apollo Global Management, Inc. (Apollo), with AIM providing investment opportunity identification services868788 - The company is pursuing a potential listing of its common stock on the New York Stock Exchange (NYSE) under the symbol "CION", with an amended investment advisory agreement to modify fees upon listing9093 - The fair value of investments is determined quarterly by the board, with most classified as Level 3 in the fair value hierarchy, requiring significant management judgment and estimation110112117 - The company's share repurchase program was temporarily suspended commencing with Q3 2021 in anticipation of the potential NYSE listing, expected to provide enhanced liquidity for shareholders152 - As of June 30, 2021, the company had total unfunded commitments of $80.3 million to various portfolio companies, intended to be funded from available cash and borrowings303305 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2021 financial performance, highlighting increased net investment income, portfolio growth, and liquidity, while monitoring COVID-19 impacts and managing unfunded commitments - The company's investment portfolio primarily consists of senior secured debt in private U.S. middle-market companies, generally with an annual EBITDA of $75 million or less321329 - Management continues to monitor the impact of COVID-19, acknowledging potential negative effects on portfolio companies' operating results and the company's financial condition despite improved market conditions332334 Portfolio Activity (in thousands) | Period | Purchases & Drawdowns | Sales & Repayments | Net Activity | | :--- | :--- | :--- | :--- | | Q2 2021 | $222,098 | $(96,828) | $125,270 | | Q2 2020 | $25,872 | $(74,851) | $(48,979) | - As of June 30, 2021, 87.5% of the investment portfolio consisted of floating-rate investments, while 6.6% were fixed-rate338 - The investment portfolio's quality improved, with 82.8% of investments rated 1 or 2 (indicating stable or favorable risk) as of June 30, 2021, compared to 78.7% at year-end 2020344 - The increase in net investment income for Q2 2021 compared to Q2 2020 was primarily due to higher investment income, lower interest expense, and a reduction in investments on non-accrual status (0.4% vs 3.0%)348352 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, with 87.5% of investments and key credit facilities being variable-rate, and a 200 bps rate increase projected to boost net interest income - The company's primary market risk is from changes in interest rates, as 87.5% of its investments and its main credit facilities have variable rates407408 Interest Rate Sensitivity Analysis (as of June 30, 2021) | Basis Point Change | (Decrease) Increase in Net Interest Income (in thousands) | % Change in Net Interest Income | | :--- | :--- | :--- | | Up 50 bps | $(1,875) | (1.8)% | | Up 100 bps | $(2,224) | (2.2)% | | Up 200 bps | $5,069 | 5.0% | | Up 300 bps | $13,255 | 13.0% | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during Q2 2021 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarterly period ended June 30, 2021411 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls414 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 date417 Risk Factors There have been no material changes from 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 to risk factors were reported for the quarter418 Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities during Q2 2021, but repurchased 640,277 shares in June 2021 at an average price of $8.07 per share, with the program now suspended Share Repurchases in Q2 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2021 | — | $— | | May 2021 | — | $— | | June 2021 | 640,277 | $8.07 | | Total Q2 2021 | 640,277 | $8.07 | - The share repurchase program was suspended commencing with the third quarter of 2021 in anticipation of the potential NYSE listing420 Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information Not applicable Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements such as the Amended and Restated Investment Advisory Agreement, credit and loan agreements, and certifications by the company's officers