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CION Investment (CION) - 2024 Q1 - Earnings Call Transcript
CIONCION Investment (CION)2024-05-09 20:53
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Financial Data and Key Metrics - Total investment income for Q1 was 73.6million,a2373.6 million, a 23% increase from 60 million in Q4, driven by restructuring activities, make-whole payments, and prepayment premiums [19] - Net investment income for Q1 was 32.6millionor32.6 million or 0.60 per share, up from 21.8millionor21.8 million or 0.40 per share in Q4, a 10.8millionincrease[38]−NAVpersharedecreasedby10.8 million increase [38] - NAV per share decreased by 0.18 or 1.1% to 16.05attheendofQ1,primarilyduetopricedeclinesintheportfolio,partiallyoffsetbysharerepurchases[12]−Totalassetsstoodat16.05 at the end of Q1, primarily due to price declines in the portfolio, partially offset by share repurchases [12] - Total assets stood at 2 billion, with total equity of 863millionandtotaldebtof863 million and total debt of 1.07 billion, resulting in a net debt-to-equity ratio of 1.03x, down from 1.1x in Q4 [20] - The weighted average yield on debt and income-producing investments decreased by 48 basis points to 12.9% in Q1 [39] Business Line Data and Key Metrics - The company made 125millioninnewinvestmentcommitmentsacrossfivenewandsevenexistingportfoliocompanies,with125 million in new investment commitments across five new and seven existing portfolio companies, with 107 million funded [7] - Approximately 60% of annual PIK income is derived from highly structured situations, such as litigation finance investments, with over 80% of PIK investments risk-rated one or two [6] - The portfolio remains defensive, with 84% in first lien investments and 86% in senior secured investments, while 99% of the portfolio is risk-rated three or better [37] - Risk-rated three investments increased from 6.5% to 10.4% of the portfolio, reflecting higher engagement or increased risk since initial purchase [37] Market Data and Key Metrics - The company completed first lien investments in new portfolio companies with a weighted average coupon of SOFR plus 6.3% [15] - Sales and repayments totaled 207millioninQ1,primarilyfromfullrepaymentsofdebtinvestmentsinAmpac,ServicesCompression,Pentec,andR.R.Donnelley[36]−Non−accrualsdeclinedslightlyfrom0.89207 million in Q1, primarily from full repayments of debt investments in Ampac, Services Compression, Pentec, and R.R. Donnelley [36] - Non-accruals declined slightly from 0.89% of fair value at the end of Q4 to 0.86% at the end of Q1 [16] Company Strategy and Industry Competition - The company focuses on first lien investments at the top of the capital structure, avoiding riskier mezzanine and equity co-investments, while utilizing yield-enhancing provisions like PIK features and call protection [14] - The company remains selective with new investments, focusing on middle-market companies with 20 million to 50millionofannualEBITDA,avoidinglarger,morecommoditizeddeals[66]−Thecompanycontinuestoidentifyopportunitiesinthesyndicatedloanmarket,acquiringdiscountedfirstlienloansandplayingactiverolesinrefinancingorrestructuringprocesses[70]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−Managementhighlightedstrongfinancialresultsdrivenbyinvestmentactivityandyield−enhancingprovisions,withafocusonmaintainingadefensiveportfolio[10]−Thecompanyexpectsactiverepaymenttrendstocontinuein2024,fueledbystrongcashinflowsintodirectandsyndicatedloanfunds[16]−Managementremainsoptimisticaboutcreditperformance,withonly150 million of annual EBITDA, avoiding larger, more commoditized deals [66] - The company continues to identify opportunities in the syndicated loan market, acquiring discounted first lien loans and playing active roles in refinancing or restructuring processes [70] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong financial results driven by investment activity and yield-enhancing provisions, with a focus on maintaining a defensive portfolio [10] - The company expects active repayment trends to continue in 2024, fueled by strong cash inflows into direct and syndicated loan funds [16] - Management remains optimistic about credit performance, with only 1% of the portfolio risk-rated four or five, and borrowers showing stable EBITDA trends [60] - The company is actively working to extend credit facilities for an additional two to three years, aiming to diversify its debt mix and expand lending partners [22] Other Important Information - The company declared a Q2 base distribution of 0.36 per share, a 6% increase from Q1, marking the fourth increase since its listing in October 2021 [23] - The company repurchased approximately 424,000 shares at an average price of 11pershare,totaling11 per share, totaling 4.7 million, reflecting confidence in the stock's undervaluation [63] - The company plans to declare a midyear supplemental distribution in June, payable on July 12 [42] Q&A Session Summary Question: Quantify revenue from transaction and restructuring fees in Q1 that may not recur in Q2 - Answer: Approximately 7millionto7 million to 8 million in transaction and restructuring income was realized in Q1 [45] Question: Plans for extending the $30 million unsecured term loan maturing in Q3 and preference for fixed or floating rate funding - Answer: The company is evaluating opportunities in the debt capital markets but is currently focused on extending existing credit facilities [46] Question: Explanation of upgrades and downgrades in the internal risk rating scale - Answer: Investments are upgraded to risk rating one only when there is knowledge of an imminent loan exit, with most investments remaining at rating two [47]