CION Investment (CION)2023-03-15 16:00Investment Portfolio - The total investments as of December 31, 2022, amounted to 1,749,161, representing a total investment portfolio of 100%[404] - Senior secured first lien debt constitutes 90.3% of the investment portfolio, with a cost of 1,579,512[404] - The investment portfolio is diversified across various industries, with the largest allocation in Business Services at 19.2% and Healthcare & Pharmaceuticals at 13.6% as of December 31, 2022[407] - The total investments as of March 8, 2023, amounted to 1,749,161, with 81.5% rated as investment grade (rating 2) and 1.4% rated as the highest quality (rating 1)[416] - The company intends to invest primarily in senior secured debt, including first lien loans, second lien loans, and unitranche loans of U.S. middle-market companies[556] - The company anticipates that up to 30% of its investments may be in assets located outside the United States, which are subject to various risks including foreign governmental laws and currency devaluations[575] - The company holds 99.5% of its investment portfolio in the United States, with total investments at fair value amounting to 55.2 million, while the median annual EBITDA stands at 194,898, an increase from 88,205, compared to 9,653,000, compared to 11,120,000, compared to 9,947,000[586] - Net change in unrealized depreciation on investments for the year ended December 31, 2022, was 2,641,000, compared to 0.34 per share for Q1 2023, payable on March 31, 2023[411] - The total distributions for the year ended December 31, 2022, amounted to 71,530 in 2021[459] - The company must distribute at least 90% of its net ordinary income and realized net short-term capital gains to maintain RIC tax treatment, avoiding a 4% excise tax[468] - The company intends to make distributions sufficient to maintain RIC status each year, evaluated by management and the board of directors[470] Operating Expenses - The total operating expenses for 2022 were 83,041 in 2021, driven by increases in interest expense and subordinated incentive fees[429] - Total operating expenses and income taxes increased from 106,693 in 2022, representing a rise of about 28.5%[438] - Interest expense rose significantly from 49,624 in 2022, an increase of approximately 55.9%[438] Debt and Financing - The Series A Notes bear interest at a rate equal to SOFR plus a credit spread of 3.82% per year, with maturity on August 31, 2026[400] - The company issued approximately 77.9 million intended for investments in portfolio companies and general corporate purposes[503] - As of March 8, 2023, the aggregate outstanding borrowings under the JPM Credit Facility were 75,000[473] - The Series A Notes will mature on August 31, 2026, and may be redeemed at par plus a "make-whole" premium[504] Regulatory Compliance - The company is subject to the Sarbanes-Oxley Act, requiring compliance with internal control over financial reporting, which may impact financial performance[491] - The company is no longer a "non-accelerated filer" and must comply with independent auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act[476] - Compliance with Section 404(b) of the Sarbanes-Oxley Act may impose significant documentation and administrative burdens, potentially affecting investor confidence[541] Risks and Challenges - The company faces risks related to competition from larger firms with greater financial resources and different risk tolerances[477] - The company may experience fluctuations in quarterly operating results due to various factors, including competition and economic conditions[517] - The company may not be able to assure continued distributions to shareholders, as these depend on earnings and compliance with BDC regulations[515] - The company invests in below-investment grade debt securities, which carry greater risks regarding the borrower's capacity to pay interest and repay principal[531] - The company is exposed to risks associated with changes in interest rates, particularly in the current rising interest rate environment[535] - Rising interest rates may increase borrowing costs, potentially reducing net investment income[536] - Recent inflationary pressures have increased costs of labor, energy, and raw materials, adversely affecting consumer spending and portfolio companies' operations[538] - The company faces competition from larger BDCs and investment funds, which may have lower costs of capital and greater resources, potentially impacting investment opportunities[512] - The company may face challenges in raising additional capital or borrowing for investment purposes due to regulations governing BDC operations[547] - Economic recessions may increase non-performing assets and decrease the value of the portfolio, impacting revenues and net asset value[576] - The risk of nationalization or expropriation in certain investment countries may adversely affect portfolio companies and returns[539] - The company may need to periodically access capital markets to fund new investments, which could limit investment opportunities compared to other companies[523] - The company may not control most portfolio companies, leading to potential misalignment of interests and risks associated with management decisions[558] - The company has invested in illiquid securities, which may complicate the sale of these investments and lead to potential losses[566] - The use of leverage increases investment volatility, with a potential decline in net asset value if asset values decrease[571] - The company faces risks related to prepayments of debt investments, which could adversely affect return on equity and operational results[579] - The transition from LIBOR to SOFR is ongoing, with no expected material impact on the company's business or financial condition[574]