Attached files

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EX-31.3 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CION Investment Corpex31-3.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CION Investment Corpex31-2.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - CION Investment Corpex32-1.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - CION Investment Corpex32-2.htm
EX-32.3 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - CION Investment Corpex32-3.htm
EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CION Investment Corpex31-1.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[x]

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2013

or

[  ]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________to_________________

Commission File Number: 000-54755

CĪON Investment Corporation  

(Exact name of registrant as specified in its charter)

Maryland

 

45-3058280

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3 Park Avenue, 36th Floor
New York, New York

 

10016

(Address of principal executive offices)

 

(Zip Code)

 

(212) 418-4700

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [x] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [  ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [  ]

 

Accelerated Filer [  ]

Non-Accelerated Filer [x] (Do not check if a smaller reporting company)

 

Smaller Reporting Company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [x]

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of August 9, 2013 was 5,839,032.

 

 

 


 

 

 

CĪON INVESTMENT CORPORATION

TABLE OF CONTENTS

FORM 10-Q

 

 

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.  Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012  

1

 

 

 

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2013 (unaudited)

2

 

 

 

 

 

 

Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2013 and for the period from January 31, 2012 (Inception) through June 30, 2012 (unaudited)

3

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and for the period from January 31, 2012 (Inception) through June 30, 2012 (unaudited)

4

 

 

 

 

 

 

Consolidated Schedule of Investments as of June 30, 2013 (unaudited) and December 31, 2012

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

39

 

 

 

 

 

Item 4. Controls and Procedures

39

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1. Legal Proceedings

40

 

 

 

 

 

Item 1A. Risk Factors

40

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

40

 

 

 

 

 

Item 3. Defaults Upon Senior Securities

40

 

 

 

 

 

Item 4. Mine Safety Disclosures

40

 

 

 

 

 

Item 5. Other Information

40

 

 

 

 

 

Item 6. Exhibits

41

 

 

 

 

 

Signatures

43

                                 

 

 


 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CĪON Investment Corporation

Consolidated Balance Sheets

  

  

June 30,

2013

  

December 31,

2012

  

  

(unaudited)

  

  

  

Assets

  

  

  

  

  

  

  

Investments, at fair value (amortized cost of $30,147,318 and $3,787,873, respectively)

$

 30,472,264 

  

$

 3,797,806 

Cash

  

 11,819 

  

  

 - 

Due from counterparty(2) 

  

 10,297,039 

  

  

 729,325 

Reimbursement from IIG, net(1) 

  

 991,154 

  

  

 25,807 

Deferred offering expenses, net

  

 463,014 

  

  

 958,904 

Prepaid expenses

  

 9,668 

  

  

 105,802 

Interest receivable on investments

  

 71,437 

  

  

 187 

Receivable due on investments sold and repaid

  

 25,000 

  

  

 - 

Unrealized appreciation on total return swap(2) 

  

 290,594 

  

  

 12,493 

Receivable due on total return swap(2) 

  

 171,146 

  

  

 - 

  

Total assets

$

 42,803,135 

  

$

 5,630,324 

  

  

  

  

  

  

  

Liabilities and Shareholders' Equity

Liabilities

  

  

  

  

  

Payable for investments purchased

$

 5,710,900 

  

$

 990,000 

Shareholders' distributions payable(3) 

  

 221,052 

  

  

 - 

Accounts payable and accrued expenses

  

 549,265 

  

  

 57,427 

Due to IIG - offering expenses(1) 

  

 1,000,000 

  

  

 - 

Commissions payable

  

 - 

  

  

 23,100 

Financing arrangement

  

 - 

  

  

 72,682 

  

Total liabilities

  

 7,481,217 

  

  

 1,143,209 

  

  

  

  

  

  

  

Commitments and contingencies (Note 10)

  

  

  

  

  

  

  

  

  

  

  

  

Shareholders' Equity

  

  

  

  

  

Common stock, $0.001 par value; 500,000,000 shares authorized;

  

  

  

  

  

  

3,853,304 and 500,338 shares issued and outstanding, respectively(1) 

  

 3,853 

  

  

 500 

Capital in excess of par value

  

 34,702,525 

  

  

 4,461,453 

Accumulated undistributed net investment income

  

 - 

  

  

 2,692 

Accumulated undistributed net realized gain from investments

  

 - 

  

  

 44 

Accumulated net unrealized appreciation on investments

  

 324,946 

  

  

 9,933 

Accumulated net unrealized appreciation on total return swap(2) 

  

 290,594 

  

  

 12,493 

  

Total shareholders' equity

  

 35,321,918 

  

  

 4,487,115 

  

  

  

  

  

  

  

Total liabilities and shareholders' equity

$

 42,803,135 

  

$

 5,630,324 

  

  

  

  

  

  

  

Net asset value per share of common stock at end of period

$

 9.17 

  

$

 8.97 

Shares of common stock outstanding

  

 3,853,304 

  

  

 500,338 

  

  

  

  

  

  

  

(1) See Note 3 for a discussion of expense reimbursements from ICON Investment Group, LLC, or IIG.

  

  

  

  

  

(2) See Note 6 for a discussion of the Company’s total return swap agreement.

  

  

  

  

  

(3) See Note 4 for a discussion of the source of distributions paid by the Company.

  

  

  

  

  

  

  

  

  

  

  

  

See accompanying notes to consolidated financial statements.

 

1

 


 

 

 

CĪON Investment Corporation

Consolidated Statements of Operations

(unaudited)

 

  

  

Three Months Ended

June 30, 2013(1)

  

Six Months Ended

June 30, 2013(1)

Investment income

  

  

  

  

  

Interest income

$

 245,494 

  

$

 313,620 

  

  

  

  

  

  

  

Operating expenses

  

  

  

  

  

Management fees

  

 120,781 

  

  

 165,523 

Administrative services expense

  

 307,636 

  

  

 571,191 

Capital gains incentive fee(2) 

  

 57,705 

  

  

 174,728 

General and administrative(3) 

  

 752,015 

  

  

 1,260,878 

  

Total expenses

  

 1,238,137 

  

  

 2,172,320 

  

Less: expense reimbursement from IIG(4) 

  

 (1,147,536) 

  

  

 (1,966,909) 

  

Net operating expenses

  

 90,601 

  

  

 205,411 

  

Net investment income

  

 154,893 

  

  

 108,209 

  

  

  

  

  

  

  

Realized and unrealized gains

  

  

  

  

  

Net realized gain from investments

  

 10,438 

  

  

 14,971 

Net change in unrealized appreciation on investments

  

 190,731 

  

  

 315,013 

Net realized gain on total return swap(5) 

  

 395,757 

  

  

 601,480 

Net change in unrealized (depreciation) appreciation on total return swap(5) 

  

 (53,189) 

  

  

 278,101 

  

Total net realized and unrealized gains

  

 543,737 

  

  

 1,209,565 

  

  

  

  

  

  

  

Net increase in net assets resulting from operations

$

 698,630 

  

$

 1,317,774 

  

  

  

  

  

  

  

Per share information—basic and diluted

  

  

  

  

  

  

  

  

  

  

  

  

Net increase in net assets per share resulting from operations

$

 0.24 

  

$

 0.65 

  

  

  

  

  

  

  

Weighted average shares of common stock outstanding

  

 2,878,270 

  

  

 2,026,081 

  

  

  

  

  

  

  

(1)

The Company commenced operations on December 17, 2012. Accordingly, there are no consolidated statements of operations data available for the three or six months ended June 30, 2012.

(2)

See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee.

(3)

See Note 8 for details of the Company's general and administrative expenses.

(4)

See Note 3 for a discussion of expense reimbursements received by the Company from IIG.

(5)

See Note 6 for a discussion of the Company’s total return swap agreement.

  

  

  

  

  

See accompanying notes to consolidated financial statements.

 

2

 


 

 

 

CĪON Investment Corporation

Consolidated Statements of Changes in Net Assets

(unaudited)

 

  

  

  

Six Months Ended

June 30, 2013

  

For the Period from January 31, 2012 (Inception) through June 30, 2012

  

  

  

  

  

  

  

  

Changes in net assets from operations:

  

  

  

  

  

  

Net investment income

$

 108,209 

  

 - 

  

Net realized gain from investments

  

 14,971 

  

  

 - 

  

Net change in unrealized appreciation on investments

  

 315,013 

  

  

 - 

  

Net realized gain on total return swap(1) 

  

 601,480 

  

  

 - 

  

Net change in unrealized appreciation on total return swap(1) 

  

 278,101 

  

  

 - 

  

  

Net increase in net assets resulting from operations

  

 1,317,774 

  

  

 - 

Shareholder distributions:

  

  

  

  

  

  

Distributions from net investment income(2) 

  

 (110,901) 

  

  

 - 

  

Distributions from net realized gains

  

 (616,495) 

  

  

 - 

  

  

Net decrease in net assets from shareholder distributions

  

 (727,396) 

  

  

 - 

Changes in net assets from capital share transactions:

  

  

  

  

  

  

Issuance of common stock, net of issuance costs of $3,038,387 and $0, respectively

  

 30,527,165 

  

  

 1,000 

  

Reinvestment of shareholder distributions

  

 213,150 

  

  

 - 

  

Amortization of deferred offering expenses

  

 (495,890) 

  

  

 - 

  

  

Net increase in net assets resulting from capital share transactions

  

 30,244,425 

  

  

 1,000 

  

  

  

  

  

  

  

  

Total increase in net assets

  

 30,834,803 

  

  

 1,000 

Net assets at beginning of period

  

 4,487,115 

  

  

 - 

Net assets at end of period

$

 35,321,918 

  

 1,000 

  

  

  

  

  

  

  

  

Net asset value per share of common stock at end of period

$

 9.17 

  

 9.00 

Shares of common stock outstanding at end of period

  

 3,853,304 

  

  

 111 

  

  

  

  

  

  

  

  

Undistributed net investment income at end of period

$

 - 

  

 - 

  

  

  

  

  

  

  

  

(1) See Note 6 for a discussion of the Company’s total return swap agreement.

  

  

  

  

  

(2) See Note 4 for a discussion of the source of the Company's distributions.

  

  

  

  

  

  

  

  

  

  

  

  

  

See accompanying notes to consolidated financial statements.

 

3

 


 

 

 

CĪON Investment Corporation

Consolidated Statements of Cash Flows

(unaudited)

 

  

  

  

  

Six Months Ended

June 30, 2013

  

For the Period from January 31, 2012 (Inception) through June 30, 2012

Operating activities:

  

  

  

  

  

Net increase in net assets resulting from operations

$

 1,317,774 

  

 - 

Adjustments to reconcile net increase in net assets resulting from

  

  

  

  

  

  

operations to net cash used in operating activities:

  

  

  

  

  

  

  

Net accretion of discount on investments

  

 (7,011) 

  

  

 - 

  

  

Proceeds from principal repayment of investments

  

 642,548 

  

  

 - 

  

  

Purchase of investments

  

 (20,658,178) 

  

  

 - 

  

  

Net change in short term investments

  

 (6,826,208) 

  

  

 - 

  

  

Proceeds from sale of investments

  

 504,375 

  

  

 - 

  

  

Net realized gain from investments

  

 (14,971) 

  

  

 - 

  

  

Net change in unrealized appreciation on investments

  

 (315,013) 

  

  

 - 

  

  

Net change in unrealized appreciation on total return swap

  

 (278,101) 

  

  

 - 

  

  

Due from counterparty

  

 (9,567,714) 

  

  

 - 

  

  

Reimbursement from IIG, net

  

 (965,347) 

  

  

 - 

  

  

Prepaid expenses

  

 96,134 

  

  

 - 

  

  

Interest receivable on investments

  

 (71,250) 

  

  

 - 

  

  

Receivable due on investments sold and repaid

  

 (25,000) 

  

  

 - 

  

  

Receivable due on total return swap

  

 (171,146) 

  

  

 - 

  

  

Payable for investments purchased

  

 4,720,900 

  

  

 - 

  

  

Accounts payable and accrued expenses

  

 491,838 

  

  

 - 

  

  

Due to IIG - offering expenses

  

 1,000,000 

  

  

 - 

Net cash used in operating activities

  

 (30,126,370) 

  

  

 - 

  

  

  

  

  

  

  

  

  

Financing activities:

  

  

  

  

  

  

  

Gross proceeds from issuance of common stock

  

 33,565,552 

  

  

 1,000 

  

  

Commissions and dealer manager fees paid

  

 (3,061,487) 

  

  

 - 

  

  

Reinvestment of shareholder distributions

  

 213,150 

  

  

 - 

  

  

Shareholder distributions paid

  

 (506,344) 

  

  

 - 

  

  

Repayment of financing arrangement

  

 (72,682) 

  

  

 - 

Net cash provided by financing activities

  

 30,138,189 

  

  

 1,000 

  

  

  

  

  

  

  

  

  

Net increase in cash

  

 11,819 

  

  

 1,000 

Cash, beginning of period

  

 - 

  

  

 - 

Cash, end of period

$

 11,819 

  

 1,000 

  

  

  

  

  

  

  

  

  

Supplemental non-cash financing activities:

  

  

  

  

  

  

Deferred offering expenses charged to shareholders' equity

$

 495,890 

  

 - 

  

Shareholders' distributions payable

$

 221,052 

  

 - 

  

  

  

  

  

  

  

  

  

See accompanying notes to consolidated financial statements.

 

4

 


 

 

 

CĪON Investment Corporation

Consolidated Schedule of Investments

June 30, 2013

(unaudited)

 

Portfolio Company(a)

  

Industry

  

Principal/Par

Amount

  

Amortized

Cost

  

Fair Value(b)

Senior Secured First Lien Term Loans - 46.5%

  

  

  

  

  

  

  

  

  

  

  

  

Captive Resources Midco, LLC, L+550, 1.25% LIBOR Floor, 10/31/2018

  

Insurance

  

$

 992,500 

  

$

976,672 

  

$

975,131 

  

CHI Overhead Doors, L+425, 1.25% LIBOR Floor, 3/18/2019

  

Building Materials

  

  

 1,000,000 

  

  

995,124 

  

  

1,002,500 

  

Custom Ecology, Inc., L+550, 1.25% LIBOR Floor, 6/26/2019(c)

  

Environmental Services

  

  

 1,910,000 

  

  

1,890,900 

  

  

1,905,225 

  

Distribution International, Inc., L+650, 1.00% LIBOR Floor, 7/16/2019(c)

  

Construction

  

  

 2,000,000 

  

  

1,980,000 

  

  

1,997,500 

  

F+W Media, Inc., L+650, 1.25% LIBOR Floor, 6/30/2019(c)

  

Media

  

  

 2,000,000 

  

  

1,840,000 

  

  

1,940,000 

  

Fender Musical Instruments Corp., L+450, 1.25% LIBOR Floor, 4/3/2019

  

Entertainment & Leisure

  

  

 500,000 

  

  

495,103 

  

  

501,768 

  

H.D. Vest, Inc., L+450, 1.25% LIBOR Floor, 12/18/2018(d)

  

Financial Services

  

  

 605,000 

  

  

600,490 

  

  

601,975 

  

Medpace Intermediateco, Inc., L+425, 1.25% LIBOR Floor, 6/17/2017(d)

  

Healthcare

  

  

 636,955 

  

  

636,955 

  

  

641,732 

  

Merrill Corp., L+625, 1.00% LIBOR Floor, 3/8/2018

  

Printing & Publishing

  

  

 699,248 

  

  

692,401 

  

  

703,618 

  

Plano Molding Co. Inc., L+425, 1.00% LIBOR Floor, 12/21/2017

  

Chemicals

  

  

 975,000 

  

  

966,227 

  

  

979,875 

  

Prowler Acquisition Corp., L+475, 1.25% LIBOR Floor, 3/19/2019

  

Oil & Gas

  

  

 1,975,000 

  

  

1,955,250 

  

  

1,955,250 

  

Sprint Industrial Holdings, LLC, L+575, 1.25% LIBOR Floor, 5/14/2019

  

Oil & Gas

  

  

 1,200,000 

  

  

1,188,000 

  

  

1,209,000 

  

Telecommunications Management, LLC, L+400, 1.00% LIBOR Floor, 4/30/2020

  

Telecommunications

  

  

 500,000 

  

  

497,547 

  

  

502,500 

  

Total Safety W3, L+450, 1.25% LIBOR Floor, 3/13/2020

  

Professional & Business Services

  

  

 498,750 

  

  

496,298 

  

  

501,866 

  

Westway Group, L+400, 1.00% LIBOR Floor, 2/27/2020

  

Food & Beverage

  

  

 997,500 

  

  

992,878 

  

  

999,994 

Total Senior Secured First Lien Term Loans

  

  

  

  

  

  

  

16,203,845 

  

  

16,417,934 

Senior Secured Second Lien Term Loans - 15.3%

  

  

  

  

  

  

  

  

  

  

  

  

Centaur Gaming, L+750, 1.25% LIBOR Floor, 2/20/2020

  

Gaming & Hotels

  

  

500,000 

  

  

495,154 

  

  

506,875 

  

GCA Services Group, Inc., L+800, 1.25% LIBOR Floor, 11/1/2020

  

Professional & Business Services

  

  

1,000,000 

  

  

995,530 

  

  

1,019,585 

  

H.D. Vest, Inc., L+800, 1.25% LIBOR Floor, 6/18/2019(d)

  

Financial Services

  

  

854,000 

  

  

843,388 

  

  

845,460 

  

Healogics, Inc., L+800, 1.25% LIBOR Floor, 2/5/2020

  

Healthcare

  

  

500,000 

  

  

495,326 

  

  

510,000 

  

LTS Buyer LLC, L+675, 1.25% LIBOR Floor, 4/12/2021

  

Telecommunications

  

  

500,000 

  

  

495,000 

  

  

502,500 

  

Securus Technologies Holdings, Inc., L+775, 1.25% LIBOR Floor, 4/30/2021

  

Telecommunications

  

  

500,000 

  

  

495,076 

  

  

500,315 

  

SESAC Holdco II, LLC, L+875, 1.25% LIBOR Floor, 8/8/2019

  

Media

  

  

500,000 

  

  

492,794 

  

  

515,625 

  

Sprint Industrial Holdings, LLC, L+1000, 1.25% LIBOR Floor, 11/14/2019

  

Oil & Gas

  

  

500,000 

  

  

492,158 

  

  

502,500 

  

Telecommunications Management, LLC, L+800, 1.00% LIBOR Floor, 10/30/2020

  

Telecommunications

  

  

500,000 

  

  

495,077 

  

  

507,500 

Total Senior Secured Second Lien Term Loans

  

  

  

  

  

  

  

5,299,503 

  

  

5,410,360 

Short Term Investments - 24.5%(e)

  

  

  

  

  

  

  

  

  

  

  

  

First American Treasury Obligations Fund, Class Z Shares(f)

  

  

  

  

8,643,970 

  

  

8,643,970 

  

  

8,643,970 

Total Short Term Investments

  

  

  

  

  

  

  

8,643,970 

  

  

8,643,970 

TOTAL INVESTMENTS - 86.3%

  

  

  

  

  

  

 30,147,318 

  

 30,472,264 

OTHER ASSETS IN EXCESS OF LIABILITIES - 13.7%

  

  

  

  

  

  

  

  

  

 4,849,654 

NET ASSETS - 100%

  

  

  

  

  

  

  

  

  

 35,321,918 

  

  

  

  

  

  

  

  

  

  

  

  

  

TOTAL RETURN SWAP - 0.8%

  

  

  

Notional Amount 

  

  

  

  

Unrealized Appreciation 

  

Citibank TRS Facility (see Note 6)

  

  

  

$

37,683,784 

  

  

  

  

 290,594 

  

  

  

  

  

  

  

  

  

  

  

  

  

(a)

All of the Company's debt investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940, as amended, or the 1940 Act, except for investments specifically identified as non-qualifying. The Company does not control and is not an affiliate of any of the portfolio companies in its investment portfolio.

(b)

Fair value determined by the Company’s board of directors (see Note 7).

(c)

Position or portion thereof unsettled as of June 30, 2013.

(d)

The investment is not a qualifying asset under the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets as defined under Section 55 of the 1940 Act. As of June 30, 2013, 94.1% of the Company’s total assets represented qualifying assets. In addition, as described in Note 6, the Company calculates its compliance with the qualifying asset test on a “look through” basis by treating each loan underlying the total return swap as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 77.5% of the Company’s total assets represented qualifying assets as of June 30, 2013.

(e)

Short term investments represent highly liquid investments with original maturity dates of three months or less.

(f)

Effective yield as of June 30, 2013 is <0.01%.

  

  

  

  

  

  

  

  

  

  

  

  

  

See accompanying notes to consolidated financial statements.

 

5

 


 

 

 

CĪON Investment Corporation

Consolidated Schedule of Investments

December 31, 2012

 

Portfolio Company(a)

  

Industry

  

Principal/Par

Amount

  

Amortized

Cost

  

Fair Value(b)

Senior Secured First Lien Term Loans - 44.1%

  

  

  

  

  

  

  

  

  

  

  

  

Captive Resources Midco, LLC, L+550, 1.25% LIBOR Floor, 10/31/2018

  

Insurance

  

$

 997,500 

  

$

 980,111 

  

$

 980,044 

  

Plano Molding Co. Inc., L+450, 1.25% LIBOR Floor, 12/21/2017(c)

  

Chemicals

  

  

 1,000,000 

  

  

990,000 

  

  

1,000,000 

Total Senior Secured First Lien Term Loans

  

  

  

  

  

  

  

1,970,111 

  

  

1,980,044 

Short Term Investments - 40.5%(d)

  

  

  

  

  

  

  

  

  

  

  

  

First American Treasury Obligations Fund, Class Z Shares(e)

  

  

  

  

1,817,762 

  

  

1,817,762 

  

  

1,817,762 

Total Short Term Investments

  

  

  

  

  

  

  

1,817,762 

  

  

1,817,762 

TOTAL INVESTMENTS - 84.6%

  

  

  

  

  

  

 3,787,873 

  

 3,797,806 

OTHER ASSETS IN EXCESS OF LIABILITIES - 15.4%

  

  

  

  

  

  

  

  

  

 689,309 

NET ASSETS - 100%

  

  

  

  

  

  

  

  

  

 4,487,115 

  

  

  

  

  

  

  

  

  

  

  

  

  

TOTAL RETURN SWAP - 0.3%

  

  

  

Notional Amount 

  

  

  

  

Unrealized Appreciation 

  

Citibank TRS Facility (see Note 6)

  

  

  

$

 2,883,100 

  

  

  

  

$

 12,493 

  

  

  

  

  

  

  

  

  

  

  

  

  

(a)

All of the Company's debt investments are issued by eligible U.S. portfolio companies, as defined in the 1940 Act. The Company does not control and is not an affiliate of any of the portfolio companies in its investment portfolio.

(b)

Fair value determined by the Company’s board of directors (see Note 7).

  

(c)

Position or portion thereof unsettled as of December 31, 2012.

  

(d)

Short term investments represent highly liquid investments with original maturity dates of three months or less.

  

(e)

Effective yield as of December 31, 2012 is <0.01%.

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

See accompanying notes to consolidated financial statements.

 

7

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

Note 1. Organization and Principal Business

CĪON Investment Corporation, or the Company, was incorporated under the general corporation laws of the State of Maryland on August 9, 2011. On December 17, 2012, the Company successfully raised gross proceeds from unaffiliated outside investors of at least $2,500,000, or the minimum offering requirement, and commenced operations. The Company is an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company, or BDC, under the 1940 Act. The Company intends to elect to be treated for federal income tax purposes as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.

The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation for investors. The Company anticipates that its portfolio will be comprised primarily of investments in senior secured loans and, to a lesser extent, second lien loans and long-term subordinated loans, referred to as mezzanine loans, of private and thinly traded U.S. middle-market companies.

The Company is managed by CĪON Investment Management, LLC, or CIM, a registered investment adviser and an affiliate of the Company. CIM oversees the management of the Company’s activities and is responsible for making investment decisions for the Company’s investment portfolio. The Company and CIM have engaged Apollo Investment Management, L.P., or AIM, a subsidiary of Apollo Global Management, LLC, or, together with its subsidiaries, Apollo, a leading global alternative investment manager, to act as the Company’s investment sub-adviser.

Since commencing its initial public offering on July 2, 2012 and through August 9, 2013, the Company has sold 5,839,032 shares of common stock for gross proceeds of approximately $58,521,000 at an average price per share of $10.02. The gross proceeds received include reinvested shareholder distributions of $458,709, for which we issued 47,221 shares of common stock. As of June 30, 2013, the Company sold 3,853,304 shares for gross proceeds of approximately $38,418,000 at an average price per share of $9.97. The gross proceeds received include reinvested shareholder distributions of $213,150, for which we issued 21,988 shares of common stock.

 

On December 28, 2012, January 31, 2013, March 14, 2013 and May 15, 2013, the Company’s board of directors increased the public offering price per share of common stock under the Company’s offering to $10.04, $10.13, $10.19 and $10.24 per share, respectively, to ensure that the associated net offering price per share equaled or exceeded the net asset value per share on each subsequent subscription closing date and distribution reinvestment date.

 

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of December 31, 2012 and for the period from January 31, 2012 (Inception) through December 31, 2012 included in the Company’s Annual Report on Form 10-K/A. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013. The December 31, 2012 consolidated balance sheet and the consolidated schedule of investments are derived from the 2012 audited consolidated financial statements.

Prior to satisfying the minimum offering requirement on December 17, 2012, the Company had no operating activities except for matters relating to its organization and registration as a non-diversified, closed-end management investment company. As a result, there are no consolidated statements of operations data for the three or six months ended June 30, 2012.

Certain reclassifications have been made to the accompanying consolidated financial statements in prior periods to conform to the current period presentation.

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks and highly liquid investments with original maturity dates of three months or less. The Company’s cash and cash equivalents are held principally at one financial institution and at times may exceed insured limits. The Company periodically evaluates the creditworthiness of this institution and has not experienced any losses on such deposits.

Short Term Investments

Short term investments include an investment in a U.S. Treasury Obligations Fund, which seeks to provide current income and daily liquidity by purchasing U.S. Treasury securities and repurchase agreements that are collateralized by such securities. The Company had $8,643,970 of such investments at June 30, 2013, which are included in investments, at fair value on the accompanying consolidated balance sheets and on the consolidated schedule of investments.

 

8

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

Organization Costs

Organization costs include, among other things, the cost of organizing the Company as a Maryland corporation, including the cost of legal services and other fees pertaining to the organization of the Company. All organization costs have been funded by IIG and its affiliates and there is no liability for these organization costs to the Company until IIG and its affiliates submit such costs for reimbursement. The Company will expense organization costs when incurred, if and when IIG and its affiliates submit such costs for reimbursement. At June 30, 2013, IIG and its affiliates have incurred approximately $192,000 of organization costs, which may be subject to reimbursement by the Company. No additional organization costs have been incurred subsequent to June 30, 2013 (see Note 3).

Offering Expenses

Offering expenses include, among other things, legal fees and other costs pertaining to the preparation of the Company’s registration statement in connection with the continuous public offering of the Company’s shares. Certain offering expenses have been funded by IIG and its affiliates and there is no liability for these offering expenses to the Company until IIG and its affiliates submit such costs for reimbursement. Upon meeting the minimum offering requirement on December 17, 2012, the Company incurred and capitalized offering expenses of $1,000,000 that were submitted for reimbursement by IIG (see Note 3). These expenses are amortized over a twelve month period as an adjustment to capital in excess of par value. The unamortized balance of these expenses is reflected in the consolidated balance sheets as deferred offering expenses, net. The Company will expense any additional offering expenses incurred by IIG and its affiliates if and when IIG and its affiliates submit such costs for reimbursement. During the three and six months ended June 30, 2013, the Company incurred $388,099 and $619,319, respectively, in offering expenses included in general and administrative expense in the consolidated statements of operations. At June 30, 2013, IIG and its affiliates have incurred approximately $825,000 of unreimbursed offering expenses, which may be subject to reimbursement by the Company. No additional material offering expenses have been incurred by IIG and its affiliates subsequent to June 30, 2013 (see Note 3).

 

Income Taxes

The Company intends to elect to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. To qualify and maintain qualification as a RIC, the Company must, among other things, meet certain source of income and asset diversification requirements and distribute to shareholders, for each taxable year, at least 90% of the Company’s “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company qualifies as a RIC and satisfies the annual distribution requirement, the Company will not have to pay corporate level federal income taxes on any income that the Company distributes to its shareholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income. The Company will also be subject to nondeductible federal excise taxes if the Company does not distribute at least 98% of net ordinary income, 98.2% of any capital gains, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes.

Book and tax basis differences relating to permanent differences are reclassified among the Company’s capital accounts, as appropriate. Additionally, the tax character of distributions is determined in accordance with income tax regulations that may differ from GAAP. During the three and six months ended June 30, 2013, the Company declared distributions of approximately $518,000 and $727,000, respectively.

 

Uncertainty in Income Taxes

The Company evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by the taxing authorities. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statements of operations. As of and for the three and six months ended June 30, 2013, the Company did not have any uncertain tax positions.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may materially differ from those estimates.

Valuation of Portfolio Investments

The fair value of the Company’s investments is determined quarterly in good faith by the Company’s board of directors pursuant to its consistently applied valuation procedures and valuation process. Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is

 

9

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

For each investment, CIM will attempt to obtain the most recent closing public market price. If no sales of such investment occurred on the determination date, such investment will be valued at the midpoint of the “bid” and the “ask” price at the close of business on such day. Portfolio securities that carry certain restrictions on sale will typically be consistently valued at a discount from the public market value of the security. Loans or investments traded over the counter and not listed on an exchange are valued at a price obtained from third-party pricing services, including, where appropriate, multiple broker dealers, as determined by CIM.

Notwithstanding the foregoing, if in the reasonable judgment of CIM, the price for any securities held by the Company and determined in the manner described above does not accurately reflect the fair value of such security, CIM will value such security at a price that reflects such security’s fair value and report such change in the valuation to the board of directors or its designee as soon as practicable.

Any securities or other assets that are not publicly traded or for which a market price is not otherwise readily available will be valued at a price that reflects such security’s fair value. With respect to such investments, the investments will be reviewed and valued using one or more of the following types of analyses:

               i.      Market comparable statistics and public trading multiples discounted for illiquidity, minority ownership and other factors for companies with similar characteristics.

              ii.      Valuations implied by third-party investments in the applicable portfolio companies.

            iii.      Discounted cash flow analysis, including a terminal value or exit multiple.

 

Determination of fair value involves subjective judgments and estimates. Accordingly, these notes to the Company’s consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the Company’s consolidated financial statements. Below is a description of factors that the Company’s board of directors may consider when valuing the Company’s equity and debt investments where a market price is not readily available:

·         the size and scope of a portfolio company and its specific strengths and weaknesses;

·         prevailing interest rates for like securities;

·         expected volatility in future interest rates;

·         leverage; 

·         call features, put features and other relevant terms of the debt;

·         the borrower’s ability to adequately service its debt;

·         the fair market value of the portfolio company in relation to the face amount of its outstanding debt;

·         the quality of collateral securing the Company’s debt investments;

·         multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in some cases, book value or liquidation value; and

·         other factors deemed applicable.

All of these factors may be subject to adjustment based upon the particular circumstances of a portfolio company or the Company’s actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners, or acquisition, recapitalization, and restructuring expenses or other related or non-recurring items. The choice of analyses and the weight assigned to such factors may vary across investments and may change within an investment if events occur that warrant such a change.

Consistent with the Company’s valuation policy, the Company evaluates the source of inputs, including any markets in which the Company’s investments are trading, in determining fair value.

Given the expected types of investments, excluding short term investments that are classified as Level 1, the Company expects portfolio holdings to be classified as Level 2 or Level 3. Due to the uncertainty inherent in the valuation process, particularly for Level 2 and Level 3 investments, such fair value estimates may differ materially from the values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses that the Company ultimately realizes on these investments to materially differ from the valuations currently assigned.

Revenue Recognition

Securities transactions are accounted for on the trade date. The Company records interest and dividend income on an accrual basis beginning on the trade settlement date or the ex-dividend date, respectively, to the extent that the Company expects to collect such amounts. The Company does

 

10

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

not accrue as a receivable interest or dividends on loans and debt securities if it has reason to doubt the ability to collect such income. Loan origination fees, original issue discounts, and market discounts/premiums are recorded and such amounts are amortized as adjustments to interest income over the respective term of the loan. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. The Company records prepayment premiums on loans and debt securities as interest income when it receives such amounts.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Derivative Instrument

The Company’s only derivative instrument is a total return swap, or TRS. The Company marks its derivative to market through net changes in unrealized appreciation (depreciation) on the TRS in the consolidated statements of operations.

Capital Gains Incentive Fee

Pursuant to the terms of the investment advisory agreement the Company entered into with CIM, the incentive fee on capital gains earned on liquidated investments of the Company’s investment portfolio during operations is determined and payable in arrears as of the end of each calendar year. Such fee will equal 20% of the Company’s incentive fee capital gains (i.e., the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a cumulative basis and to the extent that all realized capital losses and unrealized capital depreciation exceed realized capital gains as well as the aggregate realized net capital gains for which a fee has previously been paid, the Company would not be required to pay CIM a capital gains incentive fee. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

While the investment advisory agreement with CIM neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of the American Institute for Certified Public Accountants, or AICPA, Technical Practice Aid for investment companies, the Company accrues capital gains incentive fees on unrealized gains. This accrual reflects the incentive fees that would be payable to CIM if the Company’s entire investment portfolio was liquidated at its fair value as of the balance sheet date even though CIM is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Net Increase in Net Assets per Share

Net increase in net assets per share is calculated based upon the daily weighted average number of shares of common stock outstanding during the reporting period.

Distributions

Distributions to shareholders are recorded as of the record date. The amount to be paid as a distribution is determined by the board of directors on a monthly basis. Net realized capital gains, if any, are distributed or deemed distributed at least annually.

 

Note 3. Transactions with Related Parties

 

The Company has entered into an investment advisory agreement with CIM. Pursuant to the investment advisory agreement, CIM will be paid an annual base management fee equal to 2.0% of the average value of the Company’s gross assets, less cash and cash equivalents, and an incentive fee based on the Company’s performance. The incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, will be calculated and payable quarterly in arrears based on “pre-incentive fee net investment income” for the immediately preceding quarter and will be subject to a hurdle rate, measured quarterly and expressed as a rate of return on adjusted capital, as defined in the investment advisory agreement, equal to 1.875% per quarter, or an annualized rate of 7.5%. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is an incentive fee on capital gains earned on liquidated investments from the portfolio and is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement). This fee will equal 20% of realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. On a cumulative basis and to the extent that all realized capital losses and unrealized capital depreciation exceed realized capital gains as well as the aggregate realized net capital gains for which a fee has previously been paid, the Company would not be required to pay CIM a capital gains incentive fee.

 

The Company began accruing fees under the investment advisory agreement on December 17, 2012, upon the commencement of the Company’s operations. For the three and six months ended June 30, 2013, CIM earned $120,781 and $165,523, respectively, in management fees.

 

11

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

For the three and six months ended June 30, 2013, all management fees were reimbursed to the Company by IIG in accordance with the expense support and conditional reimbursement agreement entered into with IIG, or the expense support and conditional reimbursement agreement.

 

The Company accrues the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory agreement, the fee payable to CIM is based on net realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized. For the three months ended June 30, 2013, the Company recorded capital gains incentive fees of $57,705 based on the performance of its investment portfolio, of which $5,525 was based on net unrealized gains and $52,180 was based on realized gains. For the six months ended June 30, 2013, the Company recorded capital gains incentive fees of $174,728 based on the performance of its investment portfolio, of which $80,497 was based on net unrealized gains and $94,231 was based on realized gains. For the three and six months ended June 30, 2013, all incentive fees were reimbursed to the Company by IIG in accordance with the expense support and conditional reimbursement agreement.

 

On January 30, 2013, the Company entered into the expense support and conditional reimbursement agreement with IIG, whereby IIG agreed to reimburse the Company for expenses in an amount that is sufficient to: (1) ensure that no portion of the Company’s distributions to shareholders will be paid from its offering proceeds or borrowings, and/or (2) reduce the Company’s operating expenses until it has achieved economies of scale sufficient to ensure that it bears a reasonable level of expense in relation to its investment income. Pursuant to the expense support and conditional reimbursement agreement, the Company will have a conditional obligation to reimburse IIG for any amounts funded by IIG under such agreement if, during any fiscal quarter occurring within three years of the date on which IIG funded such amount, the sum of the Company’s net investment income for tax purposes, net capital gains and the amount of any dividends and other distributions paid to the Company on account of investments in portfolio companies exceeds the distributions paid by the Company to its shareholders. For the three and six months ended June 30, 2013, the total expense reimbursement from IIG was $1,147,536 and $1,966,909, respectively, relating to certain operating expenses.

 

The Company may fund its cash distributions to shareholders from any sources of funds available to the Company, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to it on account of preferred and common equity investments in portfolio companies and expense reimbursements from IIG, which are subject to recoupment. The Company has not established limits on the amount of funds it may use from available sources to make distributions. For a significant time after the commencement of its offering, a substantial portion of the Company’s distributions may result from expense reimbursements from IIG, which are subject to repayment by the Company within three years. The purpose of this arrangement is to avoid such distributions being characterized as returns of capital. Shareholders should understand that any such distributions are not based on the Company’s investment performance, and can only be sustained if the Company achieves positive investment performance in future periods and/or IIG continues to make such expense reimbursements. Shareholders should also understand that the Company’s future repayments will reduce the distributions that they would otherwise receive.  There can be no assurance that the Company will achieve such performance in order to sustain these distributions, or be able to pay distributions at all.  IIG has no obligation to provide expense reimbursements to the Company in future periods. For the three and six months ended June 30, 2013, if expense reimbursements from IIG were not supported, some or all of the distributions may be a return of capital.

 

The table below presents a summary of all expenses supported by IIG and the associated dates through which such expenses are eligible for reimbursement by the Company for each of the three months ended December 31, 2012, March 31, 2013, and June 30, 2013.

 

Three Months Ended

  

Expense Support

Received from IIG

  

Expense Support Reimbursed to IIG

  

Unreimbursed Expense Support

  

Ratio of Operating Expense to Average Net Assets for the Period(1) 

  

Annualized Distribution Rate for the Period(3) 

  

  

Eligible for Reimbursement through

December 31, 2012

  

$

116,706 

  

$

 - 

  

$

116,706 

  

0.93%

  

0.00%

 (2) 

  

December 31, 2015

March 31, 2013

  

  

819,373 

  

  

 - 

  

  

819,373 

  

2.75%

  

7.00%

  

  

March 31, 2016

June 30, 2013

  

  

1,147,536 

  

  

 - 

  

  

1,147,536 

  

1.43%

  

7.00%

  

  

June 30, 2016

Total

  

$

2,083,615 

  

$

 - 

  

$

2,083,615 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

(1)

Operating expenses include all expenses borne by the Company, except for organizational and offering expenses, base management fees, incentive fees, administrative services expenses and other general and administrative expenses owed to CIM and its affiliates and interest expense.

(2)

The Company did not declare any distributions during the three months ended December 31, 2012.

(3)

Annualized Distribution Rate equals the annualized rate of distributions paid to shareholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by CIM. Annualized Distribution Rate does not include special cash or stock distributions paid to shareholders.

                                   

Reimbursement of such costs will be determined as appropriate to meet the objectives of the expense support and conditional reimbursement agreement. As a result, the Company may or may not be requested to reimburse any of these costs by IIG. As of June 30, 2013, the net reimbursement from IIG was $991,154.

 

The Company or IIG may terminate the expense support and conditional reimbursement agreement at any time. IIG has indicated that it expects to continue such reimbursements until it deems that the Company has achieved economies of scale sufficient to ensure that it bears a reasonable level of expenses in relation to its income. If the Company terminates the investment advisory agreement with CIM, the Company may be required to repay IIG all reimbursements funded by IIG within three years of the date of termination. The specific amount of expenses reimbursed by

 

12

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

IIG, if any, will be determined at the end of each quarter. There can be no assurance that the expense support and conditional reimbursement agreement will remain in effect or that IIG will reimburse any portion of the Company’s expenses in future quarters.

 

The Company entered into an administration agreement with CIM’s affiliate, ICON Capital, LLC, formerly known as ICON Capital Corp., or ICON Capital, pursuant to which ICON Capital furnishes the Company with administrative services including accounting, investor relations and other administrative services necessary to conduct its day-to-day operations. ICON Capital is reimbursed for administrative expenses it incurs on the Company’s behalf in performing its obligations, provided that such reimbursement will be for the lower of ICON Capital’s actual costs or the amount that the Company would be required to pay for comparable administrative services in the same geographic location. Such costs will be reasonably allocated to the Company on the basis of assets, revenues, time records or other reasonable methods. The Company will not reimburse ICON Capital for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a person with a controlling interest in ICON Capital. For the three and six months ended June 30, 2013, the Company incurred administrative services expense from ICON Capital of $307,636 and $571,191, respectively, of which $229,224 and $492,779, respectively, related to the allocation of costs of administrative personnel for services rendered to the Company and the remainder related to other reimbursable expenses. For the three and six months ended June 30, 2013, all administrative expenses were reimbursed by IIG in accordance with the expense support and conditional reimbursement agreement.

 

The Company’s payment of organization costs and offering expenses (including reimbursement of costs incurred by IIG and its affiliates) is capped at 1.5% of the gross proceeds from the offering. If the Company sells the maximum number of shares at its latest public offering price of $10.24 per share, then the Company estimates that it may incur up to approximately $15,360,000 of expenses. Under the terms of the investment advisory agreement, CIM and certain of its affiliates, which includes IIG, will become entitled to receive reimbursement of up to 1.5% of the gross proceeds raised until all organization costs and offering expenses have been reimbursed. Previously, the Company interpreted “raised” to mean all gross proceeds that the Company expected to raise through the completion of the offering of its shares, rather than actual gross proceeds raised through the date of the reimbursement.  Consistent with such application and since the Company believed it would raise at least $100 million through the completion of the offering of its shares, upon commencement of operations on December 17, 2012, the Company issued 111,111 shares of the Company’s common stock at $9.00 per share to IIG in lieu of payment of $1,000,000 for organization and offering expenses submitted for reimbursement.  The transaction satisfied an independent obligation of IIG to invest $1,000,000 in the Company’s shares.  Through that date, the Company had raised gross proceeds from unaffiliated outside investors of $2,639,439 and from affiliated investors of $2,000,000, which, applying 1.5% of actual proceeds raised through the date of reimbursement, would have resulted in CIM being entitled to $69,592.

 

With respect to any future reimbursements for organization and offering costs, the Company will interpret the 1.5% cap based on actual gross proceeds raised at the time of such reimbursement.  In addition, the Company will not issue any of its shares or other securities for services or for property other than cash or securities except as a dividend or distribution to its security holders or in connection with a reorganization.  Consistent with this interpretation, on May 30, 2013, IIG paid the Company $1,000,000, plus interest accrued at a rate of 7% per year. At June 30, 2013, IIG and its affiliates incurred organization costs and offering expenses of approximately $2,017,000, of which $1,000,000 have been recorded by the Company as a payable to IIG. No additional material organization costs or offering expenses have been incurred by IIG or its affiliates subsequent to June 30, 2013. The decision to fund the Company’s organization costs and offering expenses and the decision to seek reimbursement for such costs is solely at the discretion of IIG and its affiliates. As a result, the Company may or may not be requested to reimburse any costs funded by IIG and its affiliates.

 

The Company has entered into certain agreements with ICON Securities, LLC, formerly known as ICON Securities Corp., or ICON Securities, whereby the Company pays certain fees and reimbursements. ICON Securities is entitled to receive a 3% dealer manager fee from the gross offering proceeds from the sale of the Company’s shares. The selling dealers are entitled to receive a sales commission of up to 7% of the gross offering proceeds. Such costs are charged against capital in excess of par value when incurred. For the three months ended June 30, 2013, the Company paid or accrued commissions of $1,293,482 to the selling dealers and $617,001 to ICON Securities. For the six months ended June 30, 2013, the Company paid or accrued commissions of $2,063,117 to the selling dealers and $975,270 to ICON Securities.

 

Fees and other expenses incurred by the Company related to CIM or its affiliates were as follows:

 

Entity 

  

Capacity 

  

Description 

  

Three Months Ended

June 30, 2013 

  

Six Months Ended

June 30, 2013 

ICON Securities

  

Dealer-manager

  

Dealer-manager fees (1)

  

 617,001 

  

 975,270 

CIM

  

Investment adviser

  

Management fees (2)(3)

  

  

 120,781 

  

  

 165,523 

CIM

  

Investment adviser

  

Incentive fees (2)(3)

  

  

 57,705 

  

  

 174,728 

ICON Capital

  

Administrative services provider

  

Administrative services expense (2)(3)

  

  

 307,636 

  

  

 571,191 

  

  

  

  

  

  

 1,103,123 

  

 1,886,712 

  

  

  

  

  

  

  

  

  

  

  

(1)   Amount charged directly to equity.

  

  

  

  

  

  

(2)   Amount charged directly to operations.

  

  

  

  

  

  

(3)   Amount has been supported in connection with the expense support and conditional reimbursement agreement.

 

 

13

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

Because CIM’s senior management team is comprised of substantially the same personnel as the senior management team of the Company’s affiliate, ICON Capital, which is the investment manager to certain oil and natural gas drilling partnerships, or the oil and gas fund, and certain equipment finance funds, or equipment funds, such members of senior management provide investment advisory and management services to both the oil and gas fund and the equipment funds in addition to the Company. In the event that CIM undertakes to provide investment advisory services to other clients in the future, it will strive to allocate investment opportunities in a fair and equitable manner consistent with the Company’s investment objective and strategies so that the Company will not be disadvantaged in relation to any other client of the investment adviser or its senior management team. However, it is currently possible that some investment opportunities will be provided to the oil and gas fund, equipment funds or other clients of CIM rather than to the Company.

 

Indemnifications

 

The investment advisory agreement, the investment sub-advisory agreement, the administration agreement and the dealer manager agreement each provide certain indemnifications from the Company to the other relevant parties to such agreements.  The Company’s maximum exposure under these agreements is unknown. However, the Company has not experienced claims or losses pursuant to these agreements and believes the risk of loss related to such indemnifications to be remote.

 

Note 4. Distributions

 

The Company’s board of directors declared distributions for twelve record dates in the six months ended June 30, 2013. Declared distributions are paid monthly. The following table presents the cash distributions per share that were declared during the six months ended June 30, 2013:

 

  

  

Distributions

Three Months Ended

  

Per Share

  

Amount

    March 31, 2013 (six record dates)

  

$

 0.1769 

  

$

 208,766 

    June 30, 2013 (six record dates)

  

  

 0.1788 

  

  

 518,630 

Total Distributions for the six months ended June 30, 2013

  

$

 0.3557 

  

$

 727,396 

 

On July 15, 2013, the Company’s board of directors declared two regular semi-monthly cash distributions of $0.029867 per share each, which were paid on August 1, 2013 to shareholders of record on July 15, 2013 and July 31, 2013, respectively. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

 

The Company may fund cash distributions to shareholders in the future from any sources of funds available, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from IIG, which are subject to recoupment. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

 

The following table reflects the sources of the cash distributions that the Company has declared on its shares of common stock during the six months ended June 30, 2013:

 

Source of Distribution

  

Distribution Amount

  

Percentage

Realized gain on investments and total return swap(1)

  

$

 616,495 

  

84.8%

Expense reimbursement from IIG

  

  

 110,901 

  

15.2%

    Total

  

$

 727,396 

  

100.0%

  

  

  

  

  

  

(1)

Includes interest income and fees, net of financing amounts paid to Citibank, N.A., or Citibank, generated on the loans underlying the TRS of $145,295.

             

The Company’s net investment income on a tax basis for the six months ended June 30, 2013 was $108,209. As of June 30, 2013, the Company has distributed all tax-basis net investment income.

 

There were no differences between the Company’s GAAP-basis net investment income and the Company’s tax-basis net investment income. The above sources are not currently estimated to be characterized as long-term capital gains distributions.

 

The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. The actual tax characteristics of distributions to shareholders are reported to shareholders annually on Form 1099-DIV.

 

As of June 30, 2013 and December 31, 2012, the components of accumulated earnings on a tax basis were as follows:

 

14

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

 

  

  

June 30, 2013

(unaudited)

  

December 31, 2012

Undistributed net investment income

  

$

 - 

  

$

 2,692 

Undistributed net realized gain from investments

  

  

 - 

  

  

44 

Net unrealized appreciation on investments and total return swap(1)

  

  

615,540 

  

  

22,426 

  

  

 $

615,540 

  

 $

25,162 

  

  

  

  

  

  

  

  

(1)

As of June 30, 2013 and December 31, 2012, the gross unrealized appreciation on the Company’s investments and the underlying loans of the TRS was $809,350 and $28,051, respectively, which included interest income and fees, net of financing amounts, generated on the loans underlying the TRS of $190,631 and $98, respectively.  As of June 30, 2013 and December 31, 2012, the gross unrealized depreciation on the Company’s investments and the underlying loans of the TRS was $193,810 and $5,625, respectively.

               

The aggregate cost of the Company’s investments for federal income tax purposes totaled $30,147,318 and $3,787,873 as of June 30, 2013 and December 31, 2012, respectively. The aggregate net unrealized appreciation on a tax basis, including the Company’s TRS, was $615,540 and $22,426 as of June 30, 2013 and December 31, 2012, respectively.

 

Note 5. Investments

 

The composition of the Company’s investment portfolio as of June 30, 2013 and December 31, 2012 at amortized cost and fair value was as follows:

 

  

  

  

June 30, 2013

(unaudited)

  

December 31, 2012

  

  

Amortized Cost(1) 

  

Fair Value

  

Percentage of Investment Portfolio

  

Amortized Cost(1) 

  

Fair Value

  

Percentage of Investment Portfolio

Senior Secured Term Loans - First lien(2) 

  

$

 16,203,845 

  

 16,417,934 

  

53.9%

  

 1,970,111 

  

 1,980,044 

  

52.1%

Senior Secured Term Loans - Second lien(2) 

  

  

5,299,503 

  

  

5,410,360 

  

17.7%

  

  

 - 

  

  

 - 

  

 -% 

Short term investments(3) 

  

  

8,643,970 

  

  

8,643,970 

  

28.4%

  

  

1,817,762 

  

  

1,817,762 

  

47.9%

    Total investments

  

$

 30,147,318 

  

$

 30,472,264 

  

100.0%

  

$

 3,787,873 

  

$

 3,797,806 

  

100.0%

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

(1)

Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on the Company’s investments.

(2)

The Company does not control and is not an affiliate of any of the portfolio companies in its investment portfolio.

(3)

Short term investments represent highly liquid investments with original maturity dates of three months or less.

 

15

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

The table below shows the composition of the Company’s investment portfolio by industry classification and the percentage, by fair value, of the total investment portfolio assets in such industries as of June 30, 2013 and December 31, 2012:

 

  

  

June 30, 2013

(unaudited)

  

December 31, 2012

  

Investments at Fair Value

  

Percentage of 

Investment Portfolio

  

Investments at Fair Value

  

Percentage of 

Investment Portfolio

Oil & Gas

  

$

 3,666,750 

  

12.0%

  

$

 - 

  

 -% 

Media

  

  

2,455,625 

  

8.1%

  

  

 - 

  

 -% 

Telecommunications

  

  

2,012,815 

  

6.5%

  

  

 - 

  

 -% 

Construction

  

  

1,997,500 

  

6.5%

  

  

 - 

  

 -% 

Environmental Services

  

  

1,905,225 

  

6.3%

  

  

 - 

  

 -% 

Professional & Business Services

  

  

1,521,451 

  

5.0%

  

  

 - 

  

 -% 

Financial Services

  

  

1,447,435 

  

4.8%

  

  

 - 

  

 -% 

Healthcare

  

  

1,151,732 

  

3.8%

  

  

 - 

  

 -% 

Building Materials

  

  

1,002,500 

  

3.3%

  

  

 - 

  

 -% 

Food & Beverage

  

  

999,994 

  

3.3%

  

  

 - 

  

 -% 

Chemicals

  

  

979,875 

  

3.2%

  

  

 1,000,000 

  

26.3%

Insurance

  

  

975,131 

  

3.2%

  

  

 980,044 

  

25.8%

Printing & Publishing

  

  

703,618 

  

2.3%

  

  

 - 

  

 -% 

Gaming & Hotels

  

  

506,875 

  

1.7%

  

  

 - 

  

 -% 

Entertainment & Leisure

  

  

501,768 

  

1.6%

  

  

 - 

  

 -% 

U.S. Treasury Securities

  

  

8,643,970 

  

28.4%

  

  

1,817,762 

  

47.9%

  Total

  

$

 30,472,264 

  

100.0%

  

$

 3,797,806 

  

100.0%

 

Note 6. Total Return Swap

 

On December 17, 2012, the Company, through its wholly-owned subsidiary, Flatiron Funding, LLC, or Flatiron, entered into a TRS with Citibank.  The agreements between Flatiron and Citibank, which collectively establish the TRS, are referred to as the TRS Agreement.

 

A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS and interest payments in return for periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. Because of the unique structure of a TRS, a TRS typically offers lower financing costs than are offered through more traditional borrowing arrangements.

 

The TRS with Citibank enables the Company, through its ownership of Flatiron, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citibank. As such, the TRS is analogous to Flatiron borrowing funds to acquire loans and incurring interest expense to a lender.

 

The obligations of Flatiron under the TRS are non-recourse to the Company and the Company’s exposure under the TRS is limited to the value of the Company’s investment in Flatiron, which generally will equal the value of cash collateral provided by Flatiron under the TRS. Pursuant to the terms of the TRS, Flatiron may select loans with a maximum aggregate market value (determined at the time each such loan becomes subject to the TRS) of the lesser of (a) $150,000,000 and (b) 140% of the aggregate amount of cash contributed to the equity capital of the Company during the first nine months of the TRS and not withdrawn during that period, or the maximum portfolio amount. Flatiron is required to initially cash collateralize a specified percentage of each loan (generally 25% of the market value of such loan) included under the TRS in accordance with margin requirements described in the TRS Agreement. Under the terms of the TRS, Flatiron agreed not to draw upon, or post as collateral, such cash collateral in respect of other financings or operating requirements prior to the termination of the TRS. Neither the cash collateral required to be posted with Citibank nor any other assets of Flatiron are available to pay the debts of the Company.

 

Each individual loan must meet criteria described in the TRS Agreement, including a requirement that substantially all of the loans be rated by Moody’s and S&P and quoted by a nationally-recognized pricing service. Under the terms of the TRS, Citibank, as calculation agent, determines whether there has been a failure to satisfy the portfolio criteria in the TRS. If such failure continues for 30 days following the delivery of notice thereof, then Citibank has the right, but not the obligation, to terminate the TRS. Flatiron receives from Citibank all interest and fees payable in respect of the loans included in the TRS. Flatiron pays to Citibank interest at a rate equal to, in respect of each loan included in the TRS, the floating rate index specified for such loan + 1.25% per year. In addition, upon the termination or repayment of any loan subject to the TRS, Flatiron will either receive from Citibank the appreciation in the value of such loan or pay to Citibank any depreciation in the value of such loan.

 

 

16

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

Under the terms of the TRS, Flatiron may be required to post additional cash collateral, on a dollar-for-dollar basis, in the event of depreciation in the value of the underlying loans after such value decreases below a specified amount. The limit on the additional collateral that Flatiron may be required to post pursuant to the TRS is equal to the difference between the full notional amount of the loans underlying the TRS and the amount of cash collateral already posted by Flatiron. The amount of collateral required to be posted by Flatiron is determined primarily on the basis of the aggregate value of the underlying loans.

 

The Company has no contractual obligation to post any such additional collateral or to make any interest payments to Citibank on behalf of Flatiron. The Company may, but is not obligated to, increase its investment in Flatiron for the purpose of funding any additional collateral or payment obligations for which Flatiron may become obligated during the term of the TRS. If the Company does not make any such additional investment in Flatiron and Flatiron fails to meet its obligations under the TRS, then Citibank will have the right to terminate the TRS and seize the cash collateral posted by Flatiron under the TRS. In the event of an early termination of the TRS, Flatiron would be required to pay an early termination fee.

 

Citibank may terminate the TRS on or after December 17, 2013, or the call date. Flatiron may terminate the TRS at any time upon providing no more than 30 days prior notice to Citibank. Any termination prior to the call date will result in payment of an early termination fee to Citibank based on the maximum portfolio amount of the TRS. Under the terms of the TRS, the early termination fee will equal the present value of a stream of monthly payments that would be owed by Flatiron to Citibank for the period from the termination date through and including the call date. Such monthly payments will equal the product of 60% of the maximum portfolio amount, multiplied by 1.25% per year. The Company estimates the early termination fee would have been approximately $201,000 at June 30, 2013. Other than during the first nine months and last 180 days of the term of the TRS, Flatiron may be required to pay a minimum usage fee in connection with the TRS. At June 30, 2013, Flatiron was not subject to a minimum usage fee.

 

In connection with the TRS, Flatiron is required to comply with various covenants and reporting requirements as defined in the TRS Agreement. As of June 30, 2013, Flatiron was in compliance with all covenants and reporting requirements.

 

For purposes of computing the capital gains incentive fee, the Company treats the net realized gains or losses on the sale or maturity of the underlying TRS loans as realized gains or losses on the TRS.  For purposes of computing the subordinated incentive fee on income, the Company treats the interest spread, which represents the difference between i) the interest and fees received on the underlying TRS loans and ii) the interest paid to Citibank on the settled notional value of the TRS loans, as pre-incentive fee net investment income on the TRS. Accordingly, all net realized economic benefits associated with the underlying TRS loans, if any, are included in the computation of either the capital gains incentive fee or the subordinated incentive fee on income. Any unrealized appreciation on the TRS is reflected in total assets on the Company’s consolidated balance sheets and included in the computation of the base management fee.

 

For purposes of the asset coverage ratio test applicable to the Company as a BDC, the Company will treat the outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted by Flatiron under the TRS, as a senior security for the life of that instrument. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the Securities and Exchange Commission, or SEC.

 

Further, for purposes of Section 55(a) under the 1940 Act, the Company will treat each loan underlying the TRS as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

 

As of June 30, 2013, the fair value of the TRS was $290,594. The fair value of the TRS is reflected as unrealized appreciation on total return swap on the Company’s consolidated balance sheets. The change in value of the TRS is reflected in the Company’s consolidated statements of operations as net change in unrealized appreciation on total return swap. As of June 30, 2013, Flatiron had selected 39 underlying loans with a total notional amount of $37,683,784 and posted $10,334,242 in cash collateral held by Citibank (of which only $10,297,039 was required to be posted, which is reflected in due from counterparty on the Company’s consolidated balance sheets).

 

17

 


 

CĪON INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2013 

(unaudited)

 

The following is a summary of the underlying loans subject to the TRS as of June 30, 2013:

 

Underlying Loans(a)

  

Industry

  

Notional Amount

  

Market

Value(b)

  

Unrealized Appreciation (Depreciation)

Senior Secured First Lien Term Loans

  

  

  

  

  

  

  

  

  

  

  

ABB Concise Optical Group, LLC, L+350, 1.00% LIBOR Floor, 2/6/2019(c)

  

Healthcare

  

$

 1,496,256 

  

$

 1,480,015 

  

$

 (16,241) 

Arysta LifeScience SPC, LLC, L+350, 1.00% LIBOR Floor, 5/29/2020(d)

  

Chemicals

  

  

800,975 

  

  

796,451 

  

  

 (4,524) 

ATI Holdings, Inc., L+450, 1.25% LIBOR Floor, 12/21/2019

  

Healthcare

  

  

492,526 

  

  

499,366 

  

  

6,840 

Avaya Inc., L+675, 1.25% LIBOR Floor, 3/31/2018

  

Telecommunications

  

  

2,005,045 

  

  

1,861,901 

  

  

 (143,144) 

BBTS Borrower LP, L+650, 1.25% LIBOR Floor, 6/4/2019

  

Oil & Gas

  

  

1,368,180 

  

  

1,371,055 

  

  

2,875 

Caraustar Industries, Inc., L+625, 1.25% LIBOR Floor, 5/1/2019

  

Packaging

  

  

749,338 

  

  

758,775 

  

  

 9,437 

Centaur Gaming, L+400, 1.25% LIBOR Floor, 2/20/2019

  

Gaming & Hotels

  

  

497,500 

  

  

497,500 

  

  

 - 

Cole Haan LLC, L+450, 1.25% LIBOR Floor, 2/1/2020

  

Textile & Apparel Mfg.

  

  

 496,342 

  

  

 499,924 

  

  

 3,582 

Cyanco Intermediate Corp., L+450, 1.00% LIBOR Floor, 5/1/2020(c)

  

Chemicals

  

  

761,310 

  

  

765,155 

  

  

3,845 

Grande Communications Networks LLC, L+350, 1.00% LIBOR Floor, 5/31/2020(c)

  

Telecommunications

  

  

 1,008,930 

  

  

 1,007,662 

  

  

 (1,268) 

Herff Jones Inc., L+450, 1.00% LIBOR Floor, 6/25/2019(c)

  

Textile & Apparel Mfg.

  

  

1,983,650 

  

  

2,031,585 

  

  

47,935 

Integra Telecom, Inc., L+400, 1.25% LIBOR Floor, 2/22/2019

  

Telecommunications

  

  

493,763 

  

  

498,501 

  

  

 4,738 

Ion Trading Technologies S.Á R.L., L+325, 1.25% Floor, 5/22/2020(d)

  

Financial Services

  

  

497,500 

  

  

496,665 

  

  

 (835) 

KCG Holdings, Inc., L+450, 1.25% LIBOR Floor, 12/5/2017(c)(d)

  

Financial Services

  

  

495,000 

  

  

491,875 

  

  

 (3,125) 

Lineage Logistics, LLC, L+350, 1.00% LIBOR Floor, 4/26/2019

  

Diversified Support Services

  

  

515,410 

  

  

515,628 

  

  

218 

Orbitz Worldwide, L+475, 1.00% LIBOR Floor, 3/25/2019(d)

  

Entertainment & Leisure

  

  

500,000 

  

  

500,415 

  

  

 415 

Packaging Coordinators, Inc., L+425, 1.25% LIBOR Floor, 5/10/2020

  

Packaging

  

  

1,990,000 

  

  

2,010,000 

  

  

20,000 

Peppermill Casinos, L+600, 1.25% LIBOR Floor, 11/9/2018

  

Gaming & Hotels

  

  

982,563 

  

  

1,014,900 

  

  

 32,337 

Polyconcept Finance B.V., L+475, 1.25% LIBOR Floor, 6/28/2019(c)(d)

  

Professional & Business Services

  

  

2,534,280 

  

  

2,534,280 

  

  

 - 

Safe-Guard Products International, LLC, L+600, 1.25% LIBOR Floor, 12/21/2018

  

Financial Services

  

  

896,097 

  

  

940,902 

  

  

 44,805 

SESAC Holdco II, LLC, L+475, 1.25% LIBOR Floor, 2/8/2019

  

Media

  

  

492,525 

  

  

498,744 

  

  

6,219 

SRA International, L+525, 1.25% LIBOR Floor, 7/20/2018

  

Computers & Electronics

  

  

1,957,500 

  

  

1,984,160 

  

  

 26,660 

Steward Health Care System LLC, L+550, 1.25% LIBOR Floor, 4/10/2020

  

Healthcare

  

  

495,000 

  

  

502,500 

  

  

7,500 

Sutherland Global Services, L+600, 1.25% LIBOR Floor, 3/6/2019(d)

  

Professional & Business Services

  

  

1,971,633 

  

  

1,974,854 

  

  

 3,221 

Tervita, L+500, 1.25% LIBOR Floor, 5/15/2018(d)

  

Ecological

  

  

546,101 

  

  

548,308 

  

  

2,207 

Travelport LLC, L+500, 1.25% LIBOR Floor, 6/26/2019(d)

  

Entertainment & Leisure

  

  

1,093,350 

  

  

1,096,125 

  

  

 2,775 

TriNet HR Corp. and SOI Holdings, Inc., L+450, 10/24/2017

  

Professional & Business Services

  

  

246,228 

  

  

244,994 

  

  

 (1,234) 

TriNet HR Corp. and SOI Holdings, Inc., L+525, 1.25% LIBOR Floor, 10/24/2018

  

Professional & Business Services

  

  

249,374 

  

  

248,751 

  

  

 (623) 

VFH Parent LLC, L+450, 1.25% LIBOR Floor, 7/8/2016

  

Financial Services

  

  

479,910 

  

  

483,369 

  

  

3,459 

Waupaca Foundry, Inc., L+350, 1.00% LIBOR Floor, 6/29/2017

  

Steel

  

  

487,272 

  

  

485,040 

  

  

 (2,232) 

Washington Inventory Services, L+450, 1.25% LIBOR Floor, 12/20/2018

  

Professional & Business Services

  

  

495,013 

  

  

496,257 

  

  

1,244 

Total Senior Secured First Lien Term Loans

  

  

  

  

29,078,571 

  

  

29,135,657 

  

  

57,086 

Senior Secured Second Lien Term Loans

  

  

  

  

  

  

  

  

  

  

  

Arysta LifeScience SPC, LLC, L+700, 1.25% LIBOR Floor, 11/30/2020(c)(d)

  

Chemicals

  

  

664,290 

  

  

659,257 

  

  

 (5,033) 

Carestream Health, Inc., L+850, 1.00% LIBOR Floor, 12/7/2019(d)

  

Healthcare

  

  

980,000 

  

  

980,000 

  

  

 - 

Deltek Inc., L+875, 1.25% LIBOR Floor, 10/10/2019

  

Computers & Electronics

  

  

1,619,640 

  

  

1,646,912 

  

  

 27,272 

Ion Trading Technologies S.Á R.L., L+700, 1.25% Floor, 5/22/2021(d)

  

Financial Services

  

  

495,000 

  

  

498,750 

  

  

3,750 

Performance Food Group, Inc., L+525, 1.00% LIBOR Floor, 11/14/2019

  

Food & Beverage

  

  

879,580 

  

  

875,160 

  

  

 (4,420) 

Securus Technologies Holdings, Inc., L+775, 1.25% LIBOR Floor, 4/30/2021

  

Telecommunications

  

  

501,875 

  

  

500,315 

  

  

 (1,560) 

TWCC Holding Corp., L+600, 1.00% LIBOR Floor, 6/26/2020(c)

  

Media

  

  

2,039,400 

  

  

2,070,300 

  

  

 30,900 

Total Senior Secured Second Lien Term Loans

  

  

  

  

7,179,785 

  

  

7,230,694 

  

  

50,909 

  

  

  

  

  

  

  

  

  

  

  

  

Subordinated Unsecured Term Loans

  

  

  

  

  

  

  

  

  

  

  

Catalent Pharma Solutions Inc., L+525, 1.25% LIBOR Floor, 12/31/2017(c)(d)

  

Healthcare

  

  

1,425,428 

  

  

1,417,396 

  

  

 (8,032) 

  

  

  

  

  

  

  

  

  

  

  

  

  

Total

  

  

  

$

 37,683,784 

  

$

 37,783,747 

  

  

 99,963 

  

  

  

Total interest income, net of expenses on TRS

  

  

190,631 

  

  

Total Fair Value of TRS

  

$

 290,594 

  

  

  

  

  

  

  

  

  

  

  

  

  

(a)

All of the Company's debt investments are issued by eligible U.S. portfolio companies, as defined in the 1940 Act, except for investments specifically identified as non-qualifying. The Company does not control and is not an affiliate of any of the  companies that are issuers of the underlying loans subject to the TRS.

(b)

Fair value determined by the Company’s board of directors (see Note 7).

(c)

Position or portion thereof unsettled as of June 30, 2013.

  

  

  

  

  

  

  

  

  

  

  

(d)

The investment is not a qualifying asset under the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets as defined under Section 55 of the 1940 Act. As of June 30, 2013, 94.1% of the Company’s total assets represented qualifying assets. In addition, as described in Note 6, the Company calculates its compliance with the qualifying asset test on a “look through” basis by treating each loan underlying the total return swap as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 77.5% of the Company’s total assets represented qualifying assets as of June 30, 2013.