Attached files

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

 

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 March 31, 2014

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 May 8, 2014 was 28,211,914.

 


 

 

CĪON INVESTMENT CORPORATION

TABLE OF CONTENTS

FORM 10-Q

 

 

Page

 

PART I – FINANCIAL INFORMATION   

 

 

Item 1. Financial Statements

 

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Changes in Net Assets

3

 

Consolidated Statements of Cash Flows

4

 

Consolidated Schedule of Investments

5

 

Notes to Consolidated Financial Statements

9

 

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

35

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

51

 

Item 4. Controls and Procedures

52

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

53

 

Item 1A. Risk Factors

53

 

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

53

 

Item 3. Defaults Upon Senior Securities

53

 

Item 4. Mine Safety Disclosures

53

 

Item 5. Other Information

53

 

Item 6. Exhibits

54

 

Signatures

56

  

 


 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CĪON Investment Corporation

Consolidated Balance Sheets

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(unaudited)

 

 

 

Assets

 

Investments, at fair value (amortized cost of $151,796,526

 

 

 

 

 

 

and $103,414,685, respectively)

$

 153,511,647 

 

$

 104,518,913 

 

Cash

 

 515,066 

 

 

 449,912 

 

Due from counterparty(1)

 

 68,368,923 

 

 

 40,703,777 

 

Reimbursement from IIG, net(2)

 

 - 

 

 

 545,593 

 

Prepaid expenses

 

 45,520 

 

 

 98,990 

 

Interest receivable on investments

 

 690,552 

 

 

 415,416 

 

Receivable due on investments sold

 

 6,892,579 

 

 

 535,513 

 

Unrealized appreciation on total return swap(1)

 

 2,756,542 

 

 

 1,548,617 

 

Receivable due on total return swap(1)

 

 2,809,575 

 

 

 1,801,665 

 

Total assets

$

 235,590,404 

 

$

 150,618,396 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

Liabilities

 

 

 

 

 

 

Payable for investments purchased

$

 7,567,520 

 

$

 3,462,700 

 

Shareholders' distributions payable(3)

 

 - 

 

 

 895,704 

 

Accounts payable and accrued expenses

 

 665,319 

 

 

 608,938 

 

Due to IIG - other(2)

 

 378,803 

 

 

 - 

 

Due to IIG - offering expenses(2)

 

 591,475 

 

 

 550,000 

 

Accrued capital gains incentive fee on unrealized appreciation(4)

 

 917,225 

 

 

 530,569 

 

Total liabilities

 

 10,120,342 

 

 

 6,047,911 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 4 and Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

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

 

 

 

 

 

 

23,991,865 and 15,510,178 shares issued and outstanding, respectively(2)

 

 23,992 

 

 

 15,510 

 

Capital in excess of par value

 

 221,901,275 

 

 

 142,402,255 

 

Accumulated distributions in excess of net investment income

 

 (926,868) 

 

 

 (500,125) 

 

Accumulated net unrealized appreciation on investments

 

 1,715,121 

 

 

 1,104,228 

 

Accumulated net unrealized appreciation on total return swap(1)

 

 2,756,542 

 

 

 1,548,617 

 

Total shareholders' equity

 

 225,470,062 

 

 

 144,570,485 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

$

 235,590,404 

 

$

 150,618,396 

 

 

 

 

 

 

 

 

 

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

$

 9.40 

 

$

 9.32 

 

 

 

 

 

 

 

 

 

Shares of common stock outstanding

 

 23,991,865 

 

 

 15,510,178 

 

 

 

 

 

 

 

 

 

(1) See Note 7 for a discussion of the Company’s total return swap agreement.

 

(2) See Note 4 for a discussion of expense reimbursements from ICON Investment Group, LLC, or IIG.

 

(3) See Note 5 for a discussion of the source of distributions paid by the Company.

 

(4) See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee.

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

1


 

 

CĪON Investment Corporation

Consolidated Statements of Operations

(unaudited)

 

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

March 31, 2014

 

March 31, 2013

Investment income

 

 

 

 

 

Interest income

$

 2,200,781 

 

$

 68,126 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

Management fees

 

 908,807 

 

 

 44,742 

Administrative services expense

 

 415,395 

 

 

 263,555 

Capital gains incentive fee(1)

 

 525,326 

 

 

 117,023 

Offering expense - IIG

 

 591,475 

 

 

 - 

General and administrative(2)

 

 1,058,128 

 

 

 508,863 

Total expenses

 

 3,499,131 

 

 

 934,183 

Less: expense reimbursement from IIG(3)

 

 (1,048,858) 

 

 

 (819,373) 

Net operating expenses

 

 2,450,273 

 

 

 114,810 

Net investment loss

 

 (249,492) 

 

 

 (46,684) 

 

 

 

 

 

 

 

 

Realized and unrealized gains

 

 

 

 

 

Net realized gain on investments

 

 173,714 

 

 

 4,533 

Net change in unrealized appreciation on investments

 

 610,893 

 

 

 124,282 

Net realized gain on total return swap(4)

 

 2,963,479 

 

 

 286,337 

Net change in unrealized appreciation on total return swap(4)

 

 1,207,925 

 

 

 250,676 

Total net realized and unrealized gains

 

 4,956,011 

 

 

 665,828 

 

 

 

 

 

 

 

 

Net increase in net assets resulting from operations

$

 4,706,519 

 

$

 619,144 

 

 

 

 

 

 

 

 

Per share information—basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in net assets per share resulting from operations

$

 0.24 

 

$

 0.53 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 19,995,555 

 

 

 1,164,423 

 

 

 

 

 

 

 

 

(1)

See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee.

(2)

See Note 9 for details of the Company's general and administrative expense. See Note 2 for details of the Company's organization costs and offering expenses included in general and administrative expense.

(3)

See Note 4 for a discussion of expense reimbursements from IIG.

(4)

See Note 7 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)

 

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

March 31, 2014

 

March 31, 2013

Changes in net assets from operations:

 

 

 

 

 

 

Net investment loss

$

 (249,492) 

 

$

 (46,684) 

 

Net realized gain on investments

 

 173,714 

 

 

 4,533 

 

Net change in unrealized appreciation on investments

 

 610,893 

 

 

 124,282 

 

Net realized gain on total return swap(1)

 

 2,963,479 

 

 

 286,337 

 

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

 

 1,207,925 

 

 

 250,676 

 

 

Net increase in net assets resulting from operations

 

 4,706,519 

 

 

 619,144 

Shareholder distributions:(2)

 

 

 

 

 

 

Net realized gain on total return swap

 

 

 

 

 

 

Net interest and other income from TRS portfolio

 

 (2,360,371) 

 

 

 (80,614) 

 

Net gain on TRS loan sales

 

 (603,108) 

 

 

 (123,575) 

 

Net realized gain on investments

 

 (173,714) 

 

 

 (4,577) 

 

Other sources

 

 (177,251) 

 

 

 - 

 

 

Net decrease in net assets from shareholder distributions

 

 (3,314,444) 

 

 

 (208,766) 

Changes in net assets from capital share transactions:

 

 

 

 

 

 

Issuance of common stock, net of issuance costs of $7,750,349 and $1,127,904, respectively

 

 77,173,549 

 

 

 11,007,314 

 

Reinvestment of shareholder distributions

 

 2,333,953 

 

 

 31,413 

 

Amortization of deferred offering expenses

 

 - 

 

 

 (246,575) 

 

 

Net increase in net assets resulting from capital share transactions

 

 79,507,502 

 

 

 10,792,152 

 

 

 

 

 

 

 

 

Total increase in net assets

 

 80,899,577 

 

 

 11,202,530 

Net assets at beginning of period

 

 144,570,485 

 

 

 4,487,115 

Net assets at end of period

$

 225,470,062 

 

$

 15,689,645 

 

 

 

 

 

 

 

 

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

$

 9.40 

 

$

 9.16 

Shares of common stock outstanding at end of period

 

 23,991,865 

 

 

 1,712,123 

 

 

 

 

 

 

 

 

(1) See Note 7 for a discussion of the Company’s total return swap agreement.

 

 

 

 

 

(2) See Note 5 for a discussion of the source of distributions paid by the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

3


 

 

CĪON Investment Corporation

Consolidated Statements of Cash Flows

(unaudited)

 

 

Three Months

 

Three Months

 

Ended

 

Ended

 

March 31, 2014

 

March 31, 2013

Operating activities:

 

 

 

 

 

Net increase in net assets resulting from operations

$

 4,706,519 

 

$

 619,144 

Adjustments to reconcile net increase in net assets resulting from

 

 

 

 

 

operations to net cash used in operating activities:

 

 

 

 

 

 

Net accretion of discount on investments

 

 (46,476) 

 

 

 (2,151) 

 

Proceeds from principal repayment of investments

 

 5,289,381 

 

 

 15,000 

 

Purchase of investments

 

 (66,996,829) 

 

 

 (6,653,990) 

 

Decrease (increase) in short term investments

 

 379,952 

 

 

 (2,802,013) 

 

Proceeds from sale of investments

 

 13,165,845 

 

 

 504,375 

 

Net realized gain on investments

 

 (173,714) 

 

 

 (4,533) 

 

Net unrealized appreciation on investments

 

 (610,893) 

 

 

 (124,282) 

 

Net unrealized appreciation on total return swap(1)

 

 (1,207,925) 

 

 

 (250,676) 

 

Increase in due from counterparty

 

 (27,665,146) 

 

 

 (2,761,406) 

 

Decrease (increase) in reimbursement from IIG, net(2)

 

 545,593 

 

 

 (310,500) 

 

Decrease in prepaid expenses

 

 53,470 

 

 

 44,432 

 

Increase in interest receivable on investments

 

 (275,136) 

 

 

 (40,550) 

 

Increase in receivable due on investments sold

 

 (6,357,066) 

 

 

 (519,375) 

 

Increase in receivable due on total return swap(1)

 

 (1,007,910) 

 

 

 (414,694) 

 

Increase in payable for investments purchased

 

 4,104,820 

 

 

 1,497,500 

 

Increase in accrued capital gains incentive fee on unrealized appreciation

 

 386,656 

 

 

 - 

 

Increase in accounts payable and accrued expenses

 

 56,381 

 

 

 369,518 

 

Increase in due to IIG - other

 

 378,803 

 

 

 - 

 

Increase in due to IIG - offering expenses

 

 41,475 

 

 

 - 

Net cash used in operating activities

 

 (75,232,200) 

 

 

 (10,834,201) 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Gross proceeds from issuance of common stock

 

 84,923,898 

 

 

 12,135,218 

 

Commissions and dealer manager fees paid

 

 (7,750,349) 

 

 

 (1,150,853) 

 

Reinvestment of shareholder distributions

 

 2,333,953 

 

 

 31,413 

 

Shareholder distributions paid(3)

 

 (4,210,148) 

 

 

 (117,605) 

 

Repayment of financing arrangement

 

 - 

 

 

 (54,422) 

Net cash provided by financing activities

 

 75,297,354 

 

 

 10,843,751 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 65,154 

 

 

 9,550 

Cash, beginning of period

 

 449,912 

 

 

 - 

Cash, end of period

$

 515,066 

 

$

 9,550 

 

 

 

 

 

 

 

 

 

Supplemental non-cash financing activities:

 

 

 

 

 

 

Deferred offering expenses charged to shareholders' equity

$

 - 

 

$

 246,575 

 

Shareholders' distributions payable

$

 - 

 

$

 91,161 

 

 

 

 

 

 

 

 

 

(1) See Note 7 for a discussion of the Company’s total return swap agreement.

(2) See Note 4 for a discussion of expense reimbursements from IIG.

(3) See Note 5 for a discussion of the source of distributions paid by the Company.

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

4


 

 

CĪON Investment Corporation

Consolidated Schedule of Investments

March 31, 2014

(unaudited)

 

Portfolio Company(a)

 

Index Rate(b)

 

Industry

 

Principal/Par
Amount

 

Amortized
Cost

 

Fair
Value(c)

Senior Secured First Lien Term Loans - 37.4%

 

 

 

 

 

 

 

 

 

 

 

5.11, Inc., L+500, 1.00% LIBOR Floor, 2/28/2020

 

2 Month LIBOR

 

Retail

 

$

 5,625,000 

 

$

 5,597,175 

 

$

 5,667,188 

 

ABRA, Inc., L+600, 1.25% LIBOR Floor, 5/10/2018(d)

 

3 Month LIBOR

 

Automotive

 

 

 7,100,823 

 

 

 7,041,570 

 

 

 7,029,815 

 

Accruent, LLC, P+350, 2.25% Base Rate Floor, 11/25/2019

 

Prime

 

High Tech Industries

 

 

 4,488,750 

 

 

 4,477,528 

 

 

 4,477,528 

 

Collision Holding Company, LLC, L+775, 1.25% LIBOR Floor, 5/10/2018

 

3 Month LIBOR

 

Automotive

 

 

 1,568,127 

 

 

 1,552,568 

 

 

 1,552,445 

 

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

 

3 Month LIBOR

 

Environmental Industries

 

 

 1,895,675 

 

 

 1,878,576 

 

 

 1,902,784 

 

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

 

3 Month LIBOR

 

Construction & Building

 

 

 2,481,250 

 

 

 2,463,256 

 

 

 2,487,453 

 

ECI Acquisition Holdings, Inc., L+625, 1.00% LIBOR Floor, 3/11/2019(e)

 

3 Month LIBOR

 

High Tech Industries

 

 

 8,267,337 

 

 

 8,226,854 

 

 

 8,226,000 

 

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

 

3 Month LIBOR

 

Media: Diversified & Production

 

 

 9,633,864 

 

 

 9,273,754 

 

 

 9,513,441 

 

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

 

3 Month LIBOR

 

Banking, Finance, Insurance & Real Estate

 

 

 593,656 

 

 

 589,789 

 

 

 590,688 

 

ILC Industries, LLC, L+650, 1.50% LIBOR Floor, 7/11/2018

 

3 Month LIBOR

 

Consumer Goods: Non-Durable

 

 

 4,314,432 

 

 

 4,330,191 

 

 

 4,319,825 

 

Merrill Corp., L+475, 1.00% LIBOR Floor, 3/8/2018

 

1 Month LIBOR

 

Services: Business

 

 

 625,217 

 

 

 619,946 

 

 

 630,949 

 

National Surgical Hospitals, Inc., L+450, 1.25% LIBOR Floor, 8/1/2019

 

1 Month LIBOR

 

Healthcare & Pharmaceuticals

 

 

 3,482,500 

 

 

 3,447,675 

 

 

 3,512,972 

 

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

 

6 Month LIBOR

 

Containers, Packaging & Glass

 

 

 1,500,000 

 

 

 1,496,250 

 

 

 1,492,500 

 

Plano Molding Co., Inc., L+425, 1.00% LIBOR Floor, 10/11/2018

 

3 Month LIBOR

 

Consumer Goods: Non-Durable

 

 

 2,484,375 

 

 

 2,470,064 

 

 

 2,484,375 

 

Royall & Company, L+425, 1.00% LIBOR Floor, 3/5/2018

 

3 Month LIBOR

 

Services: Business

 

 

 5,000,000 

 

 

 4,987,500 

 

 

 5,037,500 

 

SK Spice S.Á.R.L, L+825, 1.25% LIBOR Floor, 9/30/2018(g)

 

3 Month LIBOR

 

Chemicals, Plastics & Rubber

 

 

 1,771,100 

 

 

 1,736,564 

 

 

 1,771,100 

 

Smile Brands Group, Inc., L+625, 1.25% LIBOR Floor, 8/16/2019

 

12 Month LIBOR

 

Healthcare & Pharmaceuticals

 

 

 4,975,000 

 

 

 4,881,114 

 

 

 4,998,631 

 

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

 

3 Month LIBOR

 

Energy: Oil & Gas

 

 

 1,191,000 

 

 

 1,180,322 

 

 

 1,199,933 

 

Survey Sampling International, LLC, L+450, 1.00% LIBOR Floor, 12/12/2019

 

3 Month LIBOR

 

Services: Business

 

 

 3,250,000 

 

 

 3,218,843 

 

 

 3,233,750 

 

Tectum Holdings, Inc., L+425, 1.25% LIBOR Floor, 9/12/2018

 

3 Month LIBOR

 

Automotive

 

 

 2,250,000 

 

 

 2,244,375 

 

 

 2,250,000 

 

The TOPPS Company, Inc., L+600, 1.25% LIBOR Floor, 10/2/2018

 

3 Month LIBOR

 

Consumer Goods: Non-Durable

 

 

 2,104,725 

 

 

 2,065,190 

 

 

 2,104,725 

 

Travel Leaders Group, LLC, L+600, 1.00% LIBOR Floor, 12/5/2018

 

3 Month LIBOR

 

Services: Consumer

 

 

 4,838,750 

 

 

 4,562,894 

 

 

 4,778,266 

 

Trimark USA, LLC, L+625, 1.00% LIBOR Floor, 5/11/2019

 

3 Month LIBOR

 

Beverage, Food & Tobacco

 

 

 5,000,000 

 

 

 4,952,305 

 

 

 5,037,500 

Total Senior Secured First Lien Term Loans

 

 

 

 

 

 

 

 

 

 83,294,303 

 

 

 84,299,368 

Senior Secured Second Lien Term Loans - 20.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Active Network, Inc., L+850, 1.00% LIBOR Floor, 11/15/2021

 

3 Month LIBOR

 

High Tech Industries

 

 

 2,820,000 

 

 

 2,806,419 

 

 

 2,890,500 

 

Camp International Holding Company, L+725, 1.00% LIBOR Floor, 11/30/2019

 

1 Month LIBOR

 

Services: Business

 

 

 2,029,000 

 

 

 2,029,000 

 

 

 2,073,384 

 

Drew Marine Group, Inc., L+700, 1.00% LIBOR Floor, 5/19/2021(g)

 

3 Month LIBOR

 

Chemicals, Plastics & Rubber

 

 

 5,000,000 

 

 

 5,003,270 

 

 

 5,050,000 

 

Elements Behavioral Health, Inc., L+825, 1.00% LIBOR Floor, 2/11/2020

 

3 Month LIBOR

 

Healthcare & Pharmaceuticals

 

 

 5,000,000 

 

 

 4,950,761 

 

 

 4,950,000 

 

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

 

6 Month LIBOR

 

Services: Consumer

 

 

 800,000 

 

 

 796,435 

 

 

 814,500 

 

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

 

3 Month LIBOR

 

Banking, Finance, Insurance & Real Estate

 

 

 854,000 

 

 

 844,663 

 

 

 849,730 

 

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

 

6 Month LIBOR

 

Healthcare & Pharmaceuticals

 

 

 500,000 

 

 

 495,711 

 

 

 512,085 

 

Landslide Holdings, Inc., L+725, 1.00% LIBOR Floor, 2/25/2021

 

3 Month LIBOR

 

Services: Business

 

 

 4,810,000 

 

 

 4,809,092 

 

 

 4,864,113 

 

Learfield Communications, Inc., L+775, 1.00% LIBOR Floor, 10/9/2021

 

3 Month LIBOR

 

Media: Broadcasting & Subscription

 

 

 1,417,333 

 

 

 1,403,550 

 

 

 1,452,766 

 

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

 

3 Month LIBOR

 

Telecommunications

 

 

 3,500,000 

 

 

 3,461,450 

 

 

 3,500,000 

 

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

 

1 Month LIBOR

 

Media: Broadcasting & Subscription

 

 

 1,500,000 

 

 

 1,521,274 

 

 

 1,530,000 

 

SMG, L+825, 1.00% LIBOR Floor, 2/27/2021

 

2 Month LIBOR

 

Hotel, Gaming & Leisure

 

 

 6,220,000 

 

 

 6,220,000 

 

 

 6,359,950 

 

Sprint Industrial Holdings, LLC, L+1,000, 1.25% LIBOR Floor, 11/14/2019

 

3 Month LIBOR

 

Energy: Oil & Gas

 

 

 500,000 

 

 

 490,858 

 

 

 505,000 

 

Tectum Holdings, Inc., P+700, 2.00% Base Rate Floor, 3/12/2019

 

Prime

 

Automotive

 

 

 4,650,000 

 

 

 4,626,750 

 

 

 4,638,375 

 

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

 

3 Month LIBOR

 

Media: Broadcasting & Subscription

 

 

 675,178 

 

 

 670,131 

 

 

 683,618 

 

Trimark USA, LLC, L+900, 1.00% LIBOR Floor, 8/12/2019

 

3 Month LIBOR

 

Beverage, Food & Tobacco

 

 

 5,000,000 

 

 

 4,901,879 

 

 

 5,031,250 

 

WP CPP Holdings, LLC, L+775, 1.00% LIBOR Floor, 4/30/2021

 

3 Month LIBOR

 

Aerospace & Defense

 

 

 1,435,000 

 

 

 1,427,825 

 

 

 1,458,319 

Total Senior Secured Second Lien Term Loans

 

 

 

 

 

 

 

 

 

 46,459,068 

 

 

 47,163,590 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

5


 

 

CĪON Investment Corporation

Consolidated Schedule of Investments

March 31, 2014

(unaudited)

 

Portfolio Company(a)

 

Index Rate(b)

 

Industry

 

Principal/Par
Amount

 

Amortized
Cost

 

Fair
Value(c)

Collateralized Securities - 4.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ivy Hill Middle Market Credit Fund VII, Ltd. Class E Notes, L+565, 1.00% LIBOR Floor, 10/20/2025(g)

 

3 Month LIBOR

 

Diversified Financials

 

 

 2,000,000 

 

 

 1,850,000 

 

 

 1,876,020 

 

Ivy Hill Middle Market Credit Fund VII, Ltd. Subordinated Notes, Residual, 10/20/2025(g)

 

N/A

 

Diversified Financials

 

 

 2,000,000 

 

 

 1,896,000 

 

 

 1,892,300 

 

JFIN CLO 2014, Ltd. Class E Notes, L+500, 4/20/2025(g)

 

3 Month LIBOR

 

Diversified Financials

 

 

 2,500,000 

 

 

 2,293,438 

 

 

 2,297,152 

 

JPMorgan Chase Bank, N.A. Credit Link Note, L+1,225, 12/20/2021(g)

 

3 Month LIBOR

 

Diversified Financials

 

 

 5,000,000 

 

 

 5,000,000 

 

 

 4,979,500 

Total Collateralized Securities

 

 

 

 

 

 

 

 

 

 11,039,438 

 

 

 11,044,972 

Short Term Investments - 4.9%(h)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 11,003,717 

 

 

 11,003,717 

 

 

 11,003,717 

Total Short Term Investments

 

 

 

 

 

 

 

 

 

 11,003,717 

 

 

 11,003,717 

TOTAL INVESTMENTS - 68.1%

 

 

 

 

 

 

 

 

$

 151,796,526 

 

$

 153,511,647 

OTHER ASSETS IN EXCESS OF LIABILITIES - 31.9%

 

 

 

 

 

 

 

 

 

 

 

$

 71,958,415 

NET ASSETS - 100%

 

 

 

 

 

 

 

 

 

 

 

$

 225,470,062 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL RETURN SWAP - 1.2%

 

 

 

 

 

Notional
Amount

 

 

 

 

Unrealized Appreciation

 

Citibank TRS Facility (see Note 6)

 

 

 

 

 

$

 230,257,406 

 

 

 

 

$

 2,756,542 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 per note (g) below. The Company does not control and is not an affiliate of any of the portfolio companies in its investment portfolio.

(b)

The 1, 2, 3, 6 and 12 month London Interbank Offered Rate, or LIBOR, rates were 0.15%, 0.19%, 0.23%, 0.33% and 0.56%, respectively, as of March 31, 2014. The prime rate was 3.25% as of March 31, 2014. The applicable LIBOR rate as of March 31, 2014 for the loan listed may not be the applicable LIBOR rate, as the loan may have been priced or repriced based on a LIBOR rate prior to March 31, 2014.

(c)

Fair value determined by the Company’s board of directors (see Note 8).

(d)

The Company is committed to fund an additional $1,330,668 as of March 31, 2014 (see Note 6 and Note 10). The Company is committed to fund an additional $188,175 as of May 8, 2014.

(e)

The Company is committed to fund an additional $1,724,000 as of March 31 and May 8, 2014 (see Note 6 and Note 10).

(f)

Position or portion thereof unsettled as of March 31, 2014.

(g)

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 that company’s total assets as defined under Section 55 of the 1940 Act. As of March 31, 2014, 92.1% of the Company’s total assets represented qualifying assets. In addition, as described in Note 7, 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, 79.6% of the Company’s total assets represented qualifying assets as of March 31, 2014.

(h)

Short term investments represent an investment in a fund that invests in highly liquid investments with original maturity dates of three months or less.

(i)

Effective yield as of March 31, 2014 is <0.01%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

6


 

 

CĪON Investment Corporation

Consolidated Schedule of Investments

December 31, 2013

 

Portfolio Company(a)

 

Index Rate(b)

 

Industry

 

Principal/Par
Amount

 

Amortized
Cost

 

Fair
Value(c)

Senior Secured First Lien Term Loans - 42.7%

 

 

 

 

 

 

 

 

 

 

 

ABRA, Inc., L+600, 1.25% LIBOR Floor, 5/10/2018(d)

 

3 Month LIBOR

 

Automotive

 

$

 5,980,924 

 

$

 5,921,292 

 

$

 5,921,115 

 

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

 

3 Month LIBOR

 

Banking, Finance, Insurance & Real Estate

 

 

 987,500 

 

 

 972,809 

 

 

 987,500 

 

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

 

3 Month LIBOR

 

Construction & Building

 

 

 936,944 

 

 

 932,772 

 

 

 938,701 

 

Collision Holding Company, LLC, L+775, 1.25% LIBOR Floor, 5/10/2018

 

3 Month LIBOR

 

Automotive

 

 

 1,568,127 

 

 

 1,552,492 

 

 

 1,552,445 

 

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

 

3 Month LIBOR

 

Environmental Industries

 

 

 1,900,450 

 

 

 1,882,554 

 

 

 1,909,952 

 

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

 

3 Month LIBOR

 

Construction & Building

 

 

 2,487,500 

 

 

 2,468,327 

 

 

 2,476,555 

 

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

 

3 Month LIBOR

 

Media: Diversified & Production

 

 

 1,990,000 

 

 

 1,839,629 

 

 

 1,920,350 

 

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

 

6 Month LIBOR

 

Consumer Goods: Non-Durable

 

 

 447,500 

 

 

 443,456 

 

 

 455,193 

 

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

 

3 Month LIBOR

 

Banking, Finance, Insurance & Real Estate

 

 

 597,438 

 

 

 593,254 

 

 

 594,450 

 

ILC Industries, LLC, L+650, 1.50% LIBOR Floor, 7/11/2018

 

3 Month LIBOR

 

Consumer Goods: Non-Durable

 

 

 4,456,187 

 

 

 4,471,616 

 

 

 4,467,327 

 

Landslide Holdings, Inc., L+425, 1.00% LIBOR Floor, 8/9/2019

 

3 Month LIBOR

 

Services: Business

 

 

 2,449,690 

 

 

 2,426,101 

 

 

 2,469,594 

 

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

 

1 Month LIBOR

 

Services: Business

 

 

 649,021 

 

 

 643,301 

 

 

 661,729 

 

National Surgical Hospitals, Inc., L+450, 1.25% LIBOR Floor, 8/1/2019

 

1 Month LIBOR

 

Healthcare & Pharmaceuticals

 

 

 3,491,250 

 

 

 3,456,338 

 

 

 3,526,163 

 

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

 

6 Month LIBOR

 

Containers, Packaging & Glass

 

 

 1,500,000 

 

 

 1,492,500 

 

 

 1,500,000 

 

Plano Molding Co., Inc., L+425, 1.00% LIBOR Floor, 10/11/2018

 

3 Month LIBOR

 

Consumer Goods: Non-Durable

 

 

 2,500,000 

 

 

 2,484,517 

 

 

 2,500,000 

 

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

 

3 Month LIBOR

 

Energy: Oil & Gas

 

 

 1,925,000 

 

 

 1,905,750 

 

 

 1,915,375 

 

SK Spice S.Á.R.L, L+825, 1.25% LIBOR Floor, 9/30/2018(e)

 

3 Month LIBOR

 

Chemicals, Plastics & Rubber

 

 

 1,775,550 

 

 

 1,740,993 

 

 

 1,760,014 

 

Smile Brands Group, Inc., L+625, 1.25% LIBOR Floor, 8/16/2019

 

12 Month LIBOR

 

Healthcare & Pharmaceuticals

 

 

 4,987,500 

 

 

 4,892,609 

 

 

 4,931,391 

 

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

 

3 Month LIBOR

 

Energy: Oil & Gas

 

 

 1,194,000 

 

 

 1,182,670 

 

 

 1,208,925 

 

Survey Sampling International, LLC, L+450, 1.00% LIBOR Floor, 12/12/2019

 

3 Month LIBOR

 

Services: Business

 

 

 9,250,000 

 

 

 9,158,059 

 

 

 9,157,500 

 

The TOPPS Company, Inc., L+600, 1.25% LIBOR Floor, 10/2/2018

 

3 Month LIBOR

 

Consumer Goods: Non-Durable

 

 

 2,110,000 

 

 

 2,068,064 

 

 

 2,104,725 

 

Travel Leaders Group, LLC, L+600, 1.00% LIBOR Floor, 12/5/2018

 

3 Month LIBOR

 

Services: Consumer

 

 

 4,900,000 

 

 

 4,607,683 

 

 

 4,814,250 

 

Wastequip, LLC, L+450, 1.00% LIBOR Floor, 8/9/2019

 

6 Month LIBOR

 

Capital Equipment

 

 

 2,985,000 

 

 

 2,970,869 

 

 

 3,014,850 

 

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

 

6 Month LIBOR

 

Services: Business

 

 

 992,500 

 

 

 988,030 

 

 

 999,326 

Total Senior Secured First Lien Term Loans

 

 

 

 

 

 

 

 

 

 61,095,685 

 

 

 61,787,430 

Senior Secured Second Lien Term Loans - 15.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Active Network, Inc., L+850, 1.00% LIBOR Floor, 11/15/2021

 

3 Month LIBOR

 

High Tech Industries

 

 

 2,820,000 

 

 

 2,805,900 

 

 

 2,876,400 

 

Camp International Holding Company, L+725, 1.00% LIBOR Floor, 11/30/2019

 

1 Month LIBOR

 

Services: Business

 

 

 2,029,000 

 

 

 2,029,000 

 

 

 2,073,384 

 

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

 

6 Month LIBOR

 

Hotel, Gaming & Leisure

 

 

 500,000 

 

 

 495,297 

 

 

 515,000 

 

Digital Insight Corporation, L+775, 1.00% LIBOR Floor, 10/16/2020

 

3 Month LIBOR

 

Services: Business

 

 

 385,000 

 

 

 381,237 

 

 

 393,181 

 

Drew Marine Group, Inc., L+700, 1.00% LIBOR Floor, 5/19/2021(e)

 

3 Month LIBOR

 

Chemicals, Plastics & Rubber

 

 

 5,000,000 

 

 

 5,003,467 

 

 

 5,037,500 

 

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

 

6 Month LIBOR

 

Services: Consumer

 

 

 800,000 

 

 

 796,341 

 

 

 813,876 

 

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

 

3 Month LIBOR

 

Banking, Finance, Insurance & Real Estate

 

 

 854,000 

 

 

 844,079 

 

 

 845,460 

 

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

 

6 Month LIBOR

 

Healthcare & Pharmaceuticals

 

 

 500,000 

 

 

 495,426 

 

 

 511,250 

 

Learfield Communications, Inc., L+775, 1.00% LIBOR Floor, 10/9/2021

 

3 Month LIBOR

 

Media: Broadcasting & Subscription

 

 

 1,417,333 

 

 

 1,403,174 

 

 

 1,452,766 

 

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

 

6 Month LIBOR

 

Telecommunications

 

 

 500,000 

 

 

 495,233 

 

 

 505,835 

 

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

 

3 Month LIBOR

 

Telecommunications

 

 

 3,500,000 

 

 

 3,461,450 

 

 

 3,467,205 

 

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

 

1 Month LIBOR

 

Media: Broadcasting & Subscription

 

 

 1,500,000 

 

 

 1,522,110 

 

 

 1,537,500 

 

Sprint Industrial Holdings, LLC, L+1,000, 1.25% LIBOR Floor, 11/14/2019

 

3 Month LIBOR

 

Energy: Oil & Gas

 

 

 500,000 

 

 

 490,421 

 

 

 505,000 

 

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

 

3 Month LIBOR

 

Media: Broadcasting & Subscription

 

 

 543,290 

 

 

 538,266 

 

 

 554,156 

 

WP CPP Holdings, LLC, L+775, 1.00% LIBOR Floor, 4/30/2021

 

3 Month LIBOR

 

Aerospace & Defense

 

 

 1,435,000 

 

 

 1,427,930 

 

 

 1,463,701 

Total Senior Secured Second Lien Term Loans

 

 

 

 

 

 

 

 

 

 22,189,331 

 

 

 22,552,214 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

7


 

 

CĪON Investment Corporation

Consolidated Schedule of Investments

December 31, 2013

 

Portfolio Company(a)

 

Index Rate(b)

 

Industry

 

Principal/Par
Amount

 

Amortized
Cost

 

Fair
Value(c)

Collateralized Securities - 6.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ivy Hill Middle Market Credit Fund VII, Ltd. Class E Notes, L+565, 10/20/2025(e)

 

3 Month LIBOR

 

Diversified Financials

 

 

 2,000,000 

 

 

 1,850,000 

 

 

 1,850,000 

 

Ivy Hill Middle Market Credit Fund VII, Ltd. Subordinated Notes, Residual, 10/20/2025(e)

 

N/A

 

Diversified Financials

 

 

 2,000,000 

 

 

 1,896,000 

 

 

 1,945,600 

 

JPMorgan Chase Bank, N.A. Credit Link Note, L+1,225, 12/20/2021(e)

 

3 Month LIBOR

 

Diversified Financials

 

 

 5,000,000 

 

 

 5,000,000 

 

 

 5,000,000 

Total Collateralized Securities

 

 

 

 

 

 

 

 

 

 8,746,000 

 

 

 8,795,600 

Short Term Investments - 7.9%(g)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 11,383,669 

 

 

 11,383,669 

 

 

 11,383,669 

Total Short Term Investments

 

 

 

 

 

 

 

 

 

 11,383,669 

 

 

 11,383,669 

TOTAL INVESTMENTS - 72.3%

 

 

 

 

 

 

 

 

$

 103,414,685 

 

$

 104,518,913 

OTHER ASSETS IN EXCESS OF LIABILITIES - 27.7%

 

 

 

 

 

 

 

 

 

 

 

$

 40,051,572 

NET ASSETS - 100%

 

 

 

 

 

 

 

 

 

 

 

$

 144,570,485 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL RETURN SWAP - 1.1%

 

 

 

 

 

Notional
Amount

 

 

 

 

Unrealized Appreciation

 

Citibank TRS Facility (see Note 6)

 

 

 

 

 

$

 148,199,937 

 

 

 

 

$

 1,548,617 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 per note (d) below. The Company does not control and is not an affiliate of any of the portfolio companies in its investment portfolio.

(b)

The 1, 2, 3, 6 and 12 month LIBOR rates were 0.17%, 0.21%, 0.25%, 0.35% and 0.58%, respectively, as of December 31, 2013. The applicable LIBOR rate as of December 31, 2013 for the loan listed may not be the applicable LIBOR rate, as the loan may have been priced or repriced based on a LIBOR rate prior to December 31, 2013.

(c)

Fair value determined by the Company’s board of directors (see Note 8).

(d)

The Company is committed to fund an additional $2,450,758 as of December 31, 2013 (see Note 6 and Note 10). The Company is committed to fund an additional $1,330,667 as of March 7, 2014.

(e)

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 that company’s total assets as defined under Section 55 of the 1940 Act. As of December 31, 2013, 88.2% of the Company’s total assets represented qualifying assets. In addition, as described in Note 7, 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, 76.1% of the Company’s total assets represented qualifying assets as of December 31, 2013.

(f)

Position or portion thereof unsettled as of December 31, 2013.

(g)

Short term investments represent an investment in a fund that invests in highly liquid investments with original maturity dates of three months or less.

(h)

Effective yield as of December 31, 2013 is <0.01%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

8


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(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 elected 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’s portfolio is comprised primarily of investments in senior secured loans and, to a lesser extent, second lien loans, collateralized loan obligations 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.

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, 2013 and for the year then ended included in the Company’s Annual Report on Form 10-K. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014. The December 31, 2013 consolidated balance sheet and the consolidated schedule of investments are derived from the 2013 audited consolidated financial statements.

The Company evaluates subsequent events through the date that the consolidated financial statements are issued.

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 $11,003,717 and $11,383,669 of such investments at March 31, 2014 and December 31, 2013, respectively, which are included in investments, at fair value on the accompanying consolidated balance sheets and on the consolidated schedule of investments.

 

9


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(unaudited)

 

Organization Costs and Offering Expenses

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.

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 4). These expenses were fully amortized over a twelve month period as an adjustment to capital in excess of par value. 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.

The following table summarizes organization costs and offering expenses incurred by IIG and by the Company from January 31, 2012 (Inception) through March 31, 2014:

 

 

 

Organization Costs and Offering Expenses Incurred by IIG

Period

 

Organization Costs

 

Offering Expenses

 

Total

Year Ended

 

 

 

 

 

 

 

 

 

December 31, 2012(1)

 

$

 191,717 

 

$

 1,820,128 

 

$

 2,011,845 

December 31, 2013

 

 

 - 

 

 

 - 

 

 

 - 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31, 2014

 

 

 - 

 

 

 - 

 

 

 - 

Total

 

 

 191,717 

 

 

 1,820,128 

 

 

 2,011,845 

Expenses submitted for reimbursement by IIG(2)

 

 

 - 

 

 

 (1,591,475) 

 

 

 (1,591,475) 

Total Unreimbursed Expenses Incurred by IIG

 

$

 191,717 

 

$

 228,653 

 

$

 420,370 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Organization Costs and Offering Expenses Incurred by the Company(3)

Period

 

Organization Costs

 

Offering Expenses

 

Total

Year Ended

 

 

 

 

 

 

 

 

 

December 31, 2012(1)

 

$

 - 

 

$

 29,652 

 

$

 29,652 

December 31, 2013

 

 

 - 

 

 

 1,786,978 

 

 

 1,786,978 

Three Months Ended

 

 

 

 

 

 

 

 

 

March 31, 2014

 

 

 - 

 

 

 539,720 

 

 

 539,720 

Total

 

 

 - 

 

 

 2,356,350 

 

 

 2,356,350 

Expenses reimbursed by the Company(2)

 

 

 - 

 

 

 1,591,475 

 

 

 1,591,475 

Total Expenses Incurred by the Company

 

$

 - 

 

$

 3,947,825 

 

$

 3,947,825 

 

 

 

 

 

 

 

 

 

 

Expenses paid as of March 31, 2014

 

$

 - 

 

$

 3,061,183 

 

$

 3,061,183 

Expenses accrued as of March 31, 2014(4)

 

 

 - 

 

 

 886,642 

 

 

 886,642 

Total Expenses Incurred by the Company

 

$

 - 

 

$

 3,947,825 

 

$

 3,947,825 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Organization costs and offering expenses were incurred from January 31, 2012 (Inception) through December 31, 2012.

(2)

Of this amount, $1,000,000 of expenses charged directly to equity were submitted for reimbursement by IIG on December 17, 2012, and $591,475 of expenses charged directly to general and administrative expense were submitted for reimbursement by IIG during the three months ended March 31, 2014.

(3)

Offering expenses incurred directly by the Company are included in general and administrative expense on the consolidated statements of operations.

(4)

Of this amount, $591,475 of offering expenses accrued by the Company are included in due to IIG - offering expenses on the consolidated balance sheets. The remainder is included in accounts payable and accrued expenses on the consolidated balance sheets.

No material organization costs or offering expenses have been incurred subsequent to March 31, 2014.

 

10


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(unaudited)

 

Income Taxes

The Company elected 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 continues to qualify as a RIC and continues to satisfy 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 98.0% 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 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 (see Note 5). During the three months ended March 31, 2014 and 2013, the Company declared distributions of $3,314,444 and $208,766, respectively.

Uncertainty in Income Taxes

The Company evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold 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 during the three months ended March 31, 2014 and 2013, the Company did not have any uncertain tax positions.

The Company is subject to examination by U.S. federal, New York State, New York City and Maryland income tax jurisdictions for 2012.

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, defined as observable inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is 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.

The Company’s investments as of March 31, 2014, excluding short term investments,  consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investments. Except as described below, 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.

 

11


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(unaudited)

 

The Company valued its total return swap, or TRS, in accordance with the agreements between Flatiron and Citibank, N.A., or Citibank, which collectively establish the TRS, or TRS Agreement. Pursuant to the TRS Agreement, the fair value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS. The loans underlying the TRS are valued by Citibank. Citibank bases its valuation primarily on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect a price that market participants may be willing to pay for an investment. These valuations are sent to the Company for review and testing. The Company reviews and approves the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis as part of the quarterly valuation process. To the extent the Company has any questions or concerns regarding the valuation of the loans underlying the TRS, such valuations will be discussed or challenged pursuant to the terms of the TRS Agreement. As a result of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that the total fair value of the TRS should be classified as Level 3 within the fair value hierarchy. If the Company owns identical investments in its investment portfolio and through the TRS, the Company utilizes the TRS pricing for consistency. For additional information on the TRS, see Note 7.

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 its 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.

The Company periodically benchmarks the “bid” and “ask” prices it receives from the third-party pricing services against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 2 or Level 3 within the fair value hierarchy.

 

12


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(unaudited)

 

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. 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 using the effective interest method. 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.

The Company may have investments in its investment portfolio that contain a paid-in-kind, or PIK, interest provision. Any PIK interest will be added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain RIC status, substantially all of this income must be paid out to shareholders in the form of distributions, even if the Company has not collected any cash.

Loans and debt securities, including those that are individually identified as being impaired under Accounting Standards Codification 310, or ASC 310, Receivables, are generally placed on nonaccrual status immediately if, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the debt agreement, or when principal or interest is past due 90 days or more. Interest accrued but not collected at the date a loan or security is placed on nonaccrual status is reversed against interest income. Interest income is recognized on nonaccrual loans or debt securities only to the extent received in cash. How­ever, where there is doubt regarding the ultimate collectibility of principal, cash receipts, whether designated as principal or interest, are thereafter applied to reduce the carrying value of the loan or debt security. Loans or securities are restored to accrual status only when interest and principal payments are brought current and future payments are reasonably assured.

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 weighted-average method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the weighted-average amortized cost 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 the TRS. The Company marks its derivative to market through net change in unrealized appreciation on total return swap in the consolidated statements of operations. For additional information on the TRS, see Note 7.

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 equals 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, 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. 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.

CIM has not taken any incentive fees with respect to the Company’s TRS to date. For purposes of computing the capital gains incentive fee, CIM will become entitled to a capital gains incentive fee only upon the termination or disposition of the TRS, at which point all net gains and losses of the underlying loans constituting the reference assets of the TRS will be realized. For purposes of computing the subordinated incentive fee on income, CIM is not entitled to a subordinated incentive fee on income with respect to the TRS. Any unrealized gains on the TRS are reflected in total assets on the Company’s consolidated balance sheets and included in the computation of the base management fee.

 

13


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(unaudited)

 

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 at least annually.

 

Note 3. Share Transactions

The following table summarizes transactions with respect to shares of the Company’s common stock during the three months ended March 31, 2014 and 2013:

 

 

 

Three Months Ended

 

 

 

March 31, 2014

 

March 31, 2013

 

 

 

Shares

 

Amount

 

Shares

 

Amount

Gross proceeds from the offering

 

 

 8,232,851 

 

$

 84,923,898 

 

 

 1,208,522 

 

$

 12,135,218 

Reinvestment of distributions

 

 

 248,836 

 

 

 2,333,953 

 

 

 3,263 

 

 

 31,413 

Total gross proceeds

 

 

 8,481,687 

 

 

 87,257,851 

 

 

 1,211,785 

 

 

 12,166,631 

Sales commissions and dealer manager fees

 

 

 - 

 

 

 (7,750,349) 

 

 

 - 

 

 

 (1,127,904) 

 

Net proceeds from share transactions

 

 

 8,481,687 

 

$

 79,507,502 

 

 

 1,211,785 

 

$

 11,038,727 

 

During the three months ended March 31, 2014 and 2013, the Company sold 8,481,687 and 1,211,785 shares, respectively, at an average price per share of $10.29 and $10.04, respectively.

 

The proceeds from the reinvestment of shareholder distributions are included in the gross proceeds from the Company’s offering for purposes of determining the total amount of organization costs and offering expenses that can be paid by the Company (see Note 4).

 

As of March 31, 2014, the Company sold 23,991,865 shares for gross proceeds of $244,390,076 at an average price per share of $10.19. The gross proceeds received include reinvested shareholder distributions of $3,876,967, for which the Company issued 411,716 shares of common stock. Since commencing its continuous public offering on July 2, 2012 and through May 8, 2014, the Company sold 28,211,914 shares of common stock for net proceeds of $287,721,756 at an average price per share of $10.20. The net proceeds include gross proceeds received from reinvested shareholder distributions of $4,847,114, for which the Company issued 514,868 shares of common stock and gross proceeds paid for shares of common stock tendered for repurchase of $45,905, for which the Company repurchased 4,881 shares of common stock.

 

 During the period from April 1, 2014 to May 8, 2014, the Company sold 4,220,049 shares of common stock for net proceeds of $43,331,680 at an average price per share of $10.27. The net proceeds include gross proceeds received from reinvested shareholder distributions of $970,147, for which the Company issued 103,152 shares of common stock and gross proceeds paid for shares of common stock tendered for repurchase of $45,905, for which the Company repurchased 4,881 shares of common stock.

 

On December 28, 2012, January 31, 2013, March 14, 2013, May 15, 2013, August 15, 2013, and February 4, 2014, 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, $10.24, $10.32 and $10.45 per share, respectively, to ensure that the associated offering price per share, net of sales commissions and dealer manager fees, equaled or exceeded the net asset value per share on each subsequent subscription closing date and distribution reinvestment date.

 

Share Repurchase Program

 

Beginning in the first quarter of 2014 the Company began offering, and on a quarterly basis thereafter it intends to continue offering, to repurchase shares on such terms as may be determined by the Company’s board of directors in its complete and absolute discretion unless, in the judgment of the independent directors of the Company’s board of directors, such repurchases would not be in the best interests of the Company’s shareholders or would violate applicable law.

 

14


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(unaudited)

 

The Company currently limits the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the issuance of shares pursuant to its second amended and restated distribution reinvestment plan. At the discretion of the Company’s board of directors, it may also use cash on hand, cash available from borrowings and cash from liquidation of investments as of the end of the applicable period to repurchase shares. In addition, the Company limits the number of shares to be repurchased in any calendar year to 15% of the weighted average number of shares outstanding in the prior calendar year, or 3.75% in each quarter, though the actual number of shares that it offers to repurchase may be less in light of the limitations noted above. The Company offers to repurchase such shares at a price equal to 90% of the offering price in effect on each date of repurchase.

 

On April 2, 2014, the Company completed its first tender offer in connection with its share repurchase program and repurchased 4,880.906 shares (representing 100% of the shares of common stock tendered for repurchase) at $9.405 per share for aggregate consideration totaling $45,905.

 

Any periodic repurchase offers are subject in part to the Company’s available cash and compliance with the BDC and RIC qualification and diversification rules promulgated under the Code and the 1940 Act. While the Company conducts quarterly tender offers as described above, it is not required to do so and may suspend or terminate the share repurchase program at any time, upon 30 days’ notice.

  

Note 4. Transactions with Related Parties

 

The Company has entered into an investment advisory agreement with CIM. Pursuant to the investment advisory agreement, CIM is 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, as described below. The incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based on “pre-incentive fee net investment income” for the immediately preceding quarter and is 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 described in Note 2. Refer to Note 7 for a discussion of CIM’s entitlement to receive incentive fees and accrual of the incentive fee on capital gains with respect to the TRS.

 

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 months ended March 31, 2014 and 2013, CIM earned $908,807 and $44,742 in management fees, respectively. During these periods, 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 March 31, 2014 and 2013, the Company recorded capital gains incentive fees of $525,326 and $117,023, respectively, based on the performance of its investment portfolio, of which $386,656 and $74,992, respectively, were based on net unrealized gains and $138,670 and $42,031, respectively, were based on realized gains. During these periods, all incentive fees generated from realized gains were reimbursed to the Company by IIG in accordance with the expense support and conditional reimbursement agreement. In addition, see Note 7 for a discussion of CIM’s entitlement to receive incentive fees and accrual of the incentive fee on capital gains with respect to the TRS.

 

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 has 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 months ended March 31, 2014 and 2013, the total expense reimbursement from IIG was $1,048,858 and $819,373, respectively, relating to certain operating expenses.

 

On December 13, 2013, the Company and IIG amended and restated the expense support and conditional reimbursement agreement to extend the termination date of such agreement from January 30, 2014 to January 30, 2015.

 

15


 

CĪON Investment Corporation

Notes to Consolidated Financial Statements 

March 31, 2014

(unaudited)

 

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. A substantial portion of the Company’s distributions have resulted, and future 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 a return of capital for tax purposes. 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 months ended March 31, 2014 and 2013, if expense reimbursements from IIG were not supported, some or all of the distributions may have been a return of capital for tax purposes.

 

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 following three month periods.

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