Executive Summary / Key Takeaways

• CION Investment Corporation operates as a business development company (BDC) focused on generating current income and capital appreciation primarily through senior secured debt investments in U.S. middle-market companies, complemented by opportunistic and equity strategies.
• Recent financial performance reflects a dynamic environment, with Q1 2025 net investment income showing a slight increase driven by lower interest expense, despite a decrease in total investment income due to reduced transaction fees and lower SOFR rates compared to the prior quarter.
• Portfolio valuation experienced volatility in Q1 2025, leading to a decline in Net Asset Value (NAV) primarily due to mark-to-market adjustments on a limited number of investments, notably David's Bridal and Anthem Sports, although overall credit performance and non-accrual levels remain relatively stable and low compared to peers.
• The company has strategically repositioned its balance sheet, increasing the mix of unsecured debt to enhance financial flexibility and extend its debt maturity profile, which management believes better positions CION to navigate potential market volatility.
• While facing a highly competitive market with tight spreads and significant capital inflows, CION emphasizes a selective investment approach, focusing on its existing portfolio and leveraging its opportunistic capabilities and secondary market access to seek attractive risk-adjusted returns.

A Differentiated Approach in the Heart of the Middle Market

CION Investment Corporation operates within the competitive landscape of U.S. middle-market lending, a sector characterized by direct financing to companies typically underserved by traditional banks. As a Business Development Company (BDC), CION's core mandate is to generate current income and, to a lesser extent, capital appreciation for its investors. This objective is pursued primarily through investments in senior secured debt, including first lien, second lien, and unitranche loans. However, CION distinguishes itself with a differentiated approach that layers opportunistic and equity investment strategies onto this foundational senior secured focus. This allows the company to "flex into wherever we see the greatest risk-adjusted returns," as noted by management, while maintaining a conservative posture predominantly at the top of the capital structure.

The company's journey began in 2012, evolving from its initial continuous public offerings to its listing on the NYSE in October 2021, a move aimed at enhancing shareholder liquidity. This transition also brought changes to its management fee structure and, notably, shareholder approval to reduce the asset coverage ratio requirement from 200% to 150% effective December 2021, providing increased flexibility in utilizing leverage. CION is managed by CION Investment Management, LLC (CIM), which is responsible for investment decisions, leveraging relationships that historically included a joint venture with an Apollo (APO) affiliate for certain services, though investment decisions remain solely with CIM's investment committee.

In a market environment described by management as "highly competitive" with "an enormous amount of capital chasing a relatively small pool of new deal opportunities," CION's strategic positioning becomes critical. Competitors like Ares Capital Corporation (ARCC), FS/KKR Advisor (FSK), and Sixth Street Specialty Lending (TSLX) also vie for market share, often leveraging scale, platform access, or specific operational efficiencies. ARCC, a market leader with an estimated 15-20% share, emphasizes capital preservation and long-term value, benefiting from platform access that contributes to potentially better efficiency in portfolio management. FSK, another large player with 10-15% market share, focuses on high-yield debt and asset-based finance, often achieving higher yields, potentially due to its scale. TSLX, with a moderate 5-7% share, is noted for its diversified portfolio and use of advanced analytics for risk management and efficiency.

CION's competitive edge lies in its opportunistic strategy, allowing allocation to diverse assets beyond core senior secured loans, such as structured products (including CLO equity) and secondary market purchases of lightly syndicated loans at discounts. This approach, while potentially adding complexity, aims to capture alpha in volatile or complex situations and can lead to higher yields or significant realized gains, as demonstrated by the successful exit from a restructured Heritage Power investment. The company also engages in equity co-investments, though to a lesser extent than debt, seeking capital appreciation. While specific technological differentiators are not detailed, CION's strategy incorporates leveraging digital assets and analytics, such as David's Bridal's "aisle to algorithm" strategy utilizing AI and digital media assets. However, competitors like TSLX are noted for their "advanced analytics-driven portfolio management," suggesting that while CION utilizes analytical capabilities, peers may hold an advantage in scale or sophistication of such platforms, contributing to their operational efficiency. Addressing this potential efficiency gap is an ongoing competitive consideration for CION.

Portfolio Dynamics and Financial Performance

CION's investment portfolio reflects its strategic focus, with Senior Secured First Lien Debt consistently representing the vast majority of its holdings (around 87% at fair value in Q1 2025). The portfolio is diversified across various industries, with significant concentrations in Services Business, Healthcare Pharmaceuticals, and Retail. The weighted average yield on debt and other income-producing investments remains attractive, standing at 12.1% at amortized cost at March 31, 2025, although this saw a slight decrease from 12.3% at December 31, 2024. This yield is influenced by market rates like SOFR and the company's ability to secure spreads and yield-enhancing provisions in its investments.

Recent financial performance highlights the impact of both market conditions and strategic balance sheet management. In Q1 2025, net investment income per share was $0.36, a modest increase from $0.35 in Q4 2024. This improvement in NII was primarily driven by a decrease in operating expenses, specifically lower interest expense, as the company benefited from its recent debt capital repositioning efforts and slightly lower SOFR rates on borrowings. Total investment income, however, saw a slight decrease of 3% quarter-over-quarter in Q1 2025, mainly attributable to lower transaction fees from reduced origination and amendment activity and lower SOFR rates earned on investments compared to Q4 2024.

Looking back at 2024, net investment income per share was $1.79, exceeding total distributions declared of $1.52 per share. Quarterly NII fluctuated throughout 2024, influenced by factors such as SOFR rate changes, transaction fee income, and the timing of debt capital repositioning costs. For instance, Q4 2024 NII ($0.35) was down from Q3 2024 ($0.40) due to lower SOFR on investments and higher interest expense, while Q3 2024 NII ($0.40) was down from Q2 2024 ($0.43) primarily due to lower dividend income. Q2 2024 NII ($0.43) saw a more significant decrease from Q1 2924 ($0.60), mainly due to lower income from restructuring, prepayment activities, and make-whole premiums earned in the earlier period. This pattern underscores the variability introduced by opportunistic and yield-enhancing components of income.

Portfolio valuation has been a notable factor impacting NAV. Q1 2025 saw NAV decline to $14.28 per share from $15.43 in Q4 2024. This decline was largely driven by mark-to-market price declines on a limited number of portfolio companies. Specifically, investments in David's Bridal and Anthem Sports and Entertainment contributed significantly to the unrealized depreciation. For David's Bridal, a new growth capital raise involving equity issuance and associated transaction terms impacted the valuation of CION's debt and equity positions. For Anthem Sports, a strategic shift in business model affecting revenue performance led to a mark-down. While these specific instances impacted NAV, management emphasized that overall credit performance has held up well, with non-accruals remaining relatively low at 1.2% of the portfolio at fair value in Q1 2025, and risk-rated 4 or 5 loans comprising only 128 basis points. This suggests that while market volatility and specific company events can affect valuations, the underlying credit health of the broader portfolio remains stable.

Strengthening the Balance Sheet and Navigating the Outlook

A key strategic focus for CION has been the repositioning of its balance sheet to enhance financial flexibility and manage its debt maturity profile. Over the past few quarters, the company has been active in the debt capital markets, successfully refinancing over 80% of its debt and extending the weighted average maturity wall by three years through 2027. This included amending and extending the senior secured credit facility with J.P. Morgan (JPM), entering into a new senior secured credit facility with UBS (UBS) (replacing a prior repurchase facility with improved terms), issuing unsecured notes (including the 7.5% fixed rate notes due 2029), and upsizing existing unsecured facilities. These actions have significantly increased the proportion of unsecured debt in the capital structure, reaching approximately 62% at March 31, 2025. This shift is intended to provide additional strength and flexibility, aligning well with the predominantly floating-rate nature of CION's investment portfolio. The weighted average cost of debt capital has seen a slight decrease, reaching about 7.5% in Q1 2025, reflecting the benefits of this repositioning and lower SOFR rates.

Liquidity remains solid, with cash and short-term investments totaling $61.7 million at March 31, 2025, complemented by $106 million available under secured financing arrangements. This liquidity, along with expected cash flows from operations and potential future borrowings, is deemed sufficient to cover near-term investing and operational needs, including unfunded commitments which stood at $65.1 million at March 31, 2025 ($61.8 million as of April 30, 2025).

Looking ahead, management maintains a prudent outlook, acknowledging the persistence of macroeconomic uncertainty and potential impacts on consumer confidence and portfolio companies. While the market remains competitive, CION expects new loan spreads, leverage attachment levels, and credit terms to potentially improve based on prevailing conditions. The company intends to remain highly selective in deploying capital, focusing on opportunities within its existing portfolio through add-on investments and refinancings, which are expected to continue comprising a significant portion of investment activity. Opportunistic investments, including leveraging secondary market dislocations, will also remain a focus.

Risks to the outlook include continued market volatility, potential deterioration in macroeconomic conditions impacting portfolio company performance and valuations, and specific risks within individual portfolio companies (as evidenced by recent markdowns and non-accruals). The company also faces risks related to tariffs and trade disputes, although management estimates only a small portion of the portfolio (approximately 6%) has high tariff risk exposure. Interest rate sensitivity remains a factor, as changes in SOFR impact both investment income and borrowing costs, although the floating-rate nature of most assets and liabilities provides a degree of natural hedging.

Despite these challenges, CION's management expresses confidence in the company's ability to generate attractive risk-adjusted returns, citing its differentiated strategy, experienced investment team, and strengthened balance sheet. The ongoing share repurchase program also signals management's belief that the company's shares are undervalued, representing an accretive use of capital and reinforcing alignment with shareholders.

Conclusion

CION Investment Corporation presents an investment case centered on generating yield and seeking opportunistic value within the U.S. middle-market credit space. The company's core strategy emphasizes senior secured lending, providing a defensive foundation, while its ability to pursue special situations and secondary market opportunities offers potential for enhanced returns. Recent financial results demonstrate the impact of both market dynamics and strategic balance sheet management, with stable net investment income benefiting from lower borrowing costs, even as portfolio valuations have experienced volatility driven by specific company-level events. The successful repositioning of the debt capital structure has significantly increased financial flexibility, positioning CION to navigate the ongoing competitive and uncertain macroeconomic environment. While risks related to market volatility, portfolio valuations, and specific credit events persist, the company's focus on credit quality, selective investment, and opportunistic capabilities, supported by a more flexible balance sheet, underpins its strategy to deliver value to shareholders. The continued share repurchase activity further highlights management's conviction in the company's intrinsic value relative to its market trading price.