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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-03-16 compared with 2020-03-17 · 1284 added, 1764 removed, 1170 unchanged (72% of the section changed)

4 unchanged sentences

To the extent that a majority of our investments may be in variable rate investments, an increase in interest rates could make it easier for us to meet or exceed our incentive fee hurdle rate, as defined in our investment advisory agreement, and may result in a substantial increase in our net investment income, and also to the amount of incentive fees payable to CIM with respect to our pre-incentive fee net investment income.

Under the terms of the Amended JPM Credit Facility, advances currently bear interest at a floating rate equal to the three-month LIBOR, plus a spread of 3.00% per year.

Under the terms of the Second Amended Citibank Credit Facility, advances currently bear interest at a floating rate equal to the three-month LIBOR plus 2.00%.

Pursuant to the terms of the amended UBS Facility, we currently pay a financing fee equal to the three-month LIBOR plus a spread of 3.50%.

Under the terms of the Amended MS Credit Facility, advances currently bear interest at a floating rate equal to the three-month LIBOR plus a spread of 3.00% per year.

As of December 31, 2020, under the terms of the Second Amended JPM Credit Facility, advances bore interest at a floating rate equal to the three-month LIBOR, plus a spread of 3.25% per year, which spread was reduced to 3.10% per year under the Third Amended JPM Credit Facility entered into on February 26, 2021.

Pursuant to the terms of the amended UBS Facility, we currently pay a financing fee equal to the three-month LIBOR plus a spread of 3.375% per year.

In addition, we may seek to further borrow funds in order to make additional investments.

5 unchanged sentences

Adverse developments resulting from changes in interest rates could have a material adverse effect on our business, financial condition and results of operations.

The following table shows the effect over a twelve month period of changes in interest rates on our net interest income, excluding short term investments, assuming no changes in our investment portfolio, the Second Amended Citibank Credit Facility, the Amended JPM Credit Facility, the amended UBS Facility or the Amended MS Credit Facility in effect as of December 31, 2019:

Basis Point Change in Interest Rates

(Decrease) Increase in Net Interest Income(1)

Percentage Change in Net Interest Income

Down 100 basis points

Down 50 basis points

The following table shows the effect over a twelve month period of changes in interest rates on our net interest income, excluding short term investments, assuming no changes in our investment portfolio, the Second Amended JPM Credit Facility or the Amended UBS Facility in effect as of December 31, 2020:

Basis Point Change in Interest Rates (Decrease) Increase in Net Interest Income(1) Percentage Change in Net Interest Income

No change to current base rate (0.22% as of December 31, 2020) — —

20 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet, including the consolidated schedule of investments, of CĪON Investment Corporation (the Company) as of December 31, 2019 and the related consolidated statements of operations, changes in net assets and cash flows for the year ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and the results of its operations and its cash flows for the year ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets, including the consolidated schedules of investments, of CĪON Investment Corporation (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in net assets and cash flows for each of the two years in the period ended December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our procedures included confirmation of investments owned as of December 31, 2019 by correspondence with the custodians, loan agents or management of the underlying investments, as applicable, or by other appropriate auditing procedures where replies from these parties, as applicable, were not received.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our procedures included confirmation of investments owned as of December 31, 2020 and 2019, by correspondence with the custodians, loan agents or management of the underlying investments, as applicable, or by other appropriate auditing procedures where replies from these parties, as applicable, were not received.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Level 3 Investments

As of December 31, 2020, the fair value of the Company’s investments classified as Level 3 investments was approximately $1.47 billion, or approximately 93.6% of total investments.

As discussed in Notes 1, 2, and 9 in the financial statements, the Company invests in senior secured debt, including first lien loans, second lien loans and unitranche loans, and, to a lesser extent, collateralized securities, structured products and other similar securities, unsecured debt and equity, of private and thinly-traded U.S.

middle-market companies, and substantially all of its investments are classified as Level 3 investments.

The Company’s determination of fair value for these investments requires that management makes subjective judgments and estimates utilizing non-binding broker or dealer consensus pricing and/or quotes, a market approach, an income approach, or a combination of a market and income approach, as appropriate.

These approaches require management to make subjective judgments and estimates related to significant unobservable inputs including the discount rates, EBITDA multiples, revenue multiples, broker quotes, expected volatility and expected outcome of proposed corporate transactions.

We identified the valuation of Level 3 investments as a critical audit matter given the Company uses significant subjective judgments to estimate the fair value of such investments.

Auditing the reasonableness of management’s selection of valuation techniques and the related unobservable inputs increased audit effort, including the use of a valuation specialist.

Our audit procedures related to the valuation techniques, unobservable inputs and assumptions used by management to estimate the fair value of Level 3 investments included the following, among others:

• We evaluated the appropriateness of the valuation techniques used for Level 3 investments and evaluated the reasonableness of any significant changes in valuation techniques since prior periods.

• We evaluated the reasonableness of the related significant unobservable inputs and the reasonableness of any significant changes in significant unobservable inputs from prior periods by comparing these inputs to external sources, including, but not limited to:

◦ Historical operating results of the investment as obtained from the Company, among other sources, the financial statements and the board of directors’ materials of the investment.

◦ Available market data for comparable companies.

◦ Subsequent events and transactions, where available.

• We tested the source information used to determine the valuation input and the mathematical accuracy of the calculation used to compute the input.

• With the assistance of a valuation specialists, we performed the following:

◦ For a portion of Level 3 investments, evaluated the valuation techniques compared to those of a market participant, used market information to develop a range of market yield, comparable financial performance multiples and discount rate assumptions and compared them to the assumptions used by management.

◦ For a portion of Level 3 investments, developed an independent estimate of the fair value and compared our estimates to management’s estimates.

• We evaluated management’s ability to reasonably estimate fair value by comparing management’s historical estimates to transactions subsequent to measurement date.

We took into consideration changes in market or investment specific factors, where available.

/s/ RSM US LLP

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of CĪON Investment Corporation (the “Company”), including the consolidated schedule of investments, as of December 31, 2018, and the related consolidated statements of operations, changes in net assets and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CĪON Investment Corporation at December 31, 2018, and the consolidated results of its operations, changes in its net assets, and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with U.S.

We have audited the accompanying consolidated statements of operations, changes in net assets and cash flows of CĪON Investment Corporation (the “Company”) for the year ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations, changes in its net assets, and its cash flows for the year ended December 31, 2018, in conformity with U.S.

generally accepted accounting principles.

1 unchanged sentence