CION Investment Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our” or similar terms include CĪON Investment Corporation and its consolidated subsidiaries. In addition, the term "portfolio companies" refers to companies in which we have invested, either directly or indirectly through our consolidated subsidiaries. The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. In addition to historical information, the following discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking information that involves risks and uncertainties. Amounts and percentages presented herein may have been rounded for presentation and all dollar amounts, excluding share and per share amounts, are presented in thousands unless otherwise noted. Forward-Looking Statements Some of the statements within this Quarterly Report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to: • our future operating results; • our business prospects and the prospects of our portfolio companies, including our and their ability to achieve our respective objectives as a result of COVID-19; • the impact of the investments that we expect to make; • the ability of our portfolio companies to achieve their objectives; • our current and expected financings and investments; • the adequacy of our cash resources, financing sources and working capital; • the use of borrowed money to finance a portion of our investments; • the timing of cash flows, if any, from the operations of our portfolio companies; • our contractual arrangements and relationships with third parties; • the actual and potential conflicts of interest with CIM and Apollo and their respective affiliates; • the ability of CIM's and AIM's investment professionals to locate suitable investments for us and the ability of CIM to monitor and administer our investments; • the ability of CIM and its affiliates to attract and retain highly talented professionals; • the dependence of our future success on the general economy and its impact on the industries in which we invest, including COVID-19 and the related economic disruptions caused thereby; • the effects of a changing interest rate environment; • our ability to source favorable private investments; • our tax status; • the effect of changes to tax legislation and our tax position; • the tax status of the companies in which we invest; and • the timing and amount of distributions and dividends from the companies in which we invest. In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. Other factors that could cause actual results to differ materially include: • changes in the economy; • risks associated with possible disruption in our operations or the economy generally due to terrorism, pandemics, or natural disasters; and • future changes in laws or regulations and conditions in our operating areas. 55 We have based the forward-looking statements on information available to us on the date of this Quarterly Report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to review any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this Quarterly Report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Overview We were incorporated under the general corporation laws of the State of Maryland on August 9, 2011 and commenced operations on December 17, 2012 upon raising proceeds of $2,500 from persons not affiliated with us, CIM or Apollo. We are an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. We elected to be treated for federal income tax purposes as a RIC, as defined under Subchapter M of the Code. Our investment objective is to generate current income and, to a lesser extent, capital appreciation for investors. Our portfolio is comprised primarily of investments 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. In connection with our debt investments, we may receive equity interests such as warrants or options as additional consideration. We may also purchase equity interests in the form of common or preferred stock in our target companies, either in conjunction with one of our debt investments or through a co-investment with a financial sponsor. We are managed by CIM, our affiliate and a registered investment adviser. Pursuant to an investment advisory agreement with us, CIM oversees the management of our activities and is responsible for making investment decisions for our portfolio. On November 13, 2020, our board of directors, including a majority of directors who are not interested persons, approved the renewal of the investment advisory agreement with CIM for a period of twelve months commencing December 17, 2020. We and CIM previously engaged AIM to act as our investment sub-adviser. On July 11, 2017, the members of CIM entered into the Third Amended CIM LLC Agreement for the purpose of creating a joint venture between AIM and CIG. Under the Third Amended CIM LLC Agreement, AIM became a member of CIM and was issued a newly-created class of membership interests in CIM pursuant to which AIM, among other things, shares in the profits, losses, distributions and expenses of CIM with the other members in accordance with the terms of the Third Amended CIM LLC Agreement, which results in CIG and AIM each owning a 50% economic interest in CIM. On July 10, 2017, our independent directors unanimously approved the termination of the investment sub-advisory agreement with AIM, effective as of July 11, 2017, as part of the new and ongoing relationship among us, CIM and AIM. Although the investment sub-advisory agreement and AIM's engagement as our investment sub-adviser were terminated, AIM's investment professionals continue to perform certain services for CIM and us, including, without limitation, identifying investment opportunities for approval by CIM's investment committee. AIM is not paid a separate fee in exchange for such services, but is entitled to receive distributions as a member of CIM as described above. On December 4, 2017, the members of CIM entered into the Fourth Amended CIM LLC Agreement. Under the Fourth Amended CIM LLC Agreement, AIM’s investment professionals perform certain services for CIM, which include, among other services, (i) assistance with identifying and providing information about potential investment opportunities for approval by CIM’s investment committee; and (ii) providing (a) trade and settlement support; (b) portfolio and cash reconciliation; (c) market pipeline information regarding syndicated deals, in each case, as reasonably requested by CIM; and (d) monthly valuation reports and support for all broker-quoted investments. All of our investment decisions are the sole responsibility of, and are made at the sole discretion of, CIM's investment committee, which consists entirely of CIG personnel. We seek to meet our investment objective by utilizing the experienced management team of CIM, which includes its access to the relationships and human capital of its affiliates in sourcing, evaluating and structuring transactions, as well as monitoring and servicing our investments. We focus primarily on the senior secured debt of private and thinly-traded U.S. middle-market companies, which we define as companies that generally possess annual EBITDA of $50 million or less, with experienced management teams, significant free cash flow, strong competitive positions and potential for growth. 56 Revenue We primarily generate revenue in the form of interest income on the debt securities that we hold and capital gains on debt or other equity interests that we acquire in portfolio companies. The majority of our senior debt investments bear interest at a floating rate. Interest on debt securities is generally payable quarterly or monthly. In some cases, some of our investments may provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued, but unpaid, interest generally will become due at the maturity date. In addition, we may generate revenue in the form of commitment and capital structuring fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees generated in connection with our investments will be recognized when earned. Operating Expenses Our primary operating expenses are the payment of advisory fees and subordinated incentive fees on income under the investment advisory agreement and interest expense on our financing arrangements. Our investment advisory fees compensate CIM for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. We bear all other expenses of our operations and transactions. Recent Developments COVID-19 The rapid spread of COVID-19, and associated impacts on the U.S. and global economies and the financial and credit markets, initially had negatively impacted, and may again negatively impact, our business operations and the business operations of some of our portfolio companies. We cannot at this time fully predict the impact of COVID-19 on our business or the business of our portfolio companies, its duration or magnitude or the extent to which it will negatively impact our portfolio companies’ operating results or our own results of operations or financial condition, including, without limitation, our ability to pay distributions to and repurchase shares from our shareholders. We expect that certain of our portfolio companies will continue to experience economic distress for the foreseeable future and may significantly limit business operations if subjected to prolonged economic distress. These developments could result in a decrease in the value of certain of our investments. COVID-19 initially had adverse effects on our investment income and may again have adverse effects in the future. These adverse effects may require us to restructure certain of our investments, which could result in further reductions to our investment income or in impairments on our investments. In addition, disruptions in the capital markets have resulted in illiquidity in certain market areas. These market disruptions and illiquidity initially had an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions caused by COVID-19 can also be expected to increase our funding costs and limit our access to the capital markets. These events initially limited our investment originations, which may occur again in the future, and may also have a material negative impact on our operating results. We will continue to carefully monitor the impact of COVID-19 on our business and the business of our portfolio companies. Because the full effects of COVID-19 are not capable of being known at this time, we cannot estimate the impacts of COVID-19 on our future financial condition, results of operations or cash flows, including its effects on us with respect to our compliance with covenants in our financing arrangements with lenders. We do, however, expect that it will continue to have a negative impact on our business and the financial condition of certain of our portfolio companies. More Term Loan On April 14, 2021, we entered into the Term Loan Agreement with More, as lender. The More Term Loan provides for an unsecured term loan to us in an aggregate principal amount of $30,000. On April 20, 2021, we drew down $30,000 of borrowings under the More Term Loan. After the deduction of fees and other financing expenses, we received net borrowings of approximately $29,000, which we intend to use for working capital and other general corporate purposes. See Note 14 to our consolidated financial statements contained in this report for additional information regarding the More Term Loan. 57 Portfolio Investment Activity for the Three Months Ended March 31, 2021 and 2020 and the Year Ended December 31, 2020 The following table summarizes our investment activity, excluding short term investments and PIK securities, for the three months ended March 31, 2021 and 2020 and the year ended December 31, 2020: Three Months Ended March 31, Year Ended December 31, Net Investment Activity 2021 2020 2020 Purchases and drawdowns Senior secured first lien debt $ 181,990 $ 175,543 $ 347,992 Senior secured second lien debt — — 4,375 Equity 1,644 88 7,266 Sales and principal repayments (189,274) (210,398) (543,167) Net portfolio activity $ (5,640) $ (34,767) $ (183,534) The following tables summarize the composition of our investment portfolio at amortized cost and fair value as of March 31, 2021 and December 31, 2020: March 31, 2021 Investments Cost(1) Investments Fair Value Percentage of Investment Portfolio Senior secured first lien debt $ 1,283,804 $ 1,255,426 81.8 % Senior secured second lien debt 172,670 154,626 10.1 % Collateralized securities and structured products - equity 15,152 13,840 0.9 % Unsecured debt 5,671 5,493 0.4 % Equity 102,389 104,663 6.8 % Subtotal/total percentage 1,579,686 1,534,048 100.0 % Short term investments(2) 87,593 87,593 Total investments $ 1,667,279 $ 1,621,641 Number of portfolio companies 122 Average annual EBITDA of portfolio companies $64.0 million Median annual EBITDA of portfolio companies $50.6 million Purchased at a weighted average price of par 98.15 % Gross annual portfolio yield based upon the purchase price(3) 8.57 % (1) Represents amortized cost for debt investments and cost for equity investments. Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on our investments. (2) Short term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less. (3) The gross annual portfolio yield does not represent and may be higher than an actual investment return to shareholders because it excludes our expenses and all sales commissions and dealer manager fees and does not consider the cost of leverage. 58 December 31, 2020 Investments Cost(1) Investments Fair Value Percentage of Investment Portfolio Senior secured first lien debt $ 1,266,564 $ 1,223,268 81.8 % Senior secured second lien debt 171,480 151,506 10.1 % Collateralized securities and structured products - equity 15,305 12,131 0.8 % Unsecured debt 5,668 5,464 0.4 % Equity 118,638 103,405 6.9 % Subtotal/total percentage 1,577,655 1,495,774 100.0 % Short term investments(2) 73,597 73,597 Total investments $ 1,651,252 $ 1,569,371 Number of portfolio companies 119 Average annual EBITDA of portfolio companies $67.3 million Median annual EBITDA of portfolio companies $53.2 million Purchased at a weighted average price of par 98.18 % Gross annual portfolio yield based upon the purchase price(3) 8.28 % (1) Represents amortized cost for debt investments and cost for equity investments. Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on our investments. (2) Short term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less. (3) The gross annual portfolio yield does not represent and may be higher than an actual investment return to shareholders because it excludes our expenses and all sales commissions and dealer manager fees and does not consider the cost of leverage. The following table summarizes the composition of our investment portfolio by the type of interest rate as of March 31, 2021 and December 31, 2020, excluding short term investments of $87,593 and $73,597, respectively: March 31, 2021 December 31, 2020 Interest Rate Allocation Investments Cost Investments Fair Value Percentage of Investment Portfolio Investments Cost Investments Fair Value Percentage of Investment Portfolio Floating interest rate investments $ 1,349,948 $ 1,306,343 85.1 % $ 1,347,194 $ 1,284,282 85.9 % Fixed interest rate investments 127,637 128,162 8.4 % 126,962 124,816 8.3 % Non-income producing equity 66,827 65,400 4.3 % 66,086 52,505 3.5 % Other income producing investments 35,274 34,143 2.2 % 37,413 34,171 2.3 % Total investments $ 1,579,686 $ 1,534,048 100.0 % $ 1,577,655 $ 1,495,774 100.0 % 59 The following table shows the composition of our investment portfolio by industry classification and the percentage, by fair value, of the total assets in such industries as of March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 Industry Classification Investments Fair Value Percentage of Investment Portfolio Investments Fair Value Percentage of Investment Portfolio Healthcare & Pharmaceuticals $ 287,329 18.7 % $ 298,944 19.9 % Services: Business 212,278 13.8 % 211,572 14.0 % Chemicals, Plastics & Rubber 124,555 8.1 % 141,654 9.5 % Media: Diversified & Production 113,208 7.4 % 108,078 7.2 % Media: Advertising, Printing & Publishing 108,664 7.1 % 110,083 7.4 % Services: Consumer 97,966 6.4 % 85,254 5.7 % Beverage, Food & Tobacco 83,083 5.4 % 69,975 4.7 % High Tech Industries 71,486 4.7 % 55,619 3.7 % Capital Equipment 65,871 4.3 % 65,752 4.4 % Banking, Finance, Insurance & Real Estate 51,349 3.3 % 41,211 2.8 % Telecommunications 46,284 3.0 % 46,638 3.1 % Energy: Oil & Gas 41,328 2.7 % 28,136 1.9 % Aerospace & Defense 36,513 2.4 % 35,751 2.4 % Construction & Building 34,626 2.3 % 34,653 2.3 % Hotel, Gaming & Leisure 31,428 2.0 % 21,920 1.5 % Retail 28,751 1.9 % 29,312 2.0 % Diversified Financials 24,697 1.6 % 37,214 2.5 % Forest Products & Paper 21,717 1.4 % 21,686 1.4 % Transportation: Cargo 18,821 1.2 % 19,001 1.3 % Consumer Goods: Non-Durable 16,202 1.1 % 15,757 1.1 % Metals & Mining 10,033 0.7 % 10,147 0.7 % Consumer Goods: Durable 7,859 0.5 % 7,417 0.5 % Subtotal/total percentage 1,534,048 100.0 % 1,495,774 100.0 % Short term investments 87,593 73,597 Total investments $ 1,621,641 $ 1,569,371 Our investment portfolio may contain senior secured investments that are in the form of lines of credit, delayed draw term loans, revolving credit facilities, or unfunded commitments, which may require us to provide funding when requested in accordance with the terms of the underlying agreements. As of March 31, 2021 and December 31, 2020, our unfunded commitments amounted to $75,738 and $43,130 , respectively. As of May 10, 2021, our unfunded commitments amounte d to $79,985. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for us. Refer to the section “Commitments and Contingencies and Off-Balance Sheet Arrangements” for further details on our unfunded commitments. Investment Portfolio Asset Quality CIM uses an investment rating system to characterize and monitor our expected level of returns on each investment in our portfolio. These ratings are just one of several factors that CIM uses to monitor our portfolio, are not in and of themselves determinative of fair value or revenue recognition and are presented for indicative purposes. CIM rates the credit risk of all investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. 60 The following is a description of the conditions associated with each investment rating used in this ratings system: Investment Rating Description 1 Indicates the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit. 2 Indicates a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing in accordance with our analysis of its business and the full return of principal and interest or dividend is expected. 3 Indicates that the risk to our ability to recoup the cost of such investment has increased since origination or acquisition, but full return of principal and interest or dividend is expected. A portfolio company with an investment rating of 3 requires closer monitoring. 4 Indicates that the risk to our ability to recoup the cost of such investment has increased significantly since origination or acquisition, including as a result of factors such as declining performance and noncompliance with debt covenants, and we expect some loss of interest, dividend or capital appreciation, but still expect an overall positive internal rate of return on the investment. 5 Indicates that the risk to our ability to recoup the cost of such investment has increased materially since origination or acquisition and the portfolio company likely has materially declining performance. Loss of interest or dividend and some loss of principal investment is expected, which would result in an overall negative internal rate of return on the investment. For investments rated 3, 4, or 5, CIM enhances its level of scrutiny over the monitoring of such portfolio company. The following table summarizes the composition of our investment portfolio based on the 1 to 5 investment rating scale at fair value as of March 31, 2021 and December 31, 2020, excluding short term investments of $87,593 and $73,597, respectively: March 31, 2021 December 31, 2020 Investment Rating Investments Fair Value Percentage of Investment Portfolio Investments Fair Value Percentage of Investment Portfolio 1 $ 53,636 3.5 % $ 2,997 0.2 % 2 1,182,221 77.1 % 1,173,191 78.5 % 3 288,994 18.8 % 309,930 20.7 % 4 8,283 0.5 % 9,210 0.6 % 5 914 0.1 % 446 — $ 1,534,048 100.0 % $ 1,495,774 100.0 % The amount of the investment portfolio in each rating category may vary substantially from period to period resulting primarily from changes in the composition of such portfolio as a result of new investment, repayment and exit activities. In addition, changes in the rating of investments may be made to reflect our expectation of performance and changes in investment values. 61 Current Investment Portfolio The following table summarizes the composition of our investment portfolio at fair value as of May 10, 2021: Investments Fair Value Percentage of Investment Portfolio Senior secured first lien debt $ 1,318,647 83.3 % Senior secured second lien debt 141,834 9.0 % Collateralized securities and structured products - equity 12,908 0.8 % Unsecured debt 5,493 0.3 % Equity 104,843 6.6 % Subtotal/total percentage 1,583,725 100.0 % Short term investments(2) 130,575 Total investments $ 1,714,300 Number of portfolio companies 127 Average annual EBITDA of portfolio companies $62.5 million Median annual EBITDA of portfolio companies $49.0 million Purchased at a weighted average price of par 98.42 % Gross annual portfolio yield based upon the purchase price(2) 8.39 % (1) Short term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less. (2) The gross annual portfolio yield does not represent and may be higher than an actual investment return to shareholders because it excludes our expenses and all sales commissions and dealer manager fees and does not consider the cost of leverage. Results of Operations for the Three Months Ended March 31, 2021 and 2020 Our results of operations for the three months ended March 31, 2021 and 2020 were as follows: Three Months Ended March 31, 2021 2020 Investment income $ 36,303 $ 45,748 Net operating expenses 18,704 24,087 Net investment income 17,599 21,661 Net realized loss on investments and foreign currency (4,128) (4,196) Net change in unrealized appreciation (depreciation) on investments 36,243 (123,377) Net increase (decrease) in net assets resulting from operations $ 49,714 $ (105,912) Investment Income For the three months ended March 31, 2021 and 2020, we generated investment income of $36,303 and $45,748, respectively, consisting primarily of interest income on investments in senior secured debt, collateralized securities and structured products, and unsecured debt of 107 and 136 portfolio companies held during each respective period. Our average investment portfolio size, excluding our short term investments, decreased $143,343, from $1,658,254 for the three months ended March 31, 2020 to $1,514,911 for the three months ended March 31, 2021. Additionally, the decrease in LIBOR during the three months ended March 31, 2021 from the three months ended March 31, 2020 also contributed to the decrease in interest income. 62 Operating Expenses The composition of our operating expenses for the three months ended March 31, 2021 and 2020 was as follows: Three Months Ended March 31, 2021 2020 Management fees $ 7,783 $ 8,451 Administrative services expense 684 394 Subordinated incentive fee on income — 3,308 General and administrative 2,689 1,470 Interest expense 7,548 10,464 Total operating expenses $ 18,704 $ 24,087 The decrease in subordinated incentive fee on income was primarily due to the decrease in interest income during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The decrease in interest expense was primarily the result of a decrease in LIBOR during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The decrease in interest expense was also the result of lower average borrowings on our financing arrangements during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, which also resulted in a decrease in total assets and a decrease in management fees during the three months ended March 31, 2021. The composition of our general and administrative expenses for the three months ended March 31, 2021 and 2020 was as follows: Three Months Ended March 31, 2021 2020 Professional fees $ 1,265 $ 297 Transfer agent expense 422 395 Valuation expense 252 276 Accounting and administration costs 237 146 Dues and subscriptions 169 82 Insurance expense 132 108 Director fees and expenses 103 116 Printing and marketing expense 44 15 Other expenses 65 35 Total general and administrative expense $ 2,689 $ 1,470 Net Investment Income Our net investment income totaled $17,599 and $21,661 for the three months ended March 31, 2021 and 2020, respectively. The decrease in our investment income during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was offset by a decrease in our operating expenses during the same period. Net Realized Loss on Investments and Foreign Currency Our net realized loss on investments and foreign currency totaled $(4,128) and $(4,196) for the three months ended March 31, 2021 and 2020, respectively, which were driven primarily by realized losses on the liquidation of our investment in certain portfolio companies during both periods. 63 Net Change in Unrealized Appreciation (Depreciation) on Investments The net change in unrealized appreciation (depreciation) on our investments totaled $36,243 and $(123,377) for the three months ended March 31, 2021 and 2020, respectively. This change was driven primarily by tightening credit spreads and increased multiples in equity markets during the three months ended March 31, 2021 that positively impacted the fair value of certain of our investments, as compared to the outbreak and spread of COVID-19 around the world during the three months ended March 31, 2020, which caused significant uncertainty and volatility in the U.S. and global economies as well as in the financial and credit markets and negatively impacted the fair value of certain of our investments. Net Increase (Decrease) in Net Assets Resulting from Operations For the three months ended March 31, 2021 and 2020, we recorded a net increase (decrease) in net assets resulting from operations of $49,714 and $(105,912), respectively, as a result of our operating activity for the respective periods. This “Results of Operations” discussion should also be read in conjunction with “Recent Developments - COVID-19” above. Net Asset Value per Share, Annual Investment Return and Total Return Since Inception Our net asset value per share was $8.06 and $7.75 on March 31, 2021 and December 31, 2020, respectively. After considering (i) the overall changes in net asset value per share, (ii) paid distributions of approximately $0.1324 per share during the three months ended March 31, 2021, and (iii) the assumed reinvestment of those distributions in accordance with our distribution reinvestment plan then in effect, the total investment return-net asset value was 5.73% for the three-month period ended March 31, 2021. Total investment return-net asset value does not represent and may be higher than an actual return to shareholders because it excludes all sales commissions and dealer manager fees. Total investment return-net asset value is a measure of the change in total value for shareholders who held our common stock at the beginning and end of the period, including distributions paid or payable during the period, and is described further in Note 13 to our consolidated financial statements included in this report. Initial shareholders who subscribed to the offering in December 2012 with an initial investment of $10,000 and an initial purchase price equal to $9.00 per share (public offering price excluding sales load) have seen an annualized return of 6.70% and a cumulative total return of 71.27% through March 31, 2021 (see chart below). Initial shareholders who subscribed to the offering in December 2012 with an initial investment of $10,000 and an initial purchase price equal to $10.00 per share (the initial public offering price including sales load) have seen an annualized return of 5.36% and a cumulative total return of 54.14% through March 31, 2021. Over the same time period, the S&P/LSTA Leveraged Loan Index, a primary measure of senior debt covering the U.S. leveraged loan market, which currently consists of approximately 1,000 credit facilities throughout numerous industries, recorded an annualized return of 4.20% and a cumulative total return of 40.64%. In addition, the BofA Merrill Lynch US High Yield Index, a primary measure of short-term US dollar denominated below investment grade corporate debt publicly issued in the US domestic market, recorded an annualized return of 5.76% and a cumulative total return of 59.09% over the same period. 64 (1) Cumulative performance: December 17, 2012 to March 31, 2021 The calculations for the Growth of $10,000 Initial Investment are based upon (i) an initial investment of $10,000 in our common stock at the beginning of the period, at a share price of $10.00 per share (including sales load) and $9.00 per share (excluding sales load), (ii) assumes reinvestment of monthly distributions in accordance with our distribution reinvestment plan then in effect, (iii) the sale of the entire investment position at the net asset value per share on the last day of the period, and (iv) the distributions declared and payable to shareholders, if any, on the last day of the period. Financial Condition, Liquidity and Capital Resources We generate cash primarily from cash flows from interest, fees and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments. We also employ leverage to seek to enhance our returns as market conditions permit and at the discretion of CIM. On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum "asset coverage" ratio from 200% to 150% and, as a result, to potentially increase the ratio of a BDC's debt to equity from a maximum of 1-to-1 to a maximum of 2-to-1, so long as certain approval and disclosure requirements are satisfied. We intend to seek the approval of our shareholders to reduce our minimum “asset coverage” ratio from 200% to 150% in accordance with the 1940 Act. The outbreak and spread of COVID-19 have caused severe stress and uncertainty in the U.S. and global economies as well as in the financial and credit markets. Given the uncertainty as to the full severity and duration of the pandemic and its effects on us with respect to our compliance with covenants in our loan facilities with lenders and our borrowers’ ability to timely meet their financial obligations to us, management and our board of directors determined that it was in the best interest of our company and all of our shareholders to take certain steps disclosed below during the three months ended March 31, 2020 that were necessary to improve our cash position and preserve financial flexibility in the short term. This “Financial Condition, Liquidity and Capital Resources” discussion should also be read in conjunction with “Recent Developments - COVID-19” above. 65 On March 19, 2020, our co-chief executive officers determined to (i) change the timing of declaring distributions to shareholders from quarterly to monthly; and (ii) temporarily suspend the payment of distributions to shareholders commencing with the month ended April 30, 2020, whether in cash or pursuant to our distribution reinvestment plan, as amended and restated. On July 15, 2020, our board of directors determined to recommence the payment of distributions to shareholders in August 2020. Distributions in respect of future months will be evaluated by management and our board of directors based on circumstances and expectations existing at the time of consideration. On March 19, 2020, our board of directors, including the independent directors, also determined to temporarily suspend our share repurchase program commencing with the second quarter of 2020. On November 13, 2020, we recommenced our share repurchase program for the fourth quarter of 2020. Share repurchases for future quarters will be evaluated by our board of directors based on circumstances and expectations existing at the time of consideration. As of March 31, 2021 and December 31, 2020, we had $87,593 and $73,597 in short term investments, respectively, invested in a fund that primarily invests in U.S. government securities. JPM Credit Facility As of March 31, 2021 and May 10, 2021, our outstanding borrowings under the Third Amended JPM Credit Facility were $500,000 and the aggregate unfunded principal amount in connection with the Third Amended JPM Credit Facility was $75,000. For a detailed discussion of our Third Amended JPM Credit Facility, refer to Note 8 to our consolidated financial statements included in this report. UBS Facility As of March 31, 2021 and May 10, 2021, our outstanding borrowings under the Amended UBS Facility were $100,000 and the aggregate unfunded principal amount in connection with the Amended UBS Facility was $50,000. For a detailed discussion of our Amended UBS Facility, refer to Note 8 to our consolidated financial statements included in this report. 2026 Notes As of March 31, 2021 and May 10, 2021, we had $125,000 in aggregate principal amount of 2026 Notes outstanding. For a detailed discussion of our 2026 Notes, refer to Note 8 to our consolidated financial statements included in this report. More Term Loan On April 14, 2021, we entered into the More Term Loan. As of May 10, 2021, our outstanding borrowings under the More Term Loan were $30,000 and there was no unfunded principal amount in connection with the More Term Loan. For a detailed discussion of our More Term Loan, refer to Note 14 to our consolidated financial statements included in this report. Unfunded Commitments As of March 31, 2021 and May 10, 2021, our unfunded commitments amounted to $75,738 and $79,985, respectively. For a detailed discussion of our unfunded commitments, refer to Note 11 to our consolidated financial statements included in this report. RIC Status and Distributions To qualify for and maintain RIC tax treatment, we must, among other things, distribute in respect of each taxable year at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. We will incur certain excise taxes imposed on RICs to the extent we do not distribute in respect of each calendar year an amount at least equal to the sum of (1) 98.0% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses, or capital gain net income (adjusted for certain ordinary losses), for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gain net income from preceding years that were not distributed during such years and on which we paid no federal income tax. For an additional discussion of our RIC status and distributions, refer to Note 2 and Note 5, respectively, of our consolidated financial statements included in this report. 66 Recent Accounting Pronouncements See Note 2 to our consolidated financial statements included in this report for a discussion of certain recent accounting pronouncements that are applicable to us. Critical Accounting Policies Our consolidated financial statements are prepared in conformity with GAAP, which requires us 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 periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, we also utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. Valuation of Portfolio Investments The value of our assets is determined quarterly and at such other times that an event occurs that materially affects the valuation. The valuation is made pursuant to Section 2(a)(41) of the 1940 Act, which requires that we value our assets as follows: (i) the market price for those securities for which a market quotation is readily available, and (ii) for all other securities and assets, at fair value, as determined in good faith by our board of directors. As a BDC, Section 2(a)(41) of the 1940 Act requires the board of directors to determine in good faith the fair value of portfolio securities for which a market price is not readily available, and it does so in conjunction with the application of our valuation procedures by CIM. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each asset while employing a valuation process that is consistently followed. Determinations of fair value involve subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations in our consolidated financial statements. Valuation Methods With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below: • our quarterly valuation process begins with each portfolio company or investment being initially valued by certain of CIM’s investment professionals and certain members of its management team, with such valuation taking into account information received from various sources, including independent valuation firms, if applicable; • preliminary valuation conclusions are then documented and discussed with members of CIM’s management team; • designated members of CIM’s management team review the preliminary valuation, and, if applicable, deliver such preliminary valuation to an independent valuation firm for its review; • designated members of CIM’s management team and, if appropriate, the relevant investment professionals meet with the independent valuation firm to discuss the preliminary valuation; • designated members of CIM’s management team respond and supplement the preliminary valuation to reflect any comments provided by the independent valuation firm; • our audit committee meets with members of CIM’s management team and the independent valuation firms to discuss the assistance provided and the results of the independent valuation firms' review; and • our board of directors discusses the valuation and determines the fair value of each investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of CIM, the audit committee and any third-party valuation firm, if applicable. In addition to the foregoing, certain investments for which a market price is not readily available are evaluated on a quarterly basis by an independent valuation firm and certain other investments are on a rotational basis reviewed by an independent valuation firm. Finally, certain investments are not evaluated by an independent valuation firm unless certain aspects of such investments in the aggregate meet certain criteria. 67 Given the expected types of investments, excluding short term investments and stock of publicly traded companies that are classified as Level 1, management expects our portfolio holdings to be classified as Level 3. Due to the uncertainty inherent in the valuation process, particularly for Level 3 investments, such fair value estimates may differ significantly from the values that would have been used had an active market for the investments 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 we ultimately realize on these investments to materially differ from the valuations currently assigned. Inputs used in the valuation process are subject to variability in the future and can result in materially different fair values. For an additional discussion of our investment valuation process, refer to Note 2 to our consolidated financial statements included in this report. Related Party Transactions For a discussion of our relationship with related parties including CION Securities, CIM, CIG, and AIA and amounts incurred under agreements with such related parties, refer to Note 4 to our consolidated financial statements included in this report. Contractual Obligations On August 26, 2016, 34th Street entered into the JPM Credit Facility with JPM, as amended and restated on September 30, 2016, July 11, 2017, November 28, 2017, May 23, 2018, May 15, 2020 and February 26, 2021. See Note 8 to our consolidated financial statements for a more detailed description of the JPM Credit Facility. On May 19, 2017, Murray Hill Funding II entered into the UBS Facility with UBS, as amended on December 1, 2017, May 19, 2020, November 12, 2020 and December 17, 2020. See Note 8 to our consolidated financial statements for a more detailed description of the UBS Facility. On February 11, 2021, we entered into the Note Purchase Agreement with purchasers of the 2026 Notes. See Note 8 to our consolidated financial statements for a more detailed description of the 2026 Notes. On April 14, 2021, we entered into the More Term Loan with More. See Note 14 to our consolidated financial statements for a more detailed description of the More Term Loan. Commitments and Contingencies and Off-Balance Sheet Arrangements Commitments and Contingencies We have entered into certain contracts with other parties that contain a variety of indemnifications. Our maximum exposure under these arrangements is unknown. However, we have not experienced claims or losses pursuant to these contracts and believe the risk of loss related to such indemnifications to be remote. Our investment portfolio may contain debt investments that are in the form of lines of credit, delayed draw term loans, revolving credit facilities, or other unfunded commitments, which may require us to provide funding when requested in accordance with the terms of the underlying agreements. For further details on such debt investments, refer to Note 11 to our consolidated financial statements included in this report. Off-Balance Sheet Arrangements We currently have no off-balance sheet arrangements, except for those discussed in Note 11 to our consolidated financial statements included in this report. 68