What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-13 · 146 added, 118 removed, 336 unchanged (44% of the section changed)

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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.

In addition, all share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split discussed below and in Note 3 to our consolidated financial statements included in this report.

Forward-Looking Statements

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• future changes in laws or regulations and conditions in our operating areas;

• the price at which shares of our common stock may trade on the NYSE.

We have based the forward-looking statements on information available to us on the date of this Quarterly Report on Form 10-Q.

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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.

On October 5, 2021, shares of our common stock began trading on the NYSE under the ticker symbol “CION”.

The Listing accomplished our goal of providing our shareholders with greatly enhanced liquidity.

We are managed by CIM, our affiliate and a registered investment adviser.

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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.

On April 5, 2021, our board of directors, including a majority of directors who are not interested persons, approved the amended and restated investment advisory agreement with CIM, which was subsequently approved by shareholders on August 9, 2021 (as described in further detail below).

On April 5, 2021, our board of directors, including a majority of directors who are not interested persons, approved the amended and restated investment advisory agreement with CIM for a period of twenty four months, which was subsequently approved by shareholders on August 9, 2021 (as described in further detail below).

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.

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, our affiliate.

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.

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, assistance with 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.

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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.

On April 5, 2021, our board of directors unanimously approved a number of steps in connection with the commencement of plans to pursue a potential listing of our shares of common stock on a national securities exchange.

We have been cleared to file an application, and have applied, to list our shares of common stock on the NYSE under the symbol “CION”.

Subject to market conditions, final board approvals and NYSE approval, we currently expect to seek the commencement of trading as part of the Listing in the period following receipt of shareholder approval of the proposals to be considered at our reconvened annual meeting, as described in our definitive proxy statement filed on May 13, 2021.

There can be no assurance that we will be able to complete the Listing in any certain timeframe or at all.

In connection with the potential Listing, our board of directors also approved an amended and restated investment advisory agreement with CIM.

A description of the amended and restated investment advisory agreement is set forth in Proposal 3 in our definitive proxy statement filed on May 13, 2021.

The amended and restated investment advisory agreement is effective upon the Listing, except for the change to the calculation of the subordinated incentive fee payable to CIM that expresses the hurdle rate required for CIM to earn, and be paid, the incentive fee as a percentage of our net assets rather than adjusted capital, which is not dependent upon the Listing.

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 senior personnel.

The amended and restated investment advisory agreement was approved by shareholders on August 9, 2021 at our reconvened 2021 annual meeting of shareholders.

As a result, on August 10, 2021, we and CIM entered into the amended and restated investment advisory agreement in order to implement this change to the calculation of the subordinated incentive fee payable to CIM.

As a result, on August 10, 2021, we and CIM entered into the amended and restated investment advisory agreement in order to implement the change to the calculation of the subordinated incentive fee payable from us to CIM that expresses the hurdle rate required for CIM to earn, and be paid, the incentive fee as a percentage of our net assets rather than adjusted capital.

Upon the occurrence of the Listing on October 5, 2021, we and CIM entered into the second amended and restated investment advisory agreement in order to implement the changes to the advisory fees payable from us to CIM that (i) reduced the annual base management fee, (ii) amended the structure of the subordinated incentive fee on income payable from us to CIM and reduced the hurdle and incentive fee rates, and (iii) reduced the incentive fee on capital gains payable from us to CIM (as described in further detail in Notes 2 and 4 to our consolidated financial statements included in this report).

Also, a complete description of the second amended and restated investment advisory agreement is set forth in Proposal No.

3 in our definitive proxy statement filed on May 13, 2021.

On September 21, 2021, we effected a 2 to 1 reverse split of our shares of common stock under which every two shares of our common stock issued and outstanding were automatically combined into one share of our common stock, with the number of issued and outstanding shares reduced from 113,916,869 to 56,958,440.

The Reverse Stock Split Amendment also provided that there was no change in the par value of $0.001 per share as a result of the Reverse Stock Split.

The Reverse Stock Split did not modify the rights or preferences of our common stock.

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.

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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 primary operating expenses are the payment of advisory fees 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.

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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.

Portfolio Investment Activity for the Three Months Ended June 30, 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 June 30, 2021 and 2020 and the year ended December 31, 2020:

Portfolio Investment Activity for the Three Months Ended September 30, 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 September 30, 2021 and 2020 and the year ended December 31, 2020:

Three Months Ended

June 30, Year Ended

September 30, Year Ended December 31,

Net Investment Activity 2021 2020 2020

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Net portfolio activity $ (58,181) $ (41,024) $ (183,534)

The following tables summarize the composition of our investment portfolio at amortized cost and fair value as of June 30, 2021 and December 31, 2020:

June 30, 2021

The following tables summarize the composition of our investment portfolio at amortized cost and fair value as of September 30, 2021 and December 31, 2020:

September 30, 2021

Investments Cost(1) Investments Fair

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(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 June 30, 2021 and December 31, 2020, excluding short term investments of $48,484 and $73,597, respectively:

June 30, 2021 December 31, 2020

Interest Rate Allocation Investments Cost Investments Fair Value Percentage of

Portfolio Investments Cost Investments Fair Value Percentage of

The following table summarizes the composition of our investment portfolio by the type of interest rate as of September 30, 2021 and December 31, 2020, excluding short term investments of $115,834 and $73,597, respectively:

September 30, 2021 December 31, 2020

Interest Rate Allocation Investments Cost Investments Fair

Value Percentage of

Portfolio Investments Cost Investments Fair

Value Percentage of

Floating interest rate investments $ 1,479,836 $ 1,438,160 88.2 % $ 1,347,194 $ 1,284,282 85.9 %

Fixed interest rate investments 101,290 99,294 6.1 % 126,962 124,816 8.3 %

Non-income producing equity 63,856 65,231 3.9 % 66,086 52,505 3.5 %

Non-income producing investments 67,216 59,718 3.7 % 66,086 52,505 3.5 %

Other income producing investments 33,158 33,292 2.0 % 37,413 34,171 2.3 %

Total investments $ 1,681,500 $ 1,630,464 100.0 % $ 1,577,655 $ 1,495,774 100.0 %

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 June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

Industry Classification Investments Fair Value Percentage of

Investment Portfolio Investments Fair Value Percentage of

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 September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

Industry Classification Investments at

Fair Value Percentage of

Investment Portfolio Investments at

Fair Value Percentage of

Investment Portfolio

Healthcare & Pharmaceuticals $ 283,126 16.9 % $ 298,944 19.9 %

Business $ 266,853 16.4 % $ 211,572 14.0 %

Diversified & Production 127,105 7.6 % 108,078 7.2 %

Chemicals, Plastics & Rubber 124,017 7.4 % 141,654 9.5 %

Healthcare & Pharmaceuticals 265,317 16.3 % 298,944 19.9 %

Consumer 122,919 7.5 % 85,254 5.7 %

Diversified & Production 106,982 6.6 % 108,078 7.2 %

Advertising, Printing & Publishing 106,854 6.6 % 110,083 7.4 %

High Tech Industries 73,265 4.4 % 55,619 3.7 %

Beverage, Food & Tobacco 64,626 3.9 % 69,975 4.7 %

Capital Equipment 86,037 5.3 % 65,752 4.4 %

Chemicals, Plastics & Rubber 85,232 5.2 % 141,654 9.5 %

High Tech Industries 67,449 4.1 % 55,619 3.7 %

Banking, Finance, Insurance & Real Estate 53,517 3.3 % 41,211 2.8 %

Retail 45,543 2.7 % 29,312 2.0 %

Aerospace & Defense 42,331 2.5 % 35,751 2.4 %

Construction & Building 49,720 3.0 % 34,653 2.3 %

Beverage, Food & Tobacco 49,561 3.0 % 69,975 4.7 %

Consumer Goods:

Durable 46,916 2.9 % 7,417 0.5 %

Telecommunications 41,975 2.5 % 46,638 3.1 %

Oil & Gas 41,543 2.5 % 28,136 1.9 %

Construction & Building 41,064 2.5 % 34,653 2.3 %

Hotel, Gaming & Leisure 33,523 2.0 % 21,920 1.5 %

Aerospace & Defense 42,726 2.6 % 35,751 2.4 %

Retail 41,800 2.6 % 29,312 2.0 %

Consumer Goods:

Non-Durable 41,456 2.5 % 15,757 1.1 %

Telecommunications 39,602 2.4 % 46,638 3.1 %

Hotel, Gaming & Leisure 35,428 2.2 % 21,920 1.5 %

Diversified Financials 32,457 2.0 % 37,214 2.5 %

Oil & Gas 28,117 1.7 % 28,136 1.9 %

Forest Products & Paper 21,699 1.3 % 21,686 1.4 %

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Cargo 14,344 0.9 % 19,001 1.3 %

Automotive 13,965 0.9 % — —

Metals & Mining 11,513 0.7 % 10,147 0.7 %

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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 June 30, 2021 and December 31, 2020, our unfunded commitments amounted to $80,283 and $43,130 , respectively.

As of August 5, 2021, our unfunded commitments amounte d to $85,059 .

As of September 30, 2021 and December 31, 2020, our unfunded commitments amounted to $96,846 and $43,130, respectively.

As of November 11, 2021, our unfunded commitments amounted to $110,475.

Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for us.

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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 June 30, 2021 and December 31, 2020, excluding short term investments of $48,484 and $73,597, respectively:

June 30, 2021 December 31, 2020

The following table summarizes the composition of our investment portfolio based on the 1 to 5 investment rating scale at fair value as of September 30, 2021 and December 31, 2020, excluding short term investments of $115,834 and $73,597, respectively:

September 30, 2021 December 31, 2020

Investment Rating Investments

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Current Investment Portfolio

The following table summarizes the composition of our investment portfolio at fair value as of August 5, 2021:

The following table summarizes the composition of our investment portfolio at fair value as of November 11, 2021:

Investments Fair

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(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 June 30, 2021 and 2020

Our results of operations for the three months ended June 30, 2021 and 2020 were as follows:

Results of Operations for the Three Months Ended September 30, 2021 and 2020

Our results of operations for the three months ended September 30, 2021 and 2020 were as follows:

Three Months Ended

September 30,

Investment income $ 42,620 $ 38,887

Net operating expenses 19,335 21,892

Net operating expenses and income tax expense 23,008 17,467

Net investment income 19,612 21,420

Net realized gain (loss) on investments and foreign currency 19,736 (42,511)

Net change in unrealized appreciation on investments 8,842 13,657

Net increase in net assets resulting from operations $ 27,969 $ 16,587

Net change in unrealized (depreciation) appreciation on investments (14,240) 52,178

Net increase in net assets from operations $ 25,108 $ 31,087

Investment Income

For the three months ended June 30, 2021 and 2020, we generated investment income of $38,021 and $35,808, respectively, consisting primarily of interest income on investments in senior secured debt, collateralized securities and structured products, and unsecured debt of 123 and 122 portfolio companies held during each respective period.

Our average investment portfolio size, excluding our short term investments, increased $44,289, from $1,560,512 for the three months ended June 30, 2020 to $1,604,801 for the three months ended June 30, 2021.

Additionally, investments on non-accrual status represented 0.4% of the Company's investment portfolio on a fair value basis as of June 30, 2021 compared to 3.0% as of June 30, 2020.

For the three months ended September 30, 2021 and 2020, we generated investment income of $42,620 and $38,887, respectively, consisting primarily of interest income on investments in senior secured debt, and collateralized securities and structured products of 128 and 118 portfolio companies held during each respective period.

The increase in investment income was primarily the result of additional dividends received upon the exit of an equity investment during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Operating Expenses

The composition of our operating expenses for the three months ended June 30, 2021 and 2020 was as follows:

The composition of our operating expenses for the three months ended September 30, 2021 and 2020 was as follows:

Three Months Ended

September 30,

Management fees $ 8,443 $ 7,780

Administrative services expense 722 593

Subordinated incentive fee on income 2,933 —

General and administrative 2,709 1,503

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Total operating expenses $ 22,982 $ 17,446

The decrease in interest expense during the three months ended June 30, 2021 was primarily the result of all remaining unamortized debt issuance costs related to the Second Amended Citibank Credit Facility and the Amended MS Credit Facility being expensed upon the repayment of all amounts outstanding on these facilities during the three months ended June 30, 2020.

The composition of our general and administrative expenses for the three months ended June 30, 2021 and 2020 was as follows:

The increase in subordinated incentive fee on income was primarily the result of entering into the amended and restated investment advisory agreement, which replaced adjusted capital with our net assets as the denominator of the subordinated incentive fee calculation.

The increase in interest expense was primarily the result of higher average borrowings on our financing arrangements during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, which also resulted in an increase in total assets and therefore an increase in management fees during the three months ended September 30, 2021.

The composition of our general and administrative expenses for the three months ended September 30, 2021 and 2020 was as follows:

Three Months Ended

September 30,

Professional fees $ 1,355 $ 198

Transfer agent expense 316 239

Printing and marketing expense 235 241

Accounting and administrative costs 194 224

Valuation expense 191 241

Transfer agent expense 253 260

Accounting and administration costs 175 137

Insurance expense 137 115

Director fees and expenses 151 105

Insurance expense 135 131

Dues and subscriptions 120 124

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Total general and administrative expense $ 2,709 $ 1,503

The increase in general and administrative expenses was primarily the result of higher professional fees incurred during the three months ended June 30, 2021 associated with the potential Listing and higher printing and marketing expense incurred during the three months ended June 30, 2021 associated with shareholder proxy solicitation costs.

Net Investment Income

Our net investment income totaled $18,686 and $13,916 for the three months ended June 30, 2021 and 2020, respectively.

The increase in our net investment income was primarily the result of higher investment income and lower interest expense, partially offset by higher general and administrative expenses, during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The increase in general and administrative expenses was primarily the result of higher nonrecurring professional fees incurred during the three months ended September 30, 2021 associated with the Listing.

Net Investment Income After Taxes

Our net investment income after taxes totaled $19,612 and $21,420 for the three months ended September 30, 2021 and 2020, respectively.

The decrease in net investment income after taxes was primarily due to an increase in the subordinated incentive fee on income for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Net Realized Gain (Loss) on Investments and Foreign Currency

Our net realized gain (loss) on investments and foreign currency totaled $441 and $(10,986) for the three months ended June 30, 2021 and 2020, respectively, which were driven primarily by realized losses on the restructure of certain investments during the three months ended June 30, 2020.

Net Change in Unrealized Appreciation on Investments

The net change in unrealized appreciation on our investments totaled $8,842 and $13,657 for the three months ended June 30, 2021 and 2020, respectively.

We observed tightening credit spreads and increased multiples in equity markets that positively impacted the fair value of certain of our investments during the three months ended June 30, 2021 and 2020.

Our net realized gain (loss) on investments and foreign currency totaled $19,736 and ($42,511) for the three months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by realized gains recognized on the exit of our investment in Conisus Holdings, Inc.

during the three months ended September 30, 2021 compared to realized losses on the restructure of certain investments during the three months ended September 30, 2020.

Net Change in Unrealized (Depreciation) Appreciation on Investments

The net change in unrealized (depreciation) appreciation on our investments totaled ($14,240) and $52,178 for the three months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by certain previously unrealized gains being realized and the continued recovery of loan prices during the three months ended September 30, 2021 compared to certain previously unrealized losses being realized during the three months ended September 30, 2020 and the continued recovery of loan prices.

Net Increase in Net Assets Resulting from Operations

For the three months ended June 30, 2021 and 2020, we recorded a net increase in net assets resulting from operations of $27,969 and $16,587, 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.

Results of Operations for the Six Months Ended June 30, 2021 and 2020

Our results of operations for the six months ended June 30, 2021 and 2020 were as follows:

Six Months Ended

For the three months ended September 30, 2021 and 2020, we recorded a net increase in net assets resulting from operations of $25,108 and $31,087, respectively, as a result of our operating activity for the respective periods.

Results of Operations for the Nine Months Ended September 30, 2021 and 2020

Our results of operations for the nine months ended September 30, 2021 and 2020 were as follows:

Nine Months Ended

September 30,

Investment income $ 116,944 $ 120,443

Net operating expenses 38,039 45,979

Net operating expenses and income taxes 61,047 63,446

Net investment income 55,897 56,997

Net realized loss on investments and foreign currency (3,687) (15,182)

Net realized gain (loss) on investments and foreign currency 16,049 (57,693)

Net change in unrealized appreciation (depreciation) on investments 30,845 (57,542)

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Investment Income

For the six months ended June 30, 2021 and 2020, we generated investment income of $74,324 and $81,556, respectively, consisting primarily of interest income on investments in senior secured debt, collateralized securities and structured products, and unsecured debt of 127 a nd 134 portfolio companies held during each respective period.

Our average investment portfolio size, excluding our short term investments, decreased $52,139, from $1,637,803 for the six months ended June 30, 2020 to $1,585,664 for the six months ended June 30, 2021.

Additionally, the decrease in LIBOR during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 also contributed to the decrease in interest income generated on our investments.

For the nine months ended September 30, 2021 and 2020, we generated investment income of $116,944 and $120,443, respectively, consisting primarily of interest income on investments in senior secured debt and collateralized securities and structured products of 135 and 134 portfolio companies held during each respective period.

Our average investment portfolio size, excluding our short term investments, decreased $63,095, from $1,626,213 for the nine months ended September 30, 2020 to $1,563,119 for the nine months ended September 30, 2021.

Operating Expenses

The composition of our operating expenses for the six months ended June 30, 2021 and 2020 was as follows:

Six Months Ended

The composition of our operating expenses for the nine months ended September 30, 2021 and 2020 was as follows:

Nine Months Ended

September 30,

Management fees $ 24,469 $ 24,160

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Total operating expenses $ 61,006 $ 63,421

The decrease in interest expense during the six months ended June 30, 2021 was primarily the result of all remaining unamortized debt issuance costs related to the Second Amended Citibank Credit Facility and the Amended MS Credit Facility being expensed upon the repayment of all amounts outstanding on these facilities during the three months ended June 30, 2020.

The decrease in interest expense was also the result of a decrease in LIBOR during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

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 composition of our general and administrative expenses for the six months ended June 30, 2021 and 2020 was as follows:

Six Months Ended

The decrease in interest expense during the nine months ended September 30, 2021 was primarily the result of all remaining unamortized debt issuance costs related to the Second Amended Citibank Credit Facility and the Amended MS Credit Facility being expensed upon the repayment of all amounts outstanding on these facilities during the nine months ended September 30, 2020.

The decrease in interest expense was also the result of a decrease in LIBOR during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 and lower average borrowings on our financing arrangements during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The composition of our general and administrative expenses for the nine months ended September 30, 2021 and 2020 was as follows:

Nine Months Ended

September 30,

Professional fees $ 3,833 $ 1,108

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Valuation expense 712 802

Accounting and administration costs 412 283

Printing and marketing expense 634 359

Accounting and administrative costs 606 507

Insurance expense 404 354

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Total general and administrative expense $ 7,950 $ 4,684

The increase in general and administrative expenses was primarily the result of higher professional fees incurred during the six months ended June 30, 2021 associated with the potential Listing and higher printing and marketing expense incurred during the six months ended June 30, 2021 associated with shareholder proxy solicitation costs.

Net Investment Income

Our net investment income totaled $36,285 and $35,577 for the six months ended June 30, 2021 and 2020, respectively.

The increase in our net investment income was primarily the result of lower interest expense and lower subordinated incentive fee on income, partially offset by lower investment income and higher general and administrative expenses, during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Net Realized Loss on Investments and Foreign Currency

Our net realized loss on investments and foreign currency totaled $(3,687) and $(15,182) for the six months ended June 30, 2021 and 2020, respectively, which were driven primarily by realized losses on the restructure of certain investments during the six months ended June 30, 2020.

The increase in general and administrative expenses was primarily the result of higher professional fees incurred during the nine months ended September 30, 2021 associated with the Listing and higher printing and marketing expense incurred during the nine months ended September 30, 2021 associated with shareholder proxy solicitation costs.

Net Investment Income After Taxes

Our net investment income after taxes totaled $55,897 and $56,997 for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in our net investment income after taxes was primarily due to a decrease in investment income during the nine months ended September 30, 2021, which was partially offset by a decrease in operating expenses.

Net Realized Gain (Loss) on Investments and Foreign Currency

Our net realized gain (loss) on investments and foreign currency totaled $16,049 and ($57,693) for the nine months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by realized gains recognized on the exit of our investment in Conisus Holdings, Inc.during the nine months ended September 30, 2021 as compared to realized losses on the restructure of certain investments during the nine months ended September 30, 2020.

Net Change in Unrealized Appreciation (Depreciation) on Investments

The net change in unrealized appreciation (depreciation) on our investments totaled $45,085 and $(109,720) for the six months ended June 30, 2021 and 2020, respectively.

This change was driven primarily by tightening credit spreads and increased multiples in equity markets during the six months ended June 30, 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 six months ended June 30, 2020, which caused significant uncertainty and volatility in the U.S.

The net change in unrealized appreciation (depreciation) on our investments totaled $30,845 and ($57,542) for the nine months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by tightening credit spreads and increased multiples in equity markets during the nine months ended September 30, 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 nine months ended September 30, 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 six months ended June 30, 2021 and 2020, we recorded a net increase (decrease) in net assets resulting from operations of $77,683 and $(89,325), 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.

For the nine months ended September 30, 2021 and 2020, we recorded a net increase (decrease) in net assets resulting from operations of $102,791 and ($58,238), respectively, as a result of our operating activity for the respective periods.

Net Asset Value per Share, Annual Investment Return and Total Return Since Inception

Our net asset value per share was $8.17 and $7.75 on June 30, 2021 and December 31, 2020, respectively.

After considering (i) the overall changes in net asset value per share, (ii) paid distributions of approximately $0.2648 per share during the six months ended June 30, 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 9.00% for the six-month period ended June 30, 2021.

Our net asset value per share was $16.52 and $15.50 on September 30, 2021 and December 31, 2020, respectively (adjusted for the Reverse Stock Split).

After considering (i) the overall changes in net asset value per share, (ii) paid distributions of approximately $0.7944 per share during the nine months ended September 30, 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 11.98% for the nine month period ended September 30, 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 6.88% and a cumulative total return of 76.57% through June 30, 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 5.57% and a cumulative total return of 58.91% through June 30, 2021.

Initial shareholders who subscribed to the offering in December 2012 with an initial investment of $10,000 and an initial purchase price equal to $18.00 per share (public offering price excluding sales load and adjusted for the Reverse Stock Split) have seen an annualized return of 7.01% and a cumulative total return of 81.40% through September 30, 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 $20.00 per share (the initial public offering price including sales load and adjusted for the Reverse Stock Split) have seen an annualized return of 5.73% and a cumulative total return of 63.26% through September 30, 2021.

Over the same time period, the S&P/LSTA Leveraged Loan Index, a primary measure of senior debt covering the U.S.

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(1) Cumulative performance:

December 17, 2012 to June 30, 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.

December 17, 2012 to September 30, 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 $20.00 per share (including sales load and adjusted for the Reverse Stock Split) and $18.00 per share (excluding sales load and adjusted for the Reverse Stock Split), (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

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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.

We are seeking 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 during the three months ended March 31, 2020 that were necessary to improve our cash position and preserve financial flexibility in the short term.

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.

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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 July 30, 2021, our board of directors, including the independent directors, determined to suspend our share repurchase program commencing with the third quarter of 2021 in anticipation of the potential Listing.

The share repurchase program will ultimately terminate upon the Listing, which is subject to market conditions, final approval by our board of directors and other factors.

As further described in Note 1 and Note 4 to the notes to the consolidated financial statements included in this report, the recent amended and restated investment advisory agreement will (i) reduce the annual base management fees payable by us to CIM and (ii) amend the way the subordinated incentive fee on income and the capital gains incentive fee is payable by us to CIM by reducing the hurdle and incentive fee rates and express the hurdle rate as a percentage of our net assets rather than our adjusted capital.

These changes are effective upon the Listing of our shares on a national securities exchange, except for the change to the calculation of the subordinated incentive fee payable to CIM that expresses the hurdle rate required for CIM to earn, and be paid, the incentive fee as a percentage of our net assets rather than adjusted capital, which was effective upon shareholder approval and not dependent upon the Listing.

The share repurchase program terminated upon the Listing on October 5, 2021.

On August 9, 2021, our shareholders approved a proposal that authorizes us to issue shares of our common stock at prices below the then current NAV per share of our common stock in one or more offerings for a 12-month period following such shareholder approval.

On September 15, 2021, our co-chief executive officers changed the timing of declaring and paying regular distributions to shareholders from monthly to quarterly commencing with the fourth quarter of 2021.

On September 15, 2021, our co-chief executive officers declared a regular quarterly cash distribution of $0.1324 per share for the fourth quarter of 2021 and declared a special cash distribution expected to be in the range of $0.07 to $0.10 per share for the year ending December 31, 2021.

As adjusted to give effect to the Reverse Stock Split, the regular cash distribution of $0.1324 per share will be paid at a per share distribution amount of $0.2648 and the special cash distribution expected to be in the range of $0.07 to $0.10 per share will be paid at a per share distribution amount expected to be in the range of $0.14 to $0.20.

The regular quarterly cash distribution will be paid on December 8, 2021 to shareholders of record as of December 1, 2021.

The special cash distribution will be paid on December 23, 2021 to shareholders of record as of December 16, 2021.

On November 12, 2021, our co-chief executive officers declared a regular quarterly cash distribution of $0.28 per share for the first quarter of 2022 payable on March 30, 2022 to shareholders of record as of March 23, 2022.

We intend to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income.

Therefore, subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize, declare, and pay regular cash distributions on a quarterly basis.

Regular and special distributions in respect of future periods will be evaluated by management and our board of directors based on circumstances and expectations existing at the time of consideration.

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.

On September 15, 2021, our board of directors, including the independent directors, approved a share repurchase policy authorizing us to repurchase up to $50 million of our outstanding common stock after the Listing.

Under the share repurchase policy, we may purchase shares of our common stock through various means such as open market transactions, including block purchases, and privately negotiated transactions.

The number of shares repurchased and the timing, manner, price and amount of any repurchases will be determined at our discretion.

Factors are expected to include, but are not limited to, share price, trading volume and general market conditions, along with our general business conditions.

The policy may be suspended or discontinued at any time and does not obligate us to acquire any specific number of shares of our common stock.

As part of the share repurchase policy, we intend to enter into a trading plan in the near future adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, based in part on historical trading data with respect to our shares.

The 10b5-1 trading plan would permit common stock to be repurchased at a time that we might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions.

The 10b5-1 trading plan will be administered by an independent broker and will be subject to price, market volume and timing restrictions.

Since we have not yet entered into a 10b5-1 trading plan, during the period from September 15, 2021 to November 11, 2021, we did not repurchase any shares of common stock pursuant to the share repurchase policy.

As further described in Note 1 and Note 4 to our consolidated financial statements included in this report, the recent second amended and restated investment advisory agreement (i) reduced the annual base management fees payable by us to CIM and (ii) amended the way the subordinated incentive fee on income and the capital gains incentive fee is payable by us to CIM by reducing the hurdle and incentive fee rates and expressing the hurdle rate as a percentage of our net assets rather than our adjusted capital.

These changes were effective upon the Listing on October 5, 2021, except for the change to the calculation of the subordinated incentive fee payable to CIM that expresses the hurdle rate required for CIM to earn, and be paid, the incentive fee as a percentage of our net assets rather than adjusted capital, which was effective on August 10, 2021.

These changes, in the aggregate, may lead to the payment of higher advisory fees to CIM depending upon our performance.

There can be no assurance that we will be able to complete the Listing in any certain timeframe or at all.

Our board of directors also intends to declare a special cash distribution to shareholders payable during the fourth quarter of 2021 in an amount not to exceed our estimated undistributed investment company taxable income, in addition to any regular cash distributions that our board may declare.

The declaration, payment and terms of this special cash distribution, like all future distributions, are subject to applicable legal restrictions and the sole discretion of our board of directors.

As of June 30, 2021 and December 31, 2020, we had $48,484 and $73,597 in short term investments, respectively, invested in a fund that primarily invests in U.S.

As of September 30, 2021 and November 11, 2021, we had $115,834 and $100,405 in short term investments, respectively, invested in a fund that primarily invests in U.S.

government securities.

JPM Credit Facility

As of June 30, 2021 and August 5, 2021, our outstanding borrowings under the Third Amended JPM Credit Facility were $550,000, and the aggregate unfunded principal amount in connection with the Third Amended JPM Credit Facility was $25,000.

As of September 30, 2021 and November 11, 2021, our outstanding borrowings under the Third Amended JPM Credit Facility were $550,000 and $575,000, respectively, and the aggregate unfunded principal amount in connection with the Third Amended JPM Credit Facility was $25,000 and $0, respectively.

For a detailed discussion of our Third Amended JPM Credit Facility, refer to Note 8 to our consolidated financial statements included in this report.

As of June 30, 2021 and August 5, 2021, our outstanding borrowings under the Amended UBS Facility were $100,000 and $121,000, respectively, and the aggregate unfunded principal amount in connection with the Amended UBS Facility was $50,000 and $29,000, respectively.

As of September 30, 2021 and November 11, 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.

As of June 30, 2021 and August 5, 2021, we had $125,000 in aggregate principal amount of 2026 Notes outstanding.

As of September 30, 2021 and November 11, 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

As of June 30, 2021 and August 5, 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.

As of September 30, 2021 and November 11, 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 8 to our consolidated financial statements included in this report.

Unfunded Commitments

As of June 30, 2021 and August 5, 2021, our unfunded commitments amounted to $80,283 and $85,059, respectively.

As of September 30, 2021 and November 11, 2021, our unfunded commitments amounted to $96,846 and $110,475, 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.

Recent Accounting Pronouncements

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We currently have no off-balance sheet arrangements, except for those discussed in Note 11 to our consolidated financial statements included in this report.

However, management continually evaluates potential strategic relationships with third parties in which a newly formed, joint venture entity would invest primarily in U.S.

middle-market companies consistent with our investment strategy.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis