What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-10 · 163 added, 142 removed, 293 unchanged (51% of the section changed)

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

On February 26, 2023, our shares of common stock also listed and commenced trading on the TASE under the ticker symbol “CION”.

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.

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).

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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.

On September 21, 2021, we effected a two to one 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 then 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.

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Recent Developments

Joint Venture with EagleTree Capital, LP

On December 21, 2021, we formed CION/EagleTree, an off-balance sheet joint venture partnership with an affiliate of EagleTree through which EagleTree made a Firm-level investment with proprietary capital.

CION/EagleTree will jointly pursue debt opportunities and special situation, crossover, subordinated and other junior capital investments that leverage our and EagleTree's combined sourcing and portfolio management capabilities.

The initial holdings of CION/EagleTree consisted of a diversified portfolio of approximately $97 million of second lien loans and equity investments that were held by us immediately prior to closing and approximately $15 million of proprietary Firm-level cash contributed by an affiliate of EagleTree.

The initial equity ownership of CION/EagleTree is 85% by us and 15% by an affiliate of EagleTree.

Each of us and EagleTree will have equal voting rights on the board of directors of CION/EagleTree.

Expense Support Agreement with CIM

Pursuant to an expense support and conditional reimbursement agreement entered into on January 2, 2018 between us and CIM, CIM agreed to provide expense support to us in an amount that was sufficient to:

(i) ensure that no portion of our distributions to shareholders was paid from our offering proceeds or borrowings, and/or (ii) reduce our operating expenses until we achieved economies of scale sufficient to ensure that we bore a reasonable level of expense in relation to our investment income.

Under certain conditions, CIM would have been entitled to reimbursement of such expense support.

On December 31, 2021, we and CIM allowed the expense support and conditional reimbursement agreement to expire in accordance with its terms.

Shareholder Approval of Increased Leverage Capacity

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.

At our Special Meeting of Shareholders on December 30, 2021, shareholders approved a proposal to reduce our asset coverage ratio to 150%.

As a result, commencing on December 31, 2021, we are required to maintain asset coverage for our senior securities of 150% (i.e., $2 of debt outstanding for each $1 of equity) rather than 200% (i.e., $1 of debt outstanding for each $1 of equity), which allows us to increase the maximum amount of leverage that we are permitted to incur.

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, including new variants, such as Delta and Omicron, 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 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.

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.

Series A Notes

On February 28, 2023, we entered into the Deed of Trust with Mishmeret Trust Company Ltd., as trustee, under which we issued approximately $80.7 million in aggregate principal amount of our Series A Notes.

The Series A Notes offering in Israel closed on February 28, 2023 and the Series A Notes listed and commenced trading on the TASE on February 28, 2023.

After the deduction of fees and other offering expenses, we received net proceeds of approximately $77.9 million, which we intend to use to make investments in portfolio companies in accordance with our investment objectives and for working capital and general corporate purposes.

The Series A Notes are rated A1.il by Midroog Ltd., an affiliate of Moody’s.

The Series A Notes will mature on August 31, 2026 and may be redeemed in whole or in part at our option at par plus a “make-whole” premium, if applicable, as set forth in the Deed of Trust.

The Series A Notes bear interest at a rate equal to SOFR plus a credit spread of 3.82% per year, which will be paid quarterly on February 28, May 31, August 31, and November 30 of each year, commencing on May 31, 2023.

The Series A Notes are our general unsecured obligations that rank senior in right of payment to all of our existing and future indebtedness that is expressly subordinated in right of payment to the Series A Notes, rank pari passu with all our existing and future unsecured unsubordinated indebtedness, rank effectively junior to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness, and rank structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.

The Deed of Trust contains other terms and conditions, including, without limitation, affirmative and negative covenants such as (i) information reporting, (ii) maintenance of our status as a business development company within the meaning of the 1940 Act, (iii) minimum shareholders’ equity of $525 million, (iv) a minimum asset coverage ratio of not less than 150%, and (v) an unencumbered asset coverage ratio of 1.25 to 1.00.

In addition, the Deed of Trust contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under our other indebtedness in an outstanding aggregate principal amount of at least $50 million, certain judgments and orders, and certain events of bankruptcy.

Q1 2013 Regular Distribution

On March 13, 2023, our co-chief executive officers declared a regular quarterly distribution of $0.34 per share for the first quarter of 2023 payable on March 31, 2023 to shareholders of record as of March 24, 2023.

Portfolio Investment Activity for the Years Ended December 31, 2022 and 2021

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Senior secured first lien debt $ 524,293 $ 868,031

$ 868,031 $ 347,992

Senior secured second lien debt 19,932 —

Unsecured debt — 20,000

Equity 6,313 32,008

Sales and principal repayments (469,760) (827,958)

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December 31, 2021

Cost(1) Investments Fair

Investments Cost(1) Investments Fair

Value Percentage of

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The following table summarizes the composition of our investment portfolio by the type of interest rate as of December 31, 2022 and 2021, excluding short term investments of $10,869 and $87,917, respectively:

December 31, 2022 December 31, 2021

Interest Rate Allocation Investments Cost Investments Fair Value Percentage of

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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 December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

Industry Classification Investments Fair Value Percentage of

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Investment Portfolio

Healthcare & Pharmaceuticals $ 250,049 15.0 % $ 298,944 19.9 %

Business $ 336,055 19.2 % $ 240,316 14.4 %

Healthcare & Pharmaceuticals 237,082 13.6 % 250,049 15.0 %

Diversified & Production 134,927 7.7 % 139,399 8.4 %

Consumer 115,849 6.6 % 119,365 7.2 %

Chemicals, Plastics & Rubber 109,860 6.6 % 141,654 9.5 %

Diversified Financials 101,032 6.1 % 37,214 2.5 %

Advertising, Printing & Publishing 105,375 6.0 % 94,610 5.7 %

Capital Equipment 82,795 5.0 % 65,752 4.4 %

High Tech Industries 65,544 3.9 % 55,619 3.7 %

Diversified Financials 99,819 5.7 % 101,032 6.1 %

Retail 74,718 4.3 % 56,726 3.4 %

Oil & Gas 68,756 3.9 % 32,164 1.9 %

Chemicals, Plastics & Rubber 66,753 3.8 % 109,860 6.6 %

Consumer Goods:

Durable 60,735 3.5 % 58,124 3.5 %

Retail 56,726 3.4 % 29,312 2.0 %

Hotel, Gaming & Leisure 50,855 3.0 % 21,920 1.5 %

Beverage, Food & Tobacco 49,054 2.9 % 69,975 4.7 %

High Tech Industries 56,501 3.2 % 65,544 3.9 %

Consumer Goods:

Non-Durable 47,886 2.8 % 45,682 2.7 %

Hotel, Gaming & Leisure 46,739 2.7 % 50,855 3.0 %

Construction & Building 46,007 2.6 % 27,585 1.7 %

Beverage, Food & Tobacco 45,396 2.6 % 49,054 2.9 %

Banking, Finance, Insurance & Real Estate 43,836 2.5 % 40,634 2.4 %

Capital Equipment 41,580 2.4 % 82,795 5.0 %

Aerospace & Defense 38,842 2.2 % 38,279 2.3 %

Oil & Gas 32,164 1.9 % 28,136 1.9 %

Construction & Building 27,585 1.7 % 34,653 2.3 %

Containers, Packaging & Glass 19,551 1.1 % — —

Telecommunications 18,302 1.1 % 24,649 1.5 %

Automotive 16,255 0.9 % 14,367 0.9 %

Metals & Mining 15,780 0.9 % 10,927 0.7 %

Transportation:

Cargo 12,417 0.7 % 14,106 0.8 %

Metals & Mining 10,927 0.7 % 10,147 0.7 %

Forest Products & Paper — — 21,686 1.4 %

Subtotal/total percentage 1,749,161 100.0 % 1,666,122 100.0 %

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As of December 31, 2022 and 2021, our unfunded commitments amounted to $71,420 and $107,247 , respectively.

As of March 3, 2022, our unfunded commitments amounted to $104,456.

As of March 8, 2023, our unfunded commitments amount ed to $61,841.

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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The following table summarizes the composition of our investment portfolio based on the 1 to 5 investment rating scale at fair value as of December 31, 2022 and 2021, excluding short term investments of $10,869 and $87,917, respectively:

December 31, 2022 December 31, 2021

Investment Rating Investments

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Investment income $ 194,898 $ 157,348

Net operating expenses and income taxes 83,041 85,114

Net investment income 74,307 78,728

Net realized gain (loss) on investments and foreign currency 840 (69,872)

Net change in unrealized appreciation (depreciation) on investments 43,617 (19,878)

Net increase (decrease) in net assets resulting from operations $ 118,764 $ (11,022)

Operating expenses and income taxes 106,693 83,041

Net investment income after taxes 88,205 74,307

Net realized (loss) gain on investments and foreign currency (32,750) 840

Net change in unrealized (depreciation) appreciation on investments (5,314) 43,617

Net increase in net assets resulting from operations $ 50,141 $ 118,764

Investment Income

For the years ended December 31, 2022 and 2021, we generated investment income of $194,898 and $157,348, respectively, consisting primarily of interest income on investments in senior secured debt, collateralized securities and structured products, and unsecured debt of 128 and 153 portfolio companies held during each respective period.

Our average investment portfolio size, excluding our short term investments, decreased $34,712, from $1,615,660 during the year ended December 31, 2020 to $1,580,948 during the year ended December 31, 2021.

Additionally, the higher average LIBOR during the year ended December 31, 2020 as compared to the year ended December 31, 2021 also contributed to the decrease in interest income.

Operating Expenses

The composition of our operating expenses for the years ended December 31, 2021 and 2020 was as follows:

Our average investment portfolio size, excluding our short term investments, increased $126,694, from $1,580,948 for the year ended December 31, 2021 to $1,707,642 for the year ended December 31, 2022.

In addition, higher LIBOR and SOFR rates during the year ended December 31, 2022 compared to the year ended December 31, 2021 also contributed to the increase in interest income generated on our investments.

Operating Expenses and Income Taxes

The composition of our operating expenses and income taxes for the years ended December 31, 2022 and 2021 was as follows:

Years Ended December 31,

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Interest expense 49,624 31,807

Total operating expenses $ 82,699 $ 84,846

The decrease in interest expense was primarily the result of lower borrowing costs incurred on our financing arrangements during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Income tax expense, including excise tax 372 342

Total operating expenses and income taxes $ 106,693 $ 83,041

The increase in interest expense was primarily the result of (a) higher average borrowings under our financing arrangements during the year ended December 31, 2022 compared to the year ended December 31, 2021, and (b) higher LIBOR and SOFR rates during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in subordinated incentive fee on income was primarily the result of entering into (i) the amended and restated investment advisory agreement in August 2021, which changed the calculation of the subordinated incentive fee to express 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, and (ii) the second amended and restated investment advisory agreement in October 2021, which reduced the hurdle rate applicable to the subordinated incentive fee.

The decrease in management fees was also primarily due to entering into the second amended and restated investment advisory agreement in October 2021, which among other things, reduced the annual rate from 2.0% to 1.5%, and further to 1.0% of our average gross assets purchased with leverage resulting in our asset coverage ratio dropping below 200%.

The composition of our general and administrative expenses for the years ended December 31, 2022 and 2021 was as follows:

2 unchanged sentences

Transfer agent expense 1,124 1,290

Printing and marketing expense 990 378

Valuation expense 904 999

Accounting and administrative costs 759 680

Insurance expense 833 612

Director fees and expenses 516 450

Valuation expense 821 904

Dues and subscriptions 791 411

Printing and marketing expense 708 990

Director fees and expenses 632 516

Accounting and administrative costs 524 759

Other expenses 67 109

Total general and administrative expense $ 7,278 $ 9,805

The increase in general and administrative expenses was primarily the result of higher nonrecurring professional fees incurred during the year ended December 31, 2021 associated with the Listing.

The decrease in general and administrative expenses was primarily the result of lower nonrecurring professional fees incurred during the year ended December 31, 2021 associated with the Listing.

Net Investment Income After Taxes

Our net investment income after taxes to taled $74,307 and $78,728 for the years ended December 31, 2021 and 2020, respectively.

The decrease in net investment income after taxes was primarily due to a decrease in our investment income during the year ended December 31, 2021 as compared to the year ended December 31, 2020, which was partially offset by a decrease in operating expenses during the year ended December 31, 2021.

Net Realized Gains (Losses) on Investments and Foreign Currency

Our net realized gains (losses) on investments and foreign currency totaled $840 and $(69,872) for the years ended December 31, 2021 and 2020, respectively.

This change was driven primarily by fewer restructurings of our investments during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Net Change in Unrealized Appreciation (Depreciation) on Investments

The net change in unrealized appreciation (depreciation) on our investments totaled $43,617 and $(19,878) for the years ended December 31, 2021 and 2020, respectively.

This change was driven primarily by tightening credit spreads and increased multiples in equity markets during the year ended December 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 year ended December 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 year ended December 31, 2021, we recorded a net increase in net assets resulting from operations of $118,764 as compared to a net decrease in net assets resulting from operations of $(11,022) for the year ended December 31, 2020, as a result of our operating activity for the respective periods.

Our net investment income after taxes totaled $88,205 and $74,307 for the years ended December 31, 2022 and 2021, respectively.

The increase in net investment income was a result of an increase in our investment income during the year ended December 31, 2022 as compared to the year ended December 31, 2021, which was partially offset by an increase in our operating expenses during the same period, which was driven primarily by increases in the subordinated incentive fee on income and interest expense.

Net Realized (Loss) Gain on Investments and Foreign Currency

Our net realized (loss) gain on investments and foreign currency totaled $(32,750) and $840 for the years ended December 31, 2022 and 2021, respectively.

This change was driven primarily by the write-off of certain investments during the year ended December 31, 2022 as compared to fewer investment write-offs during the year ended December 31, 2021.

Net Change in Unrealized (Depreciation) Appreciation on Investments

The net change in unrealized (depreciation) appreciation on our investments totaled $(5,314) and $43,617 for the years ended December 31, 2022 and 2021, respectively.

This change was driven primarily by the underperformance of certain investments during the year ended December 31, 2022, which was partially offset by the realization of previously unrealized losses due to the write-off of certain investments.

This is compared to tightening credit spreads and increased multiples in equity markets during the year ended December 31, 2021 that positively impacted the fair value of certain of our investments.

Net Increase in Net Assets Resulting from Operations

For the years ended December 31, 2022 and 2021, we recorded a net increase in net assets resulting from operations of $50,141 and $118,764, respectively, as a result of our operating activity for the respective periods.

Results of Operations for the Years Ended December 31, 2021 and 2020

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Investment income $ 157,348 $ 163,842

Net operating expenses and income taxes 85,114 113,791

Net investment income 78,728 87,312

Net realized loss on investments and foreign currency (69,872) (24,917)

Net change in unrealized depreciation on investments (19,878) (10,551)

Net (decrease) increase in net assets resulting from operations $ (11,022) $ 51,844

Operating expenses and income taxes 83,041 85,114

Net investment income after taxes 74,307 78,728

Net realized gain (loss) on investments and foreign currency 840 (69,872)

Net change in unrealized appreciation (depreciation) on investments 43,617 (19,878)

Net increase (decrease) in net assets resulting from operations $ 118,764 $ (11,022)

Investment Income

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Additionally, the decrease in LIBOR during the year ended December 31, 2020 from the year ended December 31, 2019 also contributed to the decrease in interest income.

Operating Expenses

The composition of our operating expenses for the years ended December 31, 2020 and 2019 was as follows:

Additionally, the higher average LIBOR during the year ended December 31, 2020 as compared to the year ended December 31, 2021 also contributed to the decrease in interest income.

Operating Expenses and Income Taxes

The composition of our operating expenses and income taxes for the years ended December 31, 2021 and 2020 was as follows:

Years Ended December 31,

4 unchanged sentences

Interest expense 31,807 36,837

Total operating expenses $ 84,846 $ 113,779

During the year ended December 31, 2020, the decrease in interest expense was primarily the result of lower average borrowings on our existing financing arrangements, which resulted in a decrease in net assets and therefore a decrease in management fees.

The decrease in interest expense was also the result of a decrease in LIBOR during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The decrease in subordinated incentive fee on income was a result of exceeding our hurdle rate of 1.875% for pre-incentive fee net investment income only for the three month periods ended March 31, 2020 and December 31, 2020, whereas we exceeded such hurdle rate for each quarter during the year ended December 31, 2019.

Income tax expense, including excise tax 342 268

Total operating expenses and income taxes $ 83,041 $ 85,114

The composition of our general and administrative expenses for the years ended December 31, 2021 and 2020 was as follows:

2 unchanged sentences

Transfer agent expense 1,290 1,189

Printing and marketing expense 990 378

Valuation expense 904 999

2 unchanged sentences

Director fees and expenses 516 450

Printing and marketing expense 378 102

Dues and subscriptions 411 342

Other expenses 109 68

Due diligence fees — 61

Total general and administrative expense $ 9,805 $ 6,085

The increase in general and administrative expenses was primarily the result of higher nonrecurring professional fees incurred during the year ended December 31, 2021 associated with the Listing.

Net Investment Income After Taxes

Our net investment income after taxes totaled $74,307 and $78,728 for the years ended December 31, 2021 and 2020, respectively.

The decrease in net investment income after taxes was primarily due to a decrease in our investment income during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The decrease in investment income was partially offset by a decrease in subordinated incentive fees and interest expense during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Net Realized Losses on Investments and Foreign Currency

Our net realized losses on investments and foreign currency totaled $(69,872) and $(24,917) for the years ended December 31, 2020 and 2019, respectively.

This change was mainly due to an increase in realized losses on the restructure and liquidation of certain investments during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Net Change in Unrealized Depreciation on Investments

The net change in unrealized depreciation on our investments totaled $(19,878) and $(10,551) for the years ended December 31, 2020 and 2019, respectively.

This change was driven primarily by unrealized losses on certain underperforming investments during the year ended December 31, 2020.

This change was partially offset by certain previously unrealized losses on certain underperforming investments becoming realized during the year ended December 31, 2020.

Net (Decrease) Increase in Net Assets Resulting from Operations

For the year ended December 31, 2020, we recorded a net decrease in net assets resulting from operations of $(11,022) as compared to a net increase in net assets resulting from operations of $51,844 for the year ended December 31, 2019 as a result of our operating activity for the respective periods.

Net Realized Gain (Loss) on Investments and Foreign Currency

Our net realized gain (loss) on investments and foreign currency totaled $840 and $(69,872) for the years ended December 31, 2021 and 2020, respectively.

This change was driven primarily by fewer restructurings of our investments during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Net Change in Unrealized Appreciation (Depreciation) on Investments

The net change in unrealized appreciation (depreciation) on our investments totaled $43,617 and $(19,878) for the years ended December 31, 2021 and 2020, respectively.

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 year ended December 31, 2021, we recorded a net increase in net assets resulting from operations of $118,764 as compared to a net decrease in net assets resulting from operations of $(11,022) for the year ended December 31, 2020 as a result of our operating activity for the respective periods.

Financial Condition, Liquidity and Capital Resources

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We also employ leverage to seek to enhance our returns as market conditions permit and at the discretion of CIM and pursuant to the 1940 Act.

As a result, we also generate cash from our existing financing arrangements and may generate cash from future borrowings, as well as future offerings of securities including public and/or private issuances of debt and/or equity securities.

We use cash primarily to (i) purchase investments in new and existing portfolio companies, (ii) pay for the cost of operations (including paying or reimbursing CIM), (iii) make debt service payments related to any of our financing arrangements and (iv) pay cash distributions to the holders of our shares.

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.

At our Special Meeting of Shareholders on December 30, 2021, shareholders approved a proposal to reduce our asset coverage ratio to 150%.

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.

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.

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

The pre-Listing 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.

As of the date of this report, we have not issued any shares at prices below our NAV per share pursuant to this authorization.

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 November 12, 2021, our co-chief executive officers declared a regular quarterly 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.

On March 8, 2022, our co-chief executive officers declared a regular quarterly distribution of $0.28 per share for the second quarter of 2022 payable on June 8, 2022 to shareholders of record as of June 1, 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 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.

As a result of receiving shareholder approval on December 30, 2021, effective December 31, 2021, we are required to maintain asset coverage for our senior securities of 150% rather than 200%, which allows us to increase the maximum amount of leverage that we are permitted to incur.

We may from time to time enter into additional financing arrangements or increase the size of our existing financing arrangements.

Any such increase to our leverage would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.

As of December 31, 2022 and 2021, our asset coverage ratio was 1.92 and 2.12, respectively.

We seek to carefully consider our unfunded commitments for the purpose of planning our ongoing financial leverage.

On September 15, 2022, our shareholders authorized us to issue shares of our common stock at prices below the then current NAV per share in one or more offerings for a 12-month period following such shareholder approval.

As of the date of this report, we are not engaged in discussions to issue any such shares.

As of December 31, 2022, we had cash of $82,739 and short term investments of $10,869 invested in a fund that primarily invests in U.S.

government securities.

Cash and short term investments as of December 31, 2022, taken together with our available debt, is expected to be sufficient for our investing activities and to conduct our operations in the near term.

As of December 31, 2022, we had $72 million available under our financing arrangements.

Our short-term cash needs include the funding of additional portfolio investments, the payment of operating expenses including interest expense, management fees, incentive fees, administrative services expense and general and administrative expenses, as well as paying distributions to our shareholders.

Our long-term cash needs will include principal payments on outstanding financing arrangements and funding of additional portfolio investments.

Funding for short and long-term cash needs will come from cash provided from operating activities and/or unused net proceeds from financing activities.

We believe that our liquidity and sources of capital are adequate to satisfy our short and long-term cash requirements.

We cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to us in sufficient amounts in the future.

Post-Listing Share Repurchase Policy

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.

On June 24, 2022, our board of directors, including the independent directors, increased the amount of shares of our common stock that may be repurchased under the share repurchase policy by $10 million to up to an aggregate of $60 million.

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.

Factors 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 March 3, 2022, 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 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.

As of December 31, 2021 and March 3, 2022, we had $87,917 and $75,727 in short term investments, respectively, invested in a fund that primarily invests in U.S.

government securities.

On August 16, 2022, as part of the share repurchase policy, we entered into a trading plan with an independent broker, Wells Fargo, 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 permits 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 is subject to price, market volume and timing restrictions.

During the year ended December 31, 2022, we repurchased an aggregate of 1,658,956 shares under the 10b5-1 trading plan for an aggregate purchase price of $15,444, or an average purchase price of $9.31 per share.

From January 1, 2023 to March 8, 2023, we repurchased an aggregate of 281,938 shares of common stock under the 10b5-1 trading plan for an aggregate purchase price of $3,044, or an average purchase price of $10.79 per share.

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 an excise tax of 4% 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.

For an additional discussion of our RIC status, refer to Note 2 of our consolidated financial statements included in this report.

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 distributions on a quarterly basis.

The following table presents distributions per share that were declared during the years ended December 31, 2022, 2021 and 2020:

Distributions

Three Months Ended Per Share(1) Amount

March 31, 2020 (thirteen record dates) $ 0.3657 $ 20,793

June 30, 2020 (no record dates) — —

September 30, 2020 (two record dates) 0.1765 10,011

December 31, 2020 (four record dates) 0.5684 32,479

Total distributions for the year ended December 31, 2020 $ 1.1106 $ 63,283

March 31, 2021 (three record dates) $ 0.2648 $ 15,029

June 30, 2021 (three record dates) 0.2648 15,000

September 30, 2021 (three record dates) 0.2648 15,027

December 31, 2021 (two record dates) 0.4648 26,474

Total distributions for the year ended December 31, 2021 $ 1.2592 $ 71,530

March 31, 2022 (one record date) $ 0.2800 $ 15,948

June 30, 2022 (one record date) 0.2800 15,949

September 30, 2022 (one record date) 0.3100 17,604

December 31, 2022 (two record dates) 0.5800 32,074

Total distributions for the year ended December 31, 2022 $ 1.4500 $ 81,575

(1) The per share distribution amount has been retroactively adjusted to reflect the Reverse Stock Split as discussed in Note 3 to the consolidated financial statements included in this report.

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.

JPM Credit Facility

As of December 31, 2021 and March 3, 2022, 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.

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 December 31, 2021 and March 3, 2022, our outstanding borrowings under the Amended UBS Facility were $125,000 and the aggregate unfunded principal amount in connection with the Amended UBS Facility was $25,000.

As of December 31, 2022 and March 8, 2023, our aggregate outstanding borrowings under the JPM Credit Facility were $610,000 and $600,000, respectively, and the aggregate unfunded principal amount in connection with the JPM Credit Facility was $65,000 and $75,000, respectively.

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

As of December 31, 2022 and March 8, 2023, our outstanding borrowings under the Amended UBS Facility were $142,500 and $125,000, respectively, and the aggregate unfunded principal amount in connection with the Amended UBS Facility was $7,500 and $25,000, respectively.

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

As of December 31, 2021 and March 3, 2022, we had $125,000 in aggregate principal amount of 2026 Notes outstanding.

As of December 31, 2022 and March 8, 2023, we had $125,000 in aggregate principal amount of 2026 Notes outstanding and there was no unfunded principal amount in connection with the 2026 Notes.

For a detailed discussion of our 2026 Notes, refer to Note 8 to our consolidated financial statements included in this report.

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For a detailed discussion of our 2021 More Term Loan, refer to Note 8 to our consolidated financial statements included in this report.

2022 More Term Loan

As of December 31, 2022 and March 8, 2023, our outstanding borrowings under the 2022 More Term Loan were $50,000 and there was no unfunded principal amount in connection with the 2022 More Term Loan.

For a detailed discussion of our 2022 More Term Loan, refer to Note 8 to our consolidated financial statements included in this report.

Series A Notes

As of March 8, 2023, we had approximately $80,700 in aggregate principal amount of Series A Notes outstanding and there was no unfunded principal amount in connection with the Series A Notes.

For a detailed discussion of our Series A Notes, refer to Note 16 to our consolidated financial statements included in this report.

Unfunded Commitments

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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

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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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.

In accordance with Rule 2a-5 of the 1940 Act, our board of directors has designated CIM as our “valuation designee.” Our board of directors and the audit committee of our board of directors, which is comprised solely of our independent directors, oversees the activities, methodology and processes of the valuation designee.

There is no single standard for determining fair value in good faith.

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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;

With respect to investments for which market quotations are not readily available, CIM, as the valuation designee of our board of directors, undertakes a multi-step valuation process each quarter, as described below:

• our quarterly valuation process generally begins with each portfolio company or investment either being sent directly to an independent valuation firm or 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;

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• 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;

• 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.

• our board of directors and our audit committee provide oversight with respect to this valuation process, including requesting such materials as they may determine appropriate.

We shall promptly (but no later than five business days after we become aware) report to our board of directors in writing on the occurrence of matters that materially affect the fair value of the designated portfolio of investments.

Material matters in this instance include a significant deficiency or material weakness in the design or effectiveness of CIM’s fair value determination process resulting in a material error in the calculation of net asset value of $0.01 per share or greater.

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.

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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.

For a discussion of our relationship with related parties including 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.

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See Note 8 to our consolidated financial statements for a more detailed description of the 2021 More Term Loan.

On April 27, 2022, we entered into the 2022 More Term Loan with More.

See Note 8 to our consolidated financial statements for a more detailed description of the 2022 More Term Loan.

On February 28, 2023, we entered into a Deed of Trust with Mishmeret Trust Company Ltd., as trustee, pursuant to which we issued our Series A Notes.

See Note 16 to our consolidated financial statements for a more detailed description of the Deed of Trust and the Series A Notes.

Commitments and Contingencies

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For further details on such debt investments, refer to Note 11 to our consolidated financial statements included in this report.

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

We currently have no off-balance sheet arrangements, except for those discussed in Note 7 and Note 11 to our consolidated financial statements included in this report.

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-K

Item 7. Management’s Discussion and Analysis