Eric Zwick

Eric Zwick from Lucid Capital Markets asked for clarification on the observed slowdown in loan repricing momentum, specifically whether it's a broader market dynamic or unique to Pearl Diver Credit Company's portfolio. He also questioned the rationale behind utilizing the ATM equity issuance program given the stock's trading price relative to NAV.

Answer

CEO Indranil Basu confirmed that the slowing loan repricing momentum is both a larger market dynamic and evident in Pearl Diver Credit Company's portfolio, noting a decrease in CLO loan portfolios pricing above par from over 50% to approximately 30%. Regarding the ATM program, Mr. Basu clarified that the company utilizes it when the stock trades at a premium to NAV, and the last observed price was at NAV.

The analyst asked for details on a specific dividend from an insurance investment, the company's strategy for its CoreWeave investment post-IPO, the relative attractiveness of various growth opportunities, and the reasons for moving the Maverick Gaming and Del Monte investments to non-accrual status.

Answer

The company clarified that the insurance dividend is an annual event contributing about $1.6-$1.7 million to NII. The decision to liquidate the CoreWeave investment rests with the General Partner after a lockup period expires. For growth, the focus has shifted to private debt transactions due to tightening in the secondary market. The Maverick Gaming non-accrual was prompted by its bankruptcy filing, and a portion of it and the Del Monte investment may return to accrual status through DIP financing roll-ups.

Eric Zwick asked for an update on the deal pipeline's size and composition, the portfolio's exposure to government contracts, and the drivers behind the expected performance improvement in three recently depreciated investments.

Answer

Robert Marcotte (Executive) described the deal pipeline as very healthy, with $100-$150 million in potential volume, primarily from new deals (80%). He clarified that the portfolio has minimal exposure to government services contracts, with some indirect exposure via defense and healthcare. Marcotte attributed confidence in the turnaround of the three underperforming assets to addressing specific issues like customer concentration, management changes, and new capital investment, noting their long-term growth profiles remain intact.

Eric Zwick inquired about the current state of credit spreads on new originations, asking if they are stabilizing. He also asked about the pipeline's mix of new versus follow-on deals, the company's strategy for managing leverage, and whether they are observing any signs of broader economic weakening.

Answer

Gregg Bresner, President and CIO, stated that while the broader market sees continued spread tightening, CION maintained its premium (SOFR+660) through selectivity and expects a consistent pipeline mix in Q3. He noted they have been in a defensive underwriting mode since early 2023 and see market dynamics driven more by capital supply than deteriorating fundamentals. CFO Keith Franz added that the current net leverage of 1.13x is below their target of 1.25x and reflects recent net investment activity.

Eric Zwick inquired about the stabilization of credit spreads on new originations, the mix of new versus follow-on deals in the pipeline, the company's strategy for managing leverage amid economic uncertainty, and any observed signs of economic weakening within the portfolio.

Answer

President and CIO Gregg Bresner noted that while the broader market sees tight spreads, CION has maintained its premium through selectivity, investing at SOFR+660. He added that the Q3 pipeline mix is expected to be consistent with Q2. CFO Keith Franz stated that the current net leverage of 1.13x is below their target of 1.25x. Bresner concluded that the credit environment has been consistent since early 2023, with CION maintaining a defensive underwriting posture.