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CI

CION Investment Corp (CION)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 total investment income was $57.894M, net investment income (NII) after taxes was $18.686M ($0.35 per share), and GAAP EPS was $0.10; NAV per share declined 1.9% QoQ to $15.43 on equity mark-to-market adjustments .
  • Non‑accruals improved to 1.41% of fair value and 3.22% of amortized cost (from 1.85% and 3.40% in Q3), while leverage rose as net debt-to-equity increased to 1.27x (from 1.18x) on timing of fundings and lower repayments .
  • Balance sheet flexibility strengthened: weighted average cost of debt fell ~40 bps QoQ to ~7.8%, the unsecured mix reached ~62%, and post‑quarter a new UBS facility cut spread by 45 bps (SOFR+2.75% vs 3.20%) .
  • Base dividend maintained at $0.36 for Q1 2025; company paid $0.41 in Q4 (including $0.05 special), with Q4 distribution coverage at 0.85x due to lower SOFR and higher interest expense; management reiterated selectivity amid spread compression and high competition .
  • Catalysts: continued redeployment into pipeline, resolution of select credits (e.g., Homer City back on accrual), and potential tailwinds from lower funding costs; watch equity mark volatility (e.g., David’s Bridal seasonality) and competitive pressure on new loan spreads .

What Went Well and What Went Wrong

What Went Well

  • Credit quality improved: non‑accruals decreased to 1.41% of fair value, with one loan (Homer City) returned to accrual status following redevelopment progress; management upgraded 6 loans vs 3 downgrades on internal risk ratings .
  • Funding cost reduced and capital structure enhanced: weighted average debt cost ~7.8% (down ~40 bps QoQ); unsecured debt ~62% and new UBS facility lowered spread by 45 bps, extending maturities and broadening lender base .
  • Shareholder distributions and buybacks: paid $0.41 in Q4 (including $0.05 special), declared Q1 2025 base $0.36; repurchased 170,617 shares at $11.74 avg, signaling perceived undervaluation and accretive capital return .

What Went Wrong

  • NAV declined 1.9% QoQ to $15.43, driven primarily by mark‑to‑market declines in equity positions (including highly seasonal David’s Bridal) and distributions in excess of NII .
  • Sequential earnings headwinds: total investment income fell to $57.894M (from $59.627M), and NII per share declined $0.05 QoQ to $0.35 due to lower SOFR on assets and higher interest expense from increased average borrowings .
  • Competitive pressure: management highlighted spread compression, higher leverage attachment, and easing credit terms in the market, leading to heightened selectivity and lower near‑term deployment pace .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Total investment income ($USD Millions)$59.999 $59.627 $57.894
Total operating expenses and income tax ($USD Millions)$38.241 $38.009 $39.208
Net investment income after taxes ($USD Millions)$21.758 $21.618 $18.686
Net investment income per share ($)$0.40 $0.40 $0.35
Earnings per share ($)$0.94 $(0.01) $0.10
Distributions declared per share ($)$0.54 $0.36 $0.41
Weighted average shares outstanding (Millions)54.292 53.439 53.269

Balance Sheet and Liquidity

MetricQ3 2024Q4 2024
Total debt outstanding ($USD Millions)$1,069.844 $1,117.344
Debt-to-equity (x)1.28x 1.36x
Net debt-to-equity (x)1.18x 1.27x
Total investments at fair value ($USD Millions)$1,752.726 $1,819.870
Cash and short-term investments ($USD Millions)$83 $76
NAV per share ($)$15.73 $15.43
Weighted avg cost of debt (%)8.2% 7.8%

Portfolio Composition (as of Q4 2024)

Investment TypeAmount ($USD Millions)% of Total
Senior secured first lien debt$1,563.256 86.0%
Senior secured second lien debt$2.680 0.1%
Collateralized securities & structured products – equity$2.682 0.1%
Unsecured debt$11.814 0.6%
Equity$239.438 13.2%
Total$1,819.870 100.0%

Credit KPIs

MetricQ3 2024Q4 2024
Non-accrual (% of fair value)1.85% 1.41%
Non-accrual (% of amortized cost)3.40% 3.22%
Yield on debt & other income producing investments (amortized cost)12.23% 12.28%
Yield on performing loans (amortized cost)12.73% 12.74%
Weighted avg interest coverage (x)2.14x 2.07x

Distribution Coverage

MetricQ2 2024Q3 2024Q4 2024
Net Investment Income per share ($)$0.43 $0.40 $0.35
Distribution per share ($)$0.41 $0.36 $0.41
Coverage (x)1.05x 1.11x 0.85x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Base distribution per shareQ1 2025$0.36 (Q3/Q4 base) $0.36 Maintained
Year-end special distributionFY 2024N/A$0.05 (paid Jan 27, 2025) New
UBS secured facility spreadEffective rateSOFR + 3.20% SOFR + 2.75% Lowered by 45 bps
Weighted avg cost of debtQ4 vs Q38.2% (Q3) 7.8% (Q4) Lowered by ~40 bps

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current Period)Trend
Market competition & spread compressionNot emphasized in Q2 PR Emphasized; passing on more deals; SOFR+6% weighted coupon on first-lien Emphasized; high competition, lower spreads; selective deployment Deteriorating lender economics
Balance sheet refinancing & mixJPM facility cut spread; unsecured additions Unsecured mix ~60%; baby bond $172.5M; maturity extension Unsecured ~62%; cost down to ~7.8%; new UBS facility −45 bps Improving flexibility/cost
Equity mark volatility (David’s Bridal)NAV stable; low non‑accrual Equity marks drove NAV decline; 75% of decline from equity, 90% from David’s Seasonal inventory build and strategic investment drove marks; expects revolver paydowns Volatile near-term; improving over year
Non‑accrual dynamics1.36% FV; 2.69% AC Increased to 1.85% FV; added STATinMED Improved to 1.41% FV; added Sequoia & Securus, removed Homer City Mixed but improving
Tariffs/macro exposureNot highlighted Not highlightedPortfolio planning to diversify production away from China; limited exposure Manageable
Energy/data center adjacency (Homer City)Not highlightedUnrealized gains in Homer City/Longview Homer City back on accrual; redevelopment with data center-aligned utility dynamics Positive resolution
Deployment mix (new vs add-ons)Net portfolio growth; 107 companies Add-ons, refinancings dominant; net funded −$61M ~60% add-ons / 40% new; net funded +$64M Balanced; selective

Management Commentary

  • “We are very pleased with our 2024 results… Our BDC continues to generate a very attractive yield… enhanced by mid-year and year-end special distributions.” — Michael A. Reisner, Co‑CEO .
  • “We anticipate [NII] impact will be mitigated as we redeploy into our deal pipeline… NAV declined… driven primarily by fair value marks in our equity portfolio… we are optimistic on our equity position heading into the year.” — Michael A. Reisner .
  • “Market conditions remain very competitive… lower coupon spreads, higher leverage attachment levels and easing credit terms… We remained highly selective with new investments.” — Gregg Bresner, President & CIO .
  • “Weighted average cost of our debt capital was about 7.8%… we terminated our UBS repurchase facility and entered a new $125M secured facility with… better economics; spread reduced by 45 bps.” — Keith Franz, CFO .

Q&A Highlights

  • David’s Bridal seasonality: first full merchandising season post‑bankruptcy required larger inventory build; incremental investment into “Pearl” digital marketplace; expect normal‑course revolver paydowns over the year .
  • Homer City: significant redevelopment from shuttered coal plant to gas/other energy with strategic alignment to data center utility demand; returned to accrual status .
  • Pipeline mix: ~60% add-ons expected to continue given portfolio acquisition activity; competition to remain elevated; selectivity maintained .
  • Non‑accruals: potential further resolutions under monitoring, but too early for firm visibility .
  • Tariffs: ongoing portfolio engagement; diversification of sourcing away from China where feasible; exposure not a large percentage of the portfolio .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 EPS and revenue were unavailable at the time of this analysis due to SPGI daily request limit; therefore, we cannot formally assess beat/miss versus Wall Street consensus at this time [Values intended to be retrieved from S&P Global]*.
  • Absent consensus, we note sequential NII decline ($0.35 vs $0.40) and coverage of 0.85x, driven by lower SOFR and higher interest expense, which may prompt modest near‑term estimate recalibration depending on redeployment pace and funding cost tailwinds .

Key Takeaways for Investors

  • Sequential softness in earnings was primarily macro‑rate driven (lower SOFR) and funding‑mix related (higher average borrowings), not credit deterioration; credit metrics improved with lower non‑accruals and strong risk ratings .
  • Balance sheet actions are material: unsecured mix ~62%, cost of debt ~7.8% (−40 bps QoQ), and UBS spread cut 45 bps support NII resilience into 2025 even if asset yields compress .
  • NAV volatility stems largely from equity marks (David’s Bridal); management expects revolver paydowns and sees strategic value in the asset‑light marketplace pivot, but seasonal effects can persist near‑term .
  • Deployment will remain selective amid spread compression; investors should monitor first‑lien weighted coupon vs market and add‑on activity contribution to NII .
  • Positive idiosyncratic credit developments (e.g., Homer City back on accrual; energy/data center adjacency) can add to NII via PIK and eventual exits; watch for further resolutions .
  • Dividend policy remains steady (base $0.36); Q4 coverage dipped to 0.85x due to special distribution and rate tailwinds; funding cost improvements and redeployment could lift coverage in coming quarters .
  • Near‑term trading: focus on signs of redeployment momentum and stabilization in equity marks; medium‑term thesis hinges on disciplined first‑lien focus, improving liability structure, and careful navigation of competitive credit markets .

*Values intended to be retrieved from S&P Global.