CION Investment Corporation (CION) Earnings

Management highlights

- Portfolio Validity: * Over $64 million in portfolio assets sold in Q2 and post-quarter-end at ~99% of par, matching Cion's carrying values and validating the company's rigorous third-party audited valuation process. The pending third-party acquisition of Longview Power further confirms Cion's valuation of this large equity position at a premium to cost. * No new non-accrual investments and no internal risk rating downgrades in the quarter, with overall credit quality improving quarter over quarter. - Capital Structure & Deleveraging: * Net debt to equity leverage fell to 1.52x at quarter end, down from 1.62x in Q1. Post-quarter-end, Cion already repaid $125 million on its JPMorgan secured credit facility, and plans to fully repay its $115 million Israeli public bonds by the end of the month. * Late-stage negotiations are underway with third-party investors for additional transactions that will further increase the share of unsecured debt, reduce on-balance-sheet exposure, and lower leverage. The company targets a pro forma leverage of ~1.35x, in the low end of its historical 1.3x-1.4x comfort range. * 75% of debt is unsecured and 60% is floating rate, matching Cion's mostly floating rate investment portfolio to create a natural interest rate hedge. Weighted average cost of debt remained flat at 7.5% quarter over quarter. - Capital Return & Investment Strategy: * The Board increased the share repurchase program authorization by $15 million to a total of $130 million. Cion views its stock as significantly undervalued, and is prioritizing share repurchases over investments in new portfolio companies (outside of follow-on investments to existing holdings) until repurchase activity is complete. Pace of repurchases will depend on the closing timing of the Longview Power transaction. * Total investment income was $49.8 million in Q2, up slightly from $49.5 million in Q1. Net investment income (NII) was $14.2 million, or $0.29 per share, up from $12.9 million or $0.25 per share in Q1. NII was only $0.02 per share below the quarterly distribution level due to temporary excess cash timing from early credit facility repayment with no penalty. * Investment activity in Q2 was focused almost entirely on existing portfolio companies: $54 million funded across 10 existing companies plus $13 million in unfunded commitments, with only one small new strategic investment. Total sales and repayments were $157 million, leading to a $90 million net decrease in funded investments for the quarter. * For David's Bridal, the high-growth Pearl AI digital platform has scaled enough to separate from the legacy retail business. The split will allow the legacy business to be run for cash flow and the digital business to pursue independent growth, opening strategic M&A opportunities for both entities.

Guidance

- Leverage: Management expects to complete the full deleveraging plan that reduces net debt to equity to the 1.3x-1.4x range by the end of the third or fourth quarter of 26. - Distributions: Management maintained the monthly base distribution at $0.10 per share, for a total of $0.30 per share quarterly, through the end of the fourth quarter of 26. Distribution coverage is expected to be supported by proceeds from the Longview Power transaction, which will generate meaningful net investment income over the next few quarters. - Portfolio composition: The share of first lien debt investments in the portfolio is expected to increase over the next few quarters following the monetization of the Longview Power equity investment. - PIK income: Management expects PIK income to decline in coming quarters, and notes that 85% of current PIK income is intentional portfolio construction (not distress-related) and 100% comes from companies rated 3 or better. - New investment: No net portfolio growth is expected for the next couple of quarters as the company prioritizes deleveraging and share repurchases.

Segment performance

Cion Investment is a business development company (BDC) with a single consolidated investment portfolio structured by investment type: 1) First lien debt investments: Represented approximately 79% of the total portfolio at quarter end, with the percentage expected to increase after the monetization of the Longview Power equity investment. The weighted average yield on all debt and income-producing investments at amortized cost was 10.6%, up from 10.4% in the prior quarter. New direct first lien investments in the quarter carried a weighted average yield of SOFR+8.1% based on investment cost. 2) Equity and special situation investments: Drove the 3.5% quarter-over-quarter increase in net asset value (NAV) via mark-to-market price gains. The largest equity holding, Longview Power, has a pending sale to a strategic acquirer expected to close at a value consistent with or above Cion's carrying value. 3) Overall portfolio: Total fair value of the portfolio was $1.65 billion at quarter end. 98% of the portfolio is risk-rated 3 or better, with risk-rated 3 investments increasing to 14.1% from 12.9% in Q1. Non-accrual rate was 1.44% at fair value (down from 1.53% Q1) and 4.41% at amortized cost (down from 5.35% Q1).

Risks & headwinds

- Broad market negative sentiment toward BDCs and private credit has led to Cion's stock trading at a steep discount to NAV, which assumes a portfolio loss rate more than 14x the company's historical annualized loss rate since inception. - Market concerns about software sector exposure in private credit have pressured valuations, though Cion only holds 1.8% of its portfolio in software with no ARR-based loans. - One debt investment, Thrill 1, was in bankruptcy during the quarter and is expected to emerge in Q3, marking the largest unrealized value decline in the debt portfolio for the quarter. - Forward-looking statements are inherently uncertain, and actual results may differ materially from guidance due to unidentified or unforeseen risk factors.

Analyst Q&A

• Q: What types of buyers purchased the Q2 and post-Q2 loan sales done for deleveraging, and what was the sales process? /

  A: The buyers were a diversified mix consisting of existing co-investors and members of the original syndicate for each loan. Sales were completed on a negotiated, loan-by-loan basis, with prices very close to par making the process straightforward. Cion retained positions in the underlying deals for the loans that were partially sold. (171 characters)

• Q: Will Cion need to do additional asset sales to hit the 1.3x-1.4x leverage target, or is most of the work already complete? /

  A: No additional broad asset sales are planned; only very selective incremental asset sales may occur. Cion is pursuing larger potential financing transactions to hit the leverage target, but most of the required asset sales to reach the goal are already complete. (159 characters)

• Q: What is the outlook for David's Bridal's legacy retail business after the split with the high-growth Pearl digital business? /

  A: The two businesses have very different growth profiles and are no longer operationally entwined, justifying the split. The legacy retail business will be run for cash flow and profitability rather than growth, while Pearl will be positioned as a high-growth technology business. Strategic talks are ongoing with different potential buyers for each entity, aligned with their distinct business profiles. (225 characters)

• Q: Should investors expect no net portfolio growth for the next couple of quarters amid deleveraging, and what is the state of new origination opportunities? /

  A: This expectation is correct. Cion views repurchasing its own deeply undervalued stock as a more attractive use of capital than new originations at this time. Investment activity will be limited to follow-on investments in existing portfolio companies. The existing portfolio already carries a higher average yield than available new issue opportunities. (212 characters)