CION Investment Stock

Thank you. Good morning and welcome to CION Investment Corporation's second quarter 2026 earnings conference call. An earnings press release was distributed earlier this morning before market open. A copy of the press release, along with a supplemental earnings presentation, is available on the company's website at www.cionbdc.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10-Q filed with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Joining me on today's call will be Mark Gatto, CION Investment Corporation's Co-Chief Executive Officer; Gregg Bresner, President and Chief Investment Officer; and Keith Franz, Chief Financial Officer.

With that, I would now like to turn the call over to Mark Gatto. Please go ahead, Mark.

Thank you, and good morning, everyone. I want to start this morning with a simple observation of CION's second quarter results. This was a good quarter based on our key metrics. Net asset value per share was up. Net investment income was up. Non-accruals were down. No new names were placed on non-accrual. No new internal risk rating downgrades. And subsequent to quarter end, management undertook a series of capital actions that strengthens our balance sheet, and we believe may further demonstrate to the market our conviction that CION is able to remain durable amongst broader market factors and continue to provide value to shareholders.

We reported net investment income of $0.29 per share for the second quarter, up from $0.25 in the first quarter, and essentially at our $0.30 per share total monthly base distribution level for the quarter. We estimate that our earnings this quarter were impacted by $0.02 per share solely due to timing. As we carried excess cash, we were able to pay down 1 of our secured credit facilities without incurring a minimum utilization penalty. Our net asset value increased 3.5% quarter over quarter to $13.57 per share, up from $13.11 at the end of March, driven primarily by mark-to-market price increases in our equity portfolio. On the dividend, at $0.29 per share in NII, we are essentially at our total distribution level for the quarter on the base portfolio loan.

Subsequent to quarter end, Longview Power, our largest equity position, entered into a purchase and sale agreement with a publicly traded company. Although the acquisition consideration has not been publicly disclosed, we do expect that if the transaction closes, it may generate a meaningful amount of net investment income for CION over the next few quarters that may further support our distribution for the remainder of the year. As a result, we feel good about where we are headed on dividend coverage for the remainder of 2026.

Now let me turn to what I believe is a consequential development for the quarter, the validation of our portfolio marks. During the second quarter, we sold more than $54 million in portfolio assets at 99% of par, which was very close to our carrying values. Subsequent to quarter end, we sold an additional $10 million in portfolio assets, again, at approximately 99% of par, in line with our fair value marks. That is more than $64 million in real transactions with real counterparties that have independently underwritten these assets and concluded they are worth what we believed they were worth. We have always had confidence in our valuation process, 4 independent third-party providers, continuous backtesting, and rigorous quarterly reviews. Now we have the market confirming these specific fair value marks in real time.

There is more on valuation. The expected [proceeds] from the Longview Power transaction, an investment we acquired prior to COVID and that has been a meaningful contributor to the NAV appreciation that I just alluded to, should represent a significant premium to our cost basis and can be used to create a better future for our business, consistent with the value at which we carry the position in Q1. A third party has independently underwritten this asset's fair value and concluded it is worth basically the same, if not slightly more than our valuation, further validating our marks.

We also believe this is a powerful validation of our special situation strategy's ability to identify, structure, and hold investments that generate differentiated returns over time. Gregg will speak further to this. Beyond validating our mark on this equity position, this transaction is expected to generate substantial cash proceeds that should allow us to continue to support our base dividend, continue to deleverage as necessary, and increase our share repurchase activity. To that end, our board has authorized a $50 million increase to our existing share repurchase program to a total of $130 million. We have always been active buyers of our own stock. By our own analysis, our fund has been among the most active in the BDC sector. The fund intends to be aggressive going forward within permissible regulations and depending on available cash. We continue to believe our stock is significantly undervalued relative to our NAV, and we are prepared to continue acting on that conviction.

The pace and amount of repurchases will depend in part on the timing of when the Longview transaction closes. The intent is firmly in place. Further, to assist us with having cash available for repurchases, other than investments that are follow-on investments to our existing portfolio companies, we are prioritizing repurchases over new deals and intend for the time being to materially reduce or cease investments in new portfolio companies while we execute share repurchases.

Turning to leverage, this is an area where the story is changing quickly, and I want to make sure investors have the full picture. At quarter end, we stood at 1.52x net debt to equity, down from 1.62x in the first quarter. But more important is the plan that management has in place. Towards the end of this month, we intend to repay our $115 million public Israeli bonds in full, and subsequent to quarter end, we have already repaid $125 million on our JPMorgan secured credit facility, primarily from sale proceeds and ordinary course repayments. Also, we are in the late stages of negotiating and documenting additional transactions with third-party investors who have been conducting their own independent due diligence on our portfolio and have chosen to partner with us at scale.

If the transactions close as expected this month, we expect them to increase our percentage of unsecured versus secured debt, further reduce our on-balance sheet exposure, and contribute meaningfully to the further leverage reduction. Considering all of this activity, including the new unsecured debt we issued subsequent to the second quarter, we are targeting a pro forma leverage of approximately 1.35x, a level that is squarely within our historical operating range and well within our comfort zone given our higher mix of unsecured to secured debt. We are quickly executing on our deleveraging commitment, and Keith will walk through the specifics.

On credit quality, our non-accrual rate at fair value declined to 1.44% from 1.53% last quarter. And our non-accrual rate at amortized cost declined as well from 5.35% last quarter to 4.41%. Weighted average interest coverage and leverage across our debt portfolio remained essentially stable. The core first-lien book, which represents approximately 79% of our portfolio, is expected to increase, assuming the monetization of the equity investment in Longview.

In terms of the equity investment in Longview, it continues to perform mostly in line with our expectations. I also want to touch briefly on our PIK income. Because we believe the quality of our PIK is often misunderstood, 85% of our PIK income is structured by design from inception, meaning it was underwritten that way from the moment we made the investment, as part of a deliberate yield enhancement strategy, not as a consequence of borrower distress. 100% of our PIK income is in portfolio companies risk-rated 3 or better. We believe this PIK income should decline in the coming quarters. And we want investors to understand clearly that it primarily affects portfolio construction, not credit stress.

On David's Bridal, we continue to be encouraged by the trajectory of the Pearl, a digital media network listings and marketplace platform, which has now scaled to the point where the business is increasingly functioning as 2 distinct operations, a legacy retail business and a high-growth digital platform that we intend to separate as its own entity. As Pearl continues to demonstrate its growth profile, we believe it will create an opportunity for us to manage and ultimately reduce our exposure on terms that reflect the underlying value of what has been built. Gregg will provide more details on that front.

In conclusion, I want to say that we emphatically believe CION is significantly undervalued today. At a time when media hysteria about private credit has caused the median BDC to trade approximately 30% off where it traded last year at this time, we have unfairly been punished even further. Our portfolio is predominantly senior secured, first-lien debt with less than 2% software exposure, supported by a tested and rigorous valuation process. And that process has now been validated with respect to more than $66 million in recent third-party asset sales.

When we look at where our stock trades today, we can only conclude that the market is either skeptical of our marks, which we believe the evidence simply does not support, is doubtful of our ability to delever, which we are systematically doing, fearful of an immediate dividend cut, which we believe is a low probability given the Longview transaction, or afraid of software exposure generally in private credit, which we do not have. Our stock trades at a price that assumes a portfolio loss rate that is more than 14x our historical annualized loss rate dating back to our inception in 2012. We believe that the narrative around CION does not reflect the underlying reality. We are working hard to change that. Now let me turn the call over to Gregg.

Thank you, Mark, and good morning, everyone. As Mark discussed, during the quarter, we remained focused on deleveraging our balance sheet and positioning the company to increase its share repurchase activity. Other than 1 investment, which was highly strategic with an existing portfolio company, we exclusively focused our Q2 investment activity on our existing portfolio companies. Loan repayment activity returned to levels more consistent with pre-2024 levels as we received over $101.1 million in the quarter from full repayments from borrowers. We limited our Q2 investment activities to portfolio companies for acquisitions, recapitalizations, and other strategic transactions. The weighted average yield for our new direct first-lien investments for the quarter, based on our investment cost, was the equivalent of SOFR plus 8.1%.

Moving now to our Q2 investment and portfolio activity. Our Q2 investment activity consisted of add-on investments in existing portfolio companies, including ARC Financial, BDS, Berlitz, David's Bridal, FuseFX, Inotiv, Juice Plus+, Riddell, Trademark Global, and WorkGenius. We completed 1 investment with a new portfolio borrower, REVOLT, which is a highly strategic partner of 1 of our existing portfolio companies. During Q2, we made a total of approximately $57 million in investment commitments across 10 existing portfolio companies and 1 new borrower, of which $54 million was funded. We also funded a total of $13 million of previously unfunded commitments.

We had sales and repayments totaling $157 million for the quarter. We received full repayment of our first-lien positions in ESP Associates, Giving Home Health, Iron Horse, Lux Credit, MacNeill Pride, and PRA Acquisition. As part of our deleveraging plan, we secondarily sold over $50 million of investments in American Clinical Solutions, FuturePak, Ivy Hill Middle Market Credit Fund VIII, Metrc, Newbury Franklin, and Sleep OpCo at a blended sales price of 99% of par. As a result of all these activities, our net funded investments decreased by approximately $90 million during the quarter.

In his commentary, Mark mentioned the announced sale transaction of Longview Power to a strategic acquirer. Longview was 1 of our earliest investments within our opportunistic special situation strategy, where we identify and acquire lightly syndicated first-lien loan tranches in what we believe are quality companies at a significant discount to par due to technical or balance sheet-related issues, and then have active roles in the processes that drive the restructuring or recapitalization of these investments as we seek to position the companies for future success. Our investment in Longview began with a discounted first-lien term loan purchase in September of 2018, followed by a series of strategic add-on investments.

Historically, we have been able to realize healthy earnings on our first-lien restructured and recapitalized transactions as our realized weighted average total recoveries have been in excess of the amortized cost of those investments at the time of restructuring. Additional examples include our investments in YAK MAT, Heritage Power, and Dayton Superior. We have a number of special situations and investments remaining in the portfolio that have yet to be realized and are actively working to sustain our monetization success for these investments.

As Mark referenced, our NAV increase during the quarter was driven primarily by increases to the unrealized mark-to-market value of our portfolio as the overall macro market recovered from the Q1 headwinds ranging from the [ Iranian war ] and widespread market concerns regarding a potential crack in private credit, most specifically the software concentrations within the private capital sector and potential AI impact on those investments. As a reminder, CION has not been a significant software investor and has only 1.8% of its portfolio in the software sector with no ARR-based loans as of Q2.

Our net increase in unrealized market value was primarily driven by increases to the marked value of our equity investments due to an improved macroeconomic environment and related increases in market trading multiples, a significant market reversal from Q1. Our largest increases for the quarter were for our equity positions in Carestream Health, ARC Financial, David's Bridal, Longview Power, and K&N Engineering. As we have mentioned on previous quarterly calls, we expect to see significant quarter-to-quarter volatility in the marks of David's Bridal equity due to the larger overall relative size of our investment as well as the highly seasonal nature of the company's operations and working capital profile.

As Mark mentioned, there has been strong growth in the revenue and earnings in the Pearl Network and marketplace business of David's Bridal. We are in the process of separating the 2 businesses to fuel future growth prospects and further position David's for strategic transaction opportunities for both businesses. On the debt investment side, our largest unrealized increase was for ARC Financial, which reflected a series of transactions being pursued by the company. Our largest debt decliner was our first-lien investment in Thrill One Sports & Entertainment as the company was in bankruptcy court during the quarter and is expected to emerge with a final plan of reorganization in the third quarter.

During the quarter, we realized a loss in our term loan to Lux Credit in connection with the sale of the company in early Q2. In Q1, we placed Lux Credit on non-accrual and valued the position based on the transaction that was expected to close at the end of the first quarter. As a result, there was no impact in NAV from this investment in Q2. From a portfolio credit perspective, our non-accruals on a fair value basis decreased from 1.53% in Q1 to 1.44% at the end of Q2. On an amortized cost basis, our non-accruals decreased from 5.35% to 4.41%. We added no new names to non-accrual and removed our term loan investment in Lux Credit given the sale of the company during the quarter.

On an absolute basis, non-accruals continue to be in line with historical experience and we are pleased with the continued credit performance of our portfolio, particularly in the current macro environment. Overall, our portfolio remains defensive in nature with approximately 79% in first-lien investments. As Mark discussed, we expect the percentage of first-lien investments in the portfolio to increase over the next few quarters as we monetize equity investments such as Longview Power. Approximately 98% of our portfolio remains risk-rated 3 or better. Our risk-rated 3 investments, which are investments where we expect full repayment but are either spending more engagement time and or have seen increased risk since the initial asset purchase, increased from approximately 12.9% in Q1 to 14.1% in Q2. I'll now turn the call over to Keith.

Okay, thank you, Gregg, and good morning, everyone. During the second quarter, net investment income was $14.2 million, or $0.29 per share, compared to $12.9 million, or $0.25 per share, reported in the first quarter. Total investment income was $49.8 million during the second quarter as compared to $49.5 million reported during the first quarter. The slight increase in total investment income was driven primarily by an increase in the amortization of purchase discounts from opportunistic investment purchases made during the quarter, which was partially offset by lower interest earned on our investments due to a reduction in the size of our portfolio when compared to the prior period.

On the expense side, total operating expenses were $35.6 million compared to $36.7 million reported in the first quarter. The decrease in operating expenses was primarily driven by lower interest expense due to a decrease in the average debt outstanding during the quarter and lower G&A expenses when compared to the prior quarter. At June 30th, we had total assets of approximately $1.8 billion and total equity or net assets of $668 million with total debt outstanding of $1.17 billion and 49.2 million shares outstanding.

Our portfolio at fair value ended the quarter at $1.65 billion and the weighted average yield on our debt and other income-producing investments at amortized cost was 10.6%, which is slightly up from 10.4% in the first quarter. At June 30th, our NAV was $13.57 per share as compared to $13.11 per share at the end of March. The increase of $0.46 per share, or 3.5%, was primarily due to unrealized mark-to-market price increases in our equity portfolio and by the accretive nature of our share repurchase program during the quarter.

We ended the second quarter with a strong and flexible balance sheet with about $1.3 billion in unencumbered assets, a strong debt service capacity with an interest coverage ratio of about 2x, and solid liquidity. We had over $160 million in cash and short-term investments and another $25 million available under our credit facilities. In terms of our debt capital, at June 30th, we continue to have a healthy and diversified debt mix with about 75% in unsecured and 25% in senior secured bank debt. About 60% of our debt is in floating rate, which aligns well and creates a natural hedge with our mostly floating rate investment portfolio.

Our well-diversified debt structure is focused on unsecured debt in order to maximize our balance sheet flexibility and at the same time creates a strong buffer for our financial covenants. At the end of the quarter, our net debt to equity ratio decreased to 1.52x from 1.62x at the end of March, and the weighted average cost of our debt capital was about 7.5%, which is flat when compared to the first quarter. The decrease in our net leverage ratio was a direct result of our sales and repayment activities during the quarter, which is part of our deleveraging plan to better position our balance sheet.

As Mark mentioned, we have a plan to delever our balance sheet by around $270 million, which will bring our net leverage ratio down to about 1.35x, which is expected to further decrease to the low end of our net leverage range of 1.3x to 1.4x, considering 80% of our debt mix will be in unsecured debt. Our plan includes the recent and expected paydown of our JPMorgan senior secured facility and the expected full paydown of our public bonds in Israel. We expect our deleveraging plan to be completed by the end of the third or fourth quarter.

Now turning to distributions, as previously announced, we changed the timing of paying base distributions to our shareholders from quarterly to monthly beginning in January 2026 to better align with our shareholder expectations. During the second quarter, we paid monthly base distributions to our shareholders, totaling $0.30 per share. We also declared our third quarter monthly base distributions totaling $0.30 per share, which are paid or will be paid at $0.10 per share per month for each of July, August, and September. As a result, the trailing 12-month distribution yield through the second quarter based on the average NAV was about 9.5%, and the trailing 12-month distribution yield based on the quarter-end market price was 21.2%. As announced this morning, we declare our fourth quarter base distributions totaling $0.30 per share, which is the same as the third quarter. The fourth quarter base distributions will be paid monthly in October, November, and December at $0.10 per share per month. Okay, with that, I will now turn the call back to the operator who will open a line for questions.

Thank you. We will now be conducting a question and answer session. [Operator Instructions] And the first question comes from the line of Erik Zwick with Lucid Capital Markets. Please proceed with your question.

I'd like to start with the loan sales that you referenced in Q2 and a little bit here in the start of Q3 as well, kind of part of the deleveraging strategy. Nice to see the validation of the marks there. I'm curious if you could talk a little bit about the buyer or buyers, just what type of investor they are, and, too, whether these were kind of put out to auction or negotiated transaction, just a little bit more on that. The process would be interesting.

Yes, sure. Erik, it's Gregg. So it was a diversified mix of buyers, and it was either a combination of somebody we generally deal with as a co-investor in transactions at large or somebody within the syndicate of those names.

Okay. Just, okay, so those were negotiated kind of on a loan-by-loan basis then?

Yes, yes, because they were so close to par. It wasn't that much negotiation. It was, you know, pretty straightforward. For the most part, they were pieces of deals that we still own.

Okay, that makes sense. And then in terms of hitting that leverage target of that call it, you know, 1.3x to 1.4x range, you've walked through a number of the pieces, and I haven't had a chance to go through my entire model and see if that's enough to get there. Are you contemplating any more asset sales, or are most of those complete at this point?

On an incremental basis, no selective asset sales. We're looking at larger potential transactions on the financing side, but not in terms of individual asset sales. I think we're pretty much done.

Okay, thanks for the clarification there. And then moving to David's Bridal, you mentioned the intent to put the legacy business and the Pearl online business and that would open up M&A opportunities for both. I wondered if you could talk a little bit more about the potential options and outlook for the legacy kind of brick-and-mortar business after the split that you're contemplating?

Yes, so, Erik, one of the reasons for the split, other than the fact that they're really not operationally entwined anymore, is very different organic growth profiles. So, you can assume the legacy retail business will be run for cash flow as opposed to the Pearl side of the house, which is organically scaling at a very high rate. So 1 is really a technology business with a very high growth profile. The other is a more mature retail-based business that is going to be run more for profitability as for growth. So the differing profiles really encourages us to separate the 2 because different universes are going to be interested in both. And we're talking with various parties on both businesses for strategic transactions. So it's just that the profiles are so different going forward that we thought it was, we now have the scale within Pearl to do it.

Thanks for the detail there. And then just on the pipeline for new origination activity, I wonder if you could just kind of frame up how that looks today in terms of technical type of opportunities, type of spreads that you're seeing? And then given the deleveraging, is it likely that we'll not see maybe net portfolio growth for a couple quarters until you complete the deleveraging? Is that the right way to think about it at this point?

Yes, we think that's the right way to look at it. I think, you know, given where our stock trades, we think that's a very attractive investment. You know, our investment activity will be portfolio focused. And last quarter, our weighted average spread was SOFR plus 800. So the portfolio tends to be higher yielding on what you'll see in a new issue opportunity. So for us, our focus is the portfolio and repurchase of shares and deleveraging.

Thank you for taking my questions today.

Thank you. This concludes our Q&A session. I will now turn the call back over to management for any final comments.

I want to just thank everybody for joining us today. As we indicated during the call, we think it was a very good quarter, and it's a sign of things to come. And, you know, we look forward to speaking to you next quarter. Everyone have a great day.

Thank you, ladies and gentlemen. That does conclude today's conference call. We thank you for your participation. You may disconnect your lines at this time.

Good morning, and welcome to CION Investment Corporation's First Quarter 2026 Earnings Conference Call. An earnings press release was distributed earlier this morning before market open. A copy of the release, along with a supplemental earnings presentation is available on the company's website at www.cionbdc.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10-Q filed with the SEC.

As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC.

Joining me on today's call will be Mark Gatto, CION Investment Corporation's Co-Chief Executive Officer; Gregg Bresner, President and Chief Investment Officer; and Keith Franz, Chief Financial Officer.

With that, I would now like to turn the call over to Mark Gatto. Please go ahead, Mark.

Thank you, and good morning, everyone. I want to start this morning the way we have on prior calls by putting our quarterly results in the proper context before walking through the details. While this was not our strongest quarter from a headline numbers perspective, I want to make clear that the story underneath those numbers is more nuanced than the headline suggests, and we believe there is quite a bit to feel good about as we look at the underlying health of our portfolio. I think it is important that investors and analysts understand what actually drove our results this quarter and evaluate us not quarter-to-quarter, but on a more long-term basis.

Let me start with investment income. We reported $0.25 per share for the first quarter, which is below our monthly base distributions totaling $0.30 per share for the first quarter. This shortfall was driven primarily by lower transaction fees recorded during the quarter due to lower repayment and investment activity and lower dividend income earned on our investments. This shortfall was also driven by higher interest expense during the first quarter due to the refinancing of our lower-yielding fixed rate notes and senior secured debt into higher-yielding fixed rate unsecured notes, and the timing of paying down our debt with the net offering proceeds received from the recent issuances of our new unsecured notes due to potential prepayment penalties as all of our debt is currently at their contractual minimums.

As a result, we carried more excess cash on our balance sheet than we would have under normal operating conditions, essentially sitting on proceeds we could not deploy. This was attributable to a specific capital structure decision we made that we believe was in the long-term interest of our shareholders, which we do not view as a reflection of the underlying earnings power of our portfolio. Gregg and Keith will provide further context, but I want to be clear that we believe that the underlying earnings capacity of our portfolio remains intact, and we remain optimistic about the trajectory from here.

Turning to NAV. Our net asset value declined 4.7% quarter-over-quarter to $13.11 per share from $13.76 at year-end. As we have discussed on prior calls, mark-to-market movements in our portfolio can introduce quarterly volatility, and this quarter was no exception. Importantly, over 80% of the downward movement in our marks this quarter were unrealized in nature and driven by market level influences, movements in comparable public company valuations and broader credit spread widening, and not by a fundamental credit deterioration at our portfolio companies. This is an important distinction and one that gives us confidence in the underlying resilience of the book.

I also want to address something directly that I know has been a topic of conversation in the BDC space broadly, the scrutiny around private credit marks and valuation rigor. We welcome that conversation because we believe that we have an extremely disciplined and transparent valuation process. We utilize 4 independent third-party valuation providers, and the vast majority of our portfolio is subject to full independent review and scrutiny every quarter. We believe that process is comprehensive and rigorous, and we are committed to maintaining that standard.

At the same time, the incorporation of third-party macro assumptions and market level inputs can at times introduce marks on certain assets that may not fully reflect the underlying credit fundamentals of those positions, particularly given the secured and senior nature of our first lien holdings, which represents approximately 81% of the portfolio at the end of Q1. We believe that the heightened focus on software credit quality across the private credit industry may have contributed to a broader tightening of third-party valuation assumptions that given the sector-wide nature of that scrutiny could have affected our portfolio in a manner disproportionate to our actual exposure. With software representing just 1.8% of our portfolio, well below the 20% to 25% average reported across many private credit portfolios, we do not believe the degree of mark-to-market pressure we experienced this quarter is fully consistent with our underlying fundamentals.

On credit quality more broadly, I am pleased to report that our portfolio continues to hold up very well. Our first lien book remains the core of our strategy and continues to perform well. Weighted average interest coverage across the debt portfolio was a healthy 2.08x for the quarter, a level we view as consistent with the defensive construction of our portfolio. Weighted average net leverage on our debt portfolio was 4.62x, essentially flat with 4.7x in the prior quarter. From an internal risk rating perspective, our weighted average risk rating was essentially unchanged at 2.08% versus 2.09% in the prior quarter, and our risk rated 4 names improved quarter-over-quarter to 1.55% of the portfolio at fair value, down from 1.9% in Q4.

Our risk rated 5 names remained a very small portion of the portfolio at 0.54%. We had 7 upgrades and 8 downgrades in the quarter, a largely balanced picture that we believe reflects no meaningful deterioration in the overall composition of the book. On nonaccruals, I am pleased to share some positive news. Our nonaccrual percentage on a fair value basis improved to 1.53% as of March 31, down from 1.78% in the fourth quarter. The principal new addition to nonaccrual status this quarter was Lux Credit Consultants, which was in the midst of a sale process through quarter end. And I'm glad to report that subsequent to quarter close, that sale was successfully completed. As a result, we expect that Lux will be removed from nonaccrual status in Q2.

Generally, our nonaccruals for the quarter were stable and consistent with our historical levels. More broadly, despite the volume of commentary out there about stress in private credit, we are simply not seeing broad-based deterioration across our middle market borrowers. And that is an important message. We believe that the domestic economy, while not without risks, continues to demonstrate underlying resilience. Our portfolio companies, the majority of which serve B2B end markets continue to operate in line with or close to our expectations. We remain mindful of the ongoing geopolitical developments and the uncertain macro backdrop, but our ground level view across 89 portfolio companies in 23 industries reflects a book that we believe is performing well and does not support the broad distressed narrative that circulates private credit portfolios in the press.

Finally, we repurchased approximately 1.1 million shares during the quarter at an average price of $8.71 and we believe current prices represent a compelling opportunity to acquire our shares at a meaningful discount to fair value. We intend to continue such repurchases while seeking to simultaneously reduce our overall leverage through debt repayments, a combination we believe will position CION well for the remainder of 2026. Keith will provide additional details on our capital structure and distribution activity.

With that, I will now turn the call over to Gregg to discuss our portfolio and investment activity during the quarter.

Thank you, Mark, and good morning, everyone. Prior to covering our investment and portfolio activity for Q1, I would like to expand on Mark's comments regarding our nominal level of software exposure within the portfolio. We have 3 software portfolio companies totaling approximately 1.8% of portfolio fair value or 2% on an amortized cost basis. We have no ARR loans in the portfolio. As a firm, we've historically not invested in software as we were unwilling to lend against an ARR growth methodology with negative EBITDA profile at closing. In terms of our Q1 investment activity, we remained highly selective with new portfolio investments and focused on transactions within our portfolio companies and the repurchase of our shares. We also work to balance the timing of investments versus repayment amounts while working to reduce leverage towards our targeted net leverage range. Overall, we had fewer exiting repayments for the quarter versus our Q4 level as certain repayments slipped into Q2.

During the quarter, we continued to pass on new investment opportunities based on credit and pricing considerations. While secondary credit market conditions remain choppy based on macro concerns and potential cracks in private credit, there remained a significant bifurcation from the new issue market. New issue cohort pricing continued to be driven by the hangover of record 2024 and 2025 private debt fundraising, which translated into lower coupon spreads, higher leverage levels and looser credit documents in the new issue market.

We focused our Q1 investment activities on incremental opportunities with our portfolio companies. We believe our continued investment selectivity and proportional deployment levels help us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets. The weighted average yield for our new direct first lien investments for the quarter based on our investment cost was the equivalent of SOFR plus 6.1%. As we discussed in previous quarters, the majority of our annual PIK income is strategically derived from either highly structured first lien investments or where PIK income is incremental to our cash coupon. Together, these categories represented approximately 82% of our total PIK investments in Q1, up from 75% in Q4 of 2025. Over 99% of our PIK investments are in first lien assets. As a result, we believe this PIK income does not compare to restructured PIK income resulting from a deterioration in credit.

Turning now to our Q1 investment and portfolio activity. Our Q1 investment activity consisted of investments in 2 new portfolio companies, Anchor QEA and Dependable Acquisition, both specialty business service providers, and incremental add-on investments and secondary purchases in existing portfolio companies, including American Clinical, Carestream Health, Coinmac, David's Bridal, HealthWay, Juice Plus, STATinMED, Stengel Hill and WorkGenius. During Q1, we made a total of approximately $69 million in investment commitments across 2 new and 9 existing portfolio companies, of which $54 million was funded. We also funded a total of $12 million of previously unfunded commitments. We had sales and repayments totaling $38 million for the quarter, which consisted of the full repayment of our first lien holdings in INW and The Men's Warehouse.

As a result of all of these activities, our net funded investments increased by approximately $28 million during the quarter. As Mark referenced, our NAV decrease during the quarter was driven primarily by declines in the unrealized mark-to-market value of our portfolio. This was in large part driven by reductions in market multiples and resulting valuations due to macro headwinds ranging from the Iranian war and widespread market concerns regarding potential crack in private credit, most specifically the software concentrations within the private capital sector and potential AI impact to those investments.

For the quarter, the ratio of mark-to-market declines versus mark-to-market increases for our investments was approximately 2:1. Our largest unrealized declines for the quarter were from our investments in Lux Credit, FuseFX, LAV Gear which is also known as 4Wall Entertainment, SIMR STATinMED and the common equity of David's Bridal. Lux Credit represented our largest decline as the sale process for the company resulted in final bids well below the initial indications of interest based on the company's significant asset base and EBITDA profile.

Rather than the lenders restructuring and recapitalizing the company with additional investment, the majority of lenders decided to pursue a cash sale transaction and move on rather than restructure and invest. The sale closed early in the second quarter. The mark value of our investments in FuseFX and LAV Gear were negatively impacted by reduced trailing EBITDA performance and lower multiples as the sector rebuilds event and production pipelines from the writers' strike that delayed the release queue of new scripts and production content throughout the industry.

Through January and February of 2026, LAV Gear's performance demonstrated stronger-than-projected recovery that we expect to continue into Q2. The unrealized decline in the mark of our SIMR STATinMED term loan was driven by both the relative increase in value to priority senior tranches where CION has a larger pro rata interest and lower revenue multiples derived from quasi comparable large-cap biopharma service companies impacted by AI and software concerns. As we have mentioned on previous quarterly calls, we expect to see significant quarter-to-quarter volatility in the marks of David's Bridal equity due to the larger overall relative size of our investment as well as the highly seasonal nature of the company's operations and working capital profile.

In the face of difficult macro market sentiment, we also had a number of portfolio companies where the marks increased for the quarter due to stronger financial performance and projected outlook, including Longview Power, Hollander, TriMark, Avison Young and Services Compression (sic) [ Service Compression ]. From a portfolio credit perspective, our nonaccruals decreased from 1.78% of fair value in Q4 to 1.53% at the end of Q1. On an amortized cost basis, the number increased from 4.32% of cost to 5.35%.

We added one new name to nonaccrual, our term loan investment in Lux Credit Consultants. Given the sale of the company in early Q2, Lux Credit will be removed from nonaccrual next quarter. On an absolute basis, nonaccruals continue to be in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current macro environment.

Overall, our portfolio remains defensive in nature with approximately 81% in first lien investments. Approximately 98% of our portfolio remains risk rated 3 or better. Our risk rated 3 investments, which are investments where we expect full repayment but are either spending more engagement time and/or have seen increased risk, the initial asset purchase increased from approximately 11.5% in Q4 to 12.9% in Q1.

I'll now turn the call over to Keith.

Okay. Thank you, Gregg, and good morning, everyone. During the first quarter, net investment income was $12.9 million or $0.25 per share compared to $18.3 million or $0.35 per share reported in the fourth quarter. Total investment income was $49.5 million during the first quarter compared to $53.8 million reported during the fourth quarter. The decrease in total investment income was driven primarily by lower transaction fees recorded during the first quarter due to lower prepayment and investment activity and lower dividend income earned on our investments when compared to the prior quarter.

On the expense side, total operating expenses were $36.7 million compared to $35.5 million reported in the fourth quarter. The increase in operating expenses was primarily driven by higher interest expense due to an increase in the average debt balance outstanding and a higher weighted average cost of our debt capital during the quarter. These increases were driven as a direct result of refinancing our lower-yielding fixed rate notes and the repayment of a portion of our lower-yielding senior secured debt using the proceeds from our newly issued higher-yielding fixed rate baby bonds. The increase in our operating expenses was partially offset by lower advisory fees earned due to lower investment income recorded during the quarter.

At March 31, we had total assets of approximately $1.8 billion and total equity or net assets of $660 million with total debt outstanding of $1.2 billion and 50.3 million shares outstanding. Our portfolio at fair value ended the quarter at $1.7 billion, and the weighted average yield on our debt and other income-producing investments at amortized cost was 10.4%, which is slightly down from 10.7% in the fourth quarter. At March 31, our NAV was $13.11 per share as compared to $13.76 per share at the end of December.

The decrease of $0.65 per share or 4.7% was primarily due to unrealized mark-to-market price decreases in our portfolio and underearning our distributions during the first quarter. The decrease in NAV was partially offset by the accretive nature of our share repurchase program during the quarter.

We ended the first quarter with a strong and flexible balance sheet with about $1.3 billion in unencumbered assets, a strong debt servicing capacity with an interest coverage ratio of about 2x and solid liquidity. We had over $100 million in cash and short-term investments and another $100 million available under our credit facilities.

In terms of our debt capital, at March 31, we continue to have a healthy debt mix with about 75% in unsecured and 25% in senior secured bank debt. About 60% of our debt capital is in floating rate, which aligns well and creates a natural hedge with our mostly floating rate investment portfolio. Our well-diversified debt structure is focused on unsecured debt in order to maximize our balance sheet flexibility and at the same time, creates a strong buffer for our financial covenants. At the end of the quarter, our net debt-to-equity ratio increased to 1.62x from 1.44x at the end of December. And the weighted average cost of our debt capital was about 7.52%, which is slightly up from the fourth quarter.

The increase in our weighted average cost of debt capital was directly due to refinancing our lower-yielding unsecured fixed rate debt and increasing our higher-yielding unsecured debt mix during the quarter. The increase in our net leverage ratio was primarily impacted by the quarterly decrease in our NAV and an increase in the average debt outstanding during the quarter. During the quarter, total debt increased by $35 million due to the timing of paying down a portion of our senior secured debt with a portion of the net proceeds raised from the new unsecured baby bond offering completed in February.

During the quarter, on February 9, we completed a public baby bond offering, issuing $135 million of new senior unsecured notes with a fixed interest rate of 7.5% due 2031, which listed and commenced trading on the New York Stock Exchange under the ticker symbol CICC on February 12. A portion of the net proceeds from this offering was used to repay $100 million under our JPMorgan credit facility at the end of March. We expect to use the remaining proceeds from this offering, along with proceeds from recent and expected repayment and sales activities to further reduce our leverage level over the next few quarters. In addition, we will also consider rightsizing our leverage levels when we refinance our near-term maturity wall. In terms of our 2026 debt maturities, we continue to work with our banking partners and debt investors on refinancing our 2026 maturities over the next few months.

Now turning to distributions. As previously announced, we changed the timing of paying base distributions to our shareholders from quarterly to monthly beginning in January 2026 to better align with our shareholder expectations. During the first quarter, we paid monthly base distributions to our shareholders totaling $0.30 per share. We also declared our second quarter monthly base distributions totaling $0.30 per share, which were paid or will be paid at $0.10 per share per month for each of April, May and June.

As a result, the trailing 12-month distribution yield through the first quarter based on the average NAV was about 9.8% and the trailing 12-month distribution yield based on the quarter end market price was 20.2%. As announced this morning, we declared our third quarter base distributions totaling $0.30 per share, which is the same as the second quarter. The third quarter base distributions will be paid monthly in July, August and September at $0.10 per share per month.

Okay, with that, I will now turn the call back to the operator, who will open the line for questions.

[Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets.

I wanted to start with a question on your commentary about kind of gradually reducing leverage. Wondering if you could potentially provide just maybe a little kind of quantitative thoughts there in terms of where is your target to get there? And potentially, what is the time frame to achieve that target?

Yes, Erik, it's Keith. Yes, we're focused on getting those and driving those leverage levels down over the course of the remaining few quarters. We've got a few tranches that are in the queue to be repaid or matures this year. So we're going to take the advantage -- take advantage of either a combination of both rightsizing leverage through refinancing and/or using sales and repayments to reduce and drive down the leverage levels.

Okay. But no specific kind of...

Time line?

Quantitative target at this point? Or just in terms of where you'd like the debt-to-equity ratio to kind of where you feel comfortable having that today?

Yes, for sure. With the majority of our debt capital and unsecured, I think our leverage range is around 1.30, 1.35. Obviously, we're way above that. So it's going to take some time and some wood to chop to get us back there. But just looking at how our portfolio churns each and every year, at least 25% that generates an enormous amount of capital. So we intend to use that and other levers to drive the leverage levels down over the next couple of quarters.

That's helpful, Keith. And then just curious with regard to Lux Credit Consultants and the sale there. Was the final sales price consistent with the 3/31 fair value mark?

Yes.

Okay. Okay. So no, nothing shouldn't be any additional kind of, I think, put in there. Okay. Great. And then one kind of -- just curious about the -- you had a strong quarter of originations in 1Q. How is the pipeline looking at this point? And what are you seeing in terms of spreads and how that compares to the existing portfolio yield?

So Erik, we ended the quarter -- the quarter was [ S6 10 ] profile of our new investments. I would say we're being very careful. There is definitely a disconnect between the new issue market and the secondary and public markets for direct. I think there's still a cohort of a lot of fundraising that happened over the last 18 months where they're specifically targeted to the new issue cohort. So I would say we're still trying to maintain our S6 target. So we're being incredibly choosy because we see better opportunities candidly in the secondary markets in the portfolio and to buy back our stock compared to seeing spreads still relatively tight in new issue specifically.

Gregg, and how does the pipeline look in terms of opportunities? Is the kind of global and macroeconomic uncertainty impacting things at all? Or are you still seeing quite a few attractive opportunities to invest in?

No, we're still seeing attractive opportunities. But proportionately for us, I think it's -- we don't have to do a massive amount of deals to proportionately deploy money. But I will say that the environment has definitely affected M&A. We are seeing reduced M&A activity because of macro as well as where interest rates are. So -- but with our proportional deployments, we're still seeing a pretty rich opportunity set. It's just a question of picking the best ones.

Got it. And last one for me. I appreciate the commentary about David's Bridal and the seasonality there. One, I guess, could you just remind me, I think, kind of typically the second and third quarters are the strongest for them given the traditional wedding season. But also curious if you could provide an update on the -- I believe it's the Pearl? Is that the online initiative that had been introduced over the past year or so and how that's progressing?

Sure. So you're exactly right. Q2 and Q3 are the seasonally strongest quarters for David's Bridal. And the Pearl Marketplace segment is ramping -- is accelerating. So we've been very pleased with the ramp in that particular part of the business. And strategically, that is the focus for Bridal today as we move more and more of our business to digital. And so that's been a good growth part of the business.

And this concludes our Q&A session. I will now turn the call back to management for final comments.

I wanted to thank everybody for joining us today. We appreciate your support and interest in our CION Investment Corp., and we look forward to speaking to you next quarter.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

Good morning, and welcome to CION Investment Corporation's Fourth Quarter and Year-End 2025 Earnings Conference Call. Our earnings press release was distributed earlier this morning before market opened. A copy of the release, along with the supplemental earnings presentation is available on the company's website at www.cionbdc.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10-K filed with the SEC. As a reminder, this conference call is being recorded for replay purposes.

Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties.

Actual results may differ materially from those in the forward-looking statements as a result of numbers of factors, including those described in the company's filings with the SEC. Joining me on today's call will be Michael Reisner, CION Investment Corporation's Co-Chief Executive Officer; Gregg Bresner, President and Chief Investment Officer; and Keith Franz, Chief Financial Officer.

With that, I would like to turn the call over to Michael Reisner. Please go ahead, Michael.

Thank you, and good morning, everyone. Before I address our quarterly results, I want to step back for a moment and highlight what I believe is the most important takeaway from this quarter. We believe that our core first lien portfolio which represents approximately 81% of our investments continues to perform well.

Weighted average interest coverage across our portfolio increased quarter-over-quarter from 1.94x to 2.26x. EBITDA growth in our portfolio companies primarily continues on a positive trajectory, and our risk rated 4 and 5 names held steady at approximately 2.4% of the portfolio at fair value.

We added one new term loan to nonaccrual status during the quarter, HealthWay. And overall, nonaccruals remained essentially flat compared to the prior quarter at 1.78% of the portfolio at fair value.

I would also note that our software exposure stands at approximately 1.8% of the portfolio at fair value, a reflection of our long-standing and intentional decision to avoid that sector. For investors who have expressed concern about software concentrations in BDC portfolios broadly, we believe our positioning should provide meaningful comfort and Gregg will speak further to our sector discipline.

Overall, we are not seeing the material cracks in private credit that the press has been eager to report. Now turning to our NAV. Our net asset value decreased 7.4% quarter-over-quarter to $13.76 down from $14.86 at the end of September. I want to stress that this decline was driven almost entirely by unrealized mark-to-market adjustments and a handful of equity positions, specifically Juice Plus, [indiscernible] Entertainment, David's Bridal and Avison Young.

These are unrealized marks, not realized credit losses. And as we have discussed on prior calls, our equity book can introduce meaningful quarter-to-quarter volatility into our NAV. We have always been transparent with the market about this potential volatility, and this quarter, this volatility caused our NAV to decline.

We believe this potential volatility should be evaluated in the context of the portfolio, this core lending book is demonstrably healthy and whose equity positions retain long-term appreciation potential. Gregg will walk through each of these names in detail.

I'm also pleased with our capital markets execution during and subsequent to the quarter. We raised $172.5 million in senior unsecured notes during the fourth quarter across 2027 and 2029 maturities. And subsequent to quarter end, we raised an additional $135 million in unsecured public baby bonds due in 2031, a combined $307.5 million in unsecured borrowings that further strengthens the flexibility and duration of our balance sheet.

Keith will discuss both transactions in greater detail, but we believe that continued access to the unsecured debt markets at these levels reflects the confidence institutional investors have in our credit profile. We also repurchased approximately 556,000 shares during the quarter at an average price of $9.37 per share, which we continue to view as prudent and accretive use of our capital.

Looking ahead, we continue to see a resilient underlying economy. While we are mindful of the ongoing geopolitical uncertainty, the underlying domestic economy continues to show resilience, and we believe conditions remain broadly supportive for our portfolio companies for the remainder of 2026. Our portfolio companies, the vast majority of which serve business-to-business end markets in the U.S. middle market generally continue to perform in line with or better than our expectations.

Despite the volume of cautionary commentary in the financial press around private credit, we are simply not seeing broad-based deterioration in our portfolio, and we remain confident in the durability of our first lien focused strategy for the remainder of the year.

With that, now I'll turn the call over to Gregg to discuss our portfolio and investment activity during the quarter.

Thank you, Michael, and good morning, everyone. Prior to covering our investment and portfolio activity for Q4, I would like to expand on Michael's comments regarding our nominal level of software exposure within the portfolio.

We ended the quarter with three software portfolio companies totaling 1.8% of portfolio fair value or 2% on an amortized cost basis. All three of these software companies were underwritten on a performing positive EBITDA basis with a weighted average net tranche level of approximately 4.4x EBITDA at closing.

We have no ARR loans in the portfolio. As a firm, we have historically not invested in software as we were unwilling to lend against an ARR growth methodology with negative EBITDA profile at closing. We view the ARR software profile more as a venture-oriented investment with equity-like risk that require return levels well in excess of the yields typically offered on first-lien debt investments.

In terms of our Q4 investment activity, we remain highly selective with new portfolio investments, and we're focused on transactions within our portfolio of companies. We also were effectively at full investment during most of the quarter and work to balance the timing of expected investment pipeline investments versus repayment amounts while maintaining our targeted net leverage range.

Overall, we had fewer exiting repayments for the quarter versus our Q3 level as certain repayments drifted into Q1 of 2026. During the quarter, we passed on a historically higher percentage of potential investments in new portfolio companies based on credit and pricing considerations.

While secondary credit market conditions were choppy in Q4 due to speculation regarding tariffs and interest rate policies, the government shutdown and market concerns regarding potential cracks in private credit, there remained a significant bifurcation for the new issue market. New issue pricing continued to be driven by the hangover of record 2024 private debt fundraising, which translated into lower coupon spreads, higher leverage levels and looser credit documents in the market.

We focused our Q4 activities on incremental opportunities with our portfolio companies. We believe our continued investment selectivity and proportional deployment levels help us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets.

The weighted average yield for our new direct first lien investments for the quarter based on our investment cost was the equivalent of SOFR plus 6.43%. As we discussed in previous quarters, the majority of our annual PIK income is strategically derived from either highly structured first lien investments where our PIK income is incremental to our cash coupon.

Together, these categories represented approximately 75% of our total PIK investments in Q4. Approximately 73% of our PIK investments are on portfolio companies risk rated either 1 or 2 and 99%, risk-rated 3 or better. As a result, we believe this PIK income does not compare to restructured PIK driven by a deterioration in credit.

Turning now to our Q4 investment and portfolio activity. Our Q4 investment activity consisted of a co-lead investment in one new portfolio company, strained dental management and incremental add-on investments and secondary purchases in existing portfolio companies, including Adapt Laser, American Clinical, Avison Young, [indiscernible] Solutions, Carestream Health, Coinmac, David's Bridal, STATinMED and WorkGenius.

We additionally refinanced the first lien debt of SleepCo, Brooklyn Bedding and Camden with our initial club partners. During Q4, we made a total of approximately $76 million in investment commitments across 1 new and 14 existing portfolio companies, of which $66 million was funded.

We also funded a total of $12 million of previously unfunded commitments. We had sales and repayments totaling $79 million for the quarter, which consisted of the full repayment of the first lien term loans for MOSS Holding and [indiscernible] travel.

As a result of all these activities, our net funded investments decreased by approximately $1 million during the quarter. As Michael referenced, our NAV decrease during the quarter was driven primarily by declines in the unrealized mark-to-market value of our equity portfolio that was concentrated within a subset of equity investments, including, Juice Plus, [indiscernible] Entertainment, David's Bridal and Avison Young.

The common theme among these names is what we internally refer to as the COVID elongation cycle as each of these names were significantly impacted by both COVID and the labor market inflation and interest rate shocks, which sequentially followed, which resulted in the restructuring or recapitalization of balance sheet to rebuild the platforms.

The reduction in the equity mark of Juice Plus was driven by a reduction in trailing quarterly revenue performance against its fixed cost base as the company worked to complete its restructuring in the third quarter.

With its recapitalized balance sheet in Q4, the company immediately pivoted to operational initiatives and investments to transform its product offerings and sales infrastructure to optimize its go-to-market strategy that is more in line with consumer health and wellness trends and spend.

The company has been executing on product development, sales management and information technology initiatives to reposition for growth and profit improvement over the medium term. The market value of our equity investment in 4Wall Entertainment was negatively impacted by reduced trailing EBITDA performance driven primarily by industry factors, including reduced live event activities from cancellations and lower TV and film production as the sector rebuilds pipelines from the [ writer strike ] that delayed the release queue of new scripts and production content.

The company successfully restructured its balance sheet in the summer of 2025 and repositioned its sales, business development and CapEx to focus on an expected rebound in both event and production activities. The company is expecting significant EBITDA improvement in 2026 and has already secured a number of high-profile event wins for 2026.

As we have mentioned on previous quarterly calls, we expect to see significant quarter-to-quarter volatility in the marks of David's Bridal equity due to the larger overall relative size of our investment as well as the highly seasonal nature of the company's operations and working capital profile.

The decline in the Q4 marked primarily reflects the typical seasonal increase in debt as the company builds inventory ahead of the critical bridal season, which historically begins in mid-January. In addition, we invested incremental capital to accelerate the company's growth of its Pearl segment which is a high-growth, higher-margin digital marketplace platform that expands the company's market participation beyond the $5 billion wedding dress segment in the broader $65-plus billion wedding services industry.

The Q4 equity marks in Avison Young were negatively impacted by incremental debt raised in Q4 at the top of the capital structure to support the company's investments in sales and other infrastructure in advance of the expected increase in commercial real estate activity in 2026 and 2027.

This incremental increase in the quantum of debt negatively impacted the value of Avison equity tranches. CION participated in the latest debt round, it continues to believe this company is well positioned for the expected rebound in commercial real estate. Our investments in Juice Plus, David's Bridal and Avison Young are representative of our opportunistic first lien investment strategy where we acquire either restructured or lightly syndicated first lien loan tranches in quality companies at a discount to par due to technical reasons where we expect to have active roles in the processes that drive the recovery and realization of the investments.

Historically, we have been able to realize healthy earnings on our first lien restructured or recapitalized transactions. Illustrative examples include our investments in Longview Power, YACMAT, Heritage Power and Dayton Superior. We also had a number of portfolio companies where the equity marks increased for the quarter due to strong financial performance and our projected outlook, including Longview Power, Palmetto Solar and Playboy.

From a portfolio credit perspective, our nonaccruals increased slightly from 1.75% of fair value in Q3 to 1.78% in the fourth quarter. This increase was from the addition of one new name to nonaccrual, our term loan investment in HW acquisition or HealthWay. HealthWay initiated a primary revolver raise in the fourth quarter that ultimately funded in early 2026 and contained a substantial lower component that effectively shifted value from the term loan to the revolver tranche.

While CION participated in the revolver upsize and ultimately benefit on a total position value basis, from the incremental accretion in the revolver tranche versus our pro rata ownership of the term loan, the shift in value resulted in nonaccrual status for our term loan holding.

On an absolute basis, nonaccruals continue to be in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current environment. Overall, our portfolio remains defensive in nature with approximately 81% in first lien investments.

Approximately 98% of our portfolio remains risk rated 3 or better. Our risk-weighted 3 investments, which are investments where we expect full repayment, but are either spending more engagement time and/or I've seen increased risk to the initial asset purchase increased from approximately 10.4% in the third quarter to 11.5% in Q4.

I'll now turn the call over to Keith.

Okay. Thank you, Gregg, and good morning, everyone. During the fourth quarter, net investment income was $18.3 million or $0.35 per share compared to $38.6 million or $0.74 per share reported in the third quarter. Total investment income was $53.8 million during the fourth quarter as compared to $78.7 million reported during the third quarter.

The decrease in total investment income was driven primarily by lower interest income earned on our investments, as a result of certain investments being restructured in the prior quarter and other yield-enhancing prepayment fees and accelerated OID that did not reoccur this quarter.

We also had lower transaction fees earned from origination and restructuring activities when compared to the prior quarter, which was slightly offset by an increase in dividend income received from one of our investments during the fourth quarter.

On the expense side, total operating expenses were $35.5 million compared to $40.1 million reported in the third quarter. The decrease in operating expenses was primarily driven by lower advisory fees due to lower investment income earned during the quarter.

At December 31, we had total assets of approximately $1.9 billion and total equity or net assets of $708 million with total debt outstanding of $1.1 billion and 51.4 million shares outstanding. Our portfolio at fair value ended the quarter at $1.7 billion, and the weighted average yield on our debt and other income-producing investments at amortized cost was 10.7%, which is slightly down from 10.9% in the third quarter.

At December 31, our NAV was $13.76 per share as compared to $14.86 per share at the end of September. The decrease of $1.10 per share or 7.4% was primarily due to unrealized mark-to-market price decreases in our portfolio, mostly from price declines in our equity book, which was slightly offset by the creative nature of our share repurchase program during the quarter.

We ended the fourth quarter with a strong and flexible balance sheet with over $1 billion in unencumbered assets, a strong debt servicing capacity with an interest coverage ratio of over 2x and solid liquidity. We had over $120 million in cash and short-term investments and another $100 million available under our credit facilities to further finance our investment pipeline and continue to support our existing portfolio companies.

In terms of our debt capital. At December 31, we continue to have a healthy debt mix with about 65% in unsecured and 35% in senior secured. About 70% of our debt is in floating rate, which aligns well and creates a natural hedge with our mostly floating rate investment portfolio.

A well-diversified debt structure is focused on unsecured debt in order to maximize our balance sheet flexibility and at the same time, creates a strong buffer for our financial covenants. At the end of the quarter, our net debt-to-equity ratio increased to 1.44x from 1.28x at the end of September, and the weighted average cost of our debt capital was about 7.35%, which is slightly down from the third quarter due to lower SOFR base rates quarter-over-quarter.

The increase in the net leverage ratio was impacted primarily by the quarterly decrease in NAV and an increase in the average debt outstanding during the quarter. During the quarter, total debt increased by $48 million due to the timing of paying down our senior secured debt with a portion of the net proceeds raised from the unsecured debt offering in December.

During the quarter, we issued $172.5 million of senior unsecured notes from certain institutional investors, consisting of $125 million in senior unsecured notes with a fixed interest rate of 7.7% due 2029 and $47.5 million in senior unsecured notes with a fixed interest rate of 7.41% due 2027.

Subsequent to year-end, on February 9, we completed a public baby bond offering, issuing $135 million of new senior unsecured notes with a fixed interest rate of 7.5% due 2031, which listed and commenced trading on the New York Stock Exchange on its ticket symbol, CICC on February 12.

The net proceeds from these offerings were used to fully repay our $125 million in senior unsecured notes due 2026 that matured in February, and the remaining net proceeds will be used to further reduce our outstanding senior secured bank debt.

Now turning to distributions. During the fourth quarter, we paid a base distribution to our shareholders of $0.36 per share, which is the same as the third quarter base distribution.

For the full year in 2025 we declared and paid total distributions of $1.44 per share, all of which was from our quarterly base distributions. As a result, the trailing 12-month distribution yield through the fourth quarter based on the average NAV was about 9.9% and the trailing 12-month distribution yield based on the quarter end market price was 14.9%.

As previously announced, we changed the timing of paying base distributions to our shareholders from quarterly to monthly beginning in January 2026 to better align with our shareholder expectations.

And as announced this morning, we declared our second quarter base distribution of $0.30 per share, which is the same as the first quarter. The second quarter base distribution will be paid monthly in April, May and June at $0.10 per share per month.

Okay. With that, I will now turn the call back to the operator, who will open the line for questions.

[Operator Instructions] And the first question comes from the line of Erik Zwick with Lucid Capital Markets.

I wanted to start with a question on leverage. And you noted that, that was up in the quarter, and some of that was driven by the fair value marks in the equity portfolio, but it's run fairly above kind of where you've run in the past. So just curious on your thoughts for the appropriate level of leverage today and how you plan to kind of manage that over the next year or so?

Erik, it's Keith. Yes. So in terms of the elevated leverage, I think the way that we're looking at it is over the next few quarters, some organic growth in the NAV positions may help -- but ultimately, we expect to use some of the scheduled on scheduled repayment activity we typically receive to delever. .

That's helpful. And -- next question, just on PIK income. I think you've previously indicated the desire to reduce the contribution from income. Looking at the results in 2025 that was up on both absolute dollar terms as well as a percentage of total investment income. So first, just wondering, could you provide a split of kind of tick by design versus restructured PIK? And do you still have plans to kind of aim to reduce that overall contribution?

Eric, it's Gregg. From your characterization, we -- as we do this about 75% of our PIK is by design where it's either incremental cash interest or we structured it intentionally that way on a deal basis. So it's about 75% based on those classifications. With respect to going forward, our PIK is concentrated in a few names that we do expect to refinance over the next 12 to 18 months. So we do expect that number organically to come down significantly as those deals repay. .

I appreciate the update there. Last one for me. In the press release, you noted that the weighted average interest coverage for the portfolio increased quarter-over-quarter from 1.9% to about 2.3%, if I round, which is nice to see. I'm curious if that was primarily a reflection of just lower interest rates flowing through the portfolio or if you're also seeing some improvement in EBITDA as well.

It's a combination of both. It's a combination of increased EBITDA as well as the reduction in base rates. So it's -- the base rate is obviously [indiscernible], but we did see EBITDA growth over the quarter. .

This concludes the Q&A session. I'd like to turn the call back over to Michael Reisner for closing remarks. .

Great. Well, I want to thank everybody for tuning in today, and we'll be back to you in a couple of months with our Q1 results. Take care, everybody. .

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings. Welcome to CION Investment Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Charlie Arestia, Managing Director and Head of Investor Relations. Thank you. You may begin.

Good morning, and welcome to CION Investment Corporation's Third Quarter 2025 Earnings Conference Call. An earnings press release was distributed earlier this morning before market open. A copy of the release along with the supplemental earnings presentation is available on the company's website at www.cionbdc.com in the Investor Resources section. It should be reviewed in conjunction with the company's Form 10-Q filed with the SEC.

As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties, actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC.

Joining me on today's call will be Michael Reisner, CION Investment Corporation's Co-Chief Executive Officer; Greg Bresner, President and Chief Investment Officer; and Keith Franz, Chief Financial Officer. With that, I would like to now turn the call over to Michael Michael Reisner. Please go ahead, Michael.

Thank you, Charlie, and good morning, everyone. Overall, we reported a strong third quarter with continued NAV appreciation and significant quarterly earnings. We reported $0.74 a share in net investment income for the third quarter, driven by robust transaction activity involving 20 of our portfolio companies with several fee events, new investments and repayments. As in past quarters, increased transaction activity tends to translate into higher earning quarters through increased transaction-related fees and other yield enhancement measures such as MOIC, exit fees and call protection.

During the third quarter, we realized significant transaction-related accretion related to a portfolio company and is part of our opportunistic strategy. As we discussed on our prior call, we expected this transaction to close in the third quarter which contributed meaningfully to our net investment income. Excluding the income from this transaction, we still would have covered our base dividend for the quarter, which we believe reflects the ongoing earnings power of our portfolio. Greg will discuss this transaction in greater detail later on during the call, but I want to reiterate how we view our opportunistic strategy as a differentiated component of our overall earnings potential.

While these contributions can appear episodically, we consider these potential earnings to be a strategic component of our portfolio as we manage the business and the dividend over the longer term. We appreciate that the timing of these contributions can be difficult to predict, which is why we provided the additional context on our prior earnings call.

Going forward, we plan to provide comparable guidance on any similar anticipated transactional income to help manage investor expectations in the short term. Should conditions allow. As we have mentioned previously, we believe the volatility that these potential returns create tends to skew meaningfully to the upside versus consensus expectations and thus should be evaluated on a longer-term perspective.

Our net asset value increased 2.5% quarter-over-quarter to $14.86 up from $14.50 in the prior quarter. driven largely by fair value increases in our equity portfolio with significant increases in Longview power and Palmetto Solar. Following the upside of our share repurchase program announced in the prior quarter, we were able to take advantage of a meaningful sector-wide sell-off in the BDC space in September to repurchase our shares in the open market, which remains accretive to NAV.

Overall, we repurchased approximately 330,000 shares at an average price of $9.86 per share during the quarter and have continued repurchasing shares in the fourth quarter. So far in the fourth quarter through last week, we have repurchased approximately 325,000 shares at an average price of $9.33 per share. The largest contributor to our quarterly NAV growth was Longview Power, which continues to see tailwinds from stronger fundamental performance and broader sector growth from AI-driven digital infrastructure demand. Longview is now our largest equity position, and we are pleased with the underlying asset performance so far.

Looking ahead, we believe successful monetization of our equity positions will be a significant driver of the growth potential for our stock, and we are encouraged by recent trends on that front. Despite broader headlines about problematic loans in the credit space, we believe our portfolio continues to perform well.

Underlying LTM adjusted EBITDA growth trends in our portfolio companies in our debt portfolio remain in the mid- to high single digits our portfolio nonaccruals remained relatively low at 1.75% of the portfolio at fair value.

We added 2 names to nonaccrual status this quarter, including a relatively small position one of our very few second lien holdings. Following our quarterly review process, we downgraded 3 loans, including the 2 new nonaccruals I just mentioned, partially offset by upgrading 1 loan that was subsequently repaid at par at quarter end. Overall, investments risk rated 4 or 5 comprise approximately 2.4% of the portfolio at fair value.

I'm also excited to announce today a shift in our timing of paying base distributions to our shareholders beginning in January 2026. We will be converting to paying base distributions from quarterly to monthly. We are pleased with the continued performance of our portfolio and believe that shareholders will appreciate the increased frequency of our base distributions going forward. We have also declared a base distribution of $0.36 per share for the fourth quarter of 2025, the same amount as the third quarter, and Keith will discuss this in more detail.

In summary, we believe that this was a strong quarter for CION and a reinforcement of our differentiated strategy, which pairs traditional first lien focused direct lending with an opportunistic capability to enhance overall returns over the longer term. We have seen a noticeable pickup in repayment activity in recent quarters, which allows us to redeploy into our active pipeline and allows us to recapture incremental fee income as the portfolio turns over.

I'm especially proud of CION's performance amid a highly competitive operating environment. There is certainly no shortage of press out there today on the headwinds of spread compression looser lender protections and credit concerns driven by recent high-profile bankruptcies. We have no direct exposure to these names or sectors. We believe that our results today validate the diligent work of our team and continuing to source and execute on differentiated opportunities in a challenging environment. With that, I will now turn the call over to Gregg to discuss our portfolio and investment activity during the quarter.

Thank you, Michael, and good morning, everyone. We've remained highly selective with new portfolio company investments in Q3 as we were highly active and focused on transaction opportunities within our portfolio of companies. We were also effectively at full investment during most of the quarter and worked to maintain our targeted net leverage range of 1.25x to 1.3x while simultaneously balancing the timing of expected investment pipeline investments versus repayment amounts. Most of our exiting repayments occurred towards the end of the quarter.

During the quarter, we passed on a historically higher percentage of potential investments in new portfolio companies based on credit and pricing considerations as the continued hangover of record 2024 private debt fundraising still translated into lower coupon spreads, higher leverage levels and looser credit documents in the market. As Michael discussed in his remarks, market conditions continued to rebound in Q3 as stronger economic indicators and reduced concerns regarding tariffs have boosted overall economic sentiment in equity markets. We focused our Q3 activities on incremental opportunities with our own portfolio of companies as we had significant transaction and fee events with over 20 of our portfolio companies this quarter.

We believe our continued investment selectivity and proportional deployment levels helped us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets during the quarter. The weighted average yield for our funded first lien investments for the quarter based on our investment cost with the equivalent of SOFR plus 7% for our direct strategy and SOFR plus 14% for our opportunistic strategy investments.

As we discussed in previous quarters, the majority of our annual PIK income is strategically derived from highly structured first lien investments or where PIK income is incremental to our cash coupon. Together, these categories represented approximately 71% of our total PIK investments in Q3, approximately 67% of our PIK investments are in portfolio companies risk-weighted either 1 or 2 and 98% risk-rated 3 or better. As a result, we believe this PIK income may not compare to restructured PIK driven by a deterioration in credit.

Turning now to our Q3 investment and portfolio activity. Our Q3 investment activity consisted of a co-lead investment in 1 new portfolio company metric and incremental add-on investments and secondary purchases in existing portfolio companies, including Avison Young, Senex, Community Tree Services, David's Bridal, Invisible Boats, I&W, ID Hill, lab gear, Juice Plus, Precision Medical, statin Med and technical AirSupport.

During Q3, we made a total of approximately $73 million in investment commitments across 1 new and 12 existing portfolio companies, of which $65 million was funded. We also funded a total of $8 million of previously unfunded commitments. We had sales and repayments totaling $151 million for the quarter, which consisted of the full repayment of the first lien loans for American Family Care, Health e-commerce, HW Lattner, Kempa, Lamons, Nova Compression and Rogers Mechanical.

As a result of all these activities, our net funded investments decreased by approximately $69 million during the quarter. As Michael referenced, our NAV increase during the quarter was driven primarily by net increase in the unrealized mark-to-market value of the portfolio as improved market conditions and reduced tariff concerns positively impacted comparable public company valuations and the overall projected macroeconomic outlook. Four notable portfolio companies for the quarter were long view Power, Palmetto Solar, Juice Plus and AmpedSports. The value of our equity investments in Longview Power and Palmetto Solar increased due to the strong fundamental performance and projected financial outlook for these companies.

As Michael mentioned, CION co-led the consensual restructuring and refinancing of Juice Plus during the quarter, which resulted in significant realized earnings for CION and repositioned Juice Plus the fuel product growth and strategic investments. Our investment in Juice Plus represents an illustrative example of our opportunistic first lien investment strategy where we acquire lightly syndicated first lien loan tranches in quality companies at significant discounts to par due to technical reasons where we expect to have active roles in the processes that drive the refinancing or restructuring of the investments.

Historically, we have been able to realize healthy earnings on our first lien restructured and recapitalized transactions as our realized weighted average total recoveries have been in excess of the amortized cost of these investments at the time of the restructuring. Additional examples include our investments in Longview Power, YacMat, Heritage Power and Dayton Superior. We experienced a mark-to-market decline in our first lien debt investments in Anthem Sports which were driven primarily by the less-than-expected ramping of the revenue for the quarter.

The company continues to transition from a subscription base to an advertising-driven revenue model and is in the process of integrating a recent strategic acquisition completed in the second quarter. From a portfolio credit perspective, our nonaccruals increased from 1.3% of fair value in Q2 to 1.75% in the third quarter. This increase was driven by the addition of 2 new names to nonaccrual, our first lien investment in Trademark Global and second lien investment in ASPiRA. Trademark Global's operations have been materially impacted by tariffs in 2025 as the company continues to diversify its sourcing away from China. While the company is executing a comprehensive plan to rebuild its earnings we have placed on nonaccrual and will reassess based on the company's execution of that plan. Aspire is rolling out a new generation of subscription products to its customers, which has impacted short-term performance.

During the quarter, we sold our second lien investment in Seqirus, which removed the name from nonaccrual. On an absolute basis, nonaccruals continue to be in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current interest rate environment. Overall, our portfolio remains defensive in nature with approximately 80% in first lien investments. Approximately 98% of our portfolio remains risk rated 3 or better. Our risk rated 3 investments which are investments where we expect full repayment but are either spending more engagement time or have seen increased risk since the initial asset purchase decrease from approximately 11.6% in Q2 to 10.4% in Q3.

I'll now turn the call over to Keith.

Okay. Thank you, Gregg, and good morning, everyone. During the third quarter, net investment income was $38.6 million or $0.74 per share compared to $16.9 million or $0.32 per share reported in the second quarter. Total investment income was $78.7 million during the third quarter as compared to $52.2 million reported during the second quarter. This is an increase of $26.5 million or an increase of about 51% quarter-over-quarter. The increase in total investment income was driven primarily by higher interest income earned as a result of certain investments being restructured and other yield-enhancing prepayment fees recorded during the quarter, as well as higher transaction fees earned from origination and amendment activity when compared to the prior quarter.

On the expense side, total operating expenses were $40.1 million, compared to $35.3 million reported in the second quarter. The increase in operating expenses was primarily driven by higher advisory fees due to higher investment income earned during the quarter. At September 30, we had total assets of approximately $1.9 billion and total equity or net assets of $773 million, with total debt outstanding of about $1.1 billion and 52 million shares outstanding. Our portfolio at fair value ended the quarter at $1.7 billion, and the weighted average yield on our debt and other income-producing investments at amortized cost was 10.9% at September 30.

Our PIK income for the third quarter was largely impacted by one of our portfolio companies in connection with its amended loan facility. The amount capitalized was about $5 million for the quarter. And excluding this transaction, our PIK as a percentage of total income for the third quarter would have been lower and in the mid-teens level. At September 30, our NAV was $14.86 per share as compared to $14.50 per share at the end of June. The increase of $0.36 per share or 2.5% was due to mark-to-market price increases in our portfolio, mostly due to price increases from our equity book and the accretive nature of a share repurchase program during the quarter.

We ended the third quarter with a strong and flexible balance sheet with over $1 billion in unencumbered assets, a strong debt servicing capacity and interest coverage ratio of about 2x and solid liquidity. We had over $105 million in cash and short-term investments and another $100 million available under our credit facilities to further finance our investment pipeline and continue to support our existing portfolio companies. At September 30, we continue to have a healthy debt mix with about 63% in unsecured debt and 37% in senior secured bank debt. About 75% of our debt capital is in floating rate, which aligns well and creates a natural hedge with our mostly floating rate investment portfolio.

Our well-diversified debt structure is focused on unsecured debt in order to maximize our balance sheet flexibility and at the same time, creates a strong buffer for our financial covenants. At the end of the quarter, our net debt-to-equity ratio decreased to 1.28x from 1.39x at the end of June. And the weighted average cost of our debt capital was about 7.5% and which is unchanged from the second quarter. We currently manage our portfolio and leverage levels on a net of cash basis as all of our outstanding debt is currently noncallable and at their minimums.

Now turning to distributions. During the third quarter, we paid a base distribution to our shareholders of $0.36 per share, which is the same as the second quarter distribution. The trailing 12-month distribution yield through the third quarter based on the average NAV was about 10%. And the trailing 12-month distribution yield based on the quarter end market price was about 15.7%. As announced this morning, we declared our fourth quarter base distribution of $0.36 per share, which is the same as the third quarter. The fourth quarter base distribution will be paid on December 15 to shareholders of record as of December 1.

And finally, we also announced this morning that we will be changing the timing of paying base distributions to our shareholders from quarterly to monthly beginning in January 2026 to better align with our shareholder base. Monthly base distributions will continue to be declared quarterly in advance.

With that, I will now turn the call back to the operator, who will open the line for questions.

[Operator Instructions] Our first question is from Eric Zwick with Lucy Capital Markets.

First question maybe for Keith, and I appreciate all of the commentary kind of walking through the puts and takes there and interest income for the quarter. Curious if you could kind of break it down either in terms of dollar terms or percentage terms, what of that $51 million, what came from kind of regular ongoing interest payments? And what was more from the periodic in nonrecurring events?

Yes. I would think that on a baseline basis, we kind of had interest income similar to what we recorded in Q2, maybe slightly up and then the rest of it came from the restructured investments that we experienced during the quarter.

Okay. That's helpful. And maybe a similar line of questioning on the PIK income in the quarter. You noted the $5 million of capitalized costs. So that was more onetime in nature? Is that the correct interpretation that $5 million...

I don't know if I would necessarily use that vernacular, but yes, that was a pick event that occurred uniquely in this quarter.

Okay. And then so the remaining, call it, $12 million or so. Could you provide a breakout of that part, what is structured versus kind of credit related because I know you've got a fair amount that's structured by design?

Yes. No different than the pool that Greg had mentioned on his comments that the majority of that is structured.

Got it. Okay. And then just curious, as you seem fairly optimistic about the originations outlook. And just curious if you could provide any commentary on the pipeline in terms of the size relative to maybe 3 months ago? And also just the quality of what you're seeing in terms of structure and in yield as you look forward to future activity?

Eric, it's Gregg. Definitely more robust than we've seen this year. More activity, it's broader based. There's definitely been a pickup in M&A, which is different from the first 2 quarters. And I would say, in terms of spreads and things like that, pretty consistent with what we've done in the past. I would say we definitely -- what I would call traditional middle-market type spreads.

This will now conclude our question-and-answer section. I would like to turn the call back over to Michael Reisner for closing remarks.

We appreciate everyone taking time out of their day to join us, and we look forward to communicating with you early next year. Thank you, everyone. Take care.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.