Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2012
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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| For the transitional period from _____ to _____ |
Commission file number: 000-54755
CĪON Investment Corporation
(Exact name of registrant as specified in its charter)|
Maryland
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45-3058280
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3 Park Avenue, 36th Floor
New York, New York
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10016
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(Address of principal executive offices)
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(Zip Code)
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(212) 418-4700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer x (Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
There is no established market for the Registrant’s shares of common stock. The Registrant is currently conducting an ongoing public offering of its shares of common stock pursuant to a Registration Statement on Form N-2, which shares are being sold at $10.19 per share, with discounts available for certain categories of purchasers, or at a price necessary to ensure that shares are not sold at a price below net asset value per share.
The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of March 18, 2013 was 1,712,123.
Documents Incorporated by Reference
Portions of the Registrant’s definitive Proxy Statement relating to the Registrant’s 2013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Registrant’s fiscal year, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein.
Explanatory Note
CĪON Investment Corporation (“CĪON”) is filing this Amendment No. 2 (the “Amendment”) to its Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 27, 2013 (the “Original Filing”), solely for the purpose of amending Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 8. Consolidated Financial Statements and Supplementary Data and Item 15. Exhibits, Financial Statement Schedules. For ease of reference, the Amendment contains the complete text of Item 7, Item 8 and Item 15. In particular, CĪON has filed this Amendment in connection with a subsequent event related to the investment advisory agreement between CĪON and CĪON Investment Management, LLC (“CIM”). Under this agreement, CIM and certain of its affiliates (including ICON Investment Group, LLC (“IIG”)) are entitled to receive reimbursement of organization and offering costs of up to 1.5% of the gross proceeds raised until all organization and offering costs have been reimbursed. Previously, CĪON interpreted “raised” to mean all gross proceeds that CĪON expected to raise through completion of the offering of its shares, rather than actual gross proceeds raised through the date of the reimbursement. Consistent with such application and since CĪON believed it would raise at least $100 million through the completion of the offering of its shares, upon commencement of operations on December 17, 2012, CĪON issued 111,111 shares of CĪON’s common stock at $9.00 per share to IIG in lieu of payment of $1,000,000 for organization and offering expenses submitted for reimbursement. The transaction satisfied an independent obligation of IIG to invest $1,000,000 in CĪON’s shares. Through that date, CĪON had raised gross proceeds from unaffiliated outside investors of $2,639,439 and from affiliated investors of $2,000,000, which, applying 1.5% of actual proceeds raised through the date of reimbursement, would have resulted in CIM being entitled to $69,592. With respect to any future reimbursements for organization and offering costs, CĪON will interpret the 1.5% cap based on actual gross proceeds raised at the time of such reimbursement. In addition, CĪON will not issue any of its shares or other securities for property other than cash or securities except as a dividend or distribution to its security holders or in connection with a reorganization. Consistent with this interpretation, on May 30, 2013, IIG paid CĪON $1,000,000 plus interest accrued at a rate of 7% per annum. Except as stated in this Explanatory Note, no other information contained in any Item of the Original Filing is being amended, updated or otherwise revised.
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion and other parts of this Annual Report on Form 10-K contain forward-looking information that involves risks and uncertainties.
Overview
We were incorporated under the general corporation laws of the State of Maryland on August 9, 2011 and commenced operations on December 17, 2012 upon raising proceeds of $2,500,000 from persons not affiliated with us, CIM or Apollo. We are a newly organized, externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. We intend to elect to be treated for federal income tax purposes as a RIC, as defined under Subchapter M of the Code.
Our investment objective is to generate current income and, to a lesser extent, capital appreciation for investors. We anticipate that our portfolio will be comprised primarily of investments in senior secured loans and, to a lesser extent, second lien loans and long-term subordinated loans, referred to as mezzanine loans, of private and thinly traded U.S. middle-market companies. In connection with our debt investments, we may receive equity interests such as warrants or options as additional consideration. We may also purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of our debt investments or through a co-investment with a financial sponsor. In addition, a portion of our portfolio may be comprised of corporate bonds and other debt securities. However, such investments are not expected to comprise a significant portion of our portfolio.
We are managed by CIM, our affiliate and a registered investment adviser. CIM will oversee the management of our activities and will be responsible for making investment decisions for our portfolio. We and CIM have engaged AIM to act as our investment sub-adviser.
We will seek to meet our investment objective by utilizing the experienced management teams of both CIM and AIM, which includes their access to the relationships and human capital of Apollo, IIG and ICON Capital, in sourcing, evaluating and structuring transactions. We intend to focus primarily on the senior secured debt of private and thinly traded U.S. middle-market companies, which we define as companies that generally possess annual EBITDA of $50 million or less, with experienced management teams, significant free cash flow, strong competitive positions and potential for growth.
Portfolio Investment Activity for the Period from January 31, 2012 (Inception) through December 31, 2012
From the commencement of our operations on December 17, 2012 through December 31, 2012, we made investments in portfolio companies totaling $1,972,500. During the same period, we received principal repayments of $2,500, and recorded realized gains of $44 and unrealized appreciation on investments of $9,933. As of December 31, 2012, our investment portfolio, excluding our short term investments and total return swap, consisted of interests in two portfolio companies (100% in first lien senior secured term loans) with a total fair value of $1,980,044 and an average annual EBITDA of approximately $26.6 million. As of December 31, 2012, the investments in our portfolio were purchased at a weighted average price of 98.63% of par value. Our estimated gross annual yield on our investments was 6.55% based upon the purchase price of our investments.
As of December 31, 2012, our short term investments include an investment in a U.S. Treasury Obligations Fund of $1,817,762, which is included in investments, at fair value on the accompanying consolidated balance sheets and on the consolidated schedule of investments.
Further, as of December 31, 2012, through a TRS (more fully described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources” below), we obtained the economic benefit of owning investments in senior secured, first lien, floating-rate term loans of five portfolio companies.
The following table summarizes the composition of our investment portfolio at cost and fair value as of December 31, 2012:
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Amortized Cost(1)
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Fair Value
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Percentage of Investment Portfolio
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| Senior Secured Term Loans - First lien |
$
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1,970,111
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$
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1,980,044
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52.1%
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| Short term investments(2) | 1,817,762 | 1,817,762 | 47.9% | |||||
| Total investments |
$
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3,787,873 |
$
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3,797,806 | 100% | |||
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(1) Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on our investments.
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| (2) Short term investments represent highly liquid investments with original maturity dates of three months or less. | ||||||||
1
We do not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.
The table below shows the composition of our investment portfolio by industry classification and the percentage, by fair value, of the total investment portfolio assets in such industries as of December 31, 2012:
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Industry Classification
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Investments at
Fair Value
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Percentage of
Total Investment Portfolio
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Chemicals
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$ | 1,000,000 | 26.3 | % | ||||
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Insurance
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980,044 | 25.8 | % | |||||
| U.S. Treasury Securities | 1,817,762 | 47.9 | % | |||||
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Total
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$ | 3,797,806 | 100.0 | % | ||||
Investment Portfolio Asset Quality
CIM will use an investment rating system to characterize and monitor our expected level of returns on each investment in our portfolio. These ratings are just one of several factors that CIM will use to monitor our portfolio, are not in and of themselves determinative of fair value or revenue recognition and will be presented for indicative purposes. CIM will grade the credit risk of all investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors.
The following is a description of the conditions associated with each investment rating used in this ratings system:
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Investment Grade
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Description
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1
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Indicates the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit.
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2
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Indicates a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing in accordance with our analysis of its business and the full return of principal and interest or dividend is expected.
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3
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Indicates that the risk to our ability to recoup the cost of such investment has increased since origination or acquisition, but full return of principal and interest or dividend is expected. A portfolio company with an investment grade of 3 requires closer monitoring.
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4
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Indicates that the risk to our ability to recoup the cost of such investment has increased significantly since origination or acquisition, including as a result of factors such as declining performance and noncompliance with debt covenants, and we expect some loss of interest, dividend or capital appreciation, but still expect an overall positive internal rate of return on the investment.
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5
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Indicates that the risk to our ability to recoup the cost of such investment has increased materially since origination or acquisition and the portfolio company likely has materially declining performance. Loss of interest or dividend and some loss of principal investment is expected, which would result in an overall negative internal rate of return on the investment.
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For investments graded 3, 4, or 5, CIM enhances its level of scrutiny over the monitoring of such portfolio company.
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The following table shows our debt investments on the 1 to 5 investment rating scale at fair value as of December 31, 2012, excluding short term investments of $1,817,762:
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Investment Rating
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Investments at Fair Value
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Percentage of Investment Portfolio
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| 1 |
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$
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—
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—%
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| 2 |
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1,980,044
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100%
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| 3 |
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—
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—%
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| 4 |
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—
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—%
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| 5 |
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—
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—%
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$
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1,980,044
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100%
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The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the investment portfolio as a result of new investments, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.
Current Investment Portfolio
As of March 18, 2013, our investment portfolio, excluding our short term investments, consists of interests in 10 first lien and second lien secured term loans to private U.S. companies with an average annual EBITDA of $56.5 million. The investments were purchased at a weighted average price of 99.10% of par value and our estimated gross annual portfolio yield is 7.22%.
As of March 18, 2013, our short term investments include an investment in a U.S. Treasury Obligations Fund of approximately $5,545,000.
Further, as of March 18, 2013, through a TRS (more fully described in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition, Liquidity and Capital Resources" below), we obtained the economic benefit of owning investments in senior secured, first lien, floating-rate loans of 22 portfolio companies.
Results of Operations
On December 17, 2012, we raised proceeds of $2,500,000 from persons who are not affiliated with us or CIM and commenced operations. Operating results for the period from January 31, 2012 (Inception) to December 31, 2012 are as follows:
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Investment income
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$
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2,692
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Net operating expenses
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—
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Net investment income
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2,692
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Net realized gain from investment
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44
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Net change in unrealized appreciation on investments
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9,933
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Net change in unrealized appreciation on total return swap
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12,493
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Net increase in net assets resulting from operations
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$
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25,162
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Investment Income
From the commencement of our operations on December 17, 2012 through December 31, 2012, we engaged in limited operations and generated limited investment income of $2,692, which was attributable to $1,972,500 of investments in two portfolio companies. We primarily generate revenue in the form of interest income on the debt securities that we hold and capital gains on debt or other equity interests that we acquire in portfolio companies. Our senior debt investments bear interest at a floating rate. Interest on debt securities is generally payable quarterly or semiannually. In some cases, some of our investments may provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued, but unpaid interest generally will become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees generated in connection with our investments will be recognized when earned.
3
Expenses
Our primary operating expenses are the payment of advisory fees and other expenses under the investment advisory and administration agreements. Our investment advisory fee compensates CIM for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. CIM is responsible for compensating AIM for its services pursuant to the investment sub-advisory agreement. We bear all other expenses of our operations and transactions, including, without limitation:
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•
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corporate expenses relating to borrowings and cost associated with the offering of our common stock, subject to limitations included in the administration agreement;
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•
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the cost of calculating our net asset value, including the cost of any third-party valuation services;
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•
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investment advisory fees;
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•
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fees payable to third parties relating to, or associated with, making, monitoring and disposing of investments and valuing investments and enforcing our contractual rights, including fees and expenses associated with performing due diligence reviews of prospective investments;
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•
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transfer agent and custodial fees;
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•
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fees and expenses associated with our marketing efforts;
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•
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interest payable on debt, if any, incurred to finance our investments;
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•
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federal and state registration fees;
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•
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federal, state and local taxes;
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•
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independent directors’ fees and expenses;
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•
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costs of proxy statements, shareholders’ reports and notices;
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•
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fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;
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•
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direct costs such as printing, mailing, long distance telephone and staff;
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•
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fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act;
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•
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costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws;
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•
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brokerage commissions for our investments; and
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•
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all other expenses incurred by CIM, AIM or us in connection with administering our business, including expenses incurred by CIM or AIM in performing its obligations, and the reimbursement of the compensation of our chief financial officer and chief compliance officer and their respective staffs paid by CIM, to the extent that they are not a person with a controlling interest in CIM or any of its affiliates, subject to the limitations included in the investment advisory and administration agreements, as applicable.
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The composition of our operating expenses for the period from January 31, 2012 (Inception) through December 31, 2012 was as follows:
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Management fees
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$
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1,567
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Administrative services expense
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38,966
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Capital gains incentive fee
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4,494
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General and administrative
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71,679
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Total expenses
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116,706
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Less: expense reimbursement from IIG
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(116,706
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)
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Net operating expenses
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$
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—
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4
Expense Reimbursement
Our affiliate, IIG, has agreed to reimburse us commencing with the quarter ended December 31, 2012 for expenses in an amount that is sufficient to: (i) ensure that no portion of our distributions to shareholders will be paid from our offering proceeds or borrowings, and/or (ii) reduce our operating expenses until we have achieved economies of scale sufficient to ensure that we bear a reasonable level of expense in relation to our investment income. Pursuant to the expense support and conditional reimbursement agreement entered into with IIG, or the expense support and conditional reimbursement agreement, we will have a conditional obligation to reimburse IIG for any amounts funded by IIG under such agreement if, during any fiscal quarter occurring within three years of the date on which IIG funded such amount, the sum of our net investment income for tax purposes, net capital gains and the amount of any dividends and other distributions paid to us on account of investments in portfolio companies (to the extent not included in net investment income or net capital gains for tax purposes) exceeds the distributions paid by us to shareholders. We or IIG may terminate the expense support and conditional reimbursement agreement at any time. IIG has indicated that it expects to continue such reimbursements until it deems that we have achieved economies of scale sufficient to ensure that we bear a reasonable level of expenses in relation to our income. If we terminate the investment advisory agreement with CIM, we may be required to repay IIG all reimbursements funded by IIG within three years of the date of termination. The specific amount of expenses reimbursed by IIG, if any, will be determined at the end of each quarter. There can be no assurance that the expense support and conditional reimbursement agreement will remain in effect or that IIG will reimburse any portion of our expenses in future quarters. For the period from January 31, 2012 (Inception) through December 31, 2012, we recorded $116,706 of expense reimbursement from IIG in connection with the expense support and conditional reimbursement agreement. At December 31, 2012, all expense reimbursements made by IIG are eligible to be reimbursed by us through December 31, 2015. Reimbursement of such costs will be determined as appropriate to meet the objectives of the expense support and conditional reimbursement agreement. As a result, we may or may not be requested to reimburse any further costs by IIG.
Net Investment Income
Our net investment income totaled $2,692 for the period from January 31, 2012 (Inception) to December 31, 2012.
Net Realized Gain from Investment
Certain of our investments were purchased at a discount to par value. We received principal repayments of $2,500 during the period from January 31, 2012 (Inception) to December 31, 2012, from which we realized a net gain of $44.
Net Change in Unrealized Appreciation on Investments
For the period from January 31, 2012 (Inception) to December 31, 2012, the net change in unrealized appreciation on our investments totaled $9,933. This change was primarily due to an increase in the fair value of the investments in our investment portfolio.
Net Change in Unrealized Appreciation on TRS
For the period from January 31, 2012 (Inception) to December 31, 2012, our investments in the TRS had $12,493 of unrealized appreciation. This change was primarily due to an increase in the fair value of certain underlying loans subject to the TRS.
Net Increase in Net Assets Resulting from Operations
For the period from January 31, 2012 (Inception) to December 31, 2012, we recorded a net increase in net assets resulting from operations of $25,162.
Financial Condition, Liquidity and Capital Resources
We generate cash primarily from the net proceeds of our ongoing continuous public offering and from cash flows from fees, interest and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments. We are engaged in a continuous offering of shares of our common stock. We accept subscriptions on a continuous basis and issue shares at semi-monthly closings at prices that, after deducting selling commissions and dealer manager fees, are at or above our net asset value per share.
In December 2012, pursuant to a private placement, IIG completed the purchase of 111,111 shares of common stock at $9.00 per share, which represents the initial public offering price of $10.00 per share net of selling commissions and dealer manager fees (see "Subsequent Event" below). IIG will not tender its shares for repurchase as long as CIM remains our investment adviser. Further, in December 2012, pursuant to a private placement, Apollo Principal Holdings III, L.P., a subsidiary of Apollo, or APH III, completed the purchase of 111,111 shares of common stock at $9.00 per share, which represents the initial public offering price of $10.00 per share net of selling commissions and dealer manager fees. Apollo will not tender its shares for repurchase as long as AIM remains our sub-adviser.
5
We will sell our shares on a continuous basis at a price of $10.00 per share; however, to the extent that our net asset value increases, we will sell at a price necessary to ensure that shares are not sold at a price, after deduction of selling commissions and dealer manager fees, that is below net asset value. In the event of a material decline in our net asset value per share, which we consider to be a 2.5% decrease below our current net offering price, and subject to certain conditions, we will reduce our offering price accordingly. Therefore, persons who tender subscriptions for shares of our common stock in the offering must submit subscriptions for a certain dollar amount, rather than a number of shares of common stock and, as a result, may receive fractional shares of our common stock. In connection with each semi-monthly closing on the sale of shares of our common stock, our board of directors or a committee thereof is required to make the determination that we are not selling shares of our common stock at a price below our then current net asset value no later than 48 hours prior to the time that we price our shares. In connection with each semi-monthly closing, we will, in each case if necessary, update the information contained in our prospectus by filing a prospectus supplement with the SEC, and we will also post any updated information to our website.
The net proceeds from our continuous offering will be invested primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less prior to being invested in debt securities of private U.S. companies.
As of December 31, 2012, we had $1,817,762 in short term investments, primarily invested in U.S. government securities.
We may borrow funds to make investments, to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our board of directors determines that leveraging our portfolio would be in our best interests and the best interests of our shareholders. Any borrowings we make are required to be in compliance with the provisions of the 1940 Act. We do not currently anticipate issuing any preferred stock.
Total Return Swap
On December 17, 2012, Flatiron, our newly-formed, wholly-owned, special purpose financing subsidiary, entered into a TRS with Citibank. The agreements between Flatiron and Citibank, which collectively establish the TRS, are referred to herein as the TRS Agreement.
A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS and interest payments in return for periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. Because of the unique structure of a TRS, a TRS typically offers lower financing costs than are offered through more traditional borrowing arrangements.
The TRS with Citibank enables us, through our ownership of Flatiron, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citibank. As such, the TRS is analogous to Flatiron borrowing funds to acquire loans and incurring interest expense to a lender.
The obligations of Flatiron under the TRS are non-recourse to us and our exposure under the TRS is limited to the value of our investment in Flatiron, which generally will equal the value of cash collateral provided by Flatiron under the TRS. Pursuant to the terms of the TRS, Flatiron may select loans with a maximum aggregate market value (determined at the time each such loan becomes subject to the TRS) of the lesser of (a) $150,000,000 and (b) 140% of the aggregate amount of cash contributed to our equity capital during the first nine months of the TRS and not withdrawn during that period, or the maximum portfolio amount. Flatiron is required to initially cash collateralize a specified percentage of each loan (generally 25% of the market value of such loan) included under the TRS in accordance with margin requirements described in the TRS Agreement. Under the terms of the TRS, Flatiron agreed not to draw upon, or post as collateral, such cash collateral in respect of other financings or operating requirements prior to the termination of the TRS. Neither the cash collateral required to be posted with Citibank nor any other assets of Flatiron are available to pay our debts.
Each individual loan must meet criteria described in the TRS Agreement, including a requirement that substantially all of the loans be rated by Moody’s and S&P and quoted by a nationally-recognized pricing service. Under the terms of the TRS, Citibank, as calculation agent, determines whether there has been a failure to satisfy the portfolio criteria in the TRS. If such failure continues for 30 days following the delivery of notice thereof, then Citibank has the right, but not the obligation, to terminate the TRS. Flatiron receives from Citibank all interest and fees payable in respect of the loans included in the TRS. Flatiron pays to Citibank interest at a rate equal to, in respect of each loan included in the TRS, the floating rate index specified for such loan + 1.25% per annum. In addition, upon the termination or repayment of any loan subject to the TRS, Flatiron will either receive from Citibank the appreciation in the value of such loan or pay to Citibank any depreciation in the value of such loan.
6
Under the terms of the TRS, Flatiron may be required to post additional cash collateral, on a dollar-for-dollar basis, in the event of depreciation in the value of the underlying loans after such value decreases below a specified amount. The limit on the additional collateral that Flatiron may be required to post pursuant to the TRS is equal to the difference between the full notional amount of the loans underlying the TRS and the amount of cash collateral already posted by Flatiron. The amount of collateral required to be posted by Flatiron is determined primarily on the basis of the aggregate value of the underlying loans.
We have no contractual obligation to post any such additional collateral or to make any interest payments to Citibank on behalf of Flatiron. We may, but are not obligated to, increase our investment in Flatiron for the purpose of funding any additional collateral or payment obligations for which Flatiron may become obligated during the term of the TRS. If we do not make any such additional investment in Flatiron and Flatiron fails to meet its obligations under the TRS, then Citibank will have the right to terminate the TRS and seize the cash collateral posted by Flatiron under the TRS. In the event of an early termination of the TRS, Flatiron would be required to pay an early termination fee.
Citibank may terminate the TRS on or after December 17, 2013, or the call date. Flatiron may terminate the TRS at any time upon providing no more than 30 days prior notice to Citibank. Any termination prior to the call date will result in payment of an early termination fee to Citibank based on the maximum portfolio amount of the TRS. Under the terms of the TRS, the early termination fee will equal the present value of a stream of monthly payments that would be owed by Flatiron to Citibank for the period from the termination date through and including the call date. Such monthly payments will equal the product of 60% of the maximum portfolio amount, multiplied by 1.25% per annum. We estimate the early termination fee would have been approximately $48,000 as of December 31, 2012. Other than during the first nine months and last 180 days of the term of the TRS, Flatiron may be required to pay a minimum usage fee in connection with the TRS. At December 31, 2012, Flatiron was not subject to a minimum usage fee.
In connection with the TRS, Flatiron is required to comply with various covenants and reporting requirements as defined in the TRS Agreement. We are in compliance with these covenants and reporting requirements as of December 31, 2012.
For purposes of computing the capital gains incentive fee, we, in a manner consistent with GAAP, treat as realized gains or losses on the total return swap both a) the interest spread, which represents the difference between i) the interest and fees received on the underlying TRS loans and ii) the interest paid to Citibank on the settled notional value of the underlying TRS loans, and b) the net realized gains or losses on the sale or maturity of the underlying TRS loans. Accordingly, the net realized economic benefits, if any, associated with the underlying TRS loans are included in the computation of the incentive fee on capital gains. Any unrealized appreciation or depreciation on total return swap will be included in the computation of the base management fee.
The value of the TRS is based primarily on the valuation of the underlying portfolio of loans subject to the TRS. Pursuant to the terms of the TRS, on each business day, Citibank values each underlying loan in good faith on a mark-to-market basis by determining how much Citibank would receive on such date if it sold the loan in the open market. Citibank reports the mark-to-market values of the underlying loans to Flatiron. Each of the loans underlying the TRS is required to be rated by Moody’s and S&P and quoted by a nationally-recognized pricing service.
As of December 31, 2012, the fair value of the TRS was $12,493. The fair value of the TRS is reflected as unrealized appreciation on total return swap on our consolidated balance sheets. The change in value of the TRS is reflected in our consolidated statement of operations as net change in unrealized appreciation on total return swap. As of December 31, 2012, Flatiron had selected five underlying loans with a total notional amount of $2,883,100 and posted $729,325 in cash collateral held by Citibank (of which only $720,775 was required to be posted), which is reflected in due from counterparty on our consolidated balance sheets.
For purposes of the asset coverage ratio test applicable to us as a BDC, we treat the outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted by Flatiron under the TRS, as a senior security for the life of that instrument. We may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.
Further, for purposes of Section 55(a) under the 1940 Act, we treat each loan underlying the TRS as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company. We may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.
7
RIC Status and Distributions
We did not pay distributions in 2012. We declared our first distribution on January 14, 2013. Subject to the board of directors’ discretion and applicable legal restrictions, our board of directors intends to authorize and declare on a monthly basis a semi-monthly distribution amount per share of our common stock. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. During certain quarters, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital for tax purposes. Any distributions to our shareholders will be declared and paid from assets legally available for distribution. There can be no assurance that we will be able to sustain distributions at any particular level.
On January 14, 2013, our board of directors declared two regular semi-monthly cash distributions of $0.029283 per share each, which were paid on February 1, 2013 to shareholders of record on January 15, 2013 and January 31, 2013, respectively. On February 15, 2013, our board of directors declared two regular semi-monthly cash distributions of $0.029546 per share each, which were paid on March 1, 2013 to shareholders of record on February 15, 2013 and February 28, 2013, respectively. On March 14, 2013, our board of directors declared two regular semi-monthly cash distributions of $0.029546 per share and $0.029721 per share, payable on April 1, 2013 to shareholders of record as of March 15, 2013 and March 31, 2013, respectively. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of our board of directors.
We intend to make our ordinary distributions in the form of cash out of assets legally available for distribution, unless shareholders elect to receive their distributions in additional shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. shareholder.
We intend to elect to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. Generally, a RIC is entitled to a deduction for federal income tax purposes for distributions paid to shareholders if it distributes at least 90% of its “Investment Company Taxable Income,” as defined by the Code, each year. To qualify for and maintain RIC tax treatment, we must, among other things, distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. In order to avoid certain excise taxes imposed on RICs, a RIC would need to distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which we paid no federal income tax.
Each year a statement on Internal Revenue Service Form 1099-DIV (or such successor form) identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gain on the sale of securities, or a return of capital) will be mailed to our shareholders. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from this offering. The tax basis of shares must be reduced by the amount of any return of capital distributions, which will result in an increase in the amount of any taxable gain (or a reduction in any deductible loss) on the sale of shares.
We have adopted an “opt in” distribution reinvestment plan for our shareholders. As a result, if we make a distribution, our shareholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock.
We may fund our cash distributions to shareholders in the future from any sources of funds available to us, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and expense reimbursements from IIG. We have not established limits on the amount of funds we may use from available sources to make distributions.
Our net investment income on a tax basis for the period from January 31, 2012 (Inception) through December 31, 2012 was $2,692. As of December 31, 2012, we had not distributed all of our tax-basis net investment income earned as of December 31, 2012.
There were no differences between our GAAP-basis net investment income and our tax-basis net investment income.
The determination of the tax attributes of our distributions is made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. The actual tax characteristics of distributions to shareholders are reported to shareholders annually on Form 1099-DIV.
8
As of December 31, 2012, the components of accumulated earnings on a tax basis were as follows:
|
Distributable net investment income
|
|
$
|
2,692
|
|
||
|
Net realized gain on investment
|
|
44
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||||
|
Net unrealized appreciation on investments and total return swap(1)
|
22,426
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|||||
|
|
$
|
25,162
|
|
|||
| (1 | ) |
As of December 31, 2012, the gross unrealized appreciation on our investments and total return swap was $28,051. As of December 31, 2012, the gross unrealized depreciation on our total return swap was $5,625.
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||||
The aggregate cost of our investments for federal income tax purposes totaled $3,787,873 as of December 31, 2012. The aggregate net unrealized appreciation (depreciation) on a tax basis, including our TRS with Citibank, was $22,426 as of December 31, 2012.
Recent Accounting Pronouncements
We do not believe any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material adverse effect on our consolidated financial statements.
Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management also will utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating results occur, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.
Valuation of Portfolio Investments
The value of our assets will be determined quarterly and at such other times that an event occurs that materially affects the valuation. The valuation is made pursuant to Section 2(a)(41) of the 1940 Act, which requires that we value our assets as follows: (i) the market price for those securities for which a market quotation is readily available, and (ii) for all other securities and assets, at fair value, as determined in good faith by our board of directors. As a BDC, Section 2(a)(41) of the 1940 Act requires the board of directors to determine in good faith the fair value of portfolio securities for which a market price is not readily available, and it will do so in conjunction with the application of our valuation procedures by CIM.
ASC Topic 820 clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each asset while employing a valuation process that is consistently followed. Determinations of fair value involve subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements will refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations in our consolidated financial statements.
In making fair value determinations, the following guidelines will generally be used.
9
Valuation Methods
Investments where a market price is readily available
Generally, the value of our equity interests in public companies for which market quotations are readily available will be based upon the most recent closing public market price. If no sales of such interests occurred on the determination date, such interests shall be valued at the midpoint of the “bid” and the “ask” price at the close of business on such day. Portfolio securities that carry certain restrictions on sale will typically be consistently valued at a discount from the public market value of the security. Loans or investments traded over the counter and not listed on an exchange are valued at a price obtained from third-party pricing services, including, where appropriate, multiple broker dealers, as determined by CIM.
Notwithstanding the foregoing, if in the reasonable judgment of CIM, the price for any securities held by us and determined in the manner described above does not accurately reflect the fair value of such security, CIM will value such security at a price that reflects such security’s fair value and report such change in the valuation to the board of directors or its designee as soon as practicable.
Investments where a market price is not readily available
Any securities or other assets that are not publicly traded or for which a market price is not otherwise readily available will be valued at a price that reflects such security’s fair value. With respect to such investments, the investments will be reviewed and valued using one or more of the following types of analyses:
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(i)
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Market comparable statistics and public trading multiples discounted for illiquidity, minority ownership and other factors for companies with similar characteristics.
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(ii)
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Valuations implied by third-party investments in the applicable portfolio companies.
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(iii)
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Discounted cash flow analysis, including a terminal value or exit multiple.
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Below is a description of factors that our board of directors may consider when valuing our equity and debt investments where a market price is not readily available:
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•
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the size and scope of a portfolio company and its specific strengths and weaknesses;
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•
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prevailing interest rates for like securities;
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•
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expected volatility in future interest rates;
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•
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leverage;
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•
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call features, put features and other relevant terms of the debt;
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•
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the borrower’s ability to adequately service its debt;
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•
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the fair market value of the portfolio company in relation to the face amount of its outstanding debt;
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•
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the quality of collateral securing our debt investments;
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•
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multiples of EBITDA, cash flows, net income, revenues or, in some cases, book value or liquidation value; and
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|
•
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other factors deemed applicable.
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All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners, or acquisition, recapitalization, and restructuring expenses or other related or non-recurring items. The choice of analyses and the weight assigned to such factors may vary across investments and may change within an investment if events occur that warrant such a change.
Unrealized appreciation and depreciation on the total return swap represents the change in fair value plus net accrued interest of the underlying reference investments.
Credit default swaps and interest rate swaps, if any, will be valued at estimated fair value based on a pricing model that utilizes quoted inputs, including among other things, yield curves.
10
Valuation Process
With respect to investments for which market quotations are not readily available, we will undertake a multi-step valuation process each quarter, as described below:
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•
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our quarterly valuation process will begin with each portfolio company or investment being initially valued by certain of CIM’s investment professionals and certain members of its management team, with such valuation taking into account information received from various sources, including an independent valuation firm, if applicable;
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|
•
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preliminary valuation conclusions will then be documented and discussed with CIM’s valuation committee;
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•
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CIM’s valuation committee will review the preliminary valuation, and, if applicable, deliver such preliminary valuation to an independent valuation firm for its review;
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•
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CIM’s valuation committee, or its designee, and, if appropriate, the relevant investment professionals meet with the independent valuation firm to discuss the preliminary valuation;
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|
•
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designated members of CIM’s management team will respond and supplement the preliminary valuation to reflect any comments provided by the independent valuation firm;
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•
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our audit committee meets with members of CIM’s management team and the independent valuation firm to discuss the assistance provided and the results of the independent valuation firm’s review; and
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|
•
|
our board of directors will discuss the valuation and will determine the fair value of each investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of CIM, the audit committee and any third-party valuation firm, if applicable.
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Our board of directors will be responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our consistently applied valuation procedures and valuation process. We intend to value all of our Level 2 assets by using inputs from an independent third-party pricing service that will provide prevailing bid and ask prices that are screened for validity by the service from dealers on the date of the relevant period end. For investments for which the third-party pricing service is unable to obtain quoted prices, we may obtain bid and ask prices directly from dealers that make a market in such investments. To the extent that we hold Level 2 investments for which no meaningful secondary market exists, and, therefore, no meaningful bid and ask prices can be readily obtained, CIM’s valuation committee will utilize an independent third-party valuation service to value such investments as described in the next paragraph. We will periodically benchmark the bid and ask prices received from the third-party pricing service and valuations received from the third-party valuation service, as applicable, against the actual prices at which we purchase and sell our investments. We believe that these prices will be reliable indicators of fair value.
In addition to the foregoing, certain investments for which a market price is not readily available will be evaluated on a quarterly basis by an independent valuation firm and certain other investments will be on a rotational basis reviewed once over a twelve-month period by an independent valuation firm. Finally, certain investments will not be evaluated by an independent valuation firm unless the net asset value and other aspects of such investments in the aggregate exceed certain thresholds.
Given the expected types of investments, excluding short term investments that are classified as Level 1, management expects our portfolio holdings to be classified in Level 2 or Level 3. Due to the uncertainty inherent in the valuation process, particularly for Level 2 and Level 3 investments, such fair value estimates may differ significantly from the values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses that we ultimately realize on these investments to materially differ from the valuations currently assigned. Inputs used in the valuation process are subject to variability in the future and can result in materially different fair values.
Short Term Investments
Short term investments include an investment in a U.S. Treasury Obligations Fund that seeks to provide current income and daily liquidity by purchasing U.S. Treasury securities and repurchase agreements collateralized by such securities. We had approximately $1,817,762 of such investments at December 31, 2012, which are included in investments, at fair value on the accompanying consolidated balance sheets and on the consolidated schedule of investments.
Revenue Recognition
Securities transactions are accounted for on the trade date. We record interest and dividend income on an accrual basis beginning on the settlement date to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the principal balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company and valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest or dividends on loans and debt securities if we have reason to doubt our ability to collect such income. Loan origination fees, original issue discounts and market discounts/premiums are capitalized and we amortize such amounts as adjustments to interest income over the respective term of the loan. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
11
Derivative Instrument
Our only derivative instrument is our total return swap. We mark our derivative to market through net changes in unrealized appreciation (depreciation) on our total return swap in the consolidated statement of operations.
Payment-in-Kind Interest
We may have investments in our investment portfolio that contain a PIK interest provision. Any PIK interest will be added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain our status as a RIC, substantially all of this income must be paid out to shareholders in the form of distributions, even if we have not collected any cash.
Organization Costs
Organization costs include, among other things, the cost of organizing as a Maryland corporation, including the cost of legal services and other fees pertaining to our organization. All organization costs have been funded by IIG and its affiliates and there is no liability for the organization costs to us until IIG submits such costs for reimbursement. We will expense organization costs when incurred, if and when IIG submits such costs for reimbursement. At December 31, 2012, IIG and its affiliates have incurred approximately $192,000 of organization costs, which may be subject to reimbursement by us. No additional organization costs have been incurred subsequent to December 31, 2012.
Offering Expenses
Offering expenses include, among other things, legal fees and other costs pertaining to the preparation of our registration statement in connection with the public offering of our shares. Certain offering expenses have been funded by IIG and its affiliates and there is no liability for these offering expenses to us until IIG and its affiliates submit such costs for reimbursement. On December 17, 2012, we incurred and capitalized offering expenses of $1,000,000 that were submitted for reimbursement by IIG (see "Subsequent Event" below). These expenses are amortized over a twelve month period as an adjustment to capital in excess of par value. We will expense any additional offering expenses if and when IIG submits such costs for reimbursement. The unamortized balance of these expenses is reflected in our balance sheets as deferred offering expenses, net. At December 31, 2012, IIG and its affiliates have incurred approximately $825,000 of unreimbursed offering expenses, which may be subject to reimbursement by us. No additional offering expenses have been incurred subsequent to December 31, 2012. See “Related Party Transactions” below for more information on offering costs.
Federal Income Taxes
We intend to elect to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. To qualify and maintain qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If we qualify as a RIC and satisfy the annual distribution requirement, we will not have to pay corporate-level federal income taxes on any income that we distribute to our shareholders. We intend to make distributions in an amount sufficient to maintain our RIC status each year and to avoid any federal income taxes on income. We will also be subject to nondeductible federal excise taxes if we do not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which we paid no federal income taxes.
Book and tax basis differences relating to permanent book and tax differences are reclassified among our capital accounts, as appropriate. Additionally, the tax character of distributions is determined in accordance with income tax regulations that may differ from GAAP. We did not pay any distributions in 2012.
Uncertainty in Income Taxes
We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by the taxing authorities. We recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statement of operations. As of and for the period from January 31, 2012 (Inception) through December 31, 2012, we did not have any uncertain tax positions.
12
Distributions
Distributions to our shareholders are recorded as of the record date. Subject to our board of directors’ discretion and applicable legal restrictions, we intend to authorize, declare, and pay cash distributions on a monthly basis. Net realized capital gains, if any, will be distributed or deemed distributed at least annually.
Related Party Transactions
We have entered into an agreement with CIM to provide us with investment advisory services. Payments for investment advisory services under the investment advisory agreement in future periods will be equal to (a) an annual base management fee of 2.0% of the average value of our gross assets, excluding cash and cash equivalents, and (b) an incentive fee based on our performance, as described below. ICON Capital, and to the extent requested to provide such services and such services are so provided, CIM and AIM and their respective affiliates, may be reimbursed for administrative expenses incurred on our behalf.
The incentive fee consists of two parts. The first part, which we refer to as the subordinated incentive fee on income, will be calculated and payable quarterly in arrears based upon our “pre-incentive fee net investment income” for the immediately preceding quarter and will be subject to a hurdle rate, measured quarterly and expressed as a rate of return on adjusted capital, as defined in our investment advisory agreement, equal to 1.875% per quarter, or an annualized rate of 7.5%. The second part of the incentive fee, which we refer to as the incentive fee on capital gains, will be an incentive fee on capital gains earned on liquidated investments from the portfolio and will be determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement). This fee will equal 20% of our realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. On a cumulative basis and to the extent that all realized capital losses and unrealized capital depreciation exceeds realized capital gains as well as the aggregate realized net capital gains for which a fee has previously been paid, we would not be required to pay CIM a capital gains incentive fee.
We and CIM have engaged AIM to act as our investment sub-adviser, as AIM possesses skills that we believe will aid us in achieving our investment objective. AIM will only assist CIM with identifying investment opportunities and will make investment recommendations for approval by CIM according to pre-established investment guidelines. On an annualized basis, AIM will receive 50% of the fees payable to CIM under the investment advisory agreement with respect to each year, which fees are payable to AIM quarterly in arrears.
ICON Capital will provide us with accounting, investor relations and other administrative services. We entered into an administration agreement with ICON Capital pursuant to which ICON Capital will furnish us with administrative services necessary to conduct our day-to-day operations. ICON Capital will be reimbursed for administrative expenses it incurs on our behalf in performing its obligations. Such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We will not reimburse ICON Capital for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a person with a controlling interest in ICON Capital.
In December 2012, pursuant to a private placement, IIG completed the purchase of 111,111 shares of common stock at $9.00 per share, which represents the initial public offering price of $10.00 per share net of selling commissions and dealer manager fees (see "Subsequent Event" below). IIG will not tender its shares for repurchase as long as CIM remains our investment adviser. Further, in December 2012, pursuant to a private placement, APH III completed the purchase of 111,111 shares of common stock at $9.00 per share, which represents the initial public offering price of $10.00 per share net of selling commissions and dealer manager fees. Apollo will not tender its shares for repurchase as long as AIM remains our sub-adviser.
Our affiliate, IIG, has agreed to reimburse us commencing with the quarter ended December 31, 2012 for expenses in an amount that is sufficient to: (i) ensure that no portion of our distributions to shareholders will be paid from our offering proceeds or borrowings, and/or (ii) reduce our operating expenses until we have achieved economies of scale sufficient to ensure that we bear a reasonable level of expense in relation to our investment income. Pursuant to the expense support and conditional reimbursement agreement, we will have a conditional obligation to reimburse IIG for any amounts funded by IIG under such agreement if, during any fiscal quarter occurring within three years of the date on which IIG funded such amount, the sum of our net investment income for tax purposes, net capital gains and the amount of any dividends and other distributions paid to us on account of investments in portfolio companies (to the extent not included in net investment income or net capital gains for tax purposes) exceeds the distributions paid by us to shareholders. We or IIG may terminate the expense support and conditional reimbursement agreement at any time. IIG has indicated that it expects to continue such reimbursements until it deems that we have achieved economies of scale sufficient to ensure that we bear a reasonable level of expenses in relation to our income. If we terminate the investment advisory agreement with CIM, we may be required to repay IIG all reimbursements funded by IIG within three years of the date of termination. The specific amount of expenses reimbursed by IIG, if any, will be determined at the end of each quarter. There can be no assurance that the expense support and conditional reimbursement agreement will remain in effect or that IIG will reimburse any portion of our expenses in future quarters. For the period from January 31, 2012 (Inception) through December 31, 2012, we recorded $116,706 of expense reimbursement from IIG in connection with the expense support and conditional reimbursement agreement. At December 31, 2012, all expense reimbursements made by IIG are eligible to be reimbursed by us through December 31, 2015. Reimbursement of such costs will be determined as appropriate to meet the objectives of the expense support and conditional reimbursement agreement. As a result, we may or may not be requested to reimburse any further costs by IIG.
Our payment of organization costs and offering expenses (including reimbursement of costs incurred by IIG and its affiliates) is capped at 1.5% of the gross proceeds from our offering. If we sell the maximum number of shares at $10.00 per share, then we estimate that we may incur up to approximately $15,000,000 of expenses. Under the terms of the investment advisory agreement, CIM and certain of its affiliates, which includes IIG, will become entitled to receive reimbursement of up to 1.5% of the gross proceeds raised until all organization costs and offering expenses have been reimbursed. At December 31, 2012, IIG and its affiliates incurred organization costs and offering expenses of approximately $2,017,000, of which $1,000,000 have been reimbursed by us (see "Subsequent Event" below). No additional organizational costs or offering expenses have been incurred subsequent to December 31, 2012. The decision to fund our organization costs and offering expenses and the decision to seek reimbursement for such costs is solely at the discretion of IIG and its affiliates. As a result, we may or may not be requested to reimburse any such costs by IIG. To the extent that payments of organization costs and offering expenses exceed the 1.5% cap at the end of the offering period, any excess amounts may be recoverable from IIG and its affiliates.
13
The investment advisory agreement, the investment sub-advisory agreement, the administration agreement and the dealer-manager agreement each provide certain indemnifications from us to the other relevant parties to such agreements. Our maximum exposure under these agreements is unknown. However, we have not experienced claims or losses pursuant to these agreements and believe the risk of loss related to such indemnifications to be remote.
If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services that we expect to receive pursuant to the investment advisory agreement, the investment sub-advisory agreement, the administration agreement and the dealer-manager agreement. Any new investment advisory agreement would also be subject to approval by our shareholders.
Contractual Obligations
In June 2012, we entered into an unsecured financing arrangement for directors and officers insurance in an amount of $179,180. Payments under the financing arrangement are due in 10 equal installments ending on April 19, 2013. Amounts due prior to the commencement of operations on December 17, 2012 of approximately $123,000 were paid by IIG and are subject to reimbursement by us. As of December 31, 2012, $72,682 was outstanding under the financing arrangement at an interest rate of 3.99%. For purposes of the asset coverage ratio test applicable to us as a BDC, this amount is treated as a senior security.
Commitments and Contingencies and Off-Balance Sheet Arrangements
Commitments and Contingencies
We have entered into certain contracts with other parties that contain a variety of indemnifications. Our maximum exposure under these arrangements is unknown. However, we have not experienced claims or losses pursuant to these contracts and believe the risk of loss related to such indemnifications to be remote.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Subsequent Event
Under the terms of the investment advisory agreement between us and CIM, CIM and certain of its affiliates (including IIG) are entitled to receive reimbursement of organization and offering costs of up to 1.5% of the gross proceeds raised until all organization and offering costs have been reimbursed. Previously, we interpreted “raised” to mean all gross proceeds that we expected to raise through the completion of the offering of our shares, rather than actual gross proceeds raised through the date of the reimbursement. Consistent with such application and since we believed we would raise at least $100 million through the completion of the offering of our shares, upon commencement of operations on December 17, 2012, we issued 111,111 shares of our common stock at $9.00 per share to IIG in lieu of payment of $1,000,000 for organization and offering expenses submitted for reimbursement. The transaction satisfied an independent obligation of IIG to invest $1,000,000 in our shares. Through that date, we had raised gross proceeds from unaffiliated outside investors of $2,639,439 and from affiliated investors of $2,000,000, which, applying 1.5% of actual proceeds raised through the date of reimbursement, would have resulted in CIM being entitled to $69,592.
With respect to any future reimbursements for organization and offering costs, we will interpret the 1.5% cap based on actual gross proceeds raised at the time of such reimbursement. In addition, we will not issue any of our shares or other securities for services or for property other than cash or securities except as a dividend or distribution to our security holders or in connection with a reorganization. Consistent with this interpretation, on May 30, 2013, IIG paid us $1,000,000, plus interest accrued at a rate of 7% per annum.
14
Item 8. Consolidated Financial Statements and Supplementary Data
|
Page
|
||
|
Report of Independent Registered Public Accounting Firm
|
16
|
|
|
Consolidated Balance Sheets as of December 31, 2012 and January 31, 2012
|
17
|
|
|
Consolidated Statement of Operations for the Period from January 31, 2012 (Inception) to December 31, 2012
|
18
|
|
|
Consolidated Statement of Changes in Net Assets for the Period from January 31, 2012 (Inception) to December 31, 2012
|
19
|
|
|
Consolidated Statement of Cash Flows for the Period from January 31, 2012 (Inception) to December 31, 2012
|
20
|
|
|
Consolidated Schedule of Investments as of December 31, 2012
|
21
|
|
|
Notes to Consolidated Financial Statements
|
22
|
15
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
CĪON Investment Corporation
We have audited the accompanying consolidated balance sheets of CĪON Investment Corporation (the “Company”) as of December 31, 2012 and January 31, 2012 (Inception), including the consolidated schedule of investments as of December 31, 2012, and the related consolidated statements of operations, changes in net assets, and cash flows for the period from January 31, 2012 (Inception) through December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian, counterparties and agents. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CĪON Investment Corporation at December 31, 2012 and January 31, 2012 (Inception), the consolidated schedule of investments as of December 31, 2012, the results of their operations, changes in their net assets, and their cash flows for the period from January 31, 2012 (Inception) to December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 26, 2013
Except for Note 13, as to which the date is
June 10, 2013
16
|
CĪON Investment Corporation
|
||||||||
|
Consolidated Balance Sheets
|
||||||||
|
December 31,
2012
|
January 31,
2012
|
|||||||
|
Assets
|
||||||||
|
Investments, at fair value (amortized cost of $3,787,873)
|
$ | 3,797,806 | $ | - | ||||
|
Cash
|
- | 1,000 | ||||||
|
Due from counterparty
|
729,325 | - | ||||||
|
Reimbursement from IIG(2)
|
25,807 | - | ||||||
|
Deferred offering expenses, net
|
958,904 | - | ||||||
|
Prepaid insurance
|
105,802 | - | ||||||
|
Unrealized appreciation on total return swap(1)
|
12,493 | - | ||||||
|
Interest receivable on investments
|
187 | - | ||||||
|
Total assets
|
$ | 5,630,324 | $ | 1,000 | ||||
|
Liabilities and Shareholders' Equity
|
||||||||
|
Liabilities
|
||||||||
|
Payable for investment purchased
|
$ | 990,000 | $ | - | ||||
|
Accounts payable and accrued expenses
|
130,109 | - | ||||||
|
Commissions payable
|
23,100 | - | ||||||
|
Total liabilities
|
1,143,209 | - | ||||||
|
Commitments and contingencies (Note 10)
|
||||||||
|
Shareholders' Equity
|
||||||||
|
Common stock, $0.001 par value; 500,000,000 shares authorized;
|
||||||||
|
500,338 and 111 shares issued and outstanding, respectively(2)
|
500 | 1 | ||||||
|
Capital in excess of par value
|
4,461,453 | 999 | ||||||
|
Accumulated net investment income
|
2,692 | - | ||||||
|
Accumulated net realized gain from investment
|
44 | - | ||||||
|
Accumulated net unrealized appreciation on investments
|
9,933 | - | ||||||
|
Accumulated net unrealized appreciation on total return swap(1)
|
12,493 | - | ||||||
|
Total shareholders' equity
|
4,487,115 | 1,000 | ||||||
|
Total liabilities and shareholders' equity
|
$ | 5,630,324 | $ | 1,000 | ||||
|
Net asset value per share of common stock at end of period
|
$ | 8.97 | $ | 9.00 | ||||
|
Shares of common stock outstanding
|
500,338 | 111 | ||||||
|
(1) See Note 6 for a discussion of the Company’s total return swap agreement.
|
||||||||
| (2) See Note 13 for subsequent event. | ||||||||
|
See accompanying notes to consolidated financial statements.
|
||||||||
17
|
CĪON Investment Corporation
|
|||||
|
Consolidated Statement of Operations
|
|||||
|
For the Period from
January 31, 2012 (Inception)
through December 31, 2012
|
|||||
|
Investment income
|
|||||
|
Interest income
|
$ | 2,692 | |||
|
Operating expenses
|
|||||
|
Management fees
|
1,567 | ||||
|
Administrative services expense
|
38,966 | ||||
|
Capital gains incentive fee(1)
|
4,494 | ||||
|
General and administrative
|
71,679 | ||||
|
Total expenses
|
116,706 | ||||
|
Less: expense reimbursement from IIG(2)
|
(116,706 | ) | |||
|
Net operating expenses
|
- | ||||
|
Net investment income
|
2,692 | ||||
|
Realized and unrealized gain (loss) on investments
|
|||||
|
Net realized gain from investment
|
44 | ||||
|
Net change in unrealized appreciation on investments
|
9,933 | ||||
|
Net change in unrealized appreciation on total return swap(3)
|
12,493 | ||||
|
Total net realized and unrealized gain (loss) on investments
|
22,470 | ||||
|
Net increase in net assets resulting from operations
|
$ | 25,162 | |||
|
Per share information—basic and diluted
|
|||||
|
Net increase in net assets per share resulting from operations
|
$ | 0.05 | |||
|
Weighted average shares of common stock outstanding(4)
|
500,338 | ||||
| (1) |
See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee.
|
||||
| (2) |
See Note 3 for a discussion of expense reimbursements received by the Company from ICON Investment Group, LLC, or IIG.
|
||||
| (3) |
See Note 6 for a discussion of the Company’s total return swap agreement.
|
||||
| (4) |
Weighted average shares of common stock outstanding calculated from the commencement of operations on December 17, 2012 through December 31, 2012.
|
||||
|
See accompanying notes to consolidated financial statements.
|
|||||
18
|
CĪON Investment Corporation
|
||||
|
Consolidated Statement of Changes in Net Assets
|
||||
|
For the Period from January 31, 2012 (Inception) to
December 31, 2012
|
||||
|
Changes in net assets from operations:
|
||||
|
Net investment income
|
$ | 2,692 | ||
|
Net realized gain from investment
|
44 | |||
|
Net change in unrealized appreciation on investments
|
9,933 | |||
|
Net change in unrealized appreciation on total return swap(1)
|
12,493 | |||
|
Net increase in net assets resulting from operations
|
25,162 | |||
|
Changes in net assets from capital share transactions:
|
||||
|
Issuance of common stock, net of issuance costs of $136,390(2)
|
4,503,049 | |||
|
Amortization of deferred offering expenses
|
(41,096 | ) | ||
|
Net increase in net assets resulting from capital share transactions
|
4,461,953 | |||
|
Total increase in net assets
|
4,487,115 | |||
|
Net assets at beginning of period
|
- | |||
|
Net assets at end of period
|
$ | 4,487,115 | ||
|
Net asset value per share of common stock at end of period
|
$ | 8.97 | ||
|
Shares of common stock outstanding at end of period
|
500,338 | |||
|
(1) See Note 6 for a discussion of the Company’s total return swap agreement.
|
||||
| (2) See Note 13 for subsequent event. | ||||
|
See accompanying notes to consolidated financial statements.
|
||||
19
|
CĪON Investment Corporation
|
||||
|
Consolidated Statement of Cash Flows
|
||||
|
For the Period from January 31, 2012 (Inception) to
December 31, 2012
|
||||
|
Operating activities:
|
||||
|
Net increase in net assets resulting from operations
|
$ | 25,162 | ||
|
Adjustments to reconcile net increase in net assets resulting from
|
||||
|
operations to net cash used in operating activities:
|
||||
|
Net accretion of discount on investments
|
(67 | ) | ||
|
Proceeds from principal repayment of investment
|
2,500 | |||
|
Purchase of investments
|
(1,972,500 | ) | ||
| Purchase of short term investments | (1,817,762 | ) | ||
|
Net realized gain from investment
|
(44 | ) | ||
|
Net change in unrealized appreciation on investments
|
(9,933 | ) | ||
|
Net change in unrealized appreciation on total return swap
|
(12,493 | ) | ||
|
Due from counterparty
|
(729,325 | ) | ||
|
Reimbursement from IIG
|
(25,807 | ) | ||
|
Prepaid insurance
|
(105,802 | ) | ||
|
Interest receivable on investments
|
(187 | ) | ||
|
Payable for investment purchased
|
990,000 | |||
|
Accounts payable and accrued expenses
|
130,109 | |||
|
Net cash used in operating activities
|
(3,526,149 | ) | ||
|
Financing activities:
|
||||
|
Gross proceeds from issuance of common stock
|
3,639,439 | |||
|
Commissions and dealer manager fees paid
|
(113,290 | ) | ||
|
Net cash provided by financing activities
|
3,526,149 | |||
|
Net increase in cash
|
- | |||
|
Cash, beginning of period
|
- | |||
|
Cash, end of period
|
$ | - | ||
|
Supplemental non-cash operating and financing activities:
|
||||
|
Capitalization of deferred offering expenses(1)
|
$ | 1,000,000 | ||
|
Issuance of common stock to IIG(1)
|
$ | 1,000,000 | ||
|
Deferred offering expenses charged to shareholders' equity
|
$ | 41,096 | ||
|
Commissions paid by IIG
|
$ | 23,100 | ||
| (1) See Note 13 for subsequent event. | ||||
|
See accompanying notes to consolidated financial statements.
|
||||
20
|
CĪON INVESTMENT CORPORATION
|
||||||||||||||
|
Consolidated Schedule of Investments
|
||||||||||||||
|
December 31, 2012
|
||||||||||||||
|
Portfolio Company (a)
|
Industry
|
Principal/Par Amount
|
Amortized Cost
|
Fair Value (b)
|
||||||||||
|
Senior Secured First Lien Term Loans - 44.1%
|
||||||||||||||
|
Captive Resources Midco, LLC, LIBOR +5.50%, 1.25% Floor, 10/31/2018
|
Insurance
|
$ | 997,500 | $ | 980,111 | $ | 980,044 | |||||||
|
Plano Molding Co Inc., LIBOR +4.50%, 1.25% Floor, 12/21/2017 (c)
|
Chemicals
|
1,000,000 | 990,000 | 1,000,000 | ||||||||||
| Total Senior Secured First Lien Term Loans | 1,970,111 | 1,980,044 | ||||||||||||
| Short Term Investments - 40.5% | ||||||||||||||
| First American Treasury Obligations Fund (d) | 1,817,762 | 1,817,762 | 1,817,762 | |||||||||||
| Total Short Term Investments | 1,817,762 | 1,817,762 | ||||||||||||
|
TOTAL INVESTMENTS - 84.6%
|
$ | 3,787,873 | $ | 3,797,806 | ||||||||||
|
OTHER ASSETS IN EXCESS OF LIABILITIES - 15.4%
|
$ | 689,309 | ||||||||||||
|
NET ASSETS - 100%
|
$ | 4,487,115 | ||||||||||||
|
TOTAL RETURN SWAP - 0.3%
|
Notional Amount
|
Unrealized Appreciation
|
||||||||||||
|
Citibank TRS Facility (see Note 6)
|
$ | 2,883,100 | $ | 12,493 | ||||||||||
|
(a)
|
All of the Company's debt investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940. The Company does not control and is not an affiliate of any of the companies in its investment portfolio.
|
|||||||||||||
|
(b)
|
Fair value determined by the Company’s board of directors (see Note 7).
|
|||||||||||||
|
(c)
|
Position or portion thereof unsettled as of December 31, 2012.
|
|||||||||||||
| (d) |
Short term investments represent highly liquid investments with original maturity dates of three months or less.
|
|||||||||||||
|
See accompanying notes to consolidated financial statements.
|
||||||||||||||
21
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 1. Organization and Principal Business
CĪON Investment Corporation, or the Company, was incorporated under the general corporation laws of the State of Maryland on August 9, 2011. On December 17, 2012, the Company successfully raised gross proceeds from unaffiliated outside investors of at least $2,500,000, or the minimum offering requirement, and commenced operations. The Company is an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company intends to elect to be treated for federal income tax purposes as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.
The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation for investors. The Company anticipates that its portfolio will be comprised primarily of investments in senior secured loans and, to a lesser extent, second lien loans and long-term subordinated loans, referred to as mezzanine loans, of private and thinly traded U.S. middle-market companies.
The Company is managed by CĪON Investment Management, LLC, or CIM, a registered investment adviser and an affiliate of the Company. CIM oversees the management of the Company’s activities and is responsible for making investment decisions for the Company’s investment portfolio. The Company and CIM have engaged Apollo Investment Management, L.P., or AIM, a subsidiary of Apollo Global Management, LLC, or, together with its subsidiaries, Apollo, a leading global alternative investment manager, to act as the Company’s investment sub-adviser.
Since commencing its initial public offering and through March 18, 2013, the Company has sold 1,712,123 shares of common stock for gross proceeds of approximately $16,806,000 at an average price per share of $9.82 As of December 31, 2012, the Company sold 500,338 shares for gross proceeds of $4,639,439 at an average price per share of $9.27.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and include the accounts of the Company and its wholly-owned special purpose financing subsidiary Flatiron Funding, LLC, or Flatiron. All intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investments with original maturity dates of three months or less. The Company’s cash and cash equivalents are held principally at one financial institution and at times may exceed insured limits. The Company periodically evaluates the creditworthiness of this institution and has not experienced any losses on such deposits.
Short Term Investments
Short term investments include an investment in a U.S. Treasury Obligations Fund that seeks to provide current income and daily liquidity by purchasing U.S. Treasury securities and repurchase agreements collateralized by such securities. The Company had approximately $1,817,762 of such investments at December 31, 2012, which are included in investments, at fair value on the accompanying consolidated balance sheets and on the consolidated schedule of investments.
Organization Costs
Organization costs include, among other things, the cost of organizing the Company as a Maryland corporation, including the cost of legal services and other fees pertaining to the organization of the Company. All organization costs have been funded by IIG and its affiliates and there is no liability for the organization costs to the Company until IIG submits such costs for reimbursement. The Company will expense organization costs when incurred, if and when IIG submits such costs for reimbursement. At December 31, 2012, IIG and its affiliates have incurred approximately $192,000 of organization costs, which may be subject to reimbursement by the Company. No additional organization costs have been incurred subsequent to December 31, 2012.
Offering Expenses
Offering expenses include, among other things, legal fees and other costs pertaining to the preparation of the Company’s registration statement in connection with the public offering of the Company’s shares. Certain offering expenses have been funded by IIG and its affiliates and there is no liability for these offering expenses to the Company until IIG and its affiliates submit such costs for reimbursement. Upon meeting the minimum offering requirement on December 17, 2012, the Company incurred and capitalized offering expenses of $1,000,000 that were submitted for reimbursement by IIG (see Note 13). These expenses are amortized over a twelve month period as an adjustment to capital in excess of par value. The Company will expense any additional offering expenses if and when IIG submits such costs for reimbursement. The unamortized balance of these expenses is reflected in the balance sheets as deferred offering expenses, net. At December 31, 2012, IIG and its affiliates have incurred approximately $825,000 of unreimbursed offering expenses, which may be subject to reimbursement by the Company. No additional offering expenses have been incurred subsequent to December 31, 2012.
22
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Income Taxes
The Company intends to elect to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. To qualify and maintain qualification as a RIC, the Company must, among other things, meet certain source of income and asset diversification requirements and distribute to shareholders, for each taxable year, at least 90% of the Company’s “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company qualifies as a RIC and satisfies the annual distribution requirement, the Company will not have to pay corporate level federal income taxes on any income that the Company distributes to its shareholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income. The Company will also be subject to nondeductible federal excise taxes if the Company does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes.
Book and tax basis differences relating to permanent book and tax differences are reclassified among the Company’s capital accounts, as appropriate. Additionally, the tax character of distributions is determined in accordance with income tax regulations that may differ from GAAP. The Company did not pay any distributions in 2012.
Uncertainty in Income Taxes
The Company evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by the taxing authorities. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statement of operations. As of and for the period from January 31, 2012 (Inception) through December 31, 2012, the Company did not have any uncertain tax positions.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Valuation of Portfolio Investments
The fair value of the Company’s investments is determined quarterly in good faith by the Company’s board of directors pursuant to its consistently applied valuation procedures and valuation process. Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
For each investment, CIM will attempt to obtain the most recent closing public market price. If no sales of such investment occurred on the determination date, such investment shall be valued at the midpoint of the “bid” and the “ask” price at the close of business on such day. Portfolio securities that carry certain restrictions on sale will typically be consistently valued at a discount from the public market value of the security. Loans or investments traded over the counter and not listed on an exchange are valued at a price obtained from third-party pricing services, including, where appropriate, multiple broker dealers, as determined by CIM.
Notwithstanding the foregoing, if in the reasonable judgment of CIM, the price for any securities held by the Company and determined in the manner described above does not accurately reflect the fair value of such security, CIM will value such security at a price that reflects such security’s fair value and report such change in the valuation to the board of directors or its designee as soon as practicable.
23
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Any securities or other assets that are not publicly traded or for which a market price is not otherwise readily available will be valued at a price that reflects such security’s fair value. With respect to such investments, the investments will be reviewed and valued using one or more of the following types of analyses:
|
(i)
|
Market comparable statistics and public trading multiples discounted for illiquidity, minority ownership and other factors for companies with similar characteristics.
|
|
(ii)
|
Valuations implied by third-party investments in the applicable portfolio companies.
|
|
(iii)
|
Discounted cash flow analysis, including a terminal value or exit multiple.
|
Determination of fair value involves subjective judgments and estimates. Accordingly, these notes to the Company’s consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the Company’s consolidated financial statements. Below is a description of factors that the Company’s board of directors may consider when valuing the Company’s equity and debt investments where a market price is not readily available:
|
•
|
the size and scope of a portfolio company and its specific strengths and weaknesses;
|
|
•
|
prevailing interest rates for like securities;
|
|
•
|
expected volatility in future interest rates;
|
|
•
|
leverage;
|
|
•
|
call features, put features and other relevant terms of the debt;
|
|
•
|
the borrower’s ability to adequately service its debt;
|
|
•
|
the fair market value of the portfolio company in relation to the face amount of its outstanding debt;
|
|
•
|
the quality of collateral securing the Company’s debt investments;
|
|
•
|
multiples of EBITDA, cash flows, net income, revenues or, in some cases, book value or liquidation value; and
|
|
•
|
other factors deemed applicable.
|
All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or the Company’s actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners, or acquisition, recapitalization, and restructuring expenses or other related or non-recurring items. The choice of analyses and the weight assigned to such factors may vary across investments and may change within an investment if events occur that warrant such a change.
Consistent with the Company’s valuation policy, the Company evaluates the source of inputs, including any markets in which the Company’s investments are trading, in determining fair value.
Given the expected types of investments, excluding short term investments that are classified as Level 1, the Company expects portfolio holdings to be classified as Level 2 or Level 3. Due to the uncertainty inherent in the valuation process, particularly for Level 2 and Level 3 investments, such fair value estimates may differ significantly from the values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses that the Company ultimately realizes on these investments to materially differ from the valuations currently assigned.
Revenue Recognition
Securities transactions are accounted for on the trade date. The Company records interest and dividend income on an accrual basis beginning on the settlement date to the extent that the Company expects to collect such amounts. The Company does not accrue as a receivable interest or dividends on loans and debt securities if it has reason to doubt the ability to collect such income. Loan origination fees, original issue discounts, and market discounts/premiums are capitalized and such amounts are amortized as adjustments to interest income over the respective term of the loan. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. The Company records prepayment premiums on loans and debt securities as interest income when it receives such amounts.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
24
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Derivative Instrument
The Company’s only derivative instrument is a total return swap. The Company marks its derivative to market through net changes in unrealized appreciation (depreciation) on total return swap in the consolidated statement of operations.
Capital Gains Incentive Fee
Pursuant to the terms of the investment advisory agreement the Company entered into with CIM, the incentive fee on capital gains earned on liquidated investments of the Company’s investment portfolio during operations prior to a liquidation of the Company is determined and payable in arrears as of the end of each calendar year. Such fee will equal 20.0% of the Company’s incentive fee capital gains (i.e., the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a cumulative basis and to the extent that all realized capital losses and unrealized capital depreciation exceeds realized capital gains as well as the aggregate realized net capital gains for which a fee has previously been paid, the Company would not be required to pay CIM a capital gains incentive fee. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.
While the investment advisory agreement with CIM neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of the American Institute for Certified Public Accountants, or AICPA, Technical Practice Aid for investment companies, the Company accrues capital gains incentive fees on unrealized gains. This accrual reflects the incentive fees that would be payable to CIM if the Company’s entire investment portfolio was liquidated at its fair value as of the balance sheet date even though CIM is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
Earnings per share
Earnings per share is calculated based upon the daily weighted average number of shares of common stock outstanding during the reporting period.
Distributions
Distributions to shareholders are recorded as of the record date. The amount to be paid as a distribution is determined by the board of directors on a monthly basis. Net realized capital gains, if any, are distributed or deemed distributed at least annually.
Note 3. Transactions with Related Parties
The Company has entered into an investment advisory agreement with CIM. Pursuant to the investment advisory agreement, CIM will be paid an annual base management fee equal to 2.0% of the average value of the Company’s gross assets, less cash and cash equivalents, and an incentive fee based on the Company’s performance. The incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, will be calculated and payable quarterly in arrears based on “pre-incentive fee net investment income” for the immediately preceding quarter and will be subject to a hurdle rate, measured quarterly and expressed as a rate of return on adjusted capital, as defined in the investment advisory agreement, equal to 1.875% per quarter, or an annualized rate of 7.5%. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is an incentive fee on capital gains earned on liquidated investments from the portfolio and is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement). This fee will equal 20% of realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. On a cumulative basis and to the extent that all realized capital losses and unrealized capital depreciation exceeds realized capital gains as well as the aggregate realized net capital gains for which a fee has previously been paid, the Company would not be required to pay CIM a capital gains incentive fee.
The Company began accruing fees under the investment advisory agreement on December 17, 2012, upon the commencement of the Company’s operations. During the period from January 31, 2012 (Inception) through December 31, 2012, CIM earned $1,567 in management fees. During the period from January 31, 2012 (Inception) through December 31, 2012, all management fees were reimbursed by IIG in accordance with the expense support and conditional reimbursement agreement entered into with IIG, or the expense support and conditional reimbursement agreement.
The Company accrues the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory agreement, the fee payable to CIM is based on net realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized. During the period from January 31, 2012 (Inception) through December 31, 2012, the Company recorded capital gains incentive fees of $4,494 based on the performance of its investment portfolio, of which $4,485 was based on net unrealized gains and $9 was based on realized gains. As of December 31, 2012, all incentive fees were reimbursed by IIG in accordance with the expense support and conditional reimbursement agreement.
25
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
On January 30, 2013, the Company entered into the expense support and conditional reimbursement agreement with IIG, whereby IIG agreed to reimburse the Company for expenses in an amount that is sufficient to: (1) ensure that no portion of the Company’s distributions to shareholders will be paid from its offering proceeds or borrowings, and/or (2) reduce the Company’s operating expenses until it has achieved economies of scale sufficient to ensure that it bears a reasonable level of expense in relation to its investment income. Pursuant to the expense support and conditional reimbursement agreement, the Company will have a conditional obligation to reimburse IIG for any amounts funded by IIG under such agreement if, during any fiscal quarter occurring within three years of the date on which IIG funded such amount, the sum of the Company’s net investment income for tax purposes, net capital gains and the amount of any dividends and other distributions paid to the Company on account of investments in portfolio companies exceeds the distributions paid by the Company to its shareholders. For the period from January 31, 2012 (Inception) through December 31, 2012, the total expense reimbursement from IIG was $116,706 relating to certain operating expenses. At December 31, 2012, all expense reimbursements made by IIG are eligible to be reimbursed by the Company through December 31, 2015. Reimbursement of such costs will be determined as appropriate to meet the objectives of the expense support and conditional reimbursement agreement. As a result, the Company may or may not be requested to reimburse any such costs by IIG. As of December 31, 2012, the net receivable from IIG was $25,807.
The Company or IIG may terminate the expense support and conditional reimbursement agreement at any time. IIG has indicated that it expects to continue such reimbursements until it deems that the Company has achieved economies of scale sufficient to ensure that it bears a reasonable level of expenses in relation to its income. If the Company terminates the investment advisory agreement with CIM, the Company may be required to repay IIG all reimbursements funded by IIG within three years of the date of termination. The specific amount of expenses reimbursed by IIG, if any, will be determined at the end of each quarter. There can be no assurance that the expense support and conditional reimbursement agreement will remain in effect or that IIG will reimburse any portion of the Company’s expenses in future quarters.
The Company entered into an administration agreement with CIM’s affiliate, ICON Capital, LLC, formerly known as ICON Capital Corp., or ICON Capital, pursuant to which ICON Capital furnishes the Company with administrative services including accounting, investor relations and other administrative services necessary to conduct its day-to-day operations. ICON Capital is reimbursed for administrative expenses it incurs on the Company’s behalf in performing its obligations, provided that such reimbursement will be for the lower of ICON Capital’s actual costs or the amount that the Company would be required to pay for comparable administrative services in the same geographic location. Such costs will be reasonably allocated to the Company on the basis of assets, revenues, time records or other reasonable methods. The Company will not reimburse ICON Capital for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a person with a controlling interest in ICON Capital. During the period from January 31, 2012 (Inception) through December 31, 2012, the Company incurred administrative services expense from ICON Capital of $38,966. All of these charges related to the cost of administrative personnel for services provided to the Company. During the period from January 31, 2012 (Inception) through December 31, 2012, all administrative expenses were reimbursed by IIG in accordance with the expense support and conditional reimbursement agreement.
The Company’s payment of organization costs and offering expenses (including reimbursement of costs incurred by IIG and its affiliates) is capped at 1.5% of the gross proceeds from the offering. If the Company sells the maximum number of shares at $10.00 per share, then the Company estimates that it may incur up to approximately $15,000,000 of expenses. Under the terms of the investment advisory agreement, CIM and certain of its affiliates, which includes IIG, will become entitled to receive reimbursement of up to 1.5% of the gross proceeds raised until all organization costs and offering expenses have been reimbursed. At December 31, 2012, IIG and its affiliates incurred organization costs and offering expenses of approximately $2,017,000, of which $1,000,000 have been reimbursed by the Company (see Note 13). No additional organization costs or offering expenses have been incurred subsequent to December 31, 2012. The decision to fund the Company’s organization costs and offering expenses and the decision to seek reimbursement for such costs is solely at the discretion of IIG and its affiliates. As a result, the Company may or may not be requested to reimburse any further costs funded by IIG and its affiliates. To the extent that payments of organization costs and offering expenses exceed the 1.5% cap at the end of the offering period, any excess amounts may be recoverable from IIG and its affiliates.
The Company has entered into certain agreements with ICON Securities, LLC, formerly known as ICON Securities Corp., or ICON Securities, whereby the Company pays certain fees and reimbursements. ICON Securities is entitled to receive a 3% dealer manager fee from the gross offering proceeds from the sale of the Company’s shares. The selling dealers are entitled to receive a sales commission of up to 7% of the gross offering proceeds. Such costs are charged against capital in excess of par value when incurred. For the period from January 31, 2012 (Inception) through December 31, 2012, the Company paid or accrued commissions of $93,690 to the selling dealers and $42,700 to ICON Securities.
26
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Because CIM’s senior management team is comprised of substantially the same personnel as the senior management team of the Company’s affiliate, ICON Capital, which is the investment manager to certain equipment finance funds, or equipment funds, such members of senior management provide investment advisory and management services to both the Company and the equipment funds. In the event that CIM undertakes to provide investment advisory services to other clients in the future, it will strive to allocate investment opportunities in a fair and equitable manner consistent with the Company’s investment objective and strategies so that the Company will not be disadvantaged in relation to any other client of the investment adviser or its senior management team. However, it is currently possible that some investment opportunities will be provided to the equipment funds or other clients of CIM rather than to the Company.
Indemnifications
The investment advisory agreement, the investment sub-advisory agreement, the administration agreement and the dealer-manager agreement each provide certain indemnifications from the Company to the other relevant parties to such agreements. The Company’s maximum exposure under these agreements is unknown. However, the Company has not experienced claims or losses pursuant to these agreements and believes the risk of loss related to such indemnifications to be remote.
Note 4. Distributions
The Company did not declare or pay any distributions during the period from January 31, 2012 (Inception) through December 31, 2012.
On January 14, 2013, the Company’s board of directors declared two regular semi-monthly cash distributions of $0.029283 per share each, which were paid on February 1, 2013 to shareholders of record on January 15, 2013 and January 31, 2013, respectively. On February 15, 2013, the Company’s board of directors declared two regular semi-monthly cash distributions of $0.029546 per share each, which were paid on March 1, 2013 to shareholders of record on February 15, 2013 and February 28, 2013, respectively. On March 14, 2013, the Company’s board of directors declared two regular semi-monthly cash distributions of $0.029546 per share and $0.029721 per share, payable on April 1, 2013 to shareholders of record as of March 15, 2013 and March 31, 2013, respectively. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.
The Company’s net investment income on a tax basis for the period from January 31, 2012 (Inception) through December 31, 2012 was $2,692. As of December 31, 2012, the Company had not distributed all of its tax-basis net investment income earned as of December 31, 2012.
There were no differences between the Company’s GAAP-basis net investment income and the Company’s tax-basis net investment income.
The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. The actual tax characteristics of distributions to shareholders are reported to shareholders annually on Form 1099-DIV.
As of December 31, 2012, the components of accumulated earnings on a tax basis were as follows:
|
Distributable net investment income
|
$ | 2,692 | ||
|
Net realized gain on investment
|
44 | |||
|
Net unrealized appreciation on investments and total return swap(1)
|
22,426 | |||
| $ | 25,162 | |||
|
(1
|
)
|
As of December 31, 2012, the gross unrealized appreciation on the Company’s investments and total return swap was $28,051. As of December 31, 2012, the gross unrealized depreciation on the Company’s total return swap was $5,625.
|
The aggregate cost of the Company’s investments for federal income tax purposes totaled $3,787,873 as of December 31, 2012. The aggregate net unrealized appreciation (depreciation) on a tax basis, including the Company’s total return swap, or TRS, was $22,426 as of December 31, 2012.
27
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 5. Investments
The composition of the Company’s investment portfolio as of December 31, 2012, at amortized cost and fair value was as follows:
|
Amortized Cost(1)
|
Fair Value
|
Percentage of Investment Portfolio
|
||||||
| Senior Secured Term Loans - First lien(2) |
$
|
1,970,111
|
|
$
|
1,980,044
|
|
52.1%
|
|
| Short term investments(3) | 1,817,762 | 1,817,762 | 47.9% | |||||
| Total investments |
$
|
3,787,873 |
$
|
3,797,806 | 100% | |||
|
(1) Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on the Company's investments.
|
||||||||
| (2) The Company does not control and is not an affiliate of any of the portfolio companies in its investment portfolio. | ||||||||
|
(3) Short term investments represent highly liquid investments with original maturity dates of three months or less.
|
The table below shows the composition of the Company’s investment portfolio by industry classification and the percentage, by fair value, of the total investment portfolio assets in such industries as of December 31, 2012:
|
Industry Classification
|
Investments at
Fair Value
|
Percentage of
Total Investment Portfolio
|
||||||
|
Chemicals
|
$ | 1,000,000 | 26.3 | % | ||||
|
Insurance
|
980,044 | 25.8 | % | |||||
| U.S. Treasury Securities | 1,817,762 | 47.9 | % | |||||
|
Total
|
$ | 3,797,806 | 100.0 | % | ||||
Note 6. Total Return Swap
On December 17, 2012, the Company, through its wholly-owned subsidiary, Flatiron, entered into a TRS with Citibank, N.A., or Citibank. The agreements between Flatiron and Citibank, which collectively establish the TRS, are referred to as the TRS Agreement.
A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS and interest payments in return for periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. Because of the unique structure of a TRS, a TRS typically offers lower financing costs than are offered through more traditional borrowing arrangements.
The TRS with Citibank enables the Company, through its ownership of Flatiron, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citibank. As such, the TRS is analogous to Flatiron borrowing funds to acquire loans and incurring interest expense to a lender.
The obligations of Flatiron under the TRS are non-recourse to the Company and the Company’s exposure under the TRS is limited to the value of the Company’s investment in Flatiron, which generally will equal the value of cash collateral provided by Flatiron under the TRS. Pursuant to the terms of the TRS, Flatiron may select loans with a maximum aggregate market value (determined at the time each such loan becomes subject to the TRS) of the lesser of (a) $150,000,000 and (b) 140% of the aggregate amount of cash contributed to the equity capital of the Company during the first nine months of the TRS and not withdrawn during that period, or the maximum portfolio amount. Flatiron is required to initially cash collateralize a specified percentage of each loan (generally 25% of the market value of such loan) included under the TRS in accordance with margin requirements described in the TRS Agreement. Under the terms of the TRS, Flatiron agreed not to draw upon, or post as collateral, such cash collateral in respect of other financings or operating requirements prior to the termination of the TRS. Neither the cash collateral required to be posted with Citibank nor any other assets of Flatiron are available to pay the debts of the Company.
Each individual loan must meet criteria described in the TRS Agreement, including a requirement that substantially all of the loans be rated by Moody’s and S&P and quoted by a nationally-recognized pricing service. Under the terms of the TRS, Citibank, as calculation agent, determines whether there has been a failure to satisfy the portfolio criteria in the TRS. If such failure continues for 30 days following the delivery of notice thereof, then Citibank has the right, but not the obligation, to terminate the TRS. Flatiron receives from Citibank all interest and fees payable in respect of the loans included in the TRS. Flatiron pays to Citibank interest at a rate equal to, in respect of each loan included in the TRS, the floating rate index specified for such loan + 1.25% per annum. In addition, upon the termination or repayment of any loan subject to the TRS, Flatiron will either receive from Citibank the appreciation in the value of such loan or pay to Citibank any depreciation in the value of such loan.
28
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Under the terms of the TRS, Flatiron may be required to post additional cash collateral, on a dollar-for-dollar basis, in the event of depreciation in the value of the underlying loans after such value decreases below a specified amount. The limit on the additional collateral that Flatiron may be required to post pursuant to the TRS is equal to the difference between the full notional amount of the loans underlying the TRS and the amount of cash collateral already posted by Flatiron. The amount of collateral required to be posted by Flatiron is determined primarily on the basis of the aggregate value of the underlying loans.
The Company has no contractual obligation to post any such additional collateral or to make any interest payments to Citibank on behalf of Flatiron. The Company may, but is not obligated to, increase its investment in Flatiron for the purpose of funding any additional collateral or payment obligations for which Flatiron may become obligated during the term of the TRS. If the Company does not make any such additional investment in Flatiron and Flatiron fails to meet its obligations under the TRS, then Citibank will have the right to terminate the TRS and seize the cash collateral posted by Flatiron under the TRS. In the event of an early termination of the TRS, Flatiron would be required to pay an early termination fee.
Citibank may terminate the TRS on or after December 17, 2013, or the call date. Flatiron may terminate the TRS at any time upon providing no more than 30 days prior notice to Citibank. Any termination prior to the call date will result in payment of an early termination fee to Citibank based on the maximum portfolio amount of the TRS. Under the terms of the TRS, the early termination fee will equal the present value of a stream of monthly payments that would be owed by Flatiron to Citibank for the period from the termination date through and including the call date. Such monthly payments will equal the product of 60% of the maximum portfolio amount, multiplied by 1.25% per annum. The Company estimates the early termination fee would have been approximately $48,000 at December 31, 2012. Other than during the first nine months and last 180 days of the term of the TRS, Flatiron may be required to pay a minimum usage fee in connection with the TRS. At December 31, 2012, Flatiron was not subject to a minimum usage fee.
In connection with the TRS, Flatiron is required to comply with various covenants and reporting requirements as defined in the TRS Agreement. As of December 31, 2012, the Company was in compliance with all covenants and reporting requirements.
For purposes of computing the capital gains incentive fee, the Company, in a manner consistent with GAAP, treats as realized gains or losses on the total return swap both a) the interest spread, which represents the difference between i) the interest and fees received on the underlying TRS loans and ii) the interest paid to Citibank on the settled notional value of the TRS loans, and b) the net realized gains or losses on the sale or maturity of the underlying TRS loans. Accordingly, the net realized economic benefits, if any, associated with the TRS loans are included in the computation of the incentive fee on capital gains. Any unrealized appreciation or depreciation on total return swap will be included in the computation of the base management fee.
For purposes of the asset coverage ratio test applicable to the Company as a BDC, the Company will treat the outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted by Flatiron under the TRS, as a senior security for the life of that instrument. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the Securities and Exchange Commission, or the SEC.
Further, for purposes of Section 55(a) under the 1940 Act, the Company will treat each loan underlying the TRS as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.
As of December 31, 2012, the fair value of the TRS was $12,493. The fair value of the TRS is reflected as unrealized appreciation on total return swap on the Company’s consolidated balance sheets. The change in value of the TRS is reflected in the Company’s consolidated statement of operations as net change in unrealized appreciation on total return swap. As of December 31, 2012, Flatiron had selected five underlying loans with a total notional amount of $2,883,100 and posted $729,325 in cash collateral held by Citibank (of which only $720,775 was required to be posted), which is reflected in due from counterparty on the Company’s consolidated balance sheets.
The following is a summary of the underlying loans subject to the TRS as of December 31, 2012:
|
Underlying Senior Secured Term Loans
|
Industry
|
Notional Amount
|
Market Value
|
Unrealized Appreciation / (Depreciation)
|
|||||||||
|
Peppermill Casinos Inc., L+600, 1.25% LIBOR Floor, 11/9/18
|
Gaming and Hotels
|
$ | 492,500 | $ | 486,875 | $ | (5,625 | ) | |||||
|
Safe-Guard Products International, LLC, L+600, 1.25% LIBOR Floor, 12/21/18
|
Financial Services
|
900,600 | 905,340 | 4,740 | |||||||||
|
Sequa Corporation, L+400, 1.25% LIBOR Floor, 6/19/17
|
Aerospace/Defense
|
497,500 | 502,655 | 5,155 | |||||||||
|
TransFirst Holdings, Inc., L+500, 1.25% LIBOR Floor, 12/27/17
|
Computers & Electronics
|
495,000 | 500,000 | 5,000 | |||||||||
|
Washington Inventory Service, L+450, 1.25% LIBOR Floor, 12/20/18
|
Professional & Business Services
|
497,500 | 500,625 | 3,125 | |||||||||
|
Total
|
$ | 2,883,100 | $ | 2,895,495 | 12,395 | ||||||||
|
Total Net Interest and Other Expenses on TRS
|
98 | ||||||||||||
|
Total Fair Value of TRS
|
$ | 12,493 | |||||||||||
29
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 7. Fair Value of Financial Instruments
The Company determines the fair value of all portfolio investments in accordance with ASC Topic 820. ASC Topic 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ASC Topic 820 establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. Investments carried at fair value are classified and disclosed in one of the following three categories:
|
|
·
|
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. The Company’s short term investments are included in this category.
|
|
|
·
|
Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.
|
|
|
·
|
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs used in the determination of fair value may require significant management judgment or estimation. Such information may be the result of consensus pricing information or broker quotes that include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as a Level 3 asset, assuming no additional corroborating evidence.
|
The following table presents fair value measurements of the Company’s portfolio investments and TRS as of December 31, 2012, according to the fair value hierarchy:
|
Valuation Inputs
|
|
First Lien
Senior Secured Term Loans
|
Short Term Investments |
Total Return Swap
|
||||||
|
Level 1—Price quotations in active markets
|
|
$
|
—
|
|
$
|
1,817,762
|
$
|
—
|
|
|
|
Level 2—Significant other observable inputs
|
|
—
|
|
—
|
—
|
|
||||
|
Level 3—Significant unobservable inputs
|
|
1,980,044
|
|
—
|
12,493
|
|||||
|
|
$
|
1,980,044
|
|
$
|
1,817,762
|
$
|
12,493
|
|||
The Company’s investments as of December 31, 2012, excluding short term investments, primarily consisted of debt securities that are traded on a private over-the-counter market for institutional investors. Except as described below, the Company valued its portfolio investments by using market comparables, discounted cash flow models and independent third-party pricing services, which provided prevailing bid and ask prices that were screened for validity by the pricing service from dealers on the determination date of the relevant period end. One senior secured loan that was purchased near December 31, 2012 was valued at cost, as the Company determined that the cost of the investment was the best indication of its fair value.
The discounted cash flow model deemed appropriate by CIM is prepared for the applicable investments and reviewed by the Company’s valuation committee. Such models are prepared quarterly or on an as needed basis. The model uses the estimated cash flow projections for the underlying investments and an appropriate discount rate is determined based on the latest financial information available for the borrower, prevailing market trends, comparable analysis and other inputs. The model, key assumptions, inputs, and results are reviewed by the Company’s valuation committee consisting of senior management with final approval from the board of directors.
The Company periodically benchmarks the bid and ask prices received from the third-party pricing services against the actual prices at which it purchases and sells its investments. Based on the results of the benchmark analysis and the Company’s experience in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers, including the use of an independent valuation firm. The Company intends to periodically benchmark the valuations provided by the independent valuation firm against the actual prices at which it purchases and sells its investments. The Company’s valuation committee and board of directors intend to review and approve the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation process.
30
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
The Company valued its TRS in accordance with the TRS Agreement. Pursuant to the TRS Agreement, the fair value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued by Citibank. Citibank bases its valuation primarily on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect a price that market participants may be willing to pay for an investment. These valuations are sent to the Company for review and testing. The Company reviews and approves the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis as part of the quarterly valuation process. To the extent the Company has any questions or concerns regarding the valuation of the loans underlying the TRS, such valuations will be discussed or challenged pursuant to the terms of the TRS. The Company did not have any transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy for the period from January 31, 2012 (Inception) through December 31, 2012. The Company’s policy is to recognize transfers in and out as of the actual date of the event or change in circumstances that causes the transfer.
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the period from January 31, 2012 (Inception) through December 31, 2012:
|
First Lien Senior Secured
Term Loans
|
Total Return Swap
|
Total
|
||||||||||
|
Balance, as of January 31, 2012
|
$ | — | $ | — | $ | — | ||||||
|
Investments purchased
|
1,972,500 | — | 1,972,500 | |||||||||
|
Net realized gain
|
44 | — | 44 | |||||||||
|
Net change in unrealized appreciation(1)
|
9,933 | 12,493 | 22,426 | |||||||||
|
Accretion of discount
|
67 | — | 67 | |||||||||
|
Sales and redemptions
|
(2,500 | ) | — | (2,500 | ) | |||||||
|
Balance, as of December 31, 2012
|
$ | 1,980,044 | $ | 12,493 | $ | 1,992,537 | ||||||
|
(1) Represents the amount of total gains/losses for the period included in the change in unrealized appreciation on investments and change in unrealized appreciation on total return swap still held at the reporting date.
|
||||||||||||
Significant Unobservable Inputs
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of December 31, 2012 were as follows:
|
Fair Value
|
Valuation Technique
|
Unobservable Inputs
|
Range (Weighted Average)
|
||||||||
|
Senior Secured First Lien Term Loans
|
$ | 1,980,044 |
Discounted cash flow
|
Discount rates
|
5.5% - 7.5%(6.4%) | ||||||
The significant unobservable inputs used in the fair value measurement of the Company’s senior secured first lien term loans are the discount rates. A significant increase or decrease in the discount rates would result in a significantly lower or higher fair value measurement, respectively.
The Company does not believe any inputs in the fair value measurement of the TRS are significant unobservable inputs.
Note 8. Borrowings
In June 2012, the Company entered into an unsecured financing arrangement for directors and officers insurance in an amount of $179,180. Payments under the financing arrangement are due in 10 equal installments ending on April 19, 2013. Amounts due prior to the commencement of operations on December 17, 2012 of approximately $123,000 were paid by IIG and are subject to reimbursement by the Company. As of December 31, 2012, $72,682 was outstanding under the financing arrangement at an interest rate of 3.99%. For purposes of the asset coverage ratio test applicable to the Company as a BDC, this amount is treated as a senior security.
31
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 9. Share Repurchase Program
Beginning in the first quarter of 2014 and on a quarterly basis thereafter, the Company intends to offer to repurchase shares on such terms as may be determined by the Company’s board of directors in its complete and absolute discretion unless, in the judgment of the independent directors of the Company’s board of directors, such repurchases would not be in the best interests of the Company’s shareholders or would violate applicable law.
The Company currently intends to limit the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the issuance of shares pursuant to its distribution reinvestment plan. At the discretion of the Company’s board of directors, it may also use cash on hand, cash available from borrowings and cash from liquidation of investments as of the end of the applicable period to repurchase shares. In addition, the Company will limit the number of shares to be repurchased in any calendar year to 15% of the weighted average number of shares outstanding in the prior calendar year, or 3.75% in each quarter, though the actual number of shares that it offers to repurchase may be less in light of the limitations noted above. The Company intends to offer to repurchase such shares at a price equal to 90% of the offering price in effect on each date of repurchase.
Any periodic repurchase offers will be subject in part to the Company’s available cash and compliance with the BDC and RIC qualification and diversification rules promulgated under the Code and the 1940 Act. While the Company intends to conduct quarterly tender offers as described above, it is not required to do so and may suspend or terminate the share repurchase program at any time, upon 30 days’ notice.
Note 10. Commitments and Contingencies
The Company entered into certain contracts with other parties that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not experienced claims or losses pursuant to these contracts and believes the risk of loss related to such indemnifications to be remote.
32
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 11. Financial Highlights
The following is a schedule of financial highlights as of and for the period from January 31, 2012 (Inception) through December 31, 2012:
|
Per share data(1):
|
||||
|
Net asset value at beginning of period
|
$
|
—
|
||
|
Results of operations:
|
||||
|
Net investment income(2)
|
0.01
|
|||
|
Net realized and net change in unrealized appreciation on investments
|
0.02
|
|||
|
Net change in unrealized appreciation on total return swap
|
0.02
|
|||
|
Net increase in net assets resulting from operations
|
0.05
|
|||
|
Capital share transactions:
|
||||
|
Issuance of common stock, net of issuance costs(3)
|
9.00
|
|||
|
Amortization of deferred offering expenses(4)
|
(0.08
|
)
|
||
|
Net increase in net assets resulting from capital share transactions
|
8.92
|
|||
|
Net asset value at end of period
|
$
|
8.97
|
||
|
Shares of common stock outstanding at end of period
|
500,338
|
|||
|
Total return(5)
|
(0.35%
|
)
|
||
|
Net assets at beginning of period(6)
|
$4,503,049
|
|||
|
Net assets at end of period
|
$4,487,115
|
|||
|
Ratio/Supplemental data(6):
|
||||
|
Ratio of net investment income to average net assets(7)
|
0.06%
|
|||
|
Ratio of operating expenses to average net assets(7)
|
0.00%
|
|||
|
Ratio of incentive fees to average net assets(8)
|
0.10%
|
|||
|
Ratio of expenses reimbursed from IIG to average net assets
|
2.60%
|
|||
|
Portfolio turnover rate(9)
|
0.13%
|
|||
|
Asset coverage ratio(10)
|
3.02 | |||
| (1 | ) |
The per share data was derived by using the weighted average share of common stock outstanding from the commencement of operations on December 17, 2012 through December 31, 2012.
|
| (2 | ) |
Net investment income per share includes the expense reimbursement from IIG of $0.23 per share for the period.
|
| (3 | ) |
Represents issuance of common stock on a per share basis.
|
| (4 | ) |
Represents the amortization of deferred offering expenses.
|
| (5 | ) |
Total return is calculated assuming a purchase of shares of common stock at the current net asset value per share on the first day of the period (December 17, 2012) and a sale at the current net asset value per share on the last day of the period. Total returns covering less than a full period are not annualized.
|
| (6 | ) |
The net assets at the beginning of period were derived from the commencement of operations on December 17, 2012.
|
| (7 | ) |
Excluding the expense reimbursement from IIG during the period, the ratios of net investment income (loss) and operating expense to average net assets would have been (2.5%) and 2.6%, respectively.
|
| (8 | ) |
Represents the capital gains incentive fee as the Company did not earn a subordinated incentive fee on income during 2012.
|
| (9 | ) |
Portfolio turnover rate is calculated using the year-to-date sales over the average of the invested assets at fair value and is not annualized.
|
| (10 | ) |
Asset coverage ratio is equal to (i) the sum of (a) net assets at the end of the period and (b) total senior securities outstanding at the end of the period, divided by (ii) total senior securities outstanding at the end of the period. For purposes of the asset coverage ratio test applicable to the Company as a business development company, the Company regards the outstanding TRS notional amount at the end of the period, less the total amount of cash collateral posted by Flatiron under the TRS, as a senior security for the life of the TRS.
|
33
CĪON INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 12. Selected Quarterly Financial Data (unaudited)
The following is the selected quarterly financial data as of and for the period from January 31, 2012 (Inception) through December 31, 2012. The following information reflects all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation. The operating results for any quarter are not necessarily indicative of results for any future period:
|
Quarter Ended
|
March 31,
2012
|
June 30,
2012
|
September 30,
2012
|
December 31,
2012
|
||||||||||||
|
Investment income
|
$ | - | $ | - | $ | - | $ | 2,692 | ||||||||
|
Net investment income
|
- | - | - | 2,692 | ||||||||||||
|
Net realized and unrealized gain on investments and total return swap
|
- | - | - | 22,470 | ||||||||||||
|
Net increase in net assets resulting from operations
|
$ | - | $ | - | $ | - | $ | 25,162 | ||||||||
|
Basic and diluted earnings per share of common stock
|
$ | - | $ | - | $ | - | $ | 0.05 | ||||||||
|
Net asset value per share of common stock at end of quarter
|
$ | 9.00 | $ | 9.00 | $ | 9.00 | $ | 8.97 | ||||||||
|
Weighted average shares of common stock outstanding
|
111 | 111 | 111 | 500,338 | ||||||||||||
Note 13. Subsequent Event
Under the terms of the investment advisory agreement between the Company and CIM, CIM and certain of its affiliates (including IIG) are entitled to receive reimbursement of organization and offering costs of up to 1.5% of the gross proceeds raised until all organization and offering costs have been reimbursed. Previously, the Company interpreted “raised” to mean all gross proceeds that the Company expected to raise through the completion of the offering of its shares, rather than actual gross proceeds raised through the date of the reimbursement. Consistent with such application and since the Company believed it would raise at least $100 million through the completion of the offering of its shares, upon commencement of operations on December 17, 2012, the Company issued 111,111 shares of the Company’s common stock at $9.00 per share to IIG in lieu of payment of $1,000,000 for organization and offering expenses submitted for reimbursement. The transaction satisfied an independent obligation of IIG to invest $1,000,000 in the Company’s shares. Through that date, the Company had raised gross proceeds from unaffiliated outside investors of $2,639,439 and from affiliated investors of $2,000,000, which, applying 1.5% of actual proceeds raised through the date of reimbursement, would have resulted in CIM being entitled to $69,592.
With respect to any future reimbursements for organization and offering costs, the Company will interpret the 1.5% cap based on actual gross proceeds raised at the time of such reimbursement. In addition, the Company will not issue any of its shares or other securities for services or for property other than cash or securities except as a dividend or distribution to its security holders or in connection with a reorganization. Consistent with this interpretation, on May 30, 2013, IIG paid the Company $1,000,000, plus interest accrued at a rate of 7% per annum.
34
PART IV
Item 15. Exhibits, Financial Statement Schedules
|
(a)
|
1.
|
Financial Statements
|
|
See index to consolidated financial statements included as Item 8 to this Annual Report on Form 10-K/A hereof.
|
||
|
2.
|
Financial Statement Schedules
|
|
|
Schedules not listed above have been omitted because they are not applicable or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
|
||
|
3.
|
Exhibits
|
|
Exhibit
Number
|
Description of Document
|
|
|
3.1
|
Articles of Amendment and Restatement of the Articles of Incorporation of CĪON Investment Corporation (Incorporated by reference to Exhibit (A)(2) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
3.2
|
Second Articles of Amendment and Restatement of the Articles of Incorporation of CĪON Investment Corporation (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with the SEC on August 27, 2012 (File No. 814-00941)).
|
|
|
3.3
|
Bylaws of CĪON Investment Corporation (Incorporated by reference to Exhibit (B) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
4.1
|
Form of Subscription Agreement (Incorporated by reference to Exhibit (D) to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form N-2 filed with the SEC on January 31, 2013 (File No. 333-178646)).
|
|
|
4.2
|
Distribution Reinvestment Plan (Incorporated by reference to Exhibit (E) to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-2 filed with the SEC on February 17, 2012 (File No. 333-178646)).
|
|
|
10.1
|
Investment Advisory Agreement Between CĪON Investment Corporation and CĪON Investment Management, LLC (Incorporated by reference to Exhibit (G)(1) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
10.2
|
Investment Sub-Advisory Agreement by and among CĪON Investment Management, LLC, CĪON Investment Corporation and Apollo Investment Management, L.P. (Incorporated by reference to Exhibit (G)(2) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
10.3
|
Administration Agreement by and between CĪON Investment Corporation and ICON Capital Corp. (Incorporated by reference to Exhibit (K)(2) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
10.4
|
Custody Agreement by and between CĪON Investment Corporation and U.S. Bank National Association. (Incorporated by reference to Exhibit (J) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
10.5
|
Escrow Agreement by and among CĪON Investment Corporation, UMB Bank, N.A., and ICON Securities Corp. (Incorporated by reference to Exhibit (K)(1) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
10.6
|
Dealer Manager Agreement by and among CĪON Investment Corporation, CĪON Investment Management, LLC, and ICON Securities Corp. (Incorporated by reference to Exhibit (H)(1) to Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on Form N-2 filed with the SEC on June 29, 2012 (File No. 333-178646)).
|
|
|
10.7
|
ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of December 17, 2012, by and between Flatiron Funding, LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
|
|
|
10.8
|
Confirmation Letter Agreement, dated as of December 17, 2012, by and between Flatiron Funding, LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
|
|
|
10.9
|
Expense Support and Conditional Reimbursement Agreement dated as of January 30, 2013, by and between CĪON Investment Corporation and ICON Investment Group, LLC (Incorporated by reference to Exhibit (K)(5) to Post-Effective Amendment No.1 to Registrant’s Registration Statement on Form N-2 filed with the SEC on January 31, 2013 (File No. 333-178646)).
|
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
|
|
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
|
|
|
31.3
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
|
|
|
32.1
|
Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.3
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Date: June 10, 2013
|
|
|
CĪON Investment Corporation
(Registrant)
|
|
|
By:
|
/s/ Michael A. Reisner
|
|
Michael A. Reisner
|
|
|
Co-Chief Executive Officer and Co-President
|
|
|
By:
|
/s/ Mark Gatto
|
|
Mark Gatto
|
|
|
Co-Chief Executive Officer and Co-President
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Date: June 10, 2013
|
|
|
CĪON Investment Corporation
(Registrant)
|
|
|
By:
|
/s/ Michael A. Reisner
|
|
Michael A. Reisner
|
|
|
Co-Chief Executive Officer, Co-President, and Director (Principal Executive Officer)
|
|
|
By:
|
/s/ Mark Gatto
|
|
Mark Gatto
|
|
|
Co-Chief Executive Officer, Co-President, and Director (Principal Executive Officer)
|
|
|
By:
|
/s/ Keith S. Franz
|
|
Keith S. Franz
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
By:
|
/s/ Robert A. Breakstone
|
|
Robert A. Breakstone
|
|
|
Director
|
|
|
By:
|
/s/ James J. Florio
|
|
James J. Florio
|
|
|
Director
|
|
|
By:
|
/s/ Aron I. Schwartz
|
|
Aron I. Schwartz
|
|
|
Director
|
|
|
36
|