CION Investment (CICB) risk factors, FY2024 10-K

Risks Relating to Our Business and Structure

1. 01Our board of directors may change our operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse to our results of operations and financial condition
2. 02Price declines in the medium- and large-sized U.S. corporate debt market may adversely affect the fair value of our portfolio, reducing our NAV through increased net unrealized depreciation
3. 03Our ability to achieve our investment objective depends on the ability of CIM to manage and support our investment process. If CIM was to lose any members of its senior management team, our ability to achieve our investment objective could be significantly harmed
4. 04We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses
5. 05As required by the 1940 Act, a significant portion of our investment portfolio is and will be recorded at fair value as determined in good faith by our board of directors and, as a result, there is and will be uncertainty as to the value of our portfolio investments
6. 06The amount of any distributions we may pay is uncertain and our distributions may exceed our earnings. Therefore, portions of the distributions that we pay may represent a return of capital to shareholders that will lower their tax basis in their common stock
7. 07Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy
8. 08Regulators are also increasing scrutiny and considering regulation of the use of artificial intelligence technologies. We cannot predict what, if any, actions may be taken or the impact such actions may have on our business and results of operations
9. 09As a public company, we are subject to regulations not applicable to private companies, such as provisions of the Sarbanes-Oxley Act. Efforts to comply with such regulations will involve significant expenditures, and non-compliance with such regulations may adversely affect us
10. 10We may experience fluctuations in our quarterly results
11. 11Any unrealized losses we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution

Risks Relating to CIM and its Affiliates

1. 12CIM and its affiliates, including our officers and some of our directors, face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in actions that are not in the best interests of our shareholders
2. 13Our investment advisory agreement entitles CIM to receive incentive compensation on income regardless of any capital losses. In such case, we may be required to pay CIM incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter
3. 14There may be conflicts of interest related to obligations that CIM’s senior management and investment teams have to other clients
4. 15Our base management and incentive fees may induce CIM to make and identify speculative investments or to incur additional leverage
5. 16CIM relies on key personnel, the loss of any of whom could impair its ability to successfully manage us
6. 17The compensation we pay to CIM was determined without independent assessment on our behalf, and these terms may be less advantageous to us than if such terms had been the subject of arm’s-length negotiations
7. 18CIM’s influence on conducting our operations gives it the ability to increase its fees, which may reduce the amount of cash flow available for distribution to our shareholders

Risks Relating to Business Development Companies

1. 19The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC
2. 20Regulations governing our operation as a BDC and RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth
3. 21Our ability to enter into transactions with our affiliates is restricted
4. 22We are uncertain of our sources for funding our future capital needs; if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected
5. 23We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer
6. 24Increasing scrutiny from stakeholders and regulators with respect to ESG matters may impose additional costs and expose us to additional risks

Risks Relating to Our Investments

1. 25To the extent original issue discount constitutes a portion of our income, we will be exposed to risks associated with the deferred receipt of cash representing such income
2. 26Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
3. 27There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
4. 28We generally will not control our portfolio companies
5. 29Our financial condition and results of operations could be negatively affected if a significant investment fails to perform as expected
6. 30We are exposed to risks associated with changes in interest rates, including the current high interest rate environment
7. 31Inflation has adversely affected and may continue to adversely affect the business, results of operations and financial condition of our portfolio companies
8. 32International investments create additional risks
9. 33Second priority liens on collateral securing debt investments that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us
10. 34Economic recessions or downturns could impair our portfolio companies and adversely affect our operating results
11. 35A covenant breach or other defaults by our portfolio companies may adversely affect our operating results
12. 36Investing in middle-market companies involves a number of significant risks, any one of which could have a material adverse effect on our operating results
13. 37We may not realize gains from our equity investments
14. 38An investment strategy focused primarily on privately-held companies presents certain challenges, including, but not limited to, the lack of available information about these companies
15. 39A lack of liquidity in certain of our investments may adversely affect our business
16. 40We may not have the funds or ability to make additional investments in our portfolio companies or to fund our unfunded debt commitments
17. 41We may acquire various financial instruments for purposes of “hedging” or reducing our risks, which may be costly and ineffective and could reduce our cash available for distribution to our shareholders
18. 42Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
19. 43The effect of global climate change may impact our operations and the operations of our portfolio companies

Risks Relating to Our Debt Financings

1. 44The Small Business Credit Availability Act of 2018 allows us to incur additional leverage and our shareholders approved a proposal permitting us to incur additional leverage, effective December 31, 2021
2. 45Since we have borrowed money, the potential for loss on amounts invested in us is magnified and may increase the risk of investing in us. Borrowed money may also adversely affect the return on our assets, reduce cash available for distribution to our shareholders, and result in losses
3. 46Corresponding return to shareholders (34.35)% (22.50)% (10.65)% 1.21% 13.06%
4. 47Changes in interest rates may affect our cost of capital and net investment income
5. 48The 2026 Notes, the 2024 and 2022 Term Loans, the Series A Notes, the 2027 Notes and the 2029 Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future
6. 49We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements
7. 50We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
8. 51If we do not qualify as a “publicly offered regulated investment company,” as defined in the Code, shareholders will be taxed as though they received a distribution of some of our expenses

Risks Relating to an Investment in Our Common Stock

1. 52The market price of our common stock may fluctuate significantly
2. 53We cannot assure you that a market for shares of our common stock will be maintained or the market price of our shares will trade close or at a premium to NAV
3. 54Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock
4. 55We may in the future determine to issue preferred stock, which could adversely affect the market value of our common stock
5. 56We may incur significant costs as a result of being a public company
6. 57A shareholder’s interest in us will be diluted if we issue additional shares of common stock, which could reduce the overall value of an investment in us
7. 58Certain provisions of our articles of incorporation and bylaws could deter takeover attempts and have an adverse impact on the value of our common stock
8. 59Investing in our common stock involves a high degree of risk
9. 60The NAV of our common stock may fluctuate significantly
10. 61Purchases of our common stock by us pursuant to our 10b5-1 plan may result in the price of our common stock being higher than the price that otherwise might exist in the open market
11. 62Purchases of our common stock by us under our 10b5-1 plan may result in dilution to our NAV per share
12. 63The tax treatment of a non-U.S. shareholder in its jurisdiction of tax residence will depend entirely on the laws of such jurisdiction, and may vary considerably from jurisdiction to jurisdiction

Risks Relating to an Investment in Our Public 2029 Notes

1. 64An active trading market for the 2029 Notes may not exist, which could limit a holder’s ability to sell the 2029 Notes or affect the market price of the 2029 Notes
2. 65The optional redemption provision may materially adversely affect holders’ return on the 2029 Notes
3. 66A downgrade, suspension or withdrawal of a credit rating assigned by a rating agency to us, our unsecured debt or the 2029 Notes or a change in the debt markets could cause the liquidity or market value of the 2029 Notes to decline significantly
4. 67Global economic, political and market conditions, including uncertainty about the financial stability of the United States, may adversely affect our business, financial condition and results of operations, including our revenue growth and profitability
5. 68The capital markets may experience periods of disruption, instability and economic uncertainty. Such market conditions may materially and adversely affect the debt and equity capital markets, which may have a negative impact on our business and operations
6. 69Changes to United States tariff and import/export regulations and trade disputes with other countries may have a negative effect on our portfolio companies and, in turn, harm us
7. 70We are highly dependent on the information systems of CIG and operational risks including systems failures could significantly disrupt our business, result in losses or limit our growth, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions
8. 71Finally, there has been significant evolution and developments in the use of artificial intelligence technologies, such as GPT-4o. We cannot fully determine the impact of such evolving technology to our business at this time