CION Investment Corporation

Good morning, and welcome to Scion Investment Corporation's fourth quarter and year-end 2025 earnings conference call. An earnings press release was distributed earlier this morning before market opened. A copy of the release, along with a supplemental earnings presentation, is available on the company's website at www.scionbdc.com in the Investor Resources section, and should be reviewed in conjunction with the company's Form 10-K filed with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of numbers of factors, including those described in the company's filings with the SEC. Joining me on today's call will be Michael Reisner, Sign Investment Corporation's Co-Chief Executive Officer, Greg Bresner, President and Chief Investment Officer, and Keith Franz, Chief Financial Officer. With that, I would like to turn the call over to Michael Reisner. Please go ahead, Michael.

Thank you, and good morning, everyone. Before I address our quarterly results, I want to step back for a moment and highlight what I believe is the most important takeaway from this quarter. We believe that our core first lien portfolio, which represents approximately 81% of our investments, continues to perform well. Weighted average interest coverage across our portfolio increased quarter over quarter from 1.94 times to 2.26 times. Even the growth in our portfolio companies primarily continues on a positive trajectory, and our risk-rated four and five names held steady at approximately 2.4% of the portfolio at fair value. We added one new term loan to non-accrual status during the quarter, healthway, and overall non-accruals remained essentially flat compared to the prior quarter at 1.78% of the portfolio at fair value. I would also note that our software exposure stands at approximately 1.8% of the portfolio at fair value, a reflection of our longstanding and intentional decision to avoid that sector. For investors who have expressed concern about software concentrations in BDC portfolios broadly, we believe our position should provide meaningful comfort, and Greg will speak further to our sector discipline. Overall, we are not seeing the material cracks in private credit that the press has been eager to report. Now, turning to our NAV, our net asset value decreased 7.4% quarter-over-quarter to $13.76. down from $14.86 at the end of September. I want to stress that this decline was driven almost entirely by unrealized mark-to-mark adjustments and a handful of equity positions, specifically Juice Plus, 4Wall Entertainment, David's Bridal, and Addison Young. These are unrealized marks, not realized credit losses, and as we have discussed on prior calls, our equity book can introduce meaningful quarter-to-quarter volatility into our NAV. We have always been transparent with the market about this potential volatility, and this quarter, this volatility caused our NAV to decline. We believe this potential volatility should be evaluated in the context of a portfolio whose core lending book is demonstrably healthy and whose equity positions retain long-term appreciation potential. Greg will walk through each of these names in detail. I am also pleased with our capital markets execution during and subsequent to the quarter. We raised $172.5 million in senior unsecured notes during the fourth quarter across 2027 and 2029 maturities. And subsequent to quarter ends, we raised an additional $135 million in unsecured public baby bonds due in 2031, a combined $307.5 million in unsecured borrowings that further strengthens the flexibility and duration of our balance sheet. Keith will discuss both transactions in greater detail, but we believe that continued access to the unsecured debt markets at these levels reflects the confidence institutional investors have in our credit profile. We also repurchased approximately 556,000 shares during the quarter at an average price of $9.37 per share, which we continue to view as prudent and accretive use of our capital. Looking ahead, we continue to see a resilient underlying economy While we are mindful of the ongoing geopolitical uncertainty, the underlying domestic economy continues to show resilience, and we believe conditions remain broadly supportive for our portfolio companies for the remainder of 2026. Our portfolio companies, the vast majority of which serve business-to-business end markets in the U.S. middle market, generally continue to perform in line with or better than our expectations. Despite the volume of cautionary commentary in the financial press around private credit, We are simply not seeing broad-based deterioration in our portfolio, and we remain confident in the durability of our first lean focus strategy for the remainder of the year. With that, I'll turn the call over to Greg to discuss our portfolio and investment activity during the quarter.

Thank you, Michael, and good morning, everyone. Prior to covering our investment and portfolio activity for Q4, I would like to expand on Michael's comments regarding our nominal level of software exposure within the portfolio. We ended the quarter with three software portfolio companies totaling 1.8% of portfolio fair value or 2% on an amortized cost basis. All three of these software companies were underwritten on a performing positive EBITDA basis with a weighted average net tranche level of approximately 4.4 times EBITDA closing. We have no ARR loans in the portfolio. As a firm, we have historically not invested in software as we were unwilling to lend against an ARR growth methodology with negative EBITDA profile at closing. We view the ARR software profile more as a venture-oriented investment with equity-like risk that require return levels well in excess of the yields typically offered on first-mean debt investments. In terms of our Q4 investment activity, we remained highly selective with new portfolio investments and were focused on transactions within our portfolio companies. We also were effectively at full investment during most of the quarter and worked to balance the timing of expected investment pipeline investments versus repayment amounts while maintaining our targeted net leverage range. Overall, we had fewer exiting repayments for the quarter versus our Q3 level as certain repayments drifted into Q1 of 2026. During the quarter, we passed on a historically higher percentage of potential investments in new portfolio companies based on credit and pricing considerations. While secondary credit market conditions were choppy in Q4 due to speculation regarding tariffs and interest rate policies, the government shutdown, and market concerns regarding potential cracks in private credit, there remained a significant bifurcation from the new issue market. New issue pricing continued to be driven by the hangover of record 2024 private debt fundraising, which translated into lower coupon spreads, higher leverage levels, and looser credit documents in the market. We focused our Q4 activities on incremental opportunities with our portfolio companies. We believe our continued investment selectivity and proportional deployment levels help us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets. The weighted average yield for our new direct first lien investments for the quarter based on our investment cost was the equivalent of SOFR plus 6.43%. As we discussed in previous quarters, the majority of our annual PIC income is strategically derived from either highly structured first lead investments where our PIC income is incremental to our cash coupon. Together, these categories represented approximately 75% of our total PIC investments in Q4. Approximately 73% of our PIC investments are in portfolio companies risk-rated either one or two and 99% risk-rated three or better. As a result, we believe this PIC income does not compare to restructured PIC driven by a deterioration in credit. Turning now to our Q4 investment and portfolio activity. Our Q4 investment activity consisted of a co-lead investment in one new portfolio company, Strained Dental Management, and incremental add-on investments and secondary purchases in existing portfolio companies, including Adaptive Laser, American Clinical, Abbots & Young, BDS Solutions, CareStream Health, CoinMock, David's Bridal, StatinMed, and WorkGenius. We additionally refinanced the first lien debt of SleepCo, Brooklyn Bedding, and Camden with our initial club partners. During Q4, we made a total of approximately $76 million in investment commitments across one new and 14 existing portfolio companies of which $66 million was funded. We also funded a total of $12 million of previously unfunded commitments. We had sales and repayments totaling $79 million for the quarter, which consisted of the full repayment of the first lean term loans for Moss Holding and North Star Travel. As a result of all these activities, our net funded investments decreased by approximately $1 million during the quarter. As Michael referenced, our NAV decreased during the quarter was driven primarily by declines in the unrealized mark-to-market value of our equity portfolio that was concentrated within a subset of equity investments, including Juice Plus, Four Wall Entertainment, David's Bridal, and Avison Young. The common theme among these names is what we internally refer to as the COVID elongation cycle, as each of these names were significantly impacted by both COVID and the labor market, inflation, and interest rate shocks which sequentially followed. which resulted in the restructuring or recapitalization of balance sheets to rebuild the platforms. The reduction in the equity mark of Juice Plus was driven by a reduction in trailing quarterly revenue performance against its fixed cost base as the company worked to complete its restructuring in the third quarter. With its recapitalized balance sheet in Q4, the company immediately pivoted to operational initiatives and investments, to transform its product offerings and sales infrastructure to optimize its go-to market strategy that is more in line with consumer health and wellness trends and spend. The company has been executing on product development, sales management, and information technology initiatives to reposition the growth and profit improvement over the medium term. The marked value of our equity investment in 4.0 entertainment was negatively impacted by reduced trailing EBITDA performance driven primarily by industry factors, including reduced live event activities from cancellations and lower TV and film production as the sector rebuilds pipelines from the wider stripe that delayed the release queue of new scripts and production content. The company successfully restructured its balance sheet in the summer of 2025 and repositioned its sales, business development, and CapEx to focus on an expected rebound in both event and production activities. the company is expecting significant EBITDA improvement in 2026 and has already secured a number of high-profile event wins for 2026. As we have mentioned on previous quarterly calls, we expect to see significant quarter-to-quarter volatility in the marks of David's Vital Equity due to the larger overall relative size of our investment, as well as the highly seasonal nature of the company's operations and working capital profile. The decline in the Q4 mark primarily reflects the typical seasonal increase in debt as the company builds inventory ahead of the critical bridal season, which historically begins in mid-January. In addition, we invested incremental capital to accelerate the company's growth of its pearl segment, which is a high-growth, higher-margin digital marketplace platform that expands the company's market participation beyond the $5 billion wedding dress segment in the broader $65-plus billion wedding services industry. The Q4 equity marks in Addison Young were negatively impacted by incremental debt raised in Q4 at the top of the capital structure to support the company's investments in sales and other infrastructure in advance of the expected increase in commercial real estate activity in 2026 and 2027. This incremental increase in the quantum of debt negatively impacted the value of Addison's equity tranches. Zion participated in the latest debt round and continues to lead his company as well-positioned for the expected rebound in commercial real estate. Our investments in Juice Plus, David's Bridal, and Abbots & Young are representative of our opportunistic first lien investment strategy where we acquire either restructured or lightly syndicated first lien loan tranches in quality companies at a discount to par due to technical reasons where we expect to have active roles in the processes that drive the recovery and realization of the investments. Historically, we have been able to realize healthy earnings on our first lean restructured or recapitalized transactions. Illustrative examples include our investments in Longview Power, Yak Mat, Heritage Power, and Dayton Superior. We also had a number of portfolio companies where the equity marks increased for the quarter due to strong financial performance and our projected outlook, including Longview Power, Palmetto Solar, and Playboy. From a portfolio credit perspective, our non-accruals increased slightly, from 1.75% of fair value in Q3 to 1.78% in the fourth quarter. This increase was from the addition of one new name to non-accrual, our term loan investment in HW Acquisition or Healthway. Healthway initiated a primary revolver raise in the fourth quarter that ultimately funded in early 2026 and contained a substantial MOA component that effectively shifted value from the term loan to the revolver tranche. While Cyan participated in the revolver upsize and ultimately benefited on a total position value basis from the incremental accretion in the revolver tranche versus our pro rata ownership of the term loan, the shift in value resulted in non-recrual status for our term loan holding. On an absolute basis, non-recruals continue to be in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current environment. Overall, our portfolio remains defensive in nature with approximately 81% in first-name investments. Approximately 98% of our portfolio remains risk-rated 3 or better. Our risk-rated 3 investments, which are investments where we expect full repayment but are either spending more engagement time and or I've seen increased risk to the initial asset purchase, increased from approximately 10.4% in the third quarter to 11.5% in Q4. I'll now turn the call over to Keith.