Greetings. Welcome to CION Investment Corporation's Q3 2021 Financial Results Conference call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Jeehae Linford as the representative of the company. Jeehae, you may now begin.
Thank you. Good morning, and welcome to CION Investment Corporation.
My apologies. Please go ahead, Jeehae.
No problem. Thank you. Good morning, and welcome to CION Investment Corporation's Q3 2021 Earnings Conference Call. An earnings press release was distributed earlier this morning before market open. A copy of the release, along with the supplemental earnings presentation, is available on the company's website at www.cionbdc.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10-Q filed this morning with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC.
We caution you to not place undue reliance on forward-looking statements, which reflect management's view only as of the date of this call. CION Investment Corporation undertakes no obligation to update or revise any such forward-looking statements unless required by law. Speaking on today's call will be Mark Gatto and Michael Reisner, CION Investment Corporation's Co-Chief Executive Officers, Gregg Bresner, President and Chief Investment Officer, and Keith Franz, Chief Financial Officer. With that, I would now like to turn the call over to Mark Gatto. Please go ahead, Mark.
Thank you, Jeehae. Good morning, everyone, and thank you for joining us today. Welcome to CION Investment Corporation's Q3 2021 financial results conference call. We are excited to be hosting our first public earnings call following our listing on the New York Stock Exchange on October 5. On today's call, I'll provide a brief overview of our Q3 performance and key activities to date. Thereafter, since this is our first earnings call as a listed company, Michael Reisner will take the opportunity to introduce CION to those who may be new to our story. Following that, Gregg Bresner will describe our investment activity during the quarter, and Keith Franz will provide additional detail on our financial results. We'll then open the line for Q&A. Let's get started.
As previously announced, we effectuated a two-to-one reverse stock split on September 21, and all share and per share information will be retroactively presented and discussed accordingly. Also, as previously announced, we have amended our fee structure to be more in line with our listed peers with the base management fee at 1.5% and 1% on assets financed below 200% asset coverage and the incentive fee at 17.5% with a hurdle rate of 6.5%. We are pleased to be reporting solid Q3 results. During the quarter, we generated net investment income of $0.35 per share compared to $0.33 per share in the Q2 , driven by solid investment performance.
A highlight for the Q3 was the very successful exit of our preferred and common equity investment in Kinesis, which generated a net realized gain of approximately $18.9 million. We had a very active origination quarter, even with a significant portion of our Q3 pipeline closings slipping into October. Newly funded investments totaled $165 million, compared to $223.2 million in sales and repayments, resulting in a decrease in net investment activity of $58.2 million. We expect our origination activity to be strong in Q4 as we booked over $100 million of new investment commitments in October alone. In spite of the highly competitive market environment, we maintained our highly disciplined and rigorous approach to credit and remain defensive in nature.
We continue to emphasize a fundamental bottoms-up approach to each investment opportunity that looks beyond current market conditions. Net asset value per share increased to $16.52 as of September 30, an increase of $0.18 from the end of the Q2 . The NAV increase was driven primarily by realized and unrealized gains. There was one new investment, the first lien term loan of Premiere Global Services, that was placed on non-accrual status for the quarter. Total investments on non-accrual status amount to 0.94% of total investments at fair value and approximately 2.5% on adjusted cost. Looking ahead, we are optimistic for CION and the opportunities that we see to grow in a meaningful and measured manner.
Our pipeline is as robust as ever, and we recently filed a definitive proxy statement seeking shareholder approval to increase our regulatory leverage by reducing our asset coverage ratio to 150% in line with other listed BDCs. Our objective is to continue generating consistent, solid performance while carefully pursuing opportunities to grow our portfolio. Critical to our priorities, however, is that we continue to maintain the long-term strategy and focus that has served us well over the past nine years. My partner, Michael, will speak more on this topic shortly. With that, let me turn it over to Michael.
Thanks, Mark. As mentioned, my name is Michael Reisner, Mark's partner and Co-Chief Executive Officer. I want to echo Mark's comments about how excited we are for this milestone event and our first earnings call as a listed company. As Mark said, I'd like to take a few moments to provide an overview of CION for the benefit of those who may not be as familiar with us. CION Investment Corporation has been in operation since 2012, and we view ourselves as a leading middle-market lender focused on providing senior secured loans to the U.S. middle market, primarily first lien. As of September 30, 87.6% and 6.1% of our portfolio was comprised of first lien and second lien debt, respectively, for a total of 93.7% of the entire portfolio being comprised of senior secured loans.
Our portfolio is highly diversified, consisting of 126 portfolio companies with an average median annual portfolio company EBITDA of approximately $43 million. Our portfolio companies represent 23 different industries, and historically, we have focused on industries with non-cyclical business models, which, along with our focus on the top of the capital structure, was important when navigating the impact of COVID-19 over the past one and half years. CION is part of our broader CION Investment Group platform, a vertically integrated alternative asset manager and retail distribution organization with over $4 billion in AUM as of September 30, which includes over $2 billion managed through CION Ares Management for our interval funds, CION Ares Diversified Credit Funds. Of importance to note, however, is that our BDC is the exclusive focus of the investment team.
Over the past 10 years, we have developed a structure and culture that we believe has enabled us to grow and differentiate ourselves within the highly competitive BDC sector. We have a robust, inclusive organization and sourcing approach that emphasizes both direct first lien club investments with a deep and diverse network of like-minded partners, as well as select lead opportunities with private equity sponsors where we believe we have differentiated relationships. Our goal is that we become a valued repeat partner to the many firms in our network. We represent a long-tenured, highly experienced management team and bring together diverse backgrounds and skills that we believe positively and uniquely impact our approach to credit and underwriting, which has ultimately been an important source of differentiation for us and in generating our solid performance track record to date.
Mark and I have worked together for over 15 years, including co-founding CION Investment Group nearly 10 years ago. Today, CION Investment Corporation manages roughly $1.8 billion in assets with a complete team of over 20 investment and operational employees supporting CION. As Mark noted, on October 5, CION officially began trading on the New York Stock Exchange. After nine years of operations as a non-traded BDC, we made the strategic decision to move forward with the listing of CION in order to fulfill our pledge to our existing shareholders to provide enhanced liquidity and also position CION for the opportunity to grow. As part of the process, and as Mark mentioned, we have filed a definitive proxy statement seeking shareholder approval to increase our regulatory leverage by reducing our asset coverage ratio to 150%.
Additionally, we recently announced board approval for a $50 million share repurchase plan and our intention to establish a 10b5-1 trading plan to facilitate share repurchases. We anticipate implementing the trading plan in early spring 2022 after the market has had two reporting periods in which to judge our stock's performance. In addition, as a somewhat new development based on conversations with our regulator and our legal counsel, while not a critical part of our deal sourcing in any way, our understanding is that Apollo, which is a non-controlling shareholder in our advisor, is now able to provide us with access to originated deals as it would show any other market participant. As we continue embarking on this new path as a more public-facing company, we at CION look forward to getting better acquainted with you.
Now, I'd like to turn it over to Greg for an overview of the investment market and our investment activity for the quarter.
Thanks, Michael. Good morning, everyone. I'm Gregg Bresner, President and Chief Investment Officer of CION. As Mark mentioned, we continued to experience a robust market environment during the third quarter of 2021, characterized by tightening market spreads, abundant liquidity, and continued increases in transaction volumes. The U.S. leveraged loan market is on record pace for issuance in 2021, as total institutional loan volume through September 30 is $487 billion. Surpassing the prior high for the first three quarters of $405 billion in 2017. Despite the record issuance, effective yields for middle-market loans, as reported by S&P LCD, continued to tighten to an average of 5.44%, down from 5.73% and 5.51% in Q1 and Q2, respectively.
Our team remained active on the origination front, and during the quarter, we made 20 new investment commitments totaling $178.9 million, nine of which were to new borrowers and eleven to existing portfolio companies. A significant portion of our Q3 investment pipeline carried over to closings in October. Accordingly, in the month of October, we closed on $115 million of new investment commitments, with November already shaping up for another 100+ million month for new investment commitments. Of the $178.9 million in new investment commitments made during the quarter, most were first lien investments with an average cost of 98.2% of par and a yield to cost of 9.54%.
Despite market conditions, the effective yield to maturity profile on our funded first lien commitments in Q3 was approximately 10.25%. Repayment and other exit activity totaled $223.2 million, driven by the full repayment of 15 portfolio companies, while newly funded investments for the quarter totaled $165 million. Accordingly, net funded investment activity amounted to a decrease of $58.2 million for the quarter. Most notably, the realization of our investment in Kinesis, which consisted of participating preferred stock and common equity, was a highlight during the quarter. The combined realized gain generated by this investment totaled approximately $18.9 million and represents one of CION's most successful investment outcomes to date. We initially acquired the Kinesis loan as part of our acquisition of the CS Park View portfolio in the Q3 of 2016.
At the time of our acquisition, Kinesis was contemplating a material strategic transformation of the business from an agency and advertising model to a higher value add analytics offering for its pharmaceutical customers that required additional capital and flexibility. Working closely with the private equity sponsor and the management team, we created an investment solution that proved to be a win-win for all parties. CION utilized its flexibility to invest across the capital structure with longer tenure and exchanged our second lien holdings into a participating preferred investment with a higher yield and significant common equity upside. The strategic transformation of the business ultimately resulted in a successful M&A exit. Now I provide a little bit more information on our overall portfolio composition.
At quarter end, we had 209 investments in 126 portfolio companies with a total fair market value of about $1.6 billion, comprised of 93.7% in senior secured loans. This included 87.6% in first lien, 6.1% in second lien, 5.2% in equity, and less than 1% each in unsecured debt and structured products. Over 88% of the portfolio is in floating rate investments. As Marc and Michael have mentioned, we are a first lien focused BDC. We are pleased with the current composition of our portfolio and do not plan on any material shift with respect to the makeup in terms of types of investments.
As of Q3 end, our portfolio had a gross annual yield prior to leverage of 8.31% compared to 8.50% at the end of the Q2 , with a weighted average purchase price of 97.6% of par and an average investment size of about $12.4 million. Turning next to credit quality. Overall, we believe we have a high-quality portfolio that is well diversified in terms of concentration and portfolio mix, with 23 industries represented and the three largest industries being business services at 16.4%, healthcare and pharmaceuticals at 16.3%, and consumer services at 7.5%, which is based on fair value and totals approximately 40.2% of the entire portfolio. The underlying performance of our portfolio companies in the Q3 was stable.
The weighted average net debt to EBITDA of our portfolio companies was 4.6x at quarter end, which is consistent with the Q2 . The weighted average interest coverage of our portfolio companies was 3.5x, a slight improvement from the 3.1x at the end of the prior quarter. As of September 30th, investments on non-accrual status were 0.94% and 2.49% of the total investment portfolio at fair value and amortized costs, respectively, compared to 0.42% and 1.53% at the end of the Q2 . During the quarter, there was one new investment placed on non-accrual status. This was the first lien loan of Premiere Global, which we currently have valued at under 52% of par.
CION's holdings represent approximately 3.6% of this total tranche. Our investments with internal risk ratings of four and five made up less than 1% of the total portfolio, which is consistent with the Q2 , with over 85% of our portfolio rated two or higher. The definition of a risk rating three asset does not appear to be consistent throughout the BDC universe. Our risk rating definition indicates 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. Given the change in risk since the initial investment, only our monitoring intensity is increased for risk three rated assets.
In summary, we're very pleased with CION Q3 , and as we sit here today, we expect that market conditions will continue to support a robust origination environment, tempered in part by repayment activity. Our pipeline continues to provide us with cautious optimism as we look ahead through the end of 2021. I'll now turn the call over to Keith.
Okay, thank you, Gregg, and good morning, everyone. My name is Keith Franz, the company's Chief Financial Officer. As mentioned earlier, we reported solid results for the Q3 . For Q3, net investment income was $19.6 million, or $0.35 per share, compared to $18.7 million, or $0.33 per share in the June quarter. Total investment income was $42.6 million, an increase of $4.6 million or 12% from the prior quarter. The increase in investment income was driven by higher dividend income related to the exit of our investment in Kinesis during the quarter. On the expense side, management incentive fees were higher due to an increase in average gross assets under management and the successful exit of our investment in Kinesis.
We also recognized higher operating expenses compared to the prior year due to non-recurring costs relating to the listing, including higher legal, advisory, and proxy solicitation costs. At the end of the quarter, we had $1.8 billion of assets under management with total net assets of $941 million, total debt outstanding of $805 million, with 56.9 million shares outstanding. As a result, at quarter end, our debt to equity ratio was 86% compared to 87% at the end of the Q2 . As previously discussed, we have filed a definitive proxy statement seeking shareholder approval to increase our leverage and reduce our asset coverage ratio.
Total net assets at September 30 was $941 million or $16.52 per share, compared to $926 million or $16.34 per share at June 30, which is an increase of $0.18 per share or about 1.1% from the prior quarter. We are pleased to report that our NAV has recovered over 98% of the NAV decline we experienced due to COVID-19 that occurred during March 2020. We ended the quarter with a strong balance sheet with over $500 million in unencumbered assets, low leverage with a strong debt servicing capacity and solid liquidity. We'd have over $118 million in cash and short-term investments and access to another $75 million under our current facilities to finance our investment pipeline.
During the Q3 , we paid cash distributions to our shareholders of about $15 million, with $0.26 per share, and paid about $45 million or $0.79 per share for the year to date period, all of which were fully covered by our taxable income. Additionally, we previously announced a regular quarterly distribution of $0.26 per share for the Q4 and a special year-end distribution expected to be in the range of $0.14-$0.20 per share. We also announced that we would move from monthly to quarterly distributions beginning with the Q4 . The regular quarterly cash distributions will be paid on December 8 to shareholders of record as of December 1, and a special distribution will be paid on December 23 to shareholders of record as of December 16.
On November 11, we declared a regular quarterly cash distribution of $0.28 per share for the Q1 of 2022, which is an increase of $0.02 per share or 8% from the Q4 . In terms of our distribution policy, we will announce future quarterly distributions with each quarterly earnings release going forward, with the expectation of declaring two special distributions each year, one in June and another in December, taking into consideration both the company's ongoing performance as well the general economic outlook and related factors. As a final note, with all of the corporate actions undertaken in connection with our listing, we encourage our shareholders to review our filings with the SEC, and shareholders who have any questions regarding their shares should feel free to contact our investor relations team who are ready and prepared to answer your questions.
The direct number to reach the team can be found on our website at www.cionbdc.com. Okay. With that, I'll turn the call back over to Mark for some concluding comments.
Thank you, Keith. In closing, we are very excited for what's next. We appreciate the support from our existing shareholders and the confidence our new investors have expressed by joining us on what we believe will be a great journey ahead. With that said, operator, we are ready to take any questions.
Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Once again, that's star one to ask a question. Our first question is from the line of Finian O'Shea with Wells Fargo. Please proceed with your questions.
Hey, everyone. Good morning. Thanks for taking my question. Congratulations on the inaugural earnings quarter. First question for Mike. I think you mentioned progress on co-investment potential with Apollo. Did it sound like there's just ability to co-invest or participate in loans on assignment? Or is there progress toward receiving exemptive relief, co-investment relief, you know, getting into their co-investment order? Any color you have there and how the mechanics would work would be appreciated.
Sure. I'll be a little bit careful what we could say because it's not definitive when you deal with the regulators. I guess what I can say is we will not be seeking exemptive relief with Apollo, nor will they seek it for us because there is no need. We're not an affiliate of theirs. They do not control us. It is our understanding that they will treat us just as they would treat any other market participant in terms of when they refer deals to.
Okay. Great. That's helpful. And a second question, Mike, actually, you mentioned, you know, the strategies between the club market and direct-to-sponsor. On the club market, is there... do you have... Are you willing or able or both to participate in the very large private unitranches we're seeing? Some of them are taken down by one really large lender, and some are clubbed up between a few. But wondering if you're seeing that very large market open up to a broader club, a broader, you know, quasi syndicate. That is, if it is something you'd be interested in doing.
We are seeing it. I will tell you that, it all comes down to terms both of the credit agreement as well as the economics. We're going to compare that to the rest of the club market that we see and compare it. You know, we are tending to see better economics in what I would consider the more traditional middle market.
Okay. Makes sense. A question, I guess, for Keith or any of the above. Would the investment strategy, you know, on more leverage, a two-part question. You know, one is, you know, what sort of improvement, if any, do you see in the liability structure, now that you're public and, you know, hopefully, positioned for two-to-one leverage? You know, second part for the investment side, would that change your strategy, overall or on the margin?
I think on the investment side, the answer is no. We do not expect to change anything in terms of our approach. In terms of the economics as being a listed entity, I think it's wait and see. You know, as we seek approval from our shareholders and we go to the market, we'll see what economics we can bear at the time.
Okay. Makes sense. Final question for Keith. I think you mentioned the special. I may have missed exactly what I'm looking for, but in the press release it says $0.14-$0.20, you know, payable on December twenty-third. You know, it's still somewhat of a, not terribly, but somewhat of a wide range. When do you expect to know and declare this amount?
Yeah. I think as we move into closer to December, we'll be probably in a good position to come out with a firmer number.
Okay, great. Well, thank you, everybody, for taking my questions, and congrats again on the listing.
Thank you, Finn.
Thanks, Finn.
Thank you, Finn.
As a reminder, you may press star one on your telephone keypad to ask a question at this time. We'll pause a moment while we assemble the queue. Thank you. At this time, I'll turn the call back to management for further remarks.
Great. Well, thank you everyone for joining the call tonight. We do appreciate your interest in CION, and we look forward to speaking to you next quarter. Take care, everyone.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.