CION Investment’s 2026 Q2 Call: Loan Sales Process, Growth Outlook, and Leverage Strategy Contradictions

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Date of Call: Aug 6, 2026

Financials Results

• EPS: $0.29 per share, up from $0.25 in Q1 2026

Guidance:

• Targeting pro forma leverage of approximately 1.35x, expected to be completed by end of Q3 or Q4 2026.
• Expect to materially reduce or cease investments in new portfolio companies, prioritizing share repurchases.
• Declared Q4 base distributions of $0.30 per share, paid monthly at $0.10 per share per month.
• Expect PIC income to decline in coming quarters.
• Expect Q3 bankruptcy reorganization plan for Thrill One.

Business Commentary:

Financial Performance and Dividend Stability:

• Scion Investment Corporation reported net investment income of $0.29 per share for Q2 2026, up from $0.25 in Q1 2026, aligning with their monthly base distribution level.
• The company maintained a stable net asset value of $13.57 per share, a 3.5% increase quarter-over-quarter.
• The increase in net investment income and NAV was primarily due to mark-to-market price increases in their equity portfolio and strategic capital actions, including paying down secured credit facilities.

Portfolio Valuation and Sales:

• The company sold more than $54 million in portfolio assets at 99% of par during Q2, with an additional $10 million sold post-quarter end at a similar valuation.
• This aligns with their carrying values and validates their internal valuation process through third-party sales.
• The sales were part of a broader deleveraging strategy and were driven by the company's confidence in their portfolio's fair value.

Deleveraging and Capital Structure:

• Scion's net debt-to-equity ratio decreased to 1.52 times from 1.62 times in Q1 2026, with plans to further reduce leverage to approximately 1.35 times.
• This reduction is due to repayment of debt, including the full repayment of $115 million in Israeli public bonds and $125 million on a secured credit facility.
• The strategy focuses on prioritizing unsecured debt to enhance balance sheet flexibility and reduce on-balance sheet exposure.

Credit Quality and Non-accruals:

• The non-accrual rate at fair value decreased to 1.44% from 1.53% in Q1 2026, and at amortized cost, it decreased to 4.41%.
• No new names were placed on non-accrual, indicating stable credit performance.
• This improvement is attributed to the company's focus on senior secured first lien debt and active management of portfolio companies.

Share Repurchase and Stock Valuation:

• The company increased its share repurchase program by $50 million, authorizing a total of $130 million.
• They prioritize repurchases over new investments, believing their stock is significantly undervalued relative to NAV.
• This decision is supported by the expectation of substantial cash proceeds from the monetization of equity investments, such as Longview Power.

Sentiment Analysis:

Overall Tone: Positive

• "This was a good quarter based on our key metrics." "Net asset value per share was up. Net investment income was up. Non-accruals were down." "We have a plan to delever our balance sheet by around $270 million." "We feel good about where we are headed on dividend coverage for the remainder of 2026." "We are quickly executing on our deleveraging commitment." "We believe that the narrative around Scion does not reflect the underlying reality."

Q&A:

• Question from Eric Zwick (Lucid Capital Markets): Could you talk about the buyers for the loan sales in Q2 and early Q3, the type of investor, and whether they were auction or negotiated transactions?
  Response: The sales involved a diversified mix of buyers, including co-investors and syndicate members, and were mostly negotiated on a loan-by-loan basis at prices close to par.

• Question from Eric Zwick (Lucid Capital Markets): Are you contemplating more asset sales to hit the leverage target of 1.3-1.4x?
  Response: No incremental asset sales are planned; larger potential financing transactions are being looked at, but individual asset sales are largely complete.

• Question from Eric Zwick (Lucid Capital Markets): Could you discuss the potential options and outlook for the legacy brick-and-mortar business of David's Bridal after the planned split?
  Response: The legacy retail business will be run for cash flow, while the high-growth Pearl digital platform will be scaled separately, making them attractive for different strategic transactions.

• Question from Eric Zwick (Lucid Capital Markets): How does the origination pipeline look, and will net portfolio growth be delayed due to deleveraging?
  Response: New origination will be portfolio-focused, with an average spread of SOFR plus 8.1%. Given the stock price and deleveraging plan, net portfolio growth is not expected for a few quarters.

Contradiction Point 1

Nature of Loan Sales Process

Conflicting statements on whether sales were negotiated or involved an auction.

Eric Zwick (Lucid Capital Markets) - Eric Zwick (Lucid Capital Markets)

2026Q2: The transactions were negotiated on a loan-by-loan basis but were straightforward as the sale prices were very close to par. - Greg Bresner(CIO)

What were the types of buyers and transaction methods (auctioned or negotiated) for Q2 loan sales and post-quarter additional sales? - Erik Zwick (Lucid Capital Markets)

2026Q2: The sales involved a diversified mix of buyers... The transactions were negotiated on a loan-by-loan basis, but since the prices were close to par, the process was straightforward. - Gregg Bresner(CIO)

Contradiction Point 2

Outlook for Portfolio Growth

Contradiction on the expected duration of no net portfolio growth.

Which company does Eric Zwick represent? - Eric Zwick (Lucid Capital Markets)

2026Q2: Yes, the company expects no net portfolio growth for a period due to the deleveraging and share repurchase focus. - Greg Bresner(CIO)

What is the current pipeline for new origination, and how will deleveraging impact net portfolio growth over the next few quarters? - Erik Zwick (Lucid Capital Markets)

2026Q2: The company believes the right way to think about it is no net portfolio growth for a few quarters while focusing on deleveraging and share repurchases. - Gregg Bresner(CIO)

Contradiction Point 3

Strategy and Timeline for Leverage Reduction

Contradiction on the method and timeframe for achieving target leverage.

Eric Zwick (Lucid Capital Markets) - Eric Zwick (Lucid Capital Markets)

2026Q2: No incremental individual asset sales are planned. The company is looking at larger financing transactions to further delever. - Greg Bresner(CFO)

Will you pursue further asset sales to achieve the 1.3-1.4x leverage target? - Eric Zwick (Lucid Capital Markets)

2026Q1: The goal is to drive leverage levels down over the remaining few quarters using a combination of refinancing, sales, and repayments. - Keith Frantz(CEO), Greg Bresner(CFO)

Contradiction Point 4

Outlook for Portfolio Growth and New Originations

Contradiction on the expectation for future portfolio growth.

Eric Zwick (Lucid Capital Markets) - Eric Zwick (Lucid Capital Markets)

2026Q2: Yes, the company expects no net portfolio growth for a period due to the deleveraging and share repurchase focus. - Greg Bresner(CFO)

What is the current pipeline for new origination, and how does deleveraging affect expectations for net portfolio growth over the next few quarters? - Eric Zwick (Lucid Capital Markets)

2026Q1: The Q1 originations were at the low end of the company's target... Attractive opportunities still exist, but M&A activity has reduced due to macroeconomic conditions and interest rates. - Greg Bresner(CFO)

Contradiction Point 5

Leverage Reduction Strategy

Different methods stated for achieving target leverage.

Eric Zwick (Lucid Capital Markets) - Eric Zwick (Lucid Capital Markets)

2026Q2: No incremental individual asset sales are planned. The company is looking at larger financing transactions to further delever. - Greg Bresner(CFO)

Planning any more asset sales to reach leverage target of 1.3-1.4x? - Erik Zwick (Lucid Capital Markets, LLC)

2025Q4: The company expects to use scheduled repayment activity to delever over the next few quarters. - Keith Franz(CEO)

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