486BPOS: CION Ares Diversified Credit Fund Announces Details on Senior Securities and Investment Strategy

CION Ares Diversified Credit Fund provides details on its asset coverage ratio, senior securities, management fees, and investment strategies, emphasizing its focus on risk-adjusted returns and diversified credit investments.

Summary

• CION Ares Diversified Credit Fund, a diversified, closed-end management investment company, has released information regarding its senior securities and investment strategy.
• The fund's asset coverage ratio for senior securities is calculated according to Section 18(h) of the 1940 Act.
• As of December 31, 2024, the fund's borrowings represented approximately 21.86% and Preferred Shares represented approximately 11.79% of its Managed Assets.
• The fund's management fee is calculated at an annual rate of 1.25% of the average daily value of the fund's Managed Assets.
• The fund anticipates paying an Incentive Fee based on its performance, subject to a hurdle rate of 6.00% per annum.
• The fund borrows money for investment purposes at an average amount of 44.12% of its net assets, with an estimated annual interest rate cost of 6.56% as of December 31, 2024.
• The fund invests primarily in directly originated loans, secured floating and fixed rate syndicated loans, corporate bonds, asset-backed securities, and commercial real estate loans.
• The fund may charge a sales load of up to 5.75% for Class A Shares, 4.25% for Class L Shares, 3.00% for Class W Shares and 2.50% for Class U-2 Shares.
• The fund is operated as an interval fund and conducts quarterly repurchase offers for between 5% and 25% of its outstanding Shares at NAV.
• The fund utilizes leverage through senior secured revolving credit facilities and its outstanding Mandatory Redeemable Preferred Shares (MRP Shares).

Sentiment

Score: 6

Explanation: The document is neutral in tone, providing factual information about the fund's structure, fees, and investment strategies. While it highlights risks, it also emphasizes the fund's objective of superior risk-adjusted returns.

Positives

• The fund aims to provide superior risk-adjusted returns across various market cycles.
• The fund seeks to capitalize on market inefficiencies and relative value opportunities.
• The fund invests in a diversified portfolio of liquid and illiquid asset classes.

Negatives

• The Shares are not listed on any securities exchange, and there is not expected to be any secondary trading market.
• Shareholders should not expect to be able to sell their Shares regardless of how the Fund performs.
• The Funds distributions may be funded from offering proceeds or borrowings, which may constitute a return of capital.
• An investor may pay a sales load of up to 5.75% for Class A Shares, 4.25% for Class L Shares, 3.00% for Class W Shares and 2.50% for Class U-2 Shares.

Risks

• Investing in the Funds common shares of beneficial interest (Shares) involves a high degree of risk.
• Holders of Shares (Shareholders) should not expect to be able to sell their Shares regardless of how the Fund performs.
• If a Shareholder is able to sell its Shares outside the quarterly repurchase process, the Shareholder likely will receive less than their purchase price and the then current net asset value (NAV) per Share.
• There is no assurance that monthly distributions paid by the Fund will be maintained at the targeted level or that dividends will be paid at all.
• The Funds distributions may be funded from unlimited amounts of offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to the Fund for investment.
• A return of capital to Shareholders is a return of a portion of their original investment in the Fund, thereby reducing the tax basis of their investment.
• The Funds distributions may result from expense reimbursements from CION Ares Management, LLC (CAM or the Adviser), which are subject to repayment by the Fund.
• The Fund currently employs leverage through senior secured revolving credit facilities and its outstanding Mandatory Redeemable Preferred Shares (MRP Shares and, together with any other preferred shares the Fund may have outstanding, Preferred Shares).

Future Outlook

The Fund intends to continue to utilize leverage and may utilize leverage to the maximum extent permitted by law for investment and other general corporate purposes.

Industry Context

This announcement is typical for closed-end funds, particularly interval funds, as they regularly update investors on their financial structure, investment strategies, and risk factors. The focus on diversified credit investments aligns with broader industry trends in alternative credit strategies.

Comparison to Industry Standards

• Comparable companies in the closed-end fund space include BlackRock Credit Allocation Income Trust (BTZ) and PIMCO Corporate & Income Opportunity Fund (PTY).
• These funds also utilize leverage and invest in credit instruments.
• CION Ares' management fee of 1.25% is within the typical range for actively managed closed-end funds.
• The incentive fee structure is also common, although the specific hurdle rates and catch-up features may vary.
• The asset coverage ratios and leverage limits are governed by the 1940 Act, ensuring compliance with regulatory standards.

Stakeholder Impact

• Shareholders are subject to various risks, including illiquidity and potential loss of investment.
• Financial Intermediaries may receive compensation for selling Shares, creating potential conflicts of interest.

Next Steps

• The Fund will continue to conduct quarterly repurchase offers for its outstanding Shares.
• The Fund will continue to monitor its investments and make adjustments to its portfolio as needed.

Key Dates

Keywords

CION Ares Diversified Credit Fund, senior securities, asset coverage ratio, management fee, incentive fee, credit investments, interval fund, preferred shares, borrowings, distributions